Enablement Is More Important Than Margins

With strategic investments, vendors can steer partner conversations away from margins and monetary incentives.

By Larry Walsh

Let’s all take a deep breath and recognize something, once and for all: Customers aren’t that interested in your product, and they’re only vaguely interested in your brand.

It’s true.

According to a study by The Hackett Group, 55 percent of IT buyers are willing to pay more for products and services that deliver better experiences and outcomes than they are for products based on brand reputation and features.

Ultimately, customers want better outcomes. If you’re selling them Big Data solutions, they’re not interested in the underlying software; they’re interested in the intelligence produced by the software. If you’re selling them security, they’re not interested in the firewall or the intrusion prevention system; they care only about whether they’ve been breached. If you’re selling them backup systems, their concern is the retrieval of their data in the event of a loss or disaster. If you’re selling ERP, they care about components getting to factories and orders getting filled.

And the list goes on.

For years, vendors told partners not to sell products based on speeds and feeds or the features and functions of products. Instead, vendors advocate that partners engage in “consultative selling” – getting customers to buy products by creating “solutions” to their problems and challenges. (That’s how opaque terms like “solution provider” and “trusted advisor” were born.)

Vendors recognize customer demand for value-producing systems, which is why the top investment for 2018 is developing new partner training programs and expanding existing ones. Vendors are looking to provide partners with the skills they need to compete.

But vendors need to take an extra step. They need to incentivize go-to-market activities and behaviors by making enablement programs – inclusive of training, marketing support, service development, and market intelligence – a benefit alongside, or in place of, traditional monetary rewards.

As I noted in last week’s blog, “Envisioning a Future Without Transactional Partners,” the average partner earns as much as two-thirds of its revenue from some form of professional, cloud, or managed service. And professional services often carry margins of greater than 50 percent, whereas hardware and software margins are less than 10 percent, on the average.

If the value partners deliver is what they do with vendor products rather than the products themselves, enablement and incentive programs need to shift focus in this direction and not put it purely on product sales. And partners need to recognize that non-monetary incentives are equally important as margins, spiffs, and rebates – if not more so.

Back in 2010, CompTIA asked me to help facilitate an exploratory workshop on cloud computing in the channel. The association gathered a diverse group of vendors, distributors, and partners to discuss what it would take for partners to engage in the emerging cloud market. At nearly every turn, the partners would say that vendors weren’t giving them enough margin to sell their cloud services.

After a day-and-a-half of this back-and-forth debate, the CompTIA sponsor turned to me and said, “Do something; this conversation is going nowhere.” I divided the room into two groups, placing all the partners in one group and all the vendors and distributors in the other. I told them to go into neutral corners and spend an hour coming up with ideas to solve this problem: “Assume the vendor surrenders no margin on its cloud services. How do you [the partner] make money?”

Taking vendor margin out of the equation stimulated lots of ideas. Partners recognized that they would participate in the cloud-market opportunity one way or another. They brainstormed dozens of concepts for how to make money on vendor products and services even when there was no direct financial incentive. Vendors, for their part, recognized that partners could add value, and that they needed to provide the access, tools, and know-how to effectuate support services.

Partners can brainstorm, but they don’t always have the resources and know-how to create new services from whole cloth. Vendors can apply their resources, expertise, and wealth to the development of research and development programs, training, support, and market intelligence. Through these resources, vendors can decrease partner risk, lower barriers to entry into new markets, and help facilitate new revenue streams. Vendors can maintain the partner relationship while simultaneously feeding the discrete revenue sources that make partners independent and healthy.

Vendor investment in technical insights, service architectures, and market intelligence shouldn’t come for free. Vendors can provide those non-monetary benefits to partners based on their level of engagement, sales performance, and commitment to programs and business plans. If vendors can substitute monetary incentives with non-monetary benefits, they can change the conversation from one that begins and ends with margins to one that focuses on the power of enablement.

Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.