What Is a Channel Strategy?

Every company has a route to market, whether it chose one on purpose or not. A founder who sells every deal personally has one. So does a business that ended up with a dozen resellers because each one happened to ask. The difference with a channel strategy is that the route is designed, not inherited.

This article defines channel strategy, explains the levels of a channel, and walks through the decisions that make up a design: coverage, intensity, mix and ownership of the customer. It then covers how to choose channels based on what you sell and who buys it, how to run several channels at once, and how the design usually changes as a company grows. Two neighbouring topics get only a pointer here: the economics of direct versus indirect sales and the broader question of why to partner at all.

What a Channel Strategy Is

A channel strategy is the plan for how your product gets from you to the customer, and who does which job along the way. The jobs are the real subject. Someone has to create awareness, qualify demand, sell, deliver or install, bill, and support the customer afterward. A channel design decides which of those jobs you keep and which you hand to someone else.

That framing matters because it stops the discussion from being about "using partners." The OpenStax Principles of Marketing text makes the same point about intermediaries: they specialize in aspects of distribution that manufacturers don't want to specialize in, and they create efficiency by reducing transactions and matching product quantities to customer demand (OpenStax, Principles of Marketing, section 17.1). If a partner doesn't take a job off your hands or do it better than you would, there's little reason for that partner to exist.

Channel strategy is also distinct from three things it's often confused with:

• Sales strategy is how you win a deal once you're in front of a buyer. Channel strategy decides who is in front of the buyer in the first place.
• Marketing strategy is how you create demand. A channel can carry demand creation, but it's one option among several.
• A partner program is the set of rules, benefits and tiers for the partners you've chosen. The strategy comes first; the program is how you operate it. For the operating side, see channel partner program and partner relationship management.

Channel Levels: How Many Hands Between You and the Customer

The simplest way to describe a channel is by the number of intermediaries between producer and buyer. OpenStax describes a direct channel as the manufacturer distributing directly to consumers, and indirect channels as ones with intermediaries, ranging from producer to retailer to consumer up to producer to wholesaler to retailer to consumer (OpenStax, section 17.2). Marketing textbooks often label these as zero-level, one-level and two-level channels, counting the intermediary layers.

In a software or services business the layers look like this:

Each added layer widens your reach and thins your control. A longer channel can serve many more buyers without a matching rise in your headcount, but you know less about those buyers, you earn less per deal, and problems take longer to surface. The choice between one level and two is usually a choice about geography and scale. See distributor vs. reseller for how those roles divide the work.

Not every intermediary resells. Agents represent a producer and earn fees without taking ownership, which is how OpenStax describes health insurance agents. In software, referral and affiliate partners sit closest to that model, and referral vs. affiliate vs. reseller separates the three.

The Core Design Decisions

A channel design is a set of choices, and it helps to take them in order.

1. Which jobs stay in house

List the jobs from first touch to renewal. For each, decide whether you do it, a partner does it, or both share it. Lead generation might be shared, the sale yours, implementation a partner's, and first-line support split by tier. Writing this down reveals the real design, which is often different from the one in the pitch deck.

2. How much coverage you want

Coverage is how many of your target buyers each route can realistically reach. OpenStax defines target market coverage as having the resources and capabilities to reach and serve consumers in the company's target market (section 17.3). Be honest about the gap between the buyers you want and the buyers your direct team can serve. That gap is the case for adding a channel.

3. How intense the distribution should be

Intensity is how many intermediaries carry your product in a given market. The standard vocabulary has three settings, and OpenStax defines them this way (section 17.3):

The textbook examples come from consumer goods: Coca-Cola and Kraft for intensive distribution, Whirlpool for selective, Rolex for exclusive. The logic carries over. The more a partner has to invest in learning your product, the more it will want assurance that you won't flood its territory. And the more you want to control how the product is represented, the fewer partners you'll want.

Exclusivity has a cost that doesn't show up until later. An exclusive partner that underperforms occupies the whole territory. If you grant it, build performance minimums and an exit into the partner agreement.

4. Which channels, and in what mix

This is the choice most people mean by "channel strategy": direct sales, self-serve, resellers, agencies, referral partners, distributors, marketplaces, original equipment manufacturers and so on. The next section covers how to choose.

5. Who owns the customer

For each route, decide who holds the contract, the billing relationship and the customer data. A reseller that bills the customer owns the commercial relationship. A referral partner who only introduces the customer doesn't. Ownership affects renewals, expansion and your ability to learn from usage. It's also where most disputes begin, so it belongs in the design, not in a later negotiation.

How to Choose Channels

No formula picks the right channel, but three variables do most of the work. They're product complexity, deal size and the buyer's journey.

Product complexity

OpenStax lists product-related factors that affect channel length: unit value, perishability, bulk, standardization, technical nature and life-cycle stage (section 17.3). Translated to software, the factors point in these directions:

• A simple, standardized product with a low price can travel through long or intensive channels, because the intermediary needs little knowledge to sell it.
• A complex product that needs configuration, integration or change management needs a short, selective channel with partners who can do the work. A weak partner damages the customer's first experience.
• A product that depends on services around it (implementation, data migration, training) often needs partners whose main business is those services. That's the core of the consulting partner and managed service provider models.

