Tuesday, April 13, 2004
Issue: Recognizing Oppressed Channel Partners
I read a Financial Times column by Amity Shales last week on a flight from London to Seattle. It was about Peruvian Economist Hernando de Soto's research on how businessmen in developing countries view outsiders as threats unless they are included in the formal economy. This article made me think about the similarity to vendors channel programs, and how they often drive legitimate partners into grey markets. Many channel programs today go to great lengths to exclude legitimate customers.
Small partners, resellers and influencers alike are pushed out of programs because they no longer meet value-added criteria. Usually this is caused by the natural progression of the Technology Life Cycle, not by any specific reseller activity. However, once outside of formal programs, the reseller has no incentives to promote your products or support your supply chain. Further, the vendor has no tools to manage the account’s behavior. Worse yet, like the oppressed entrepreneur, the reseller may decline into irrational anger against the arrogant vendor.
While I am a believer in tiered programs that support key players for their contributions, the “you do not belong” mentality often spills over into the broad channel. Excluded from even minimal recognition as an unmanaged account or alternative channel, these companies are pushed to the very edge of the channel ecosystem.
What are the costs to vendors of exclusive practices? It's not uncommon for unauthorized resellers to move as much as 20% to 25% of a vendor’s product. Furthermore, the margins on unauthorized product can be 10% lower than authorized products. Finally, the anger directly reduced brand equity and increases sales and marketing expenses.
All together, lost sales, depressed margins and diluted equity may erase millions in channel profits that could be captured with a more inclusive approach.
Scott Karren, The Channel Pro
I read a Financial Times column by Amity Shales last week on a flight from London to Seattle. It was about Peruvian Economist Hernando de Soto's research on how businessmen in developing countries view outsiders as threats unless they are included in the formal economy. This article made me think about the similarity to vendors channel programs, and how they often drive legitimate partners into grey markets. Many channel programs today go to great lengths to exclude legitimate customers.
Small partners, resellers and influencers alike are pushed out of programs because they no longer meet value-added criteria. Usually this is caused by the natural progression of the Technology Life Cycle, not by any specific reseller activity. However, once outside of formal programs, the reseller has no incentives to promote your products or support your supply chain. Further, the vendor has no tools to manage the account’s behavior. Worse yet, like the oppressed entrepreneur, the reseller may decline into irrational anger against the arrogant vendor.
While I am a believer in tiered programs that support key players for their contributions, the “you do not belong” mentality often spills over into the broad channel. Excluded from even minimal recognition as an unmanaged account or alternative channel, these companies are pushed to the very edge of the channel ecosystem.
What are the costs to vendors of exclusive practices? It's not uncommon for unauthorized resellers to move as much as 20% to 25% of a vendor’s product. Furthermore, the margins on unauthorized product can be 10% lower than authorized products. Finally, the anger directly reduced brand equity and increases sales and marketing expenses.
All together, lost sales, depressed margins and diluted equity may erase millions in channel profits that could be captured with a more inclusive approach.
Scott Karren, The Channel Pro
