Fourthly, there has to be explanation. If you change something then, at the very least, you have to take time out to explain the rationale for the change to me.

Fifthly, we have interactive justice, which is a fancy word for showing respect and being polite. Neither of these are optional extras!

Finally, we have something called local knowledge. I have to have the feeling that my supplier has actually taken the time and made the effort to understand my problems and how I view the world. I have to believe he understands how much competition I face. I have to believe that we are on a somewhat even plane of knowledge and that, when the chips are down, you know about my business.

"Mobil say that it revolutionized their relationship with their distributors!"

RTM: What I really love about this model is that it is something companies can easily and swiftly put into practice. You can very quickly start to look at how you handle your partners along these axes and at where, and how, you should be improving.

LS: Precisely. That, for instance, is what Mobil Oil has done. They went off, quantified the model and got their people working to it. They believe that it significantly improved their relationship with their distributors! None of this is rocket science, but it works.

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!

RTM: Can you give an example?

LS: Sure. One of my former students, Nirmalya Kumar, now a professor at IMD, did some consultancy for a caterer who was putting bars and restaurants into an airport. A typical demographic analysis would say: 'well, we have four groups - business people, groups, airport employees and tourists. So let's build facilities for each of these.'

But Kumar did a needs analysis. This showed that what was really important was the amount of time you have. Those with time will typically want something which is more service intensive. Those with less time want faster food. His solution addressed the underlying needs of travellers in a way which a demographic analysis wouldn't have done.

RTM: So you are saying that demographic terms like 'small and medium businesses' are really useless?

LS: Absolutely! I have been trying to disallow SMB for decades! Most companies dismiss SMBs as the small opportunities which they can reach through mail order or direct mail and focus their salesforce on large accounts. In practice, many SMBs may have a greater need for service than some of the large accounts!

RTM: So needs based analysis just produces much more elegant and satisfactory solutions?

LS: It also enables you to see much larger markets. Most IT companies segment by vertical market. Let's say you supply a logistics solution to a large pharmaceutical retailer like Boots. That solution meets Boots needs on inventory turn, logistics and reporting. Instead of searching around for another Boots in the pharmacy vertical, you should say: 'OK, so what other companies in other industries have similar needs?'

RTM: I guess the big question then is how you actually carry out such a needs analysis?

LS: Yes. The trouble is that customers are an unreliable information source, particularly on new products. Here I would like to pick up on something I heard from David Pottruck, chief executive of online stockbroker Charles Schwab. He made the point that customers can not tell you what they want, they can only tell you what they don't like about your products and services. They can't tell you what they want, because they haven't actually seen the new product. And they are hopeless at talking about what you should be charging them. They just don't have the skills to talk about these things.

Typically, companies are bad at listening to complaints and criticism from customers - the area where feedback is most useful and quite reliable. If they were better at this, they could quite easily make big improvements in what they do.

RTM: Hmm, yes. Rather than listen to complaints we tend to want to go for the next step and hold focus groups, where we ask customers what they want next.

"Frankly, people spout garbage in focus groups..."

LS: Yes, and focus groups are disastrous when used like this. A focus groups can create a hypothesis, but it can't prove a hypothesis and yet this is how they are normally used!

They are notoriously influenced by group dynamics and strong personalities. And, frankly, people can spout garbage in focus groups - they talk about warm, fluffy things and feelings, which don't really mean much.

RTM: So how do you segment customers' needs?

LS: There are quantitative research techniques - conjoint studies which can coax these things out. I have been using them for two decades and they do work.