Channel Strategy Choices are Necessary Decisions
One of my former partners used to say that the essence of channel strategy is the discipline required to make choices: what to do and what not to do. For instance, most businesspeople agree conceptually with the benefits of segmenting their customers and prospects. They also agree conceptually that after segmenting, it makes sense to focus their resources disproportionately against the most attractive segments, based on factor like:
- Spending and profit potential
- Brand loyalty and advocacy
- Life time value, etc.).
The hard part for many comes in making those choices after the segmentation is created: specifically choosing which segments to prioritize and deprioritize and then allocating resources accordingly. There is a tendency to want to have all customer segments be the focus, or at least a good 80%. “Focusing” on 80 to 100% of customers is not a disciplined strategy.
A channel strategy that allows customers to interact where, when and how they prefer sounds ideal, but may well suffer from a similar lack of discipline, not to mention feasibility. This is particularly the case for existing businesses and brands that aren’t starting with a clean sheet in terms of distribution channel assets and capabilities.
Stage in the Customer Journey Impacts Channel Preferences
In one category, mapping the customer journey identified five stages of the process, including:
- Orientation/inspiration/horizon scanning
- Searching for information
- Evaluating alternatives
- Post purchase
This work found:
“Consumers seek different benefits at the pre-purchase stage than during or after purchase. This can lead to dynamic channel preference during the whole buying decision process.”
These dynamic channel preferences exist in “normal” times. At this epidemic time, preferences are forced to evolve based on changed channel environments. For instance, our recent planned visit to pick up a repaired bicycle at the local retailer entailed a 30-minute wait to get into the store (during its limited). While the store had quite a few non-bicycle related items on sale, our interest in cross shopping rapidly faded, and the focus became getting in and out as quickly as possible.
Product Category Also Impacts Consumer Preferences
The preference choices are further complicated for a brand that competes in multiple product categories, since the channel preferences may vary significantly between products. For most companies, delivering the channel strategy through stores, call centers, websites and sales representatives that are all available 24×7, 365 days per year is not financially viable. Trade-offs are required.
Channel Strategy Case Study for AAA Brand: Competing in Multiple Product Categories
The AAA brand competes in a number of product categories. The first category is membership, and this is foundational to the business. AAA shares the competitive membership space with a wide range of other organizations like Costco, Sam’s Club, Amazon Prime, and USAA.
Another important category is Emergency Roadside Assistance, which is the reason I personally am a AAA member. Competitors in this space include Agero, Allstate, GEICO and others. Other categories include: auto and home insurance (P&C), life insurance, travel, banking products like auto loans and credit cards, and more.
AAA has several distribution channel options for the customer to learn about, evaluate, purchase and secure. These include:
- Call centers
- Branch offices
- Independent insurance agents
- Exclusive insurance agents
One example is the call center, staffed by differently-licensed, qualified and trained agents. Providing call center service is more complicated than it might seem given the breadth of product categories. For instance, selling insurance requires the representative to be licensed, while there can be state-specific requirements for travel.
Channel Preference Differ by Product Category: Credit Cards vs. DMV Services
The same consumer who prefers working with their credit card company over the phone and through its website might also prefer visiting an office to complete DMV services. In California, Texas, New Mexico and Maine, some AAA branches offer DMV registration services, such as replacement license plates. For a AAA credit card holder, they may value the convenience of these DMV services, even if they never visit the branch for credit card services. This example starkly shows how channel preferences can differ wildly by product category.
Balanced Approach Used to Develop Channel Strategy
The consulting team worked for twelve weeks, leveraging multiple inputs to develop a recommended channel distribution strategy for AAA that considered the balance of considerations, rather than attempting to deliver everything to everyone in all ways. A balanced set of three major considerations was used to develop the recommendations.
As the first major input, member preferences of the target segments were understood, along with the mapping of these members to the market geography. An important step was understanding the customer journey maps or flows for each product offered.
The second critical input was channel financials. Industry benchmarking along with competitive analytics were used to look at return on investment and other measures.
The third major input was a trade area analysis model that included market opportunity assessment (e.g., in terms of automobiles, premiums, and other criteria), risk and regulatory industry environment, and demographics. The model was adjusted several times and tested with different criteria weights and future assumptions.
Six Factors for Channel Strategy
Based on our work with AAA, you can see there are six factors that determine an effective channel strategy.
- Who are the relevant customers? (Not 80-100%, please)
- What are the relevant product categories? Not all categories are created equal in financial contribution, equity impact, etc.
- What stage in the customer journey is relevant for these customers and for the relevant product categories?
- What is the existing footprint (if any) and how does it align and map (if relevant) to the customers and their journey in the categories?
- What are the channel financials?
- What is the relevant trade area for the store? (if there are stores)
The recommended distribution strategy was vetted, and the organization moved to align against it. Rebalancing was done as necessary to fit the organization and create a staged deployment plan.
Does your channel strategy need rebalancing? Start a conversation with the Insight to Action experts and contact us today.