• How to Select the Right Channel Partners

    Technology end-user purchasing behavior has changed from “one-stop shopping” to selecting different outlets for products and implementation services. The indirect channel has responded by fragmenting into an array of firms that cover the full spectrum of business models from fulfillment to implementation. Unfortunately, few manufacturers have adapted to – or are even aware of – the new channel landscape.

    Manufacturers who measure and manage the new channel by old revenue-based metrics waste time, attention and money on programs that do not build revenue or market share. Worse, they miss opportunities for the new channel to promote, specify and sell their brand.  Manufacturers must determine what their end-users actually do when purchasing and implementing solutions and then build balanced channel programs to serve them. Balanced programs provide market and geographic coverage, plan for change, and organize to take advantage of the focus and flexibility offered by second- and third-tier partners. The management challenges are greater – but specialist help is available, and the rewards are well worth the effort.

    Recruitment and engagement of channel partners is the subject for another paper in this series. However, the following general principles should be considered during the planning stage:

    1. Uncover hidden value in your current partnerships

    Your current channel partners may be capable of much more than you are asking. If your revenue-tiered program “buries” low transaction-volume partners at lower tiers or fails to compensate them in a way that matches their business models, reorganizing your current program offers some of the highest possible returns on your channel investments.

    A systematic evaluation of your current tiering assignments – conducted inhouse or with a consulting partner – can quickly identify hidden revenue opportunities with minimum disruption to your current sales and marketing activities. It is so valuable and easy that it should be considered a “first step” in any channel strategy.

    2. Plan for channel changes

    As we have seen, product commoditization and eroding margins pressure fulfillment and hybrid partners to move toward the implementation end of the partner spectrum. And implementation partners consistently seek out the latest, more complex and profitable solutions. Manufacturers of those new solution components may deepen and strengthen their relationships with existing partners, while the others may need to recruit new partners. In either case, it pays to review channels and refresh end-user data at least annually to review the mix and range of partner programs.

    3. Plan for end-user behavior changes

    Just as yesterday’s “custom solutions” have become today’s commodity products, the complexity and profit margins of today’s products will steadily decline. As more and more end-users become comfortable specifying and installing today’s solutions, channel programs will need to increase coverage of the market by fulfillment channels and reduce focus by implementation partners.

    4. Profit from the “lower” tiers

    • Motivating this group to promote – and even build their business around – any manufacturer’s product is much easier than with the giants at the top.

    • Because these partner’s resources are more limited, they are more dependent on manufacturer training, technical support and service assistance.

    • Growth is highest among second-tier channel partners. These are the ones who have achieved critical mass, but have not yet reached their markets’ limits. Investment here is an investment in the future.

    • Second- and third-tier channel partners are the most effective in reaching small and medium businesses where the potential for growth and profit is highest.

    • Many investments among smaller partners builds a steadier business than a few big ones at the top.

    5. Do not neglect geography

    Just as second- and third-tier partners offer tight focus on markets, regional and local partners can deliver intense geographic coverage. The same benefits apply – motivation, reliance on your technical resources, growth, access to high-potential customers, and stability over economic cycles. And once again, there are management challenges from managing a larger group of partners – but help is available and the rewards are significant.

    6. Do not neglect fulfillment

    As we have seen, revenue tiering created an imbalance, biasing manufacturers’ efforts and investments toward fulfillment channels. In correcting the situation, it is important not to swing too far in the opposite direction. While implementation value partners offer the best chance to build specifications and sales, adequate coverage of fulfillment channels is essential for any successful channel program. Both self-service end-users and the implementation partners themselves rely on fulfillment channels to have products available at the right place and time.

    7. Organize and manage for channel success

    While manufacturers will want to maintain direct contact with their top tier of channel partners, the range and number of second- and third-tier partners presents significant management challenges. Fortunately, there is no need to do this alone. Outsourced channel management companies offer a wide array of services to help manufacturers design and fine tune their programs. Since these companies are in constant communications with second and third-tier providers, they can help build effective channel programs that adapt to change and deliver maximum impact in the most productive routes to market.

    The channel has changed. End-users no longer buy both products and implementation services from the same manufacturer-dominated channels. The channels themselves have adapted by offering their customers a full spectrum of fulfillment, implementation and support services. Manufacturers who respond to these changes with balanced channel programs can gain sales traction and competitive advantage by reorienting their channel programs to match end-user purchasing behavior. A systematic, disciplined channel program starts with careful analysis of end-user behavior, such as we have described here. Selecting the type and number of partners to match end-user purchasing and implementation preferences requires a systematic approach, the right information and a little time, money and good advice. But the rewards will be well worth it.

    Manuel Rietzsch is the Sr. B2B Marketing Strategist for MarketStar, the proven expert in designing measurable, high-performing marketing solutions for leading and emerging companies.  Please click this link to read the entire white paper summary, “How to Select the Right Channel Partners“.

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