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As technology advances for hardware and software products, manufacturers’ sales
models increasingly have migrated toward selling exclusively or partially through
channels. The potential to reduce sales costs while increasing exposure in the marketplace makes channel sales a very attractive model during times of increased pressure to grow revenues while reducing costs.
However, on the services side of the business, marketing and selling services
through the channel certainly can be more challenging than our tangible
counterpart’s experience. The intangible nature of services necessitates careful
consideration in deciding how to convey the marketing message effectively. Selling
services through single or multitier channels can feel like playing the “telephone
game” with your marketing. The services message that you are trying to
convey may be eroded by the time it is passed to a distributor, through one or
more tiers of resellers, and ultimately, to the end user.
With business models migrating toward stronger reliance on services as a means of differentiation and increasing profit potential, it can be difficult and often risky to rely
on others to communicate the message that represents your brand value. However, if done well, the channel can provide an extension of your message, achieving the intended benefits of using an indirect sales model.
Channel Structures
In recent years, I have spent a considerable amount of time working with thousands of resellers and distributors and talking with them about how they view services in their marketing and sales models. Based on this research, I have been able to develop and implement improved channel programs for manufacturers and independent services providers. Although resellers and distributors manage their businesses using many different strategies and methods, when you dig deeply enough, they all have certain things in common. They generall fall into a small number of segments that can be identified and considered in marketing strategy development for channel sales of services.
Whether the channel is a multitier distributor/reseller model, sales brokers, integrators, or multivendor manufacturers’ reps, they usually have defined their services strategy as it fits into a model that was developed originally to position hardware, software, or solutions. Their services segment generally lacks adequate strategic intent and design to take full advantage of the opportunities in the marketplace.
However, some of the most progressive distributors and resellers truly understand the value of selling services and have made it a strategic part of their business model. At the same time, much of the channel still treats services as an afterthought, considering services as an obligation that requires too much of their resources to become a significant part of their business strategy.
The channel can be segmented as follows:
The full services channel. The full services segment of the channel truly understands the value that services bring to its revenue stream, stability, and customer loyalty. In general, this channel segment has invested in the people, processes, and training needed to position services in all of their sales effectively. They maintain dedicated contract administration staff, a Level One call center, and a depot facility to optimize customer relationships and revenue opportunities. Some in this segment have developed their own field force, but many outsource some or all of this function, as it can add considerable cost to develop adequate geographic coverage using their own staff exclusively. The full services channel also is capable of handling more complex services offerings. They have rationalized that there is adequate revenue potential in a full portfolio of services options that may include professional services.
The part-time services channel. These channel partners will position services if the subject comes up, but find it challenging and would rather not complicate the sale of the hardware and software with extra costs that might make them less competitive. They tend to develop shorter-term customer relationships and move on to the next opportunity with less reliance on the full revenue potential of customers. This type of channel partner often can be converted to a more effective seller of services if you help them to make services sales an uncomplicated activity.
The no-sell channel. This channel segment does not sell services and does not want to sell services. It is not even on their radar screen. They would prefer to sell boxes and prepackaged or simple solutions, and they have no internal infrastructure for managing services sales. Their products tend to be priced lower, and they rely on volume rather than longer sales cycles with larger revenue potential. Although this segment would seem to be a lost cause for selling manufacturers’ services, with proper consideration, they may be willing to take advantage of the revenue and customer loyalty opportunities that services provide. The key to this segment is to be sure that you are fitting your services products into their model rather than trying to force them into your model.
Following are some additional important considerations for channel marketing and selling services.
Talk to Your Channel
First and foremost, you must develop effective communications with your
channel partners so that you can understand their real needs and so that
they can understand your intentions. It is important to find out what makes them tick—do not make assumptions about what they need or want. Many distributors, brokers, and resellers have common needs, but each market has its own unique dynamics that you need to understand. Investing the time to develop relationships with your channel will pay a return with improved effectiveness and success.
The Right Number
At first glace, it may be tempting to sell to one or two key distributors in
order to minimize your interfaces in a multitier channel model. However, increasing
the number of distributors in the first tier that you sell directly to
can help ensure that your markets are broad enough to take advantage of a
wide range of vertical markets. In addition, relying on a small number of
distributors can put you in a position where you have minimal competition
in your channel. This can result in an environment where a few large distributors
that sell a controlling share of the products in your markets could
challenge your control of pricing and ultimately impact your profit potential.
Although there is no magic number that is appropriate for all markets,
keep in mind that there is a balance between too many and too few distributors
to be effective. Consider how many you can manage effectively and the
minimum number you need to maintain control with adequate market coverage
and balance.
Competitors
Understanding your competitors’ channel models and their relationships with
the channel can be an important factor in your effectiveness. In today’s times
of products with similar features and performance, you must be able to differentiate
your offerings with the channel. Certainly, the channel wants to
make as much money as possible. However, this does not necessarily mean
that the channel will sell only the products and services that offer the biggest
discount. Surprisingly enough, ease of sale is just as important to the channel
as profit margin. Products and services that are easier to position allow the
channel to sell more with a shorter learning curve and ultimately with less
effort on their part.
