Frank Cespedes: How to Build and Manage Your Multi-Channel Marketing

Let's Meet Frank

Frank Cespedes teaches at Harvard Business School. His most recent book is Aligning Strategy and Sales: The Choices, Systems, and Behaviors that Drive Effective Selling (Harvard Business Review Press), which was cited as, “the best sales book of the year” (Strategy + Business), “a must read” (Gartner Group), and “perhaps the best sales book ever” (Forbes). His new book (Harvard Business Review Press, forthcoming) is about what is and is not changing in sales, and why knowing the difference matters.

Why has a multi-channel approach become more important?

The most important thing about any go-to-market approach is the buyer and the buying process. It’s the seller’s responsibility to adapt its approach to the market; it’s not the market’s responsibility to adapt to any company. Buying is now a continuous and dynamic process in most industries, not a linear funnel; it’s an on-going motion picture, not a selfie or snapshot in one channel. With technologies that facilitate search and easy price and product comparisons, a prospect and an order touch multiple points in the distribution channel for most products and services. 

Buying a car is an example. Consumers now routinely do lots of online research.  According to a 2018 J.D. Power study, U.S. auto buyers spend about 13 hours online researching and browsing models prior to making a purchase, and only about 3.5 hours at dealerships. Yet the vast majority of cars are still bought at dealerships (e.g., less than 1% of the 40 million used cars sold in the U.S. in 2018 were online sales and only about 5% of new cars). Online tools are a complement to, not a substitute for, in-person dealer visits, and car buyers are very discriminating in their use of these tools. They use independent websites for model comparisons and reviews, and car-manufacturer sites for detailed model information and videos. When they do visit dealer websites, they’re typically looking for specific vehicles and information about local inventory. So how should car manufacturers and dealers answer the question, should we be online or in-person, interacting via the web or through salespeople, in our go-to-market efforts? Answer: Yes. Multi-channel selling is required here and in most industries.

Equally important, interactions between online and point-of-sale channels have become more salient and important. Retailers are a good example. Numerous retailers have found that shoppers who pick up their online orders in store spend more; Macy’s, for instance, finds that those shoppers spend an additional 25%. Meanwhile, about one-third of all clothing ordered online is returned vs. about 8% for items bought in store (fitting rooms: customers who try clothing in the store are almost seven times more likely to buy than those who simply search for items on the floor or on the web, according to research firm Body Labs). But processing a return costs retailers an average of about $3 per item when handled in the shop versus twice as much when an online order is shipped back to the distribution center (and, thanks to competition with Amazon, it’s now often “free” shipping).

One result is the growing trend of “clicks and bricks,” even for once pure-play ecommerce firms like Birchbox, Warby Parker, Wayfair, and—yes, indeed—Amazon, among others. Philip Krim is a co-founder and CEO of Casper Sleep, the mattress firm started in 2014 as a purely online provider. In 2018, Casper opened its first permanent retail store, and recently announced plans to open 200 more over the next three years, and also sell through 1,200 Target store locations. Krim explains well how buying behavior affects multi-channel requirements:

“Consumers today are often online and offline at the same time. Our customers are shopping with us on average for 2.5 weeks. . . Coming back to the website and consuming information there multiple times. They’re coming to stores multiple times [and] all of these different combinations of customer preferences is something that we want to solve”

(interview with Krim in The Wall Street Journal, December 1, 2018)  

But aren’t ecommerce and digital marketing growing and becoming dominant channels?  

In my experience, the business press and many managers hype the impact and are often unaware of the facts about ecommerce and digital marketing. You daily hear claims that ecommerce has replaced or “disintermediated” salespeople. Yet, the internet has been a commercial medium for over 25 years and ecommerce business has been part of the internet since its inception. But the number listed as salespeople in 2017 by the Bureau of Labor Statistics (BLS) is 14.5 million—more than 10% of the labor force and as a share of U.S. employment that percentage has essentially remained the same during the 21st century. And BLS data almost certainly undercounts the actual number of salespeople because, in an increasingly service economy like the U.S. (and many other countries), business developers are called Associates, Managing Directors, or Vice Presidents, not placed in a ‘sales’ category for labor-department reporting purposes. But selling is what they do. 

In 2018, ecommerce as a percentage of total U.S. retail sales was slightly more than 10%: about half from Amazon and most of the other half from the web sites of brick-and-mortar retailers. (It’s an estimated 23% in China, where the retail infrastructure is still developing and where air quality makes going to a mall less pleasant.) Even if this percentage doubles or triples—which is unlikely because the growth is slowing—the majority of U.S. retail sales are still made in stores. However, as in car buying, what consumers do before and after store visits changes sales tasks and channel requirements. 

