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Effective Channel Management Strategies – Segmenting the Channels

Channel analytics, the often neglected sibling of customer analytics, presents significant opportunities for companies seeking to better their channel-related performance, especially those in industries with large distribution networks (such as financial institutions, telecoms operators, retailers, automotive distri-butors, etc.)…

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What?

In today’s marketplace, where the number of chan-nels being utilized for providing service or conduc-ting sales through has proliferated, companies are still managing them broadly – generally, we observe retail management (i.e. “own stores”, “partner sto-res”, “franchises”, etc.) and alternative channels ma-nagement (i.e. web, app, etc.) concepts in use. This, however, is not enough, barely scratching the surface in regards to truly identifying the differences betwe-en and within channels, allowing for dynamic and unique management methods to be utilized. With ever-increasing pressures around managing the cost of sales, around increasing the level of service provi-ded to customers as well as around competing fier-cely with rivals for a dwindling number of potential clients, companies need to dive head-first into chan-nel segmentation.

Why?

Channel segmentation can do wonders on the bot-tom line of companies. A few years ago, a prime example of this was realized when an international software vendor utilized channel segmentation as the basis for boosting its partner program. The ob-jective was to optimize the performance of its over 250,000 partners – the result? The company realized an over 300% increase in return on marketing invest-ments (compared to pre-program performance).

More recently, even brands known for more stan-dard format stores have started using segmentation to customize their channels to match local needs bet-ter. One example is Target, which has recently star-ted evaluating smaller urban-format stores (City Tar-gets); another, is Marks & Spencer, which has been piloting with store segmentation based on the profile of customers they will attract (like ‘family first’ sto-res with more emphasis on kids wear). The approach is not limited to retailers, with companies that have a reliance on brick and mortar investing in channel segmentation (banks, for example, 64% of which, ac-cording to a recent Asian Banker survey, have plans for segmenting branches) as well.

Channel segmentation relies on the same princip-les as customer segmentation – just as with custo-mers, all your channel partners / branches are not the same, so why treat them the same? A telecoms dealer located in a commercial district with a sophis-ticated customer base that is interested in data pro-

ducts and devices cannot be supported in the same manner as another dealer located in a sub-urban area, with a more traditional customer base that is interested in money transfer services and recharge cards. While the first would require more advanced training materials, marketing collateral focused on more sophisticated products, and higher rewarding around data sales target realization, the second de-aler’s needs would be totally different. Without pro-per channel segmentation, recognizing these diffe-rences and customizing strategies and actions would be impossible or incomplete and inconsistent at best.

Channel segmentation can allow for improvement to be made in and around:

■ Lead Management – Better matching leads with channels which could serve their needs more effecti-vely and efficiently, so that cost of acquisition is mini-mized while conversion rates are maximized

■ Product Management – Optimization of assort-ment by channel, based on location potential and channel capabilities, decreasing cost of stock and logistics while increasing local revenues

■ Price Management – Facilitating local price dif-ferentiation based on channel and market specifics

■ Promotion Management – Better localization of promotions as well as marketing messages and ma-terials based on channel capabilities and customer portfolio

■ Operational Efficiency – Avoiding waste of time and resources on channels with low performance and limited potential, while addressing the exact ne-eds of each channel (in terms of training, support, etc.) separately

■ Performance Management – More realistic and fair evaluation, with increased ability to differentiate local market conditions and compare more similar channels with each other

How?

In order to get the most out of the channel segmenta-tion effort, we recommend following our actionable segmentation approach, analyzing channel partners across various dimensions:

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This effort should be conducted via the following four steps:

1. Collecting the Data: As in all analytics activities, channel segmentation relies heavily on availability and accuracy of the right data (about channel part-ners and their customers) as well as the socio-de-mographic profile of the regions they serve. Hence,

companies need to first define a partner data stra-tegy, enlisting and prioritizing data elements to be collected about and from each channel partner, and design / implement various methods for collecting this data. Various organizations with independent sales channels (such as Sky) already do this, utilizing platforms such as partner portals.

