Most businesses can describe their customer base in a pyramid in which the average customer spend increases and the number of customers decreases as you move up the pyramid. In the bottom tier are many small customers. The number of tiers in your particular business is entirely defined by you and it is quite possible that in a 5-tier pyramid, only the top-tier customers are dealt with directly and all other tiers are handled by channel partners.
The purpose of the pyramid is to force the supplier to precisely define its channel strategy for the customers it is targeting in each tier of the pyramid. To do this, it has to describe eight different parameters for each tier.
Products -
Many businesses sell different products and services (or even volumes, configurations, bundles, etc) to different customer groups. Stating what is to be sold to the customers at each tier in the pyramid is a critical starting point as this will have a significant impact on the channel strategy.
Customer Description -
Next, you need to describe the end-customers in this tier. Are they manufacturers, service companies, independent consultants? Are they self-employed, SME's, nonprofit organisations?
Number of Customers -
Knowing how many potential customers there are in the target market makes it possible to establish if the sales objectives are realistic. Not knowing this means that the market-entry strategy is founded on hope rather than data. It's not an exact number, but an order of magnitude estimate.
Program spend -
Smaller customers will spend less than larger ones. That's why we classify them as small. Whether you're delivering a hosted service like Salesforce.com or electronic components like NXP, try to define the "typical program spend" for each tier. In the case of these two examples, this might mean the average number of subscriptions per company in that tier to Salesforce which will equate to the annual revenue per company. For NXP it may be the typical semiconductor spend for a company on each product it develops. So, moving up the pyramid, the number of programs per customer increases as well as the spend per program.
Demand Creation and Fulfillment -
Recognise who creates the demand for your product at the customer, irrespective of who delivers it. For example, you may need to generate all leads yourself through your website with Google Ads, mailings, radio advertising and so on, but they may all be followed up and fulfilled by a third party partner. Conversely, you may have a partner who is doing all the lead generation, but because your enterprise software is complex and has to be customised, you may have to close the sale and commission the product yourself.
Sales Strategy -
What will your sales strategy be? For example, if you have a tier for catalogue distributors such as Argos in the UK or Wehkamp in Germany, the strategy might be to simply provide the product to these channels and support them with all the resource at your disposal. On the other hand, it could also be to provide the channels with the minimum support they require and expend your resources on building the brand through space advertising, direct mail, etc in order to drive customers to the catalog resellers. It will be important to work this strategy out very carefully and to ensure that the channel partner in the tier supports it.
Examples -
Before you begin investing resources and money in a market penetration it is vital to identify your target customers. It's not generally enough to describe them in terms of generic characteristics (unless, of course, you're in a B2C environment). You need to be able to name names and more than just a few. You can expect about one-in-seven leads to move to the engagement phase. In traditional sales environments this means getting a meeting; in distance selling it means engaged in a two-way dialog with you either by phone, eMail or via the web. About one-in-fi ve of these engagements will result in a sale, in the short-term.
Conclusion
To close one piece of business in the short-term, you need to have a minimum of 35 identified leads. We have been in many customer situations where the client has identified twenty target customers in the new market and believes that he can close half of them in the first year. Predictably, the reality is very often disappointment and frustration. We encourage clients to identify at least 50 qualified prospects before going into a new market.
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