RTM: That, of course, can lead to channel conflict.

LS: Yes, potentially. But a lot of folk confuse channel conflict with channel competition.

RTM: So what is the difference?

LS: Channel conflict is when you have multiple channels all selling the same product, at the same price to the same consumers, in exactly the same way. That is, all of the channels look alike to the consumer - there's lots of redundancy in the marketplace. When this happens, everyone just competes on price. Fast moving consumer goods like shampoo and toothpaste are generally marketed this way. The manufacturers, like Procter & Gamble and Unilever, don't mind if the retailers of their products beat the hell out of the price.

But redundancy often creates all sorts of conflict. The relationship with suppliers becomes confrontational. Why should I stock it and keep it on my shelves if I can't make adequate margins? The only reason is because the manufacturer is doing a lot of consumer advertising and I will lose money unless I have it there.

"A lot of folk confuse channel conflict with channel competition."

RTM: The same is true of most big brand names in the computer industry.

LS: Yes, but major problems arise when suppliers want to reach heterogeneous customers with different service needs. It is impossible to offer those services unless gross margins are adequate to cover the cost associated with providing them. If the margins are competed away by price wars, then all customers will be treated alike by all channels and very few services will be offered.

RTM: So you have to do a needs based segmentation of your customers, and then map out a series of channels which can provide the different levels of service that each customer group needs.

LS: Precisely. This is not about training and rebates and pricing - it is about saying: 'I know this particular set of customers want a lot of product variety, small sizes and proximity and instantaneous delivery' and setting up a channel which will meet their needs. Sure, sometimes customers will buy from a different channel - that is channel competition-and if they stray over, that's OK from time to time. But if I plan it properly, they will not walk into my dealers expecting them to look like my salesforce and they will be willing to pay extra for services.

RTM: You believe that the way most companies segment customers and markets is just totally wrong. Why and what do you prefer?

LS: Most companies still cut up their markets by describing the external characteristics of the groups who make it up. So they they talk about consumers, small business and large accounts or the French or German markets. This is what I call the demographics approach.

"Customers are an unreliable information source."

RTM: So what is wrong with that?

LS: Well, it doesn't tell you anything about the real needs of your customers. It is much better to analyze your customers by their needs and to develop products and services which meet those needs. People who do needs-based analysis are the ones who are going to make pots of money!