Assembling a go-to-market strategy and building a channel infrastructure is a critical process for multinationals to get right. It is especially important in emerging markets where local business practices are unfamiliar, data is scarce, and customer needs are often opaque. A sound go-to-market strategy minimizes the risks involved in serving a market segment in an emerging market because it establishes a clear path for growth, alignment on the direction for the company, and a cohesive action plan for the system of people and processes tasked with delivering goods, services, or information to customers.
In part 1 of this blog series, we discussed the basics of building a go-to-market strategy and the importance of developing a fact base to support your strategy. In this post, we will conclude the series by covering the three main approaches to distribution: a direct model, indirect model, and hybrid model. We will also outline the critical last piece of building a sound go-to-market strategy: building out the detailed infrastructure to realize the specific distribution model.
Direct sales model
In emerging markets, companies often worry about being removed from customers, and therefore disconnected from the pulse of the market. Suppliers find it difficult to control the quality of services and technical support provided by intermediaries, and don’t feel like they can trust distributors to commit mindshare and become strategic partners. It is also not uncommon for power imbalances to develop in supplier-distributor relationships, particularly when suppliers rely too heavily or depend on distributors.
When proximity to local customers and ability to control the value proposition are the foremost considerations for a supplier, and when cost of distribution is secondary, deploying a direct salesforce in the market is often the most effective way to reach customers. Selling directly allows companies to have full control over distribution, over quality of services, and over technical support. The direct sales model also provides suppliers with a stronger grip on compliance mechanisms, as suppliers are directly overseeing adherence to regulatory standards. In addition, companies that use a direct sales force are closer to the customer and to the market, so executives can gain significantly more market insight than they would if there was an intermediary involved.
Indirect sales model
On the flip side, executives can also worry about the risk and the costs associated with using internal company resources in new markets with unproven demand. It is expensive to deploy direct company employees in emerging markets, particularly when companies need to reach customers in fragmented geographies. Beyond the high cost of moving goods across widespread locales, suppliers worry about lacking local insight and institutionalized market knowledge that is often critical to commercial success.
When the cost of using internal resources to enter a new market proves prohibitive, or when suppliers lack the local know-how or are unable to navigate local commercial relationships, using distribution partners and selling indirectly is the most effective way to sell into the market. Relying on intermediaries to perform distribution functions not only offsets some of the risk associated with entering a new market, but it also provides a few distinct benefits. For example, suppliers often use distributors to access smaller or niche customer segments, as distribution partners can spread the cost to serve across a broad array of suppliers. In addition, distribution partners can often access government tenders that are otherwise inaccessible to foreign multinationals. Given these benefits, an indirect channel model is often the most successful model when local business relationships are key to growing market share, or when companies are looking to expand their reach in a geography.
Finally, suppliers sometimes find that there is not one single approach that works best when selling into a specific customer segment-geographic pair. This is often the case when they cannot generate enough scale to sell directly but aren’t effectively servicing key accounts with their indirect infrastructure.
When companies want to take advantage of selling directly to customers and avoid the high price of serving those customers with internal resources, they rely on intermediaries to perform some key service functions, and deploy a hybrid channel model. In other words, this model allows companies to maintain some of the elements of serving a given segment in-house, while aspects are outsourced to partners. For example, companies will often have their direct sales team sell to key accounts, and then outsource the order fulfillment channel partners. The market-tested best practices in shaping a hybrid sales approach is to ensure that there are no differences in the quality of service between the direct and indirect features of the channel so that the reputation of the supplier is not tarnished.
Build the infrastructure to execute the model you’ve selected
When executives build out the detailed layers of their go-to-market model, they are developing the system of processes that allow the company to respond to customer needs. Building the infrastructure to support the selected go-to-market model requires executives to specifically outline what set of processes are required to sell their products, deliver their products, and provide services to customers. It is not uncommon for executives to succeed in understanding the facts about the customer and market, select the best channel model to reach target customers, and then fail to provide a detailed process behind how to serve that customer. For example, if executives determine that they’ll go into a market using a hybrid model and outsource order fulfillment to channel partners but fail to outline how the partners are receiving and tracking orders, how they are using an ERP system, and how they are reporting their detailed activities, then the go-to-market strategy is rendered ineffective.
Companies that are successful in building out the infrastructure needed to enable their go-to-market strategy spend the time detailing the specific activities for all functions within the channel, and ensure that there are resource plans in place to deliver on those activities. MNCs that develop sound go-to-market strategies are able to realize the full development of the strategy by building out the detailed elements of the distinct pillars of the infrastructure and aligning around the specifics of each individual step.
Developing a sound go-to-market strategy requires executives to consider the details of the market realities, the most effective way to reach customers in specific segment-geographic pairs, and the processes that make up the infrastructure to serve those customers effectively. Although there are considerable obstacles for getting this process right, it is critical that executives apply this discipline to the process in order to establish a clear plan of action, which provides the path for commercial success in emerging markets.