After identifying and creating value for each customer segment, what comes next? It is time to define how an organization communicates and delivers value.
Channel is the third block of a Business Model Canvas. It comes after creating Value Proposition and precedes Customer Relationships.
Table of Contents
What Are Business Model Channels?
Business Model Channels is the mechanism used to communicate and deliver value propositions. Given these points, you should focus on creating a sound strategy. It can help boost customer satisfaction, retention, and loyalty when appropriately performed.
Because channels act as touchpoints through which a company liaises with customers. As such, it has an enormous impact on brand equity. For instance, having a sound strategy can help enhance customer satisfaction.
Functions of Channels
For most companies, the most typical functions of channels are to:
Educate customers about its products and services
Let customers learn more about its brand and value proposition
Provide customers with the facility to buy their product or service
Deliver value proposition to the customer
Provide customers with after-sales service or support
Phases of Channels
Business model channels pass through five phases. These are:
Awareness. How do you raise awareness of your brand, products, and services? Many companies advertise or employ marketing campaigns to let customers know about their value proposition.
Evaluation. How do you help customers evaluate its products? Consumers are naturally wary of unfamiliar brands. Not only that, but they may also be partial to competing brands. During this stage, the company should have a strategy to clarify its value proposition and why it is better than the competition.
Purchase. How do you help customers buy your products or services? Usually, companies sell their value proposition to customers through representatives or online.
Delivery. What methods do you use to deliver a value proposition to the consumers? Companies should define the fulfillment stage, describing how products reach customers.
After Sales. How do you provide post-sales support and customer care? Some customers may have difficulties using a product or service. Others may have concerns. Hence, companies should provide a means for them to communicate and receive help.
What Are the Two Business Model Channels?
Channels comprise two components. First is the Acquisition Channel, which describes how you first encounter and entice customers. The second is Distribution Channel, which explains how you deliver benefits to the customers.
I. Acquisition Channels/Communication Channels
Acquisition or Communication Channel describes the mechanism used to connect with customers. You can further divide it into two types – own or partner channels.
In this section, the primary purpose is to create an awareness of your brand, products, and services. You can present your value proposition through communication, help customers evaluate, and decide to close the sale.
The primary goals of this channel are:
Raise product or service awareness
Present value proposition clearly and briefly
Influence customers to make a purchase or let you communicate with them
Persuade customers through a marketing funnel
Maintain a relationship and encourage repeat purchases
Startups and existing companies that have been operating for years can find these questions helpful:
Which channels do you use to reach each of your defined customer segments?
For each of your customer segments, which channels do they prefer?
Are all your channels interconnected? If so, how?
Thus far, which have proven to be the most cost-efficient?
How have you integrated the activities in each channel with customer preferences?
Examples of Communication Channels
TV and newspapers
II. Distribution Channels/Delivery Channels
Products and services may be physical or digital. Regardless, these items need to reach the market and the end-users. In the distribution/delivery channel, companies can describe their processes.
You can realize a higher profit margin by directly distributing or delivering products to customers through your channels. However, it comes with higher capitalization. For instance, you may need to open outlets or hire more people. Depending on the business scale, building infrastructure can be costly.
Personal selling is an option one could take if starting a small business without much capital. Although the market size is limited, one should never underestimate such an approach. For example, customers’ view of personal selling can be favorable, such as appreciating personal demonstration and delivery.
By selling directly to customers, you not only establish a connection but can also ensure their satisfaction. More than that, you can also forge a strong relationship. As a result, your brand equity improves. And one more thing, those customers can also share feedback and suggestions.
Personal relationships let you gain insight into customer preferences. But as your company grows, this approach can become costly. One of its limitations, for instance, is the limited reach of this distribution channel. Also, the dependence on people carries risks, such as a salesperson leaving and taking clients with them.
Entrepreneurs today recognize the importance of virtual channels. A company website, for example, can provide information 24/7. Customers can communicate with you through the website or any social media platform.
In the case of most companies, the homepage is the primary source of information. Customers can also purchase, either on the website or taken to local dealers or an online platform. As for marketing and customer engagement, they use a variety of social media platforms.
Digital marketing, though, has limitations. For instance, it is impersonal in that there is no human contact between your company and customers. Aggressive marketing campaigns may also result in annoying customers. One example is sending excessive emails.
Still not to be disregarded, telemarketing remains a viable method of establishing relationships and generating leads. If this method is a consideration, you would have to outsource to a foreign company. Outsourcing, without a doubt, can provide many benefits, such as cutting costs.
Hiring remote workers, however, may present some challenges. Cultural barriers may hinder communication. On the nature of telemarketing, some customers find it intrusive and annoying.
One cheap medium that allows you to communicate with customers is email. Hence, one of the priorities of business websites is to capture emails from visitors. You can do this by offering informative newsletters. Or, you can take it to the next level, such as offering free ebooks and other resources.
Typically, each email sent out should contain information that benefits the audience. At the same time, you may introduce new products or services. Offering promotions is another common practice that can generate sales.
The only pitfall of email marketing is that some recipients may consider it junk mail. Others may not even read its content.
Instead of building their infrastructure, companies may also choose not to sell products directly to the customers. They can rely on key partners in virtual or physical channels. One disadvantage, though, is that their profit margin becomes lower. But then again, they do not have to invest heavily in infrastructure.
Having key partners distribute products, in many cases, is also more advantageous. They are already well-established in the industry and have a loyal customer base. Hence, companies that choose this channel can save on customer acquisition costs.
Established retail stores provide many benefits. Aside from having physical stores, they also have their marketing strategies. But most importantly, their brand is well-known, and they already have a large customer base. Besides promoting your brand, they can also provide after-sales service.
Although you can leverage on a ready market, there are also downsides. One is a lower profit margin. Another is that you do not directly connect with the end-users. It is also not uncommon for retail stores to carry several other competing brands.
Brokers and Sales Agents
Experienced brokers, agents, and sales representatives directly connect with customers. Hence, they are an invaluable source of market intelligence. More importantly, they help promote and sell your brand, products, or services. Because their overhead costs are low, they usually assume all the expenses.
Under normal circumstances, though, they are not beholden to any company. As such, they may also represent other brands, including competitors. As for loyalty, they tend to favor those that give them the most income. Lastly, there is also a risk of misrepresentation, thus damaging your brand image.
Instead of focusing on individual retailers, brokers, or agents, you can choose distributors. One way to look at these establishments is that they are scaled-up versions of retailers. Some of them may be exclusively B2B, but others are a combination of B2B and B2C.
Typically, distributors have a focused customer base. Apart from having a wider reach, their marketing and sales personnel are also technically trained. They also ease logistical burdens since you only have to deliver goods to a central location.
Despite the benefits provided by distributors, you must also consider the possible drawbacks. Unless you have an exclusivity agreement, they may also carry a competing brand. Usually, they have the final say on the product pricing. They are also not your best source of customer intelligence, especially if they are strictly B2B.
Final Words on Channels Building Block
Channels play a critical role in customer acquisition and delivery of a company’s value proposition. After identifying the different customer segments in the previous block, you map your plan to reach them. More importantly, you can define the strategies to entice potential customers and close the sale.
Channels also describe how you intend to move products or services from your end to the customers. To this end, you can choose between selling directly or through key partners.
After finishing Channels, you can go on to Customer Relationships, the fourth Business Model Canvas block.