Resist The Urge to Sell More Product
Transactional products are losing value, and that means vendors must get more creative in how they approach the market with commoditized products.
By Larry Walsh
The age of transactional product sales through the channel is coming to an end. Simply put: It’s not profitable for partners – particularly mid-tier and large organizations – to sell single-digit margins products, even as a loss leader.
When vendors think of partner profitability, they often limit themselves to what they can do to influence the revenue of their partners. This namely comes in the form of either discounts or incentives. They don’t consider the cost of the partners in selling low-margin products. For many partners, commoditized products aren’t profitable unless they can sell in large volumes. And, even then, margins remain slim.
Yet, vendors persist in trying to cajole partners into selling more product. The reason is transparent: Vendors – specifically product, sales and channel managers – are incented and measured by their volume of product shipped and revenue generated.
Selling more product through the channel is getting harder for many vendors as partners are increasingly less interested in handling goods that increase their cost and have low contributions to profitability and valuations. Instead, partners are shifting greater focus to services. And when partners do think about selling products, it’s increasingly in the context of service delivery or aggregated and integrated systems.
Even in many managed and cloud services, commodity products are a requisite for delivery. Try reaching any cloud service without an endpoint device – smartphone, tablet or PC. Try managing terabytes of data backups and expedited recovery without local controllers. Try having Internet access without WiFi access points and local networks. Hardware is utilitarian even if it’s fully commoditized. Hence, you can’t have services without the underlying hardware infrastructure and endpoints.
Likewise, commodity products are requisite for complex systems, too. Systems integrators, managed service providers and advanced solution providers architect systems that rely on vendor products as components. Even though the individual products may hold limited value, their sum generates tremendous value because of the output (what the customer gets) from the collective system.
Still, vendors persist in developing incentive programs with the singular aim of selling specific products irrespective of use cases or value propositions. They measure program performance based on generated revenue. And they’re sorely disappointed when partners fail to meet revenue expectations.
Rather than focus on product sales and the corresponding revenue, vendors should recognize there is more value generated by relevancy and entanglement with partners than simply the dollars they pump back into the system.
For instance, if a vendor may find long-term success and higher returns by working with systems integrators in designing repeatable systems for different workloads. Every time the systems integrator builds a workload-based system that is standardized on the vendor’s products, they generate revenue.
For service providers, vendors should work to identify services opportunities and delivery systems that partners can incorporate into their business models. The more services partners sell, the greater their capacity needs become. And the greater their capacity needs, the more revenue that flows back to the vendor.
For managed service providers, vendors can workout systems in which customers can easily acquire product independent of the service. This will help MSPs by eliminating low-value pass-through revenue, but credit them for referring sales to a fulfillment partner or marketplace.
When products – particularly hardware – have no to limited value, vendors must get more creative in how they approach partners and the market. Vendors must resist the urge to create programs designed solely to push product sales. Throwing a bunch of incentives at partners may produce some short-term gains. The better value and return on investment will come from strategies that create long-term value for partners as well as customers.