Much of the excitement about ecommerce and digital marketing for the past 15 years is tied to the notion that sellers can make things go viral on social media: you post something, it goes viral, and now millions of people are talking about it and you have not spent much in marketing dollars to do that. But that’s not easy. A study of millions of messages on platforms like Twitter, Yahoo and others found that more than 90% of the messages did not diffuse at all, about 4% were shared only once, and less than 1% were shared more than seven times. Other studies indicate that the vast majority of internet communications are between people who live near each other—what researchers call “homophily” or the common-sense observation that birds of a feather (people with similar interests) flock together. The way people use the internet is largely determined by offline criteria: where they live, the presence of stores nearby, their neighbors, and local sales taxes. Moreover, online channels are increasingly cluttered and viewed with suspicion due to privacy and hacking concerns. Combined with the growing ability to block ads, the increased costs of acquiring customers online, and more controls on consumer data imposed by EU regulators and others, it’s likely that digital marketing is already on a path of diminishing returns. 

The internet is here to stay and so are offline channels. As always, good managers ask the relevant questions and bad managers follow fads.

What are the key requirements in developing an effective multi-channel go-to-market effort?

First, as my previous comments imply, you must avoid a false dichotomy. In many companies, too much time and energy are still wasted on debating whether to be online or in-person. Multi-channel selling is the required norm, and that means working effectively with partners who are influential in various streams of the customer buying journey from search to purchase and post-sale service. In many industries, in fact, competitive strategy now involves rivalry between competing channel systems, not only between individual firms. For example, if you’re a retailer competing with Amazon, you are effectively competing with that supply chain, not just price and product on a web site.   

Then, clarify the important sales tasks and the implications for your channels approach. Always start with the sales tasks. The most common response I get when I ask managers where they sell is a broad vertical-market answer like “health care” or “financial services.” This is too abstract for determining sales tasks and channels requirements. Sellers of medical equipment must manage complex deals that involve price negotiations, custom applications, and integration into existing usage systems at customers. Meanwhile, in biotech, sales tasks require being knowledgeable about the research and results of clinical trials. A channels approach which is indifferent to these differences will have limited impact. In financial services, a brokerage firm like Edward Jones relies on local networking and relationship-building skills in selling a relatively simple set of products to its buy-and-hold customers; Vanguard relies on a self-service model for selling its no-load index funds; and Goldman Sachs sells a broad array of ever-changing complex financial instruments primarily to institutional accounts.

A meaningful sales approach in any one of these industry sectors has much less meaning in the others.  

Sales tasks also differ within the same category. Companies that sell software-as-a-service (SaaS) are a good example. Consider a SaaS service like collaboration software or file sharing. These applications are typically not mission-critical for customers and are sold at relatively low monthly subscription prices. Buyers can gather much pre-sale information via an online search. Here, inbound marketing and inside sales organizations are paramount. Sellers can conduct online demo’s and provide prospects a proposal with a few clicks on the website.  A SaaS platform service such as CRM, on the other hand, requires sophisticated integration for multi-year contracts. This is a complex initial sale with a longer selling cycle that is harder to do online or by phone. Selling often involves the vendor’s salespeople and IT partners.

Then, choose and manage channel partners so they align with your strategy and selling efforts. The good news is that, in the past decade, the tools for channel management have broadened considerably, are coming down in price, and are increasingly user-friendly. Companies now have more options and a bigger playbook. Depending upon the category, it may include social media, influencers, paid search as well as distributors, value-added resellers, or other partners and marketing vehicles. The bad news is that the managerial complexity in this aspect of business has also increased, and many Sales leaders, in particular, are not trained or equipped to deal with the new realities and opportunities. 

What advice would you give to help marketers and sales leaders know which channels to choose in building a multi-channel approach for their products, and does it vary for SMB versus Enterprise customers?

In choosing channel partners, distinguish what you sell versus what your customers buy—today, not yesterday. Because sales tasks are ultimately determined by buying processes, using “product” as a determinant of your approach is dangerous. An example is when companies move from SMB to Enterprise customer segments. ScriptLogic sold diagnostic tools to system administrators in the IT departments of small and mid-sized companies (SMB). It built a growing business with a land-and-expand selling approach and a “Point, Click, Done” value proposition where the administrator could expense the purchase on the company's corporate credit card. But this approach was not effective in selling to enterprise accounts. Why? 

