Whos On First, The Sales Channel Scorecard

SSPA News, September 2006

Who’s On First, the Sales in this issue
Channel Scorecard? The > Effectively Incorporating
Forums into Web
Channel Players and How They Self-Service
Play Together > Finding the Right Path to
By Jim Payne, President, S-Market Strategies Global Support

This article is the third in a series exclusive to SSPA News that will > Managing Useful
concentrate on the strategies and tactics needed to be successful in Customer Forums
selling services through channels and offers a brief look at the sales > Delivering ASP Support
channel players and their relative hierarchy. The articles will feature brief
exerts from a book on channel marketing by Jim Payne that is scheduled > The Sales Channel
to be available in the fourth quarter of 2006 Players and How They
Play Together
If you are reading this article, I hope that the “channel” you are expecting > What’s your
to hear about is not the big ditch filled with water between England and Serviceability Score?
France. In this case, “sales channels” refer to the way that the
producers’ products or services are sold to the end user. They are either
sold in a direct or indirect sales model. In a direct model, the producer
sells directly to the final end user without any other parties handing off
the sales process. Products and services in an indirect sales model are
sold indirectly from the producer through independent parties and
ultimately on to the final end user.

Why the Channel?

Although indirect sales channels may seem like a bit of a rut at first, the
channel may be the best way for many manufacturers to reach a
significantly broader base of customers with less cost than selling directly
to each end user. My experience has shown that there are great
opportunities in selling products and services through the indirect
channel if it is executed properly. However, keep in mind that indirect
channel sales require unique and deliberate strategies and tactics to
market and sell products and services in this way. The investment in
learning, researching and building solid strategies can increase your
likelihood of success in an indirect channel model or mixed direct/indirect
model.

So how do we define the sales channel and who does what? The term
distributor is certainly a common term that people seem to think they
understand, but there are a number of other names and functions that

http://www.thesspa.com/sspanews/_06Sept/article5.asp (1 of 5)9/8/2006 12:04:46 PM


make up the typical sales channel for products and services.

The Producers-Manufacturers and More

Producers provide the products and services for the channel to sell to the
end user. When it comes to producers, the manufacturers are at the top
of the food chain. They are the companies who design and manufacture
the products that the channel ultimately sells to the final end users.
Although we can assume that all manufacturers are producers of their
products, not all producers are
necessarily manufacturers.

An example of a producer in the services channel model would be a third
party services provider who does not manufacture any tangible products,
but provides maintenance or professional services on many
manufacturers’ products for the channel to resell. The product that they
sell is the service that they produce at the time of delivery.

Distributors

Generally speaking the distributor is at the top tier of the indirect channel
and is usually the primary interface to the producer. One of the benefits
to the producer of selling through channels, is the ability to minimize the
number of sales touch points that are required to cover broad horizontal
or regional markets. By selling to a small number of distributors, it can
reduce the infrastructure and ultimately the cost of sales. In addition,
distributors generally have a formal relationship with the producer that
defines discounts, quotas, responsibilities, warehousing co-op funds,
exclusivity and engagement rules.

Distributors have significant responsibility in the sales channel and
consequently receive the largest discounts and benefits from the
producer. However, the distributors cost of marketing and sales can
require a substantial investment to gain marketplace awareness and
product pull for the resellers. In addition, distributors also need to share
a portion of their profits with the lower tiers of the channel that further
erodes the profits that they acquired through the producer’s discounts.

Resellers

The distributors then market and sell to a larger pool of resellers who sell
to the final end users or potentially other resellers in a multitier channel
structure. In general, the relationship between the producer and the
resellers is less structured than distributors. Some producers allow the
largest resellers to buy directly from them, but most resellers negotiate
the price of the products or services that they purchase directly from the
distributor. If there is direct compensation from the producer to the
reseller, it is often on the backend as rebates, co-op, incentive or
promotional programs.



Resellers are truly the selling machines of the channel since they have
their feet on the street and know how to find customers. Their entire
existence is based on selling efficiently and developing the opportunity
for up selling and cross selling to increase revenue and profits. They
vary in size from one individual working out of his or her home to
hundreds of employees with large sales volumes.

Brokers

In addition to distributors and resellers, there are various other forms of
sales channels that include brokers who generally sell for a fixed finder’s
fee and do not get involved as deeply in the customer relationship or
additional value adds. They tend to move more quickly as they plant the
seed, but don’t wait around to watch it grow. However, brokers in some
markets get more heavily into the details if there is enough financial
incentive to do so.

Brokers work well when a producer desires very controlled cost of sales
and they want to be sure that they maintain the customer relationship
after the sale. The broker generally takes no title to anything they sell
and simply hands off the lead to the vendor for a predetermined
commission and moves on to find the next opportunity.

Multivendor Manufacturer Reps

Multivendor manufacturer reps are usually an independent or small
group of reps that often have a more direct relationship with the
manufacturer. Many smaller manufacturers list their vendor reps as if
they were their own sales force by including their contact information on
their website or in literature. Vendor reps tend to offer less integration
and value-add services than their reseller counterparts and generally act
in a more pure sales role.

Multivendor reps are often responsible for a specific geographic region
that has some defined or implied exclusivity. Manufacturers may put
quotas on the independent reps with specific requirements or incentive
programs with financial carrots and sticks to drive sales in their region.
The multivendor manufacturer rep will generally represent similar
technology products from various manufacturers within their target
market or area of expertise to offer a diversity of choices for
their customers.

Integrators

Integrators may be a special form of a reseller or they may not sell any
products at all other than their integration services. By definition,
integrators assemble various parts to make a whole customized
solution. With today’s technology, those parts are usually tied together
by a software solution whether it is off the shelf or custom designed by
the integrator.



Selling customized solutions in lieu of just the hardware can have a
number of advantages for the integrator reseller. Creating unique
designs to fit a customer’s needs isolates the sale from the cost of the
parts and makes shopping around more difficult for the customer.
Without being able to have apples to apples comparisons by the
customer, the integrator is more likely to justify premium pricing rather
than working in a commoditized market. In addition, customized
solutions create a customer who has a longer term need for support from
the integrator that can create loyalty, annuity and up
sell opportunities.

On the other hand, integrators who do not sell hardware, often feel that it
allows them to be more open to recommending the best hardware for the
solution rather than the specific products that they represent. However,
many integrator resellers have overcome this benefit by offering a broad
spectrum of products from different manufacturers that they feel
represents that best of breed.

Integrators who do not sell the hardware should be considered
opportunities for both the channel and producers. Manufacturers can
align with integrators who can be offered early notice of new products
and software that the integrator can customize. Resellers can develop
relationships with integrators to become the integrator’s source for
hardware, off the shelf software and additional services. As integrators
by nature are in the services business, they should be open to finding
ways to offer additional professional and maintenance services acquired
though alliances with the producer and the channel.

Future issues of this column will offer additional insight as to some of the
best ways to enable and optimize the performance of the various
channel players.

About the Author…

Jim Payne is the president of S-Market Strategies who has found that
selling services through the channel is not only possible, but also
highly profitable.

For more information, to sign up of the S-Market News or to be notified
when Jim’s new channel book is available contact Jim Payne at
jimpayne@smarketstrategies.com, visit smarketstrategies.com or
phone 585-368-0567
Comments? Suggestions? We would like to hear from you. Please email the editor at
sspanews@thesspa.com.


Whos On First, The Sales Channel Scorecard

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