Grow To Be Great by Dwight L. Gertz João P. A. Baptista

Author:Dwight L. Gertz João P. A. Baptista
Language: eng
Format: epub
Publisher: The Free Press
Published: 1995-07-15T00:00:00+00:00

LOST IN THE CHANNEL

It is always encouraging to learn about companies like Staples, Dell, Starbucks, and others that have enjoyed success through innovation. Unfortunately, as management consultants, we are more likely to see companies that are stumbling. Many have channels problems. More than a few are manufacturers who find themselves on the short end of the value-added picture described in Figure 6-2. If they have lost control of the channel between themselves and end users of their products—as in the case of some suppliers to Staples, Wal-Mart, or similar operators—then they have been cut out of the more profitable parts of the value chain.

These companies face another problem. Having ceded the conduit that links them to end users, they can no longer answer the important questions that any business with a bright future should know: Who is buying our products? How are they using our products? How do they want us to improve them? The manufacturer that simply sells into a pipeline controlled by Wal-Mart or some other channel meister has to rely on warranty card information and market research to answer these important questions. Neither is an adequate substitute for repeated and direct customer contact. And neither creates a dialogue between producer and buyer.

For these companies, the channel is like a black hole that sucks in all the important information that vendors need to understand their customers and improve their products. Trade book publishers, for example, have essentially ceded the channel for their products to wholesalers, bookstore chains, and book clubs. These organizations, and not the publishers, know the customers, and know what is being purchased, and for what purpose.

Successful companies capture and use the information found in the channel; unsuccessful companies do not.

Some companies suffer because they have been cut out of their channels, others stumble because they become hostage to them. They are in “channel prison.”

Consider Encyclopedia Britannica, a 225-year-old publisher with one of the most respected brand names in the English-speaking world. Owned by a charitable foundation, Britannica’s matchless product was sold by a direct sales force, whose power within the organization effectively blocked product innovation and alternative channels of distribution.

As recently as 1990, Britannica netted $40 million on revenues of $650 million. Those revenues were produced by 2,300 commission salespeople who earned approximately $300 every time they found someone with five feet of shelf space and $1,500 to fork over for the world’s most authoritative fount of knowledge. Today Britannica still has the best encyclopedia, but it is now profitless and more than half of its salespeople are gone. By 1995, revenues had dropped to $453 million and profits had given way to major losses. Its management admitted that if new capital was not found, the company would have to be sold. 2 The big sales now go to Compton’s, Grolier’s and Encarta, whose encyclopedias are selling briskly on CD-ROMs for between $99 and $395 through direct-mail catalogs and computer stores. Many are packaged with multimedia computer hardware.

Britannica had every opportunity to put its 44-million-word

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