Selling the same products to enterprise customers meant a change in sales and channel requirements. The same software sold to SMB accounts on a straightforward ROI basis must be integrated into the Enterprise customer’s go-to-market model. In SMB, the owner of the business is often the buyer and decision maker: point, click, done! But in Enterprise accounts, the decision-making process is more dispersed and operating budgets that are set over 1-2 years are hard to reset for any vendor. Among other things, these differences in usage and purchase criteria shift the basis of the seller’s credibility: from knowledge of the software to knowledge of that Enterprise customer’s go-to-market model and how the software fits into its extant customer-acquisition activities.

This means a different way of demonstrating ROI, the ability to shepherd a project—not only a product—through the buying process, and working with partners on pre-sale applications development and post-sale integration and service issues at those customers. 

Then, clarify the channel partner’s role in your business-development strategy. Is it primarily cost efficiency—i.e., that channel partner can perform some important tasks less expensively than we can? Or is it about market access—that partner provides us with access to certain sectors or decision makers at companies? Or is the channel partner a necessary part of the solutions package—i.e., our product or service is one component in a wider usage system at our target customers and the partner(s) provide necessary complements in that system? 

These are very different roles in a go-to-market program with different implications for required interactions, terms and conditions, and other aspects of channel management. Too often, however, companies don’t make these crucial distinctions between what you might call “sell-with” partners who deal with the same buyers at our target customers versus “sell thru” partners who fill a gap in our product or service offering. That’s a mistake.

What are key principles in managing a multi-channel approach? 

I’ll cite three core principles, based on experience working with companies in multiple industries.

First, no channel manages itself, even when the partners have complementary products and the right incentives. It must be actively managed on an on-going basis. Many big and desirable channel partners for tech firms are companies like SAP, Google, Accenture, and big systems integrators. Those firms, however, are really decentralized collections of branch offices or vertically-focused units. Channel management typically occurs branch-by-branch and unit-by-unit by nurturing and then promoting joint successes at the next branch or unit. 

Second, even with the best incentives, on-going market changes and a need to increase market access in order to grow the business typically mean that some conflict is inherent in a multi-channel approach. Too many managers, however, believe the principle is to avoid conflict. That’s wrong. The key is to manage the conflict profitably. In fact, whenever I work with a firm or sit on a Board and hear that “all our channel partners love us . . . our dealer satisfaction rates are like body temperature—98.6%,” I ask questions aimed at figuring out who is leaving money or valuable market-segment access on the table. A multi-channel approach is about increasing the size of the pie, and then—almost always—arguing over how to divide the pie. The managerial principle here is, first focus on making the pie as big as possible, so we are then arguing over something worth arguing about!

Third, multi-channel approaches typically involve a tradeoff between control and resources. One of the oldest aphorisms in business is that “You can eliminate the middleman, but not the middleman’s functions.” There’s usually a tradeoff between the ability to control important channel functions and the financial or human resources required to exercise that control. The more channel partners involved in getting your product to market, the less control you generally can exercise over the flow of that product through the channel, the way it’s presented to customers, and the levels of post-sale service or delivery or information provided. On the other hand, reducing the number of partners generally requires that your firm perform more channel functions. In turn, this requires more financial, marketing, sales, service, inventory or other resources. The principle here is to identify those functions where the highest levels of quality control are required versus those where “good enough” will suffice. Then, decide how many channel partners your firm can realistically handle at a given stage.   

What are the typical barriers to companies adopting and managing successfully a multi-channel approach? 

Remember the classic “4Ps” of Marketing—Product, Price, Promotion, and Place (Channels of Distribution). Of those, go-to-market channels typically take the longest to establish and, once established, are the hardest to change. Managers know, for better or worse, what their established channels can deliver this quarter, but any significant change in channel structure inevitably means disruption and transition costs. So there’s a widespread tendency in this aspect of business to stick with the devil you know, and a big barrier is inertia. In fact, if you look at many companies hailed as “disruptors” over the past 15 years, they have basically been channel plays that take advantage of incumbent inertia in industry distribution channels, not product innovators.

Second, when companies do overcome inertia, a common collaboration barrier is tracking and apportioning credit across channels. That’s not just an IT or systems issue, although that’s often part of the issue. Sales enablement tools relevant to multi-channel management are available in increasing abundance. But as usual in business, the scarce resources are leadership and organizational processes, not technology.

Finally, people manage people and in multi-channel arrangements, it’s typically salespeople who are the key players where it counts—in on-going interactions with the relevant channel partners and end-users. Most sales training either ignores channel management tasks in that business or treats it as just another instance of selling to target customers. But when sales reps must work with channel partners, their core tasks change significantly. For one thing, reps who have been successful individual contributors are now part of a team and often have managerial responsibilities as well as selling tasks. That’s a big change for many salespeople and it requires relevant support.