Manufacturers' inside sales versus Channel Partners; the good, the bad and the ugly
I received a call from a CIO this weekend while playing golf, the call started on the 11th hole and went to the 17th hole. He has been working with a good channel partner but received a quote from the manufacturer inside sales group on a renewal purchase. First he was confused as to why they would have inside sales agents working with customer when they have channel partners and why would the cost be less than the channel partners cost. He was confused of whom to go with and asked me if this was a trend that I was seeing where manufacturers would be going with more inside sales and moving away from the channel partners, just using them for warranty work if needed.
I gave him an example that I had this past month, I gave a price to a customer which was 12% lower than an inside sales representative from a manufacturer of mine. The customer was talked into going direct with the manufacturer by the representative. One week later I received a call from the company needing help and I told them to call the company direct, they own the relationship. Here is an example of the good for the customer where they got what they wanted by going direct with the manufacture. The bad was what it did to our relationship with our customer and now the manufacturer who is taking more and more customer direct by using inside sales. The ugly for them was that they lost a relationship with the partner who is local and can help them.
Another was when a director of security for a local company thought they were getting a great deal from a manufacturer and would not even allow me to give them a quote. They had it in their mind that they knew everything and what was best for the company (it was the god complex some people have when they have a title). They come to find out later that the manufacturer did not give them the big discount compared to what the partner would have given them. The partner would have saved them $19,000 dollars on a multi year renewal. A $500 dollar dinner, a round of golf or free shirts does not match up to $19,000 dollars in savings they could have saved.
So going back to the CIO's last question, I see the channel partnerships going away down the road. Manufacturers need either to be a full channel or do inside and outside sales. Having this conflict is a problem for the customers and the partners, but right now it seems that they do not care. Any manufacturer who has a channel should never allow a customer to go direct; they can always pass special pricing to a partner.
Let's face it, for companies to stay in business down the road they will need to remove the channel to make more money and control the discounts. Think how much Cisco would make if they did not have channel sales, everything was direct and they could sell product at only 10 to 20% off list and not more. I would love to own the stock if they did that.
Please tell us your views on inside sales versus partners and what you see.
Larry Chaffin Ph.D is the Chief Executive Officer/Chairman and founder of Pluto Networks, a Consulting and VAR partner specializing in WAN Acceleration, VoIP, WLAN, Telepresence and Security and a Riverbed reseller. Pluto Networks specializes in the needs of small, large and enterprise companies by always giving them a great ROI on the products they sell. Pluto Networks has a presence in 23 countries around the world enabling all of its consultants to be virtual. Larry was a Judge at Interop for the Best of Interop Awards for 2009 and is looking forward to the 2010 awards in Las Vegas.
Larry has also co-authored all of the books listed below:
Managing Cisco Secure Networks, Skype Me, Practical VOIP Security, Configuring Check Point NGX VPN-1/Firewall-1,Configuring Juniper Networks NetScreen & SSG Firewalls,Essential Computer Security: Everyone's Guide to Email, Internet, and Wireless Security, How to Cheat at Microsoft Vista Administration, Microsoft Vista for IT Security Professionals, Asterisk Hacking, 2008 VoIP and Video Conferencing, Infosecurity 2008 Threat Analysis and author of Building a VOIP Network with Nortel's MS5100, along with co-authoring/ghost writing eleven other technology books for VIOP, WLAN, security and optical technologies. Larry is currently working on a follow up to Building a VoIP network with Nortel's MCS 5100 Book as well as new books on Cisco Telepresence Networks, Practical VoIP case studies and WAN Acceleration with Riverbed.
Larry also has more than 29 vendor certifications and has been working on many others. Larry has been a principal architect around the world in 22 countries for many Fortune 100 companies designing VoIP, security, wireless and optical networks. He has expanded over time also to include application acceleration. Larry is working with worldwide company now out of Asia as a Special Assistant to the CEO and CIO as they go through organizational and network changes, helping them with strategic advice from his years or experience. Pluto Networks is a channel partner of Cisco, ProCurve, LifeSize, Riverbed, Call Copy, Fastsoft and Symantec.
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The Channel
Having worked for a large manufacturer for many years, supporting both outside sales and the channel, and now work for a partner, I see more than ever the need for the channel(excluding fulfillment partners). Two reasons; 1) A manufacturer needs the channel to reach the high touch SMB's. A large manufacturer cannot maintain their large growth while employing costly sales reps and their comp plans to chase 5-50K deals that are so common in the SMB. It's wiser to have fewer reps working the 500K and up deals to make the number.
