Vendor reliance on indirect channels increases

Posted by Mike Vizard on Feb 9, 2017 11:00:00 AM

indirect channels.jpgA new report issued by the Global Technology Distribution Council (GTDC) finds that 62 percent of the vendors surveyed expect the amount of business being generated via indirect channels to increase in 2017. The bad news is only 13 percent of those vendors rely 100 percent on channel partners to sell their products.

Most vendors profess a lot of love for their channel partners. But the terms of that endearment is generally limited by concerns those channel partners might not be as faithful to them as they would like. That insecurity often results in vendors investing in various forms of direct sales efforts that almost invariably lead to some form of conflict with their channel partners.

The degree to which those vendors manage that conflict varies considerably. Many vendors consider channel conflict to be a cost of doing business, part of their overall efforts to participate in as many deals as possible. The assumption is that they will be able to make partners whole in the event a small number of deals that partners are pursuing get poached via a direct sale.

Direct sales conflicts

The issue partners now face is that vendors' direct sales efforts are no longer limited to a professional sales staff knocking on a customer’s door. That issue can be mitigated by vendors simply making the compensation of that sales staff channel neutral. The direct sales representative still gets paid when the deal is ultimately fulfilled by a channel partner.

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Where things have become more complex is with the rise of e-commerce. To spur more business in a quarter, many vendors have taken to suddenly dropping prices online. That price drop is often not communicated to partners, who wake up one morning to discover that a customer they've been wooing for months purchased the same products online. Obviously, that issue could be resolved with more advanced warning and better communications. But all too often vendors' online teams operate in complete isolation from the rest of their channel organizations.

The real source of annoyance isn’t so much the lost product margin. It’s the disruption of the relationship between the partner and the end customer that creates all the angst. Partners make a mental note of how often that disruption occurs because over time it serves to increase their total cost of sales in ways vendors don’t often see or appreciate.

Benefits of channel-only vendors

Of course, there are vendors that are 100-percent channel. Many partners tend to prefer working with those vendors because they know a lot of the agita associated with being a partner is eliminated. Unfortunately, it appears from the GTDC report that vendors pursuing that model are in the minority. That’s bad for both the overall channel community and the vendors because studies have shown time and again that pursuing direct sales often winds up being less profitable over time than indirect sales.

Clearly, not enough vendors have the patience or financial wherewithal required to develop an indirect sales model. At the same time, however, partners might want to start demonstrating just how little patience they have for vendors that are too lazy to make the investment needed to create a profitable channel ecosystem for all. After all, when most vendors examine where and how their profits are generated it suddenly becomes obvious just how indispensable channel partners really are.

Topics: IT Services Trends

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