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Redrawing The Map

How a fortune 100 technology company simplified its channel strategy to improve profitability, speed and service


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Abstract

A major high technology company relied on a dizzying variety of routes to move its products to market. While company executives suspected that their approach was inefficient, they had no way of knowing. Deloitte helped the company analyze its models for moving products to market globally. The company expects that the resulting changes will significantly improve its profitability, efficiency, competitiveness and customer satisfaction.

The Challenge

Imagine that in addition to selling hundreds of products online, you rely on a huge network of distributors, wholesalers, retailers and other business partners to sell the same products around the world. For over a decade, you have expanded these “routes to market” to respond to competitors, serve a specific customer segment or sell in a small geography. And for years you have supported this massive selling network with significant resources, including discretionary discounts and corresponding administrative resources that have a direct impact on your bottom line. That’s the challenge this company faced – and it put discretionary discounts in the crosshairs for improvement.

But what if the discounts were only the most visible sign of even bigger challenges? Did the company really need all those resource-intensive routes to market? How could they be more efficient? Were the right products being delivered through the right routes to market? Were the needs of business owners and end customers being met? These were the questions we encouraged the company to consider. But it had been solely focused on measuring profitability, by region and by product. It had no way of knowing whether its routes to market were working properly as a whole or individually – especially when considered within the context of discounts, operating costs and competitive pressures.

How We Helped

In the hunt for new ways to look at your existing business, it helps to have someone who’s been there before. Deloitte has helped some of the most successful companies in the world in their efforts to analyze and restructure their market strategies, and was able to help this company get up and running quickly. Here are some of the highlights.

  • Analysis of routes to market. Our first step was to work with the company to understand each route to market in detail. Why did it exist? What geography did it serve? What volume did it deliver? What levels of discretionary discounts did it require? These are a few of the questions that needed to be answered. We combined qualitative interviews with key internal leaders, channel partners and end customers with quantitative analysis to help the company paint a clear picture of all of its routes to market. Along the way, we also helped it understand that for wholesalers, retailers and others, doing business with it was so unnecessarily complex that they would often go to a competitor.
  • Financial assessment. We helped the company objectively compare each route to market based on a financial view. What revenues and margins were generated? What were the operating costs? In the end, we helped the company analyze its models for moving products to market globally, in support of its quest to understand the underlying financial reality of each route to market. We also helped them uncover many surprising facts about discretionary discounts. In some cases, routes to market that were designed to reduce the amount of these discounts actually drove more of them. Regional differences also contributed to inefficiency in discounting.
  • Recommendations and roadmap. Once a clear picture of how each route to market worked, why it existed and whether it was financially defensible was established, some decisions presented themselves. For starters, it was clear that the company had too many routes to market. Some weren’t operating as they should have been, and as a result, were driving excessive operating expenses and potential price erosion. We helped the company develop a detailed plan for consolidating into two or three routes to market to reduce expenses, improve efficiency and increase revenue.

In the end, we helped the company give shape to the ideas of many company executives who suspected that the product distribution strategy was flawed, dig up the hard facts about routes to market and develop a plan for moving forward.

Solution

The company expects that combining numerous routes to market into only a handful will help improve volume, margins and customer satisfaction:

  • By eliminating complexity, the company will be able to respond faster to channel partner and business owner requests for pricing quotes while staying ahead of the competition
  • By rationalizing differences among regions and individual routes to market, the company can lower the amount of discounts, driving volume and margin
  • By reducing the effort required to track discounts, including distributor and volume discounts, before the sale as well as price protection and rebates audits after the sale, the company can avoid unnecessary overhead

Change of this nature is a massive undertaking, one that goes to the heart of the organization. Today the company is getting its governance, policies and infrastructure in order to smooth the path to this transition. It expects to significantly reduce operating expenses as well as spending on discretionary discounts.

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