2) The channel is a real extension of the manufacturer's sales, marketing, and technical force.
Partner's, who do just more than fulfillment, field many calls and customer questions that never make it to the manufacturer which frees up the manufacturer's resources to better support their large customers.
This is IT, it depends..
Working an all the three sides, manufacturer, channel and customer (sometimes) - it really depends on the product and your business. Software is often easier, buy or build. In hardware (and combined software) it gets a little more complicated. I would say, if you just need a product and support, go with a good(!) channel. Manufacturer might be less expensive but not all of them can offer the same level of support as a channel can. In some cases it takes much longer, needs more steps, etc when asking the support from manufacturer. Now - there is an option to "partner" with a manufacturer. This is sometimes a good option and almost a must when changing / integrating platforms, creating future systems, needing more HW resources for testing or creating new systems than a channel can offer (or doesn't even have yet!), and so on.
So - as always, it depends. I think the only "hard" rule is to check the conditions regularly and be flexible, good channels go bad or sometimes lose the manufacturer connections, good manufacturers go bad or just change their view whereas a channel may find alternatives to continue the way you want, etc.
Re: This is IT, it depends..
I agree. To partner with a manufacturer is great and key for long term strategy. However, how many customers have the luxury to do that? Very few unfortunately.
To the defense of the manufacturer, I know they cannot scale to supply that level of strategic customer partnership with everyone.
Agreed..
Yes, I agree. I'm just wondering this. I used to liaison between some big manufacturers and customers. Not that I would recommend that job for anybody - it is a hectic life, 24h/day globally and you never know where and why you are next day - heh! But it worked and I don't see channels offering this much anymore or customers even asking - it's mostly very product specific and monoculture today? As they would have all the solutions already and just to buy a product?
I honestly think that too often a technical solution is sold as a business solution today? None, not even the big ones, IBM, HP, Sun, etc can offer everything and, as I previously said, you sometimes have to mix and match, almost no business can live with one solution. An experienced help from channel, liaising could help them a lot as long as the business goals are kept in mind.
To do that in-house is, as you say, a luxury not many can afford or maybe don't know how? It's amazing to what manufacturers do if they see a (future) profit in it. Just don't get stuck to one, not even in mainframes. And the best part is that the competing manufacturers actually work together, not seen by or shown to customers, but business is business and the fierce competition between then can be used as a benefit. They want the business, if not all then at least a part of it thinking that maybe later they will get it all.
Liaison
Personally, I think that is the goal of capable partners but hard to come by. Even for the manufacturer! How many partners or manufacturer's would walk away from an opportunity knowing their product is not a good fit? 1 in 10 probably. The common phrase thrown around is for partners, and manufacturers alike, to become "trusted advisor's". Why? More sales and more profit! Like you said, "Business is business". End users many times are skeptical for obvious reasons like; how I do the liaison or manufacturer has my best interest in mind? The truth, not many do. So, they rely on independent industry experts to provide, at no cost, guidance and recommendations or hire temporary consultants.
"Trust Advisor's" are those organizations or individuals who not only deliver right solutions but are those who are willing to say they messed up, when they do, and stick around to fix it!
It should be one or the other
I work for a vendor who has a very large inside sales team, we are always in conflict with our partners. My company hired inside sales to first help drive more business to the partners, then it became more sales and quota based for these people. The company passes on some leads to partners but not the big ones.
I know of a small partner who worked for 8 months on a account, started to do some quotes and then our account team saw home much money they could make if they took this world wide company direct. They went to the customer direct, under cut the partner and made up some bad excuse that the customer requested to go direct.
That was a flat lie, I know I was the inside sales person taking the heat from the partner.
Inside Sales: A Helping Hand
The company that I work for really supports our channel partners and don't ever attempt to take an account direct. The reason has to be compelling in order to take the account direct. The customer has to be disgruntled or just pricing just too aggressive to support through a channel. More often then not a customer opts to remain with a channel partner and our company supports those decisions.
I think any company that thinks they can support all their customers well without any help is borderline delusional. I like working as inside sales for the manufacturer. I know I am helping our bottom line by helping our channel partners.