Change The Channel

montehallSetting up a new sales or distribution channel is like the Monte Hall problem on the game show, “Let’s Make A Deal.”

There are 3 doors: one of which has a large prize like a Ferrari, two of which have a stubborn goat.

Monte Hall, the host, knows which door has which item and after the contestant selects one, he discloses a goat behind one of the two remaining doors.

The question: Do you stick with the gut of your first choice or do you switch?

The answer: Unless you have fantasies of goat-herding in the mountains, you should always switch doors.  Even if you have been shown one of the doors behind which exists the car,  the probability of success jumps from 1/3 to 2/3 if you switch. (Please research the proof I will not explain it in this piece)

Many technology incumbents struggle with the Monte Hall dilemma and do not change their sales channel even when the odds are favorable for them to do so.

In the case of consumer packaged goods, brands are challenged by retailer private labels and the multiplicity of brands on the counter, blurring options for the consumer.  It seems obvious that brands need to switch from the first door of “retail” they picked and select the other door of “digital”, setting up a new direct channel strategy to get closer to the voice of customer.  A digital add-on to an analog enterprise.  The internet has low overhead plus global distribution.  But many CPG brands fail to commit due to fear of cannibalization, where their traditional dealer network and retailers may reduce order volumes to protect their own revenue streams.

On the other side of the deal, with digital brands like Amazon, setting up a new channel or “picking another door” means the opposite.  They have to front high fixed retail expenses and sacrifice financial agility.  According eMarketer, by the end of 2015, about 7% of sales will come from online shoppers, and 1% will stem from people shopping on mobile devices.  The e-commerce era was an intoxicating time when you didn’t have to visit a store to get what you wanted– but let’s face it– most transactions like cars, clothes and groceries require a human touch.  If a firm is not leveraging the four walls and layout of retail, it is leaving a sizeable chunk of the market on the table.  Interestingly enough, it is rumored Amazon is setting up a physical retail store as a new channel for the 2015 holiday season.

For the longest I have been bullish on digital, calling all businesses emerging and established,  to change the channel to digital.  I have an all-in approach, but Digital is not enough.  Although Digital channels are dominating the conversation of channel thinking–  ‘human-assisted’ channels will always be relevant. When a sales cycle is long and  complex or the majority of consumers prefer call centers and face to face storefronts, the approach has to be Omni-inspired, seamless.

Thus the question most of often is not just which Door has the car behind it, it is where can the car take us? We are scratching the surface in regards to sorting the differences between and within channels.   For example, online customers tend to have different buying habits and pathology than those who are motivated by a print catalog to order online, by phone, or by mail.  A telecom provider located in the heart of a metropolis with a customer base that is interested in on-the-go data products cannot be supported similarly to a telecom provider in a sparsely trafficked rural town interested in money transfers. As mobile becomes more ubiquitous, brands have start to use segmentation to customize their channels to match local needs better, more intelligently.   Otherwise no matter the door they pick or how many times they switch, the prize will be a goat. Epic fail….