The Pros and Cons for Indirect Sales Distribution Model

My last post talked about the direct model of distribution (one’s own sales force).  The primary advantage of direct is having control and the ability to give direction to the sales team.  The potentially major disadvantage is overall cost.  As promised, let us look at the indirect model (via reseller, distributors, etc. for sales).

 

Account control: If your don’t currently have a sales force or and do not have a branded name in the market place then partnering with a well know reseller(s) and or a major distributor(s) is a very viable option.  This allows you to enter the market place quickly and potentially at an optimized cost.

 

Product environment: If the product is relatively straightforward or the features are fairly well understood, then indirect is a logical choice.  For clarity, the indirect model can support complex products but it requires very experienced resellers/ISVs along with a well-staffed infrastructure, in your organization, to augment the indirect sales force.  Additional considerations are first, the product must be compelling and get the attention of the indirect sales force, and second, your cost structure has to be such that there can be adequate “margin sharing.”

 

Services – If you have a service that you are considering for a reseller to handle, then make sure that the service does not conflict with any of the reseller’s existing services.  If there is no conflict, make sure they are capable of handling the service(s).  The last thing you need is for poor service delivery, because it will reflect on you, NOT the reseller.

 

Customer Segmentation: One must understand that reseller(s) are usually selling other vendors (even your competitors) products; thus, you need to be very focused and selective on who your reseller/ISV/partners are going to be.  The selection criteria can be by geography, customer type, and industry or value proposition.  In any case make sure the selection(s) chosen separate the reselling partners so there is no overlap (in reality minimum overlap) coverage.

 

Marketing support: Your marketing organization needs to provide the following key functions for the indirect sales model (again, there are other functions, but I have listed the key ones):

 

1-     Probably the most critical item is to fully understand the reseller’s strengths and what drives them.  This is critical when it comes to developing and maintaining the supporting documents, presentation, collateral etc. for the resellers.

a.       Thus, the marketing material needs to be structured so that it can “modified “and presented as the resellers.

 

2-     Articulate the benefits and value propositions of the products for the reseller AND the customer.  The reseller (just like the direct sales force) needs to be “sold” on the product, and must clearly understand where and when to sell it.

3-     Competitive analysis – the reseller not only needs to know the competitive information, BUT also why your product is better for the reseller to promote than your competitor’s.

 

4-     Testimonials and reference customers – just like the direct sales force, the reseller wants to know that others have had good experiences with your product, because bad news travels fast…

 

Financial considerations:  How will you compensate the reseller(s)?  Most resellers or/ and distributors require a list price discount or volume scaled prices for the products you want them to sell.  This obviously reduces your margin, adding to the other expenses in the indirect model.  Items such as promotion, training, returns, tradeshows/events, reseller’s activities, and marketing collateral are just a few areas that should be factored into your overall financials to determine the real profitability.

 

Below is a high-level pros and cons regarding the indirect model.

 

Indirect Model

 

Functions                                Pros                                             Cons

 

Sales force                               Established/branded                No real loyalty

                                                   partner            

                                                  Good segmentation                   Potential conflicts

 

Product                                    Established markets                  No product loyalty

                                                  Established programs               One of many sold by the reseller

 

Services                                   Proven experience                        Account control

                                                                                                       Potential costly support

 

Marketing                                 Shared marketing                      Multiple marketing support

                                                   expenses                                 

                                               

Financials                                 Potentially expense                   Margin issues   

                                                  Sharing

 

In summary, as with the direct model, do your due diligence relative to your strategy and weighing whether, the pros outweigh the cons relative to your overall strategy.  However, understand that the indirect model can be very complicated, and if not thought out properly, disaster lays in the wings.

 

Next time, we will look at the direct marketing model in more detail.  Until then, you can start looking at your customer segmentation.

 

RHL 8/13/09

9 comments to The Pros and Cons for Indirect Sales Distribution Model

  • Dick

    Stay tune for the three model comparison
    Until then, happy sales

  • This is a tremendous piece of writing, im ecstatic I stumbled upon it. Ill be back down the track to check out other posts that you have on your blog.

  • lush

    Cathey. Glad to help. If you would like, send me your email and I can send off other articles

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  • no name

    A little disappointing as the author draws relatively obvious conclusions.  I would be more interested in the risks of leveraging a distribution network in this world of mergers and acquistions.  An indirect sales partner today can quickly be gobbled up by a competitor, resulting in drastic disruptions to a business.

  • lush

    Thanks for the inputs. Couple of comments, one, In our business travels, we find the majority of companies (especially startup and mid size companies) are not well informed about different channels and their impacts, thus the article. Second, good suggestion for a future posting. Thanks again

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