A Hidden Key to Growth: Unlocking Your Channel Strategy

Many rapidly scaled companies won through channel strategy – finding or creating a new path to the customer. Consider Dell. They decided to sell PCs directly to consumers, bypassing traditional retailers. Salesforce delivered a customer relationship management (CRM) platform via the cloud, avoiding on-premises installations.

Apple opened its own stores, reducing its dependence on third-party retailers. Amazon created an online marketplace, disrupting physical retail. Netflix shifted from DVDs to streaming, bypassing cable providers. Tesla sold cars directly online, skipping traditional dealerships.

Your channel strategy is one of the most important sets of strategic choices you will make. It may very well determine the success or failure of your enterprise. So, how do you pick which channels to pursue and assess what it’s going to take to win in that channel? Connie Shepherd knows.

Connie is an executive and strategist with over 35 years of experience in some of the world’s leading consumer packaged goods (CPG) companies, including Procter & Gamble (P&G), Kellogg’s, Starbucks, Hershey, and Bumble Bee Foods. Throughout her career, she has built a proven track record of successfully discovering and developing new channels of distribution. She’s done this across 32 product categories and 21 different distribution channels. She is known for her strategic acumen and ability to quickly assess and translate business needs into pivotal choices that lead to sustainable growth. Most recently, as SVP of Strategy and Commercialization for Bumble Bee, she was responsible for managing the $1.02 billion portfolio.

We sat down with Connie to learn from her successful channel evaluation techniques. Her insights help us understand how to better select which channels to serve and how to win in those channels.

Assessing Channels: The 5Cs

Connie has become recognized for pioneering new channels and building innovative commercial strategies to enter emerging markets. She quickly learned what to look for in developing new channels and what it takes to succeed with channel partners. She offered a framework for evaluating a new channel, emphasizing the importance of 5Cs:

• Consumer
• Category
• Channel and Customer (retailer)
• Competition
• Company

*It’s important to note that Connie comes from the CPG industry where “customer” refers to the retailer and “consumer” means the end user of the product. In other industries, you can think of the consumer as the end user, and customer as your channel partner. In this article, I’ll use the word “consumer” for the end user.

1. Delighting the Consumer

Everything starts and ends with the consumer. You need to know who your end users are, and when, where, and how they want to buy your product or service. You’ll also want to understand their interests, values, and lifestyles.

Connie advised, “If you can identify your most loyal consumers, you’ll know which channels to target.” When you assess a channel, consider how frequently your most loyal consumers are shopping there. For example, in the 1980s, P&G advertised the Tide brand at NASCAR races, because many attendees were their target customers.

I’m writing a book with Wharton professor Pete Fader , and his focus on Customer Lifetime Value (CLV) aligns with Connie’s insights. A CLV strategy focuses on identifying your most valuable consumers — those who will bring you sustained value over time. Instead of trying to capture every consumer, a CLV approach encourages businesses to prioritize those who will become long-term advocates for the brand.

Connie offered a word of warning: “Companies who try to be everything to everybody risk falling into the black hole of mediocrity.”

2. Examining the Category

Before diving into the channel choices, take a look at how the category is performing. Are people buying the category more or buying it less? Are there any trends within the category? For example, when Connie was at Starbucks, the coffee category was stagnant. The highest priced brands were Folgers and Maxwell House. Starbucks ended up introducing a “premium” section within the category that changed the dynamics of the category.

Consider if it’s a category you want to play in, and if you play, can you win? Think about this as you assess how you enter a new category and channel.

3. Understanding the Channel and Partnering with the Customer

Each channel operates differently, and consumers often shop in multiple channels. A direct-to-consumer online strategy demands different resources and marketing than traditional retail. Some channels, like e-commerce, may allow you to bypass intermediaries, while others, like grocery, require strong relationships with retailers. Your online and offline approaches will likely be dramatically different.

Connie looks at factors such as how many times consumers shop in a channel, the dollar ring (average transaction value), and the channel’s structure. Does the channel have one or two big players or is it proliferated with multiple customers?

Entering a new channel might even change your answer to the question, “What business am I really in?” For example, when P&G wanted to break into home improvement stores, Connie adjusted Bounty paper towels’ packaging and promotion to meet the needs of the new retail spaces, placing the product in the painting section rather than grocery aisles.

Within the channel, you’ll find different customers.?When retail consulting firm McMillanDoolittle developed the Est theory for retail success , they found that a retailer must be best at one proposition that’s important to a specific group of consumers. A retailer can either be the quickest, cheapest, easiest, biggest (selection), or hottest (coolest). You can categorize any retailer into one of these spots, but if a retailer tries to be everything to everybody, it’s destined for the black hole.

You want to look at your customer’s value proposition, understand if they are growing or declining, and determine if and how you can create more value together. Still, Connie noted, “Your channel strategy must be laser-focused on the consumer, or you’ll get whipped in the wind by the retailers.” If you understand your consumers well, you can negotiate better and offer greater value to retailers.

Keep in mind that retailers aren’t just distribution points; they’re partners. “You have to understand their business model and how your product fits into it,” Connie explained. For example, she found that dollar stores don’t have back rooms to store extra inventory of Bounty paper towels. Yet at the same time, they don’t charge new item funding and unsaleable fees, which are typical retailer fees in the CPG space. So, Connie used the fee savings to create a smaller case pack specifically for dollar stores.