Scheme 1. Actionable Segmentation Approach

Market Micro Segments

Customers Micro Segments

Capabilities Micro Segments

Operations Micro Segments

Performance Micro Segments

Market Potential

CompetitivePressure

Demographics Mix

Behavioral Mix

ValueMix

StaffProfile

Location Profile

Relationship Level

Footfall & Volume

Time of Sales / Transactions

Mix of Sales / Transactions

Sales Performance

Service Performance

Risk Performance

Efficiency PerformanceCompliance

Performance

Sky Retail PlatformWebsite Usage & Benefits:- Registration as a new or existing customer- Share of knowledge, experience and quality

Scheme 2. Independent Sales Channel Example

2. Segmenting & Profiling Partners: Once the data is available for segmentation, using various data mi-ning algorithms, partners can be clustered into micro and macro segments. The key success factor for this segmentation is to utilize various dimensions descri-bing different characteristics of channels separately, each dimension serving a different strategic or tacti-cal purpose. For example, in order to align product portfolio with customer needs, the company needs a micro segmentation focusing primarily on the produ-ct stocks and sales of its channels…

…whereas to optimize training efforts, the same company would require a micro segmentation ba-sed on the employee profile of its channels. The out-put from this approach is a 360 degree view of each channel, enabling customization of management ac-ross all required dimensions.

3. Matching Partner & Customer Segments: For companies with an already existing customer seg-mentation output, channel segmentation provides an immediate opportunity to identify and address mismatches between the needs of customer seg-ments and what each channel has to offer. If the lo-cation where certain customer segments shop can be traced, then opportunities around migrating them can be identified as well – the example below shows such a situation, whereby “Tech Savvy” customers are shopping at “Minimalist” partner shops (a strong mismatch).

4. Strategizing & Optimizing Channel Mix: Once the segmentation effort has been completed, the next step is to design micro and macro segment-spe-cific strategies; the objective here is to customize how each segment is being treated, supported, en-

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Com

plex

Pro

duct

s

Stock Size

Minimalists

Specialists

Buble size indicates value of each segment

Portfolio Mix Micro Segments - Household Goods Dealers

Generalists

Mass Volumists

PeoplePleasers

MegaStores

Illustrative

Scheme 3. Micro Segmentation Example 1

hanced, etc. This must translate into specific actions and initiatives across the channel lifecycle, as well as customizations in product, promotions, and price mix for each segment.

An example of the kind of enhancements we are tal-king about here is being utilized by Bank Audi – in some of their branches, a video-conferencing solu-tion is in place with tellers connecting to customers remotely; this allows the bank to virtually manage inconsistent demand levels in certain branches (such would be a concept that can be tapped into for a re-tail bank branch that is in the “Irregular Peaks” ope-rations segment).

What Next?

The natural next step would be to pilot the various designed initiatives before rolling out across all chan-nels / all locations. An assessment around the rea-lized benefits should be conducted here, to ensure the changes will have a positive impact on the bot-tom line. Additionally, changes should be rolled out gradually; a radical revamp of channels is not recom-mended all at once.

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Market Micro Segments

Customers Micro Segments

Capabilities Micro Segments

Operations Micro Segments

Performance Micro Segments

Market Potential

Sample Store

Up & Coming

Competitive Pressure

Battle Fields

Demographics Mix

Behavioral Mix

Value Mix

Staff Profile

Location Profile

Relationship Level

Footfall & Volume

Time of Sales

Mix of Sales / Stocks

Sales Performance

Service Quality

Efficiency

Yuppies

Selective Shoppers

Mid to High

Trained Niche

Brand Loyalists

Convenients

Heavy Traffic

Weekenders

Specialists

Rising Stars

Defectors

Stock Wasters

Scheme 4. Micro Segmentation Example 2

Customer Segments

Part

ner S

egm

ents

Specialist

Minimalist

Generalist

People Pleaser

Mega Store

MassVolumist

Sophisticated Tech Savvy Traditional Price Concious ConvenienceSeeker

Mass

Mismatch, meaning these customers are most

probably underserved...

represents ideal match between partner and customer segments & Shade of gray represents current distribution of customers across partners

Scheme 5. Matching Partner & Customer Segments