ASK CHANNELNOMICS: Direct or Indirect?

At Channelnomics, we field questions about best practices, partner strategies, and channel programs every day. In this series, we’ll be exploring the questions we receive most from vendors. For this debut edition, we address customers’ interest in buying technology assets and services directly from vendors.

Question: Should vendors consider shifting more sales away from the channel to adapt to customer preferences?

Here’s some background. Gartner G2 says that 70% of end customers prefer buying technology products and services directly from the vendor rather than going through resellers. The same report says only 8% of buyers prefer sourcing products through resellers. Is the market truly shifting from direct to indirect sourcing?

Answer: The assertion that end customers prefer a direct relationship is well-founded. Channelnomics research finds that more than two-thirds of IT buyers would rather buy products and services directly from their vendors than go through channel partners. SMBs are even more likely to seek a direct relationship, with more than 70% preferring direct purchasing. Four out of 10 large and multinational enterprises prefer direct relationships.

Customers across the board believe they’ll get a better price by going direct. When Channelnomics surveyed Global 2000 companies, 54% said they choose to buy direct because they prefer pricing transparency and consistency. When Channelnomics surveyed SMBs, 44% gave the same response.

These numbers support Gartner’s reporting, but the Gartner number doesn’t tell the whole story. Whether to buy direct from vendors depends on circumstances and need.

Customers are less likely to buy direct when they require expert support in selecting products, implementing solutions, integrating with other systems, or managing their solutions and services. According to Channelnomics research, 56% of end customers purchase through the channel when they need deployment and integration support. Another 37% will buy through channel partners when they want to consolidate the purchasing and relationship management.

In other words, complexity drives customers to the channel, where they find expertise at scale.

Partners are increasingly attuned to this dynamic. The overwhelming majority of customers want the option to buy technology products and services online through e-commerce portals or third-party marketplaces. After years of worrying about Amazon and other marketplaces eating into their businesses, an increasing number of channel partners are welcoming Amazon’s ability to transact low-value, low-volume sales. They say marketplaces and some direct transactional sales are cleaning up the market so they can focus on high-value complex engagements.

Management teams are often lured into considering a shift to more direct sales because of customer preferences and the perceived cost advantages. Direct sales, though, are almost never less expensive than indirect sales. Moreover, the direct model can’t scale at the same rate and cost as indirect selling and support models. Channelnomics recommends considering the total cost to serve direct models versus indirect models before committing to a shift in go-to-market strategy.

Have questions? Our CiQ analysts have answers. Send your inquiries to info@channelnomics.com.