Evaluating your competition should not be done with the objective
of simply creating parity with them. Finding your competitors’ weaknesses
in their channel relationships can provide additional opportunities for differentiating
your relationship with channel partners. However, anticipate that your competition will do the same, and benchmark your practices. They ultimately will duplicate the good
things you do, but they also will discover and learn from your weaknesses. Be proactive by evaluating your own
effectiveness regularly so that you can evolve ahead of your competition and
maintain distinct differentiation.
Needs vs. Wants
If you ask the channel what they want, you most likely will be told that they
want improved financial opportunities such as increased discounts, drop-shipping,
and other features that can improve their profitability immediately
without necessarily increasing their sales volume. Offering increased discounts
likely will create price competition with the other manufacturers who
then will react to your changes in an effort to maintain their own share.
However, if you take the time to truly understand the channel business
model and what keeps them up at night, you can develop programs that respond
to their real needs. By creating offerings that will allow them to increase
sales volumes and promote upsell of other products and services, they can
increase sales and ultimately improve revenue on each sale.
Be sure to let the channel know that you are listening, and provide feedback
on what you have learned from them. Dialogue and feedback is truly critical to a manufacturer’s short- and long-term relationship with its channel.
Developing and promoting opportunities for allowing the channel to communicate with the manufacturer on an ongoing basis develops trust and
loyalty between the channel and the manufacturer. When using traditional
communication tools such as channel newsletters, the message should convey
your desire to help the channel achieve success. The relationship should take on a tone of a team effort that can improve the effectiveness of all programs and create a more stable relationship.
Keep It Simple
“Simple” is the key to success in marketing and selling services through the channel. When you consider that many resellers and distributors offer product lines that include dozens or hundreds of manufacturers and possibly thousands of different product models, their business can be very complex. With the vast number of product options available to them, it is difficult to learn in-depth details of any one manufacturer or product. Consequently, the channel often migrates to the products that are the easiest to learn, market, and sell. This could mean that it is easy to position, configure, use, price, or distribute. In the case of services,it is often outside of what they consider simple, because they feel it takes more complex marketing and selling strategies to position the invisible product. However, effectively conveying the value of services doesn’t have to be complex. In order to be channelfriendly, manufacturers must make a conscience and significant effort to make their products and services “simple” in the eyes of the channel.
However, it will not always simplify the life of the manufacturer when services are made to be channel-friendly; depending on the situation, it actually may increase the internal infrastructure that is required to create a simplified service product for the
channel. But the investment can be well worth the effort with increased sales volume and loyalty.
Simple, Simple, Simple
When it comes to making it simple for the channel, it should not stop at pricing structures. Consider simplifying the entire chain, including the marketing, sales, quoting, ordering, and distribution processes. Implementing package services along with pricing, marketing, and sales tools can improve effectiveness, channel friendliness, and channel stability.
Simplified Services Example
In evaluating one product with poor channel sales of service, it was discovered that the channel just couldn’t figure out how to price the service and consequently sold it without maintenance agreements. When all of the accessories and options were factored in, the product had 27 possible configurations that could be purchased. The 27 hardware configurations were enough of a problem, but when you considered all of the options available for maintenance agreements on the product, the services offerings more than tripled the hardware list of catalog numbers. With this level of complexity in the service component of the sale, it made the service for the product too difficult for the channel to position.
In an effort to get the service sales for the product back on track, the pricing structures were evaluated and modified to simplify sales through the channel. The new service pricing structure for the product reduced the service catalog numbers from nearly 100 to only one. With the redesigned pricing structure, all configurations used the same maintenance agreement catalog number with one configured price no matter what accessories were purchased. Because the cost to service the different hardware configurations were actually very similar, there was no real need to price them differently. A configured price was determined by taking into account the total projected revenue using the traditional pricing structure and creating a configured price that produced the same total revenue potential.
The launch of the simplified pricing structure was communicated to the channel in a way that conveyed it as an improvement in response to their desire for less complicated pricing. When the channel realized how easy it was to price the service for the product, they responded with significantly improved service sales. Before long, the channel was requesting similar configured pricing structures on other products as they realized the added benefit to their sales model. |
Jim Payne is president of S-Market Strategies of Rochester, New York. He has more than 25 years’ experience in all aspects of services management and marketing. Jim’s innovative strategies, programs, and tactics have provided increased market penetration, growth, revenue, and profits for businesses such as IT, healthcare, entertainment, graphics, and government markets for both direct and channel sales. He is currently the AFSMI Finger Lakes Chapter president and the International Awards Task Force marketing chairperson. For more information, you may reach Jim at 585-368-0567 or jimpayne@smarketstrategies.com. To obtain an expanded white paper on this important article topic, visit .
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