A FEW MONTHS AGO, I used this forum to call on our industry to come together to address an issue that affects us all the economic health and viability of technology resellers.
Companies participating in the CompTIA Reseller Transformation Advisory Council have come together because they believe significant numbers of their channel partners at a minimum face failing to realize their full growth potential; and at the extreme, the threat of going out of business.
As an initial step, the council defined what it means to be a solutions provider. The conclusion: a solutions provider is an organization that provides a mix of technology-based products and services designed to solve an explicit business problem.
On the surface, that definition might sound like it includes any company thats in the business of selling technology products and solutions. In reality, there is a much wider chasm between a reseller/VAR/dealer at one end of the spectrum and a true solutions provider at the other end. The disparities become evident upon closer examination of a number of critical business factors.
Focus refers to how an organization has designed its business functional model within the scope of buying products and/or solutions from a manufacturer.
Dealers are focused on product fulfillment. Their business models are based on contractual arrangements with manufacturers to buy products and solutions for reselling based on the exact specifications and processes defined by the manufacturers. There are no add-on components and services.
The solutions provider delivers not only the manufacturers products, but a mixture of additional services that provides customization specific to the needs of the end user. These organizations employ a range of consultative and enterprise solutions that involve the design, development and delivery of additional elements of a technology solution.
Still wondering where your company fits on the dealer-solutions provider spectrum? Here are a few more ways to evaluate your standing.
The relationship between a manufacturer and a dealer is generally measured by the impact in sales, profitability or prestige the product or the partnership has on the overall business of either party.
A dealers relationship is characterized by a lower-level engagement or single dimensional relationship in which the reseller will generally make the vendors products available to its customers solely on a transactional or demand basis. There is little exclusivity in that the dealer also will sell several products within this vendors same product category. The primary differentiation is provided by the vendor through additional pricing discounts and demand-generation initiatives that go directly to the end user.
The solutions providers relationship with manufacturers is characterized by a high level of engagement between the vendor and the partner.
These types of relationships are few in number and take a great deal of time and effort to cultivate. The relationship is multidimensional and is connected to several functions within the vendors organization, such as services, sales, training, marketing and product development.
This refers to the processes by which an organization offers the manufacturers products and solutions to end users in response to a request or identified need.
For the VAR, the process is determined entirely by the manufacturer without any additional collateral or elements for the solution from the VAR. The reseller provides product information as defined by the manufacturer and allows the end user to make the decision to buy the product solely on that information. The decision is left to the end user as an individual entity. The VAR simply processes the order and supplies the requested products
For the solutions provider, first and foremost, a relationship is established with the end user that allows for consultation throughout the buying cycle. This type of relationship also is characterized by collaboration between the manufacturer, end user and solutions provider.
Traditionally, a VAR will fulfill an order within 30 days from need identification to delivery. In some instances, the sales cycle may be less than 24 hours or immediate if fulfilled through an electronic means. Typically, the demand is presented directly to the VAR without a demand-generation phase.
The sales cycle for a solutions provider is typically characterized by a lengthy demand-generation phase, followed by a solution-design phase and finally, a solution-delivery phase. The sales cycle can be quite long (more than six months) and the delivery phase will typically involve a variety of delivery mechanisms.
This aspect is generally characterized by what purpose services serve in the partners business model. For VARs, services typically are focused on basic installation and break/fix maintenance. They are often delivered via resale of packaged manufacturers offers. Solutions provider services go beyond product installation and support; and include formal offers such as consulting (IT strategy, security and business continuity), IT architecture, pre-sales design, integration, custom development, outsourcing and lifecycle management.
These programs are developed and offered by manufacturers and are designed to provide incentives to sell specific products or services.
To the far left of the continuum are salespeople who base product recommendations on the availability and richness of products spiffs. When no product specification is made by the customer, the salesperson will direct the customer to a product providing the most personal benefit to the salesperson. An organization to the left of the continuum will allow spiffs to be paid and/or credited directly to the salesperson.
For the solutions provider, manufacturer incentives like rebates, market development funds and joint marketing funds are generally treated as margin enhancement and retention programs for the business overall. Sales executives may have visibility to these programs but do not receive them directly. Market and business development programs are generally treated as offsets to sales and marketing expenses and are leveraged as part of the solutions providers greater overall investments in new market and business development.
This is the mix of instruments used by the vendor to reward the partner for either directly selling or influencing the sale of a product or service.
Compensation for dealers is typically transaction/quota-based. The compensation is driven by a cost-plus model through which the sole compensation is the margin the dealer is able to realize by selling the product over his cost. The compensation is generally limited to what is garnered from each transaction.
There are multiple levels of dealer relationships. Low-volume partners receive little compensation beyond their margins. High-volume dealers can benefit from co-op, additional discounts and rebates when they reach different levels of sales or purchases from a vendor.
Solutions providers earn their compensation on a annuity/profitabilitybased model. This compensation is made up of different components such as product margin, consulting, technical support, maintenance and renewals. Increasingly, the compensation is measured over a customers lifetime versus a specific transaction. More and more, these partners also are compensated with subscription annuities.
Another method is to relate the compensation to the influence of these partners, who will create the brand preference or provide the pre-sales function and then have the actual transaction take place through another type of partner or directly through the vendor.
Now its your turn. How do you stack up on the dealer-solutions provider scale?
We really want to know.
William Vanderbilt is vice president of Education and Training for CompTIA, the global trade association for the IT industry. CompTIAs CT Pioneers is a group of convergence solutions providers, manufacturers, distributors and interconnect dealers.
DEALER VS. SOLUTIONS PROVIDER
|Focus||Product fulfillment; no add-ons||Custom solutions, including design, development and delivery|
|Vendor Relationship||Involves little or no exclusivity; product differentiation is provided by the vendor through pricing discounts and demand-generation initiatives targeted to the end user||Involves a high level of engagement between the vendor and the partner ecompassing services, sales, training, marketing and product development|
|Product Fulfillment||Entirely determined by the manufacturer; dealer processes the order and supplies the requested products||Requires collaboration between the manufacturer, end user and solutions provider|
|Sales Cycle||Ranges from 24 hours to 30 days from need identification to delivery||Includes a lengthy demand-generation phase, followed by a solution-design phase and finally, a solution-delivery phase often lasting more than six months|
|Services||Primarily basic installation and break/fix maintenance||Go beyond product installation and support to include consulting, pre-sales design, integration, custom development, outsourcing and lifecycle management|
|Sales Incentives||Spiffs paid and/or credited directly to the salesperson||Rebates, market development funds and joint marketing funds are treated as margin enhancement and retention programs|
|Compensation||Transaction/quota-based and driven by a cost-plus model; co-op, additional discounts and rebates available to high-volume dealers||Annuity/profitability-based and measured over a customers lifetime; includes components such as product margin, consulting, technical support, maintenance and renewals|