What comes to mind when you hear the term sales channel? Do you imagine sitting in a dimly lit room late at night and turning the television on to reveal an infomercial with a young man grinning brightly? “Hi It’s Vince with Slap-Chop! You’re gonna be in a great mood all day ‘cause you’re gonna be slappin’ your troubles away with the Slap-Chop!” All of a sudden across the screen flashes ‘First 100 callers get a free Sham-Wow!’ Desperate for this hot deal, you scramble to find your phone. Meanwhile in another city far away, Whitby, a 360insights employee answers: “I’m sorry, sir, you’re caller 101; you were too late.” You start crying. “It’s ok sir, I know what can make you feel better: a new Slap-Chop! You can chop away your worries.”
In this case, ‘Sales Channel’ does not refer to the shopping channel or to Vince and his fabulous slap-chop. In fact, it means something a lot more complicated. The ‘Sales Channel’ refers to the complicated process of how something gets from a manufacturer to your home.
You know; things like sell through allowance, co-op advertising? Oh wait, I’m getting a little too far ahead of myself. Let’s back things up a bit.
Imagine we have a man named Bob, and Bob owns an apple orchard. Bob sells his apples to a market in town that is owned by a man named Richard. Richard has three employees that work at the market named Lenny, Penny and Benny.
However, Bob isn’t the only person who’s selling apples to Richard’s market. If Bob wants Richard to keep buying his apples for the market, Bob has to make sure his apples are the ones being sold. Bob, decides to offer an incentive to Lenny, Penny and Benny. For every apple they sell, he will give them $0.50. This means that they are more likely to try to sell these apples to customers over other ones. This is called a Spiff or Sales Incentive.
A few months later, business is a little slow and people aren’t really buying apples anymore. Bob decides to run a ‘program’ with provisions that for everyone who buys an apple in the next month, they can mail in their proof of purchase and receive an incentive from Bob. This is called a Rebate.
Due to Bob’s blooming business and success with his apple orchard, he decides to expand his orchard and start growing special super apples. These apples are organic and made from 50% apple and 50% love. Bob wants these apples to be considered ‘elite’ or ‘upmarket.’ He wants these special super apples to be sold for a certain price to preserve their prestige. (Similar to how a Ferrari is considered to be ‘upmarket’ because it’s a limited, premium product and costs a hefty sum of money. ) Bob knows that Richard sometimes will sell his apples for a lower than usual price. Bob doesn’t want this to happen to his super special apples so he puts in place a UMRP (Unilateral Minimum Retail Price Policy) which means that if Richard sells the apples below a certain price, Bob won’t sell him anymore apples.
Things are all fine and dandy, people are buying many apples a day and keeping many doctors away. As mentioned before, Richard doesn’t only buy apples from Bob, Bob tries to keep favour with Richard by giving him a discount on his apples, however he receives this ‘discount’ or ‘money back’ only after he sells each apple. This is called a sell through allowance. It gives motivation for Richard to buy Bob’s apples and convince his employees to sell them.
The summer has passed and fall is coming up. This is the time when Bob truly shines; all of his apple trees are producing beautiful, ripe fruit and he has a lot of it. Luckily for him, fall is apple season. Bob knows that people will be making apple crisp, apple donuts, apple fritters, apple pies and he knows that each of those things require one key ingredient: apples. Bob happens to have apples and lots of them. Since at around this time of the year, Bob has a plentiful supply of apples, he decides to offer a discount to Richard. If Richard buys 1000 apples, Bob will give him 20% off. This is called a Volume Discount. Richard publishes a flyer each fall to advertise their fall-friendly foods, Bob tells Richard that if he publishes a giant advertisement about Bob’s apples on the front page of the flyer he will give him some money. This is called co-op advertising.
So basically this whole sales channel thing is using money to convince and help people to buy and sell things.
“Ok, so you guys have built a business on this whole…incentive thing. How is this helpful? Why is it valuable?”
Alright, let’s examine this sentence again using money to convince people to buy and sell things. Notice that magical word that starts with an m and makes the world go round? Yes money. Companies can spend hundreds of millions of dollars a year on incentives. Notice the other word that starts with a c? Wouldn’t it be nice to have an insight into whether or not your incentives actually worked? The thing is with the sales channel, manufacturers don’t really know what happens to the product once it leaves their hands and ends up in someone’s (or your) home, especially if they are only selling to a distributor or network of distributors. They use these incentives in attempt to engage members of the sales channel into doing what they want; in this case, showing preference to their brand on the sales floor. However, whether or not they work…well that’s another question that, in many cases, nobody can truly answer. This sales channel pathway is a dark tunnel with many moving targets and you just kind of throw rocks at it and hope you hit something.
As we all know, scary and bad things can happen in dark places. There have been people who have taken advantage of this dark tunnel and committed rebate fraud. In some cases, they have cheated companies out of thousands (and even hundreds of thousands) of dollars.
So this is where 360Insights comes in, we basically bring technology to a very outdated and old industry to shine a flashlight on this dark tunnel and make it not so scary anymore. So instead of throwing rocks at targets you can’t see and not knowing whether or not you’ve hit them or not, you can fire arrows at a target in clear sight and have much better aim.
Holly Oegema is a student in Software Engineering studying at the University of Waterloo. Currently she is working on the 360Insights development team as an intern.