CHANNEL PARTNERS
"Getting and sustaining the attention of someone
else's sales force is a full-time job, since helping to sell someone
else's product is an unnatural act that must be stimulated constantly".
- Geoffrey Moore in Crossing the Chasm
Introduction
Most companies that are just starting to go international will do so through
an indirect channel. Vendors are justifiably proud of their technology,
and they know that anyone willing to invest their time and resources in
marketing their product will be successful. This is what a reseller hears
from everyone that comes knocking on their door, so you have to do more
than simply have a good technology. So, before starting, we think it is
important to explain how the world looks through the eyes of resellers
and distributors.
Channel partners assume three levels of risk when they take on a product
The first level of risk is the sales and marketing risk. They spend their
money to market your product, they receive a discount, and if the product
is successful, they can make a good return on their investment. If the
product doesn't work, they will have lost their investment, but this is
essentially a risk they are paid to take.
The second level of risk is what we call the "exit" risk.
This is the risk they run if the product turns out to very successful,
and the vendor either sets up a direct operation and terminates the
agreement, or the vendor sells out to a larger company, such as Computer
Associates, which sells direct. This has happened to almost every channel
partner that has been in business for an extended period of time, so
in his mind he realizes that he has 3-5 years to make money. During
the first year he invests his money, and won't get much of a return;
the second year the product starts to ramp up and he starts getting
a return, but it will be in years three, four and five that he will
make it big. Beyond that he cannot plan on maintaining a product.
The third level of risk is the vendor risk, and all experienced channel
partners will try to minimize this risk. If they sense that a vendor
doesn't know what he is doing, they will not invest a significant amount
of money to promote the product. They will sign a contract to represent
a product, just in case anyone asks, but it won't be one of their core
products.
Resellers and distributors often represent 20, 30, 50 or more products,
but in most cases make most of their money from two or three of them.
If you want to become one of their core products, it will require a
change in the reseller's internal business process, and they will only
make these changes if they are convinced that they vendor is committed
to developing and supporting a high quality channel.
Key Issues
The main issues are the same in almost every market:
* Margin
As a vendor you want to keep as much of each transaction as you can,
but if the margin or discount that is being offered to your partners
isn't attractive, they won't actively sell your product
* Technical support
Is the channel partner supposed to provide first and second level support?
At what point are you expected to intervene? Will your partner get enough
product training to do the job properly?
* Two tier distribution
Is the market large enough to justify two-tier distribution? How many
prospects are there for your technology? Can the market be segmented
according to geography or industries?
*Territorial exclusivity
Are you going to offer exclusivity? Most channel partners are going
to ask you for it. Within the European Union you cannot legally provide
geographic exclusivity, because a reseller from one country cannot be
prohibited from selling to any other country
* Channel conflict
This is the #1 issue in most markets. If you are going to sell direct,
either from the Web or through a company owned office, it is very difficult
to build a motivated channel
Basic Rules of Channel Development
*Be selective, resellers aren't
As discussed earlier, resellers are notorious for signing agreements
for a wide range of products, as long as there is no real commitment.
Make sure you qualify your prospects carefully, and don't be afraid
to say no. It is simply too expensive to support non-producing channel
partners
*Don't overpopulate the markets
Keep in mind that most markets are going to be smaller than you think.
Brazil is the 7th largest ICT market in the world, yet it is less than
2% of the world ICT spend. As another example, there are more mainframes
in Chicago than there are in any European country
*Set reasonable targets
Make sure you set targets that allow you to get rid of under-performers,
but setting unreasonably high targets only creates problems
*Don't publish prices on the Web
This is a big issue with channel partners, because local pricing tends
to vary from market to market. Publishing your prices, if they are lower
than standard international pricing, can make life difficult for your
partners
*Communicate
Absence does not make the heart grow fonder. Stay in regular contact
through phone calls, e-mails and visits
