Game Changer

CHAPTER 17Channel: Going Direct to Consumers

With contributions from Andrej Levin and Jacob Konikoff

Business leaders in any game often assume that their sales and distribution channels are a fixed, external constraint for every player in the game. This leads them to focus their energies on internally driven levers such as R&D and advertising, and less on optimizing their mix of channels.

But this assumption is flawed. Channel mix is a critical lever available to almost every business and is an important way for companies to increase their agency and shape strategic outcomes.

In broad terms, businesses need to decide whether they will sell directly to customers, use one or more intermediaries, or pursue a hybrid strategy with a mix of direct and indirect business. But this decision has no easy or obvious answer, because of the complex tradeoffs of each option.

Let's look at tradeoffs involved in using intermediaries. Retailers, distributors, resellers, wholesalers, service providers, and all other kinds of channel partners expand the breadth of customers a single company can reach and lower customer acquisition costs. If these intermediaries become true channel partners, they act as strong advocates for the products and services of the partner company and even build their own solutions on top of them.

The downside is that these channel partners maintain the direct relationships ...