4. Analyzing Competition in the Channel

Analyzing competitors’ strengths and weaknesses in each channel helps you decide whether to enter or avoid a specific route. Is the competition entrenched, or is there room for new entrants? At Kellogg’s, Connie optimized matching retail shoppers with brand consumers to drive market differentiation and accelerate growth in the Mass and Dollar channels.

Some channels are consolidated, and some are more prolific. For example, in grocery, it takes 20 customers to make up about 80% of the business in the channel, while in drugstores, there are two big players. A channel with fewer customers can be more efficient but also riskier to enter.

5.?Aligning with Company Goals and Capabilities

Finally, you need to understand your company’s strategy and its goals to assess what you can realistically offer in a new channel. This includes evaluating product/service categories and understanding your own supply chain capabilities. How difficult will it be to enter the channel? Will you need to build new teams, structures, and processes? Do your capabilities give you an advantage, or at least allow you to be competitive, in the channel?

During her time with Starbucks, Connie realized that selling coffee in a grocery store had completely different inventory requirements than selling products in a retail store. In a retail store, when you run out of a product, consumers will typically substitute with one of your alternative products. If your product is out of stock in a grocery store, consumers are more likely to choose a different brand. She had to alter the approach for the grocery channel.

Next Steps: Winning with Channel Partners

Once you’ve decided to enter a channel, building strong relationships is key to success. Ecosystems expert Ben Gomes-Casseres calls this “1+1=3″ in his laws of business combinations: “The remix [partnership] must have the potential to create more value than the resources can generate when governed separately, that is, without being combined.”

Connie’s experience aligns. “You can’t just sell your product; you need to know how to create value for both sides,” she said.

The Future of Channel Strategy: A Data-Driven Approach

As technology evolves, so does channel strategy. In today’s digital world, data allows companies to meet consumer needs in real time — often before they even know what they need. Connie describes this as a “revolutionary period,” where interactive data and real-time analytics enable businesses to tailor their products and services in ways never before possible.

She emphasized that companies should consider what A.G. Lafely, former CEO of P&G, called two “moments of truth .” The first moment is when the shopper first encounters your product either in-person or online and you have the chance to turn a browser into a buyer. The second is when the end user uses or consumes your product. These moments might occur for different consumers (think about parents buying cereal for children or when you purchase dog food for your pet). More recently, there is a third moment of truth to consider, which is when consumers offer feedback or advocate for your product.

With technology, companies can now analyze consumer behaviors across different platforms, understanding when, where, and how they shop. In our latest Outthinker Networks chief strategy officer roundtable with IMD Business School professor Mohan Subramaniam , he referenced an example of an AI mattress that adjusts to your body temperature and movement patterns throughout the night. Products like these use data to adapt to consumer preferences in real-time, predicting needs even before customers express them.

In the further-out future – and you can read more about this in Proximity , my latest book co-authored with Robert C. Wolcott – advanced data and analytics will likely restructure the entire manufacturer to retailer to consumer relationship. Currently, manufacturers and retailers are in a power struggle to fight for a bigger piece of the pie. With the supply chains and inventory management processes we’re used to, one of them usually loses. Either the manufacturer has to give the retailer a bigger cut to stock their products, or the retailer risks losing money if the products don’t sell. In recent years, Connie has noticed a shift in power toward the retailer. Companies like Walmart don’t want to pay for manufacturers’ products until the consumer buys them.

But in the future, proximity technologies have the potential to completely disrupt the system. Imagine a world – fueled by data and predictive analytics – in which the manufacturer doesn’t make a product until consumer demand is there. It will certainly balance the relationship between manufacturer and retailers – the manufacturer won’t stock the products unless the consumer demands it. Eventually, this might eliminate the need for retailers altogether, or force them to find a new answer to “What business am I really in?”

It seems far off from our current world of Walmarts and Targets, but companies like 海尔 and 卡奥斯 are already doing this today.

Questions to Ask in Your Own Channel Strategy

Your channel strategy can lead to an explosion of growth for your business. By starting with your consumer and developing partnerships that create more value for everyone, you can drive growth and long-term success. As you consider your own channel approach, ask yourself:

1. Who are our most loyal consumers? When, where, and how do they prefer to buy our product? Is our end user also the person who makes the purchase decision, or is there a different buyer?
2. Through which channels might our consumers purchase our products/services?
3. For each channel: ?? How well do we understand their business model? ?? What type of channel is it (biggest, quickest, easiest, cheapest, hottest)? ?? What does the competitive landscape look like? ?? Which products/services would we offer in that channel? ?? Can we develop a partnership that creates more value than either company could on our own (1+1=3)?
4. How might entering a new channel change the business we’re in?

By answering these questions, you’ll be better prepared to make the right channel choices and build a strategy that meets the needs of both your business and your consumers.

Final Thoughts

Utilizing this 5Cs approach can help your business design a comprehensive strategy to improve customer satisfaction, stay ahead of your competition, and drive profitable growth. It creates a holistic view of the market landscape, which is critical when assessing channels to reach your particular target consumers.