Deal size

Large deals justify direct involvement. If one deal carries a salesperson's cost many times over, you'll usually want your own people in the room, perhaps with a partner on delivery. Small deals can't carry that cost, so they push you toward self-serve, resellers or marketplaces, where the cost to serve per customer is lower. The middle of the range is where hybrid designs tend to appear.

Buyer journey

Look at where your buyers already look for help. If they ask their implementation consultant, that consultant is a channel whether you've signed an agreement or not. If they search a cloud marketplace or an app store, a listing is a channel. If they buy through a regional distributor they've used for years, ignoring that distributor means ignoring the buyer's habit. Channel selection works best when it follows existing buying behaviour instead of trying to change it. A software marketplace listing is a good example, because buyers with committed cloud budgets often prefer to buy where they already buy.

OpenStax also lists buyer requirements as a factor: information provision, convenience, variety and service. Pre-sale service helps buyers decide, and post-sale service helps them recognize the value of what they bought. Ask which of those your buyers need most and which channel is best placed to provide it.

Profitability

Channels have to operate profitably, which OpenStax states as a plain obligation of the company. A channel with a high reach and a low margin per deal can still be the right choice, if volume covers it. Do the arithmetic per route before committing: your cost to serve, the partner's margin, and what you pay in enablement and incentives. The detailed economics are in direct vs. indirect sales.

Running Several Channels at Once

Almost no company of any size uses one channel. The question is how to combine them without tripping over yourself.

Rowland Moriarty and Ursula Moran called this a hybrid marketing system in a 1990 Harvard Business Review article. Their observation was that companies increasingly use direct sales as well as distributors, and retail as well as direct mail, and that they do it to defend their turf, expand market coverage and control costs (HBR, "Managing Hybrid Marketing Systems"). Those three motives are still the right test for adding a channel. Ask whether a new route defends a position, extends your coverage into buyers you can't reach, or lowers your cost of reaching them. If it does none of the three, it's probably just complexity.

Multichannel and omnichannel are related but different. OpenStax describes multichannel as a single company setting up multiple distribution channels to reach customers, and omnichannel as giving buyers several ways to purchase, receive and return products in one seamless experience (section 17.2). In B2B software, multichannel is the norm, and the harder challenge is making the experience consistent: the same pricing logic, the same product promise and the same support standard whichever route the buyer used.

Three working rules help.

Give each channel a distinct job. A direct team for strategic accounts, partners for the mid-market and self-serve for the long tail is easier to run than three channels chasing the same buyer. When channels have clear segments, there's less to fight over.

Write the rules of engagement down. Who gets credit when a partner's lead is worked by your rep? What happens when two partners approach the same account? A deal registration process settles the first kind of question, and partner attribution tracks which route earned the credit.

Expect conflict and plan for it. OpenStax separates vertical conflict, between different levels of the channel, from horizontal conflict, between firms at the same level. It also names disintermediation, where a manufacturer bypasses its intermediaries, as a form of vertical conflict (section 17.4). Adding a direct or online route beside a partner route is exactly where that tension starts. How to detect, prevent and resolve it is covered in channel conflict, so this article won't repeat it.

How Channel Strategy Evolves as You Scale

The right design at 20 customers isn't the right one at 2,000. There's no single path, but the shape tends to be similar.

Some principles hold across the stages:

• Don't build the program before the proof. A partner program needs a product that partners can sell and a customer profile you understand. Signing partners before that is how you collect partners who never close a deal.
• Add one route at a time. Each new channel needs enablement, rules and management attention. Adding three at once means doing all three badly.
• Review the mix on a schedule. A route that made sense two years ago may now overlap with a better one. Use measurable inputs such as partner KPIs and a regular partner business review.
• Treat channels as removable. Contracts should allow you to narrow or end a route that doesn't perform. See partner agreement.

For the wider system that grows around a mature channel, see partner ecosystem and multi-channel growth strategy.

Key Facts: Channel Strategy

• A channel strategy decides which selling, delivery and support jobs you keep and which an intermediary performs, plus how many intermediaries you use and who owns the customer.
• Channel length is the number of intermediaries between producer and buyer, and product factors such as unit value, standardization and technical nature affect it (OpenStax, section 17.3).
• Intensive distribution uses all possible intermediaries, selective uses more than one but fewer than all, and exclusive uses a limited number (OpenStax, section 17.3).
• Moriarty and Moran's 1990 HBR article says companies adopt hybrid marketing systems to defend their turf, expand market coverage and control costs (HBR).
• Channel conflict comes in vertical and horizontal forms, and disintermediation is a type of vertical conflict (OpenStax, section 17.4).

Common Channel Strategy Mistakes

• Starting from partners instead of jobs. "We need partners" isn't a strategy. "We can't implement 200 deals a year ourselves" is.
• Granting exclusivity too early. It's hard to take back, and the partner you grant it to may not be the one who performs.
• Overlapping channels with no rules. Two routes after the same buyer, with no tie-break, produce arguments and discounting.
• Copying another company's mix. A rival's channel design reflects its product, price and history. Yours should reflect your own buyers.
• Ignoring the customer's experience. If the same product comes with different pricing, onboarding and support depending on the route, buyers notice.
• Never revisiting the design. Channels accumulate. Without a review, you end up with routes nobody chose.

Related Reading

• Direct vs. indirect sales
• Partnership strategy
• What is a channel partner?
• Channel conflict
• Distributor vs. reseller
• Channel sales model
• Multi-channel growth strategy