RTM: I guess some suppliers still see their channels-to-market as pipes down which to thrust products. So why is it so important to understand your partners’ business models?

TS: Ultimately, if your channel succeeds, so do you. If you don’t understand the channel’s business models and know how you and your products influence it, then you can’t help them succeed.  There is even a danger that you can destroy value within the channel.

RTM: How do you mean?

TS: Well, you might put in place incentive schemes that are totally inappropriate. You might, for instance, encourage them with financial incentives to buy large amounts of product that they won’t be able to resell fast. This would damage the return from their working capital.

If you don’t make the effort to understand the impact that you have on the channel’s business models, then the default will be around a buy/sell relationship and negotiations will be concentrated around gross margin.

After all, there is only so much gross margin, so who is going to get it?  You or your partners?  How do you share it out?  And that is very destructive because it is a constant, very wearing, conflict – if I win, you lose.

You also cannot have a real dialogue. People who run intermediaries often say to me: "I wish my suppliers understood my business. All they want to talk about is their latest products, their latest programmes and how I am going to help them to hit target!"

RTM: OK, but how does understanding your partner’s business model change the relationship?

TS: Oh, in any number of ways. If you start talking about their business, rather than your products, you can engage at a much deeper level. This means you can start proper dialogues with their senior managers. You become part of the industry; you become an insider. Ultimately, they see you not as a supplier, but as a business partner.

“You become part of the industry; you become an insider.”

This also gives you a far better idea of what else is going on in their business. For example, if you are prepared to sit down and discuss how your products affect their working capital or inventory turn, it won’t be long before you are both comparing your performance to other suppliers’ products.

That kind of insight quickly throws up potential areas of opportunity! Of course, it also begins to highlight how your products are performing – in terms not only of margin, but also of turns and other metrics that may be in place.

All this means identifying areas where you can both benefit. So the relationship is now win/win, rather than a confrontational win/lose battle centred on margins.