Channel partners can help you extend your reach
If you are a manufacturer or producer of goods and services, channel partners can help you reach customers you might not otherwise be able to because of your size, available resources, or operations. Channel partners come in many forms depending upon the complexity and appeal of your product offering. By working with channel partners, your business can increase “feet on the street” or the number of people you have helping to build market awareness and market share.
Types of channel partners
The channel represents all the companies in between the manufacturer and the end-user or consumer, which means they could be a:
- Wholesalers and Distributors (who sell to other resellers)
- OEMs (Original Equipment Manufacturers) who sell to consumers
- VARs (value added resellers) and retailers
- MSPs (managed service providers)
- Consultants (recommend the product)
- System Integrators
Each channel partner is a different legal entity and may reach their customers in different ways. Some operate online and offline; others may be one or the other, or focus on different geographical regions. Some provide a high level of service while others may provide little, focusing on offering a variety of options or keeping a lower price point for their customers.
Have a contract
Similar to working with a strategic alliance partner, make sure you have a contract in place defining the terms under which you do business together. Make sure delivery methods, ownership, time-frame, use of intellectual property, communications, territory, payment terms, and other aspects, which may be important to your business and your partner, are addressed to eliminate confusion and possible legal action down the road.
Develop a channel partner program
Create a program that supports your channel partners in their selling efforts. Unlike a strategic alliance, channel relationships are typically one-to-many. The program you devise must have selling terms that entice many partners to want to sell your product, which typically means offering a discount off the retail sale price that’s typically charged. Discounts vary by industry and product, but 40% discount off retail for wholesalers and large distributors is common with system integrators, resellers, and consultants receiving anywhere from 3% to 35% off retail depending upon their level of involvement or quantity sold.
Avoid channel conflict
Each reseller or intermediary is going to be interested in the amount of money they can make from selling your product and will want to make sure you don’t:
- Undercut them by selling the product direct to the customer at a price below theirs
- Have too many resellers or distributors in a geographic region
- Use a particular distribution model (via web only, etc.) that limits their ability to sell to end users
With each intermediary wanting to reach customers with their own methods to extend their reach, channel conflict is something that may arise and will be an issue you’ll need to resolve.
Ongoing channel support
Once your channel partner program is defined, continue to educate them on new or complementary products, industry trends, and customer wins. You’ll also want to keep up your outreach efforts to recruit new partners to increase “feet on the street.” Knowing where to increase your marketing dollars and how best to incentivize your channel partners to attain larger sales objectives can be challenging.
Maximize your investment
Determining which distribution channels to pursue is important. Prioritize the distribution channels by assessing which ones provide the best return on investment, have the least amount of competition, or meet criteria such as geography served or available manufacturing capabilities. Is an open or closed distribution channel best? An open distribution channel serves more types of channel partners than a closed one where the number is limited by a criteria you set – such as certification level, occupation, sales volume, or other factor. The distribution channels and partners you select will ultimately affect your bottom line so these are not considerations to take lightly as you seek to maximize your investment.
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