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Segmenting the channel - it is NOT ubiquitous
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After several recent discussions, it seems it would be beneficial to lay the ground work on the channel segmentation. Over the next couple of postings I will provide general descriptions and motivators for the channel. Hopefully this will help in building your strategy.
Distributor
A distributor is the link between the vendor and the reseller. Their value is providing a one stop shop for ordering multiple products, managing inventory, providing line of credit to the reseller. They can have everywhere from 100’s to 1000’s of vendors and products.
Distributors will vary with capabilities, market and expertise. For instance Ingram Micro is known for its very high volume, low priced products. They have tens of thousands of resellers. They are great for vendors who sell a low priced product and need a very broad distribution. On the other hand Bell Micro specializes in storage technology for the mid market. They will have 100’s of resellers. They are great for products with complex ordering procedures or need help with configurations.
Distributors consider the resellers their customer, so vendors can turn to them to readily be introduced to the right resellers. Vendors can also use them to co-market or create a solution when their product would be best sold with another vendor. Some of the distributors will provide resellers with assistance in marketing (spending their MDF), training (sales and some technical).
Don’t expect the distributor to create demand. That is the vendor’s job. New vendors who use distributors should be very clear on what they need and expect from a distributor. To get the most from a distributor, expect to put at least $10 to 25 million in revenue through their ordering process to get any sort of attention or attraction. If it is less, sell directly to the reseller.
Distributors net about 6% margin on the products they sell. For some products, such as hardware, the margin is less. This is why they charge for all marketing, training or other programs. Expect to pay the distributor 10% margin on the product and also fund programs. Their sales people will be on salary plus commissions based on their revenue quota.
How to motivate: Give them good margin. Figure out a way you can give them a competitive edge versus other distributors. Fund an on premise business development person, targeted with revenue generation. Create very visible, fun events for their inside sales people accompanied by joint call days.
Examples: Avnet, TechData, Bell Micro
Value Added Reseller
A Value Added Reseller (VAR) is typically selling 70-80% product and 30-20% services (the value add). The larger they are, the less services they will sell. They will have deep skills in core areas such as Business Continuity, Point-of-Sell implementation, CRM automation. These skills will be aligned with vendor products, for which the primary ones they will hold certifications.
Often the owners have come from deep experience and years working for a vendor and hold strong technical skills that are valued by their clients. Others are experienced end users who expand on their own. These relationships (with the vendor or end user), are usually very tight. They will guard their reputation at this level.
The biggest value the VAR has is their reputation for service. This is first and foremost what they sell. Secondly, they sell and leverage the products for which they are the experts. The business is built on referrals. In the past they have been notoriously poor at marketing and they greatly benefit from Vendors assistance. However, in recent years, this has improved. VARs are investing in inside sales, customer Lunch and Learns and sophisticated training to enhance their customer relationships and attract new. Vendors can look help the VAR conduct these events by providing resources for venues, demos and key speakers.
VARs make around 15% margin on product and 20% or more on services. Their sales people are often on 100% commission based on gross margin. They need and expect the vendor to protect them from deal stealing. If they are making the investment to know a complex product, get trained, and sell it, then they don’t want another low cost reseller swooping in at the last minute and getting the deal because of a deep discount. So, most VARs expect vendors to have a deal registration system to prevent this from happening.
How to motivate: Make sure they make good margin on the products. Help them with feet on the street co-selling. Develop relationships with their other core vendors, so they can leverage 1+1 = 3. Help with customer facing events. And of course, bring them real leads.
Examples: Peak Data, Echo Lane, Ks2 Technologies
Next: Commercial Resellers and DVARs
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