Partner Loyalty Is a Fleeting Target
To gauge partner value accurately, vendors need to look beyond loyalty to profitability and wallet share.
By Larry Walsh
The technology channel is fixated with the notion of partner loyalty, or the probability that partners will remain committed to selling a vendor’s products and services.
Loyalty is a fleeting target, and an ill-defined metric for channel and partner success. Instead of examining partner loyalty, vendors should measure “share of wallet” and “profitability contribution.”
Partner loyalty has been a part of the channel lexicon from nearly the beginning. While no one can pinpoint when loyalty became a paramount measure, it probably happened sometime after 2003 following the publication of the Harvard Business Review article, “The One Number You Need to Grow,” in which Fred Reichheld, Bain & Company director and author of the book, “The Ultimate Question,” outlined what became known as the Net Promoter Score (NPS).
NPS is a simple measure of customer loyalty, with engagement measured by the percentage of customers actively promoting your products versus those actively advocating against your brand. For the purposes of this discussion, I won’t get into NPS mathematics, as they’re well documented elsewhere. Suffice it to say that NPS is now a common measure of customer satisfaction and loyalty – or propensity to continue buying.
[ctt tweet=”Gauge partner value by measuring ‘share of wallet’ & ‘profitability contribution.'” coverup=”Bpc5b”]In the channel, the accepted belief is that partner programs with high NPS ratings have more engaged partners, which leads to higher levels of sales productivity.
The evidence is to the contrary.
At 2112, we’ve applied various satisfaction metrics to vendor programs and channel performance. What we’ve seen is that partners give largely low satisfaction and NPS scores to their vendors and still remain highly engaged, productive, and profitable. On the other hand, 2112 has seen vendors struggle with partner engagement, even as their channel programs earn high satisfaction scores from partners.
The disconnect stems not from a problem with the metric itself, but from the failure to take into account which partners are being measured and their operational circumstances.
Partners – resellers, systems integrators, solution providers – engage with vendors for a variety of reasons, but mostly because of products. Partners respond to market demands and customer need, so they form relationships with vendors to meet their accounts’ expectations. It’s entirely possible that a partner will have a strong relationship with one vendor and an equally strong relationship with a competitive vendor. In other cases, a partner may have zero loyalty, but remain engaged with a vendor to capture a sale rather than risking the loss of business to a competitor. In some cases, a partner may just need a vendor product to complete a home-grown solution, but doesn’t treat the relationship strategically.
[ctt tweet=”Vendors should look beyond loyalty, & measure partner performance in context.” coverup=”y3Inc”]In other words, partner performance and loyalty are often circumstantial. Loyalty scores and their importance will change depending on the partner and its operations and goals.
Vendors should look beyond loyalty, and measure partner performance in context. Partners can be great contributors, even if they’re working equally well with competitors. Partners also can be underperformers if they’re loyal but not advancing sales.
Share of wallet and revenue contribution are important measures, reflecting the relative size of the vendor’s business with individual partners. Vendors could have significant loyalty from a partner, but that’s largely irrelevant if the partner isn’t generating significant sales or the vendor doesn’t have a significant piece of its business.
Another measure is profitability. Channel sales cost money. A reseller that generates sales while minimizing vendor costs (hard costs such as discounts and special pricing, as well as soft costs such as sales support and marketing resources) is a better partner than a solution provider that consumes more resources and generates low sales yields.
2112 doesn’t advocate abandoning partner loyalty as a measure of channel performance. Instead, we believe vendors should look at the totality of partner performance metrics and apply appropriate measures to the different types of partners in their orbit.
Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.