This article is the third in a series exclusive to SSPA News that will concentrate on the strategies and tactics needed to be successful in selling services through channels and offers a brief look at the sales channel players and their relative hierarchy.  The articles will feature brief exerts from a book on channel marketing by Jim Payne that is scheduled to be available in the fourth quarter of 2006

If you are reading this article, I hope that the “channel” you are expecting to hear about is not the big ditch filled with water between England and 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 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