Both B2B and B2C companies looking to generate incremental revenues, improve service levels and reduce sales & marketing costs can no longer ignore their channels. Typical channel partners - resellers, distributors, agents, integrators, consultants, service providers and brokers, spread across multiple geographies and segments - are now a vital part of every company's go-to-market model. Continued customer fragmentation, capital scarcity and industry disintermediation suggest that all Suppliers will continue to use dozens of sales and support channels (with on and offline variants) to reach a finicky, mobile consumer. The result is a channel mish-mash, very often leading to missed revenue opportunities, partner conflict, lower service levels and higher costs.
Determined Suppliers with the right insights, resources and tools can improve channel results in two important areas: 1) drive incremental revenues by focusing on and optimizing the "right" channel partners by customer segment and geography and; 2) reduce cost and improve service levels by minimizing channel conflict, reseller duplication and administrative expenses. Unfortunately, this is easier said than done. Well meaning channel strategies often fail to meet the Supplier's and Reseller's revenue, profit and relationship objectives as well as expectations around operational integration and effort.
Why do Channels Under-perform?
Many times, the supplier's channel management philosophy can lead to under performance. For example, many suppliers are often hesitant to change their channel strategies and relationships due to perceived revenues risks, information asymmetries around client information, overall complexity, benign neglect and the existence of legacy relationships that restricts freedom of action.
Most of the time, under-performance results from a poor Supplier-Partner dynamic
Channel Partner Issues
In many cases, the Reseller's strategy, operational performance and culture are the cause of under-performance. Specifically, many Resellers are overly reliant on the revenue from a single or small number of another company's products, to the detriment of other firms' products. In other cases, the Reseller may be following a scatter-shot strategy of pushing every product without regard to what generates the most profit or best delivers on consumer needs. Finally, the Reseller's culture, personal relationships and operating model may favor some companies or individuals over others.
Most of the time, under-performance results from a poor Supplier-Partner dynamic, caused by a number of factors such as:
- Misaligned objectives and strategies - Both parties start off heading in the wrong direction. Neither may understand how the other party views their role and the importance (or lack thereof) of their products or service. In other cases, both the Supplier and Reseller are driven by different strategic imperatives such as focusing on different metrics, following different market strategies or facing different risk profiles.
- A lack of trust - Both the Supplier and Reseller often exist in different solitudes, seeing each other as necessary evils rather than partners. As a result, buth parties often begin or manage their relationship with very little goodwill or trust. This "trust" gap results in ongoing misunderstandings and conflict; a reluctance to commit focus and resources in advance of performance and; competing strategic and tactical agendas.
Improving Channel Performance
- Insufficient resources invested in relationship - Because short term sales imperatives and risk aversion often drive decision-making, neither party invests the funds or effort, to jointly succeed and build trust. For example, the Supplier does not provide sufficient marketing, training or product assistance while the Reseller devotes inadequate sales and inventory support. 'Hedging their bets' ends up being an institutional barrier as each party is in fact acting rationally.
- Weak coordination between parties - The commercial relationship is often poorly defined and communicated at the outset and implemented at the operational or customer level. Weak coordination is characterized by low process integration, ineffective program execution and halfhearted relationship management efforts. The result is conflicting customer messages, duplication of effort, the absence of sales & marketing synergies and unnecessary conflict.
My experience running a large Reseller suggests that Suppliers can improve channel performance by moving from a reactive, product-based model to a portfolio, relationship-based approach that treats each channel partner strategically and deals with them intimately. This approach would include:
- Concentrating on the 'right' resellers - Too often, Resellers are a poor strategic and cultural fit with the Supplier. Companies can improve channel performance by better attracting, qualifying and vetting new Resellers, (discretely) sharing best practices, targeting sufficient resources as well as culling under-performing Resellers who are unwilling to raise their game or prioritize the Supplier's products.
- Upgrading the relationship - Strong partnerships are patiently nurtured over time, with equal attention paid to joint planning, trust-building and implementation. Great channel relationships "do the right things, right" including: having fair revenue splits with aligned incentives; incorporating aggressive yet achievable targets that enjoy Reseller buy-in; featuring seamless and reinforcing operational & marketing integration and; maintaining early-warning trouble shooting mechanisms to mitigate trust-killing events.
- Achieving buy-in from reseller sales - At the outset, the Supplier must secure sufficient product & company awareness with the Reseller's sales & marketing group while cultivating ongoing mindshare and effort through on-going relationship management and joint marketing. A prerequisite to getting buy-in is for the Supplier to thoroughly understand (as much as they can) the Reseller's competitive state as well as organizational and cultural dynamics.
- Productizing your organization - Suppliers require a clear market position and a compelling value proposition (e.g., end user appeal, discount structure, marketing support) to catalyze Reseller attention and focus. This will help the Suppler build internal Reseller awareness, stimulate sales activity and sustain momentum through the challenging times. As well, Suppliers need to be realistic to how their product fits within the Reseller sales strategy and product portfolio. For example, a Supplier with a single or unproven product would be better off focusing their efforts around proving themselves in specialized opportunities before tackling (or expecting) a larger sales footprint.
Copyright 2010 Quanta Consulting Inc.
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