All vendors promise the moon but when the going gets rough...do yours hang tight or fly by night? CRN's recent Annual Report Card looked at various partnership criteria, including partner support. Here, Behan, a principal in KPMG’s channel compliance services practice offers advice on selecting a great vendor partner.—Jennifer Bosavage, editor
Key to a solution provider’s market success is having good partnerships with its vendors; an effective channel management process goes a long way toward that objective. A strong channel management process can help protect brand value and offers the proverbial win-win situation, enabling the products and solutions to sell at a premium, and also enabling a solution provider to upsell other products, services and support that meet the customer’s needs.
Channel management can also strategically control pricing, which can slow price erosion (a major issue for IT companies). In addition, the robust monitoring of the relationship helps to prevent diversion and the risk of gray marketing, (where products are leaked or diverted outside of the authorized channel). Perhaps most importantly, effective channel management helps create and maintain customer loyalty. Simultaneously, the solution provider/vendor relationship is strengthened, protecting the investment by both of them in products and post-sales service and support.
Solution providers should be looking for their vendors to be considering four key areas as part of an effective channel management program:
• Channel strategies and programs
• Partner onboarding
• Transactions reporting and incentives
As an IT solution provider, it is important that you look for the following characteristics in your vendors’ channel strategies and programs:
First, do they develop and align sales, channel strategies, and any
channel-led post-sales services and support arrangements with your corporate goals? That can include defining the partnering approach, such as vs. parties in each region vs. a few global relationships, or formal versus informal partnerships, with first- and second-tier relationships.
Second, have they formally defined their sales strategy and shared it with you? This enables a clear understanding of how products and services will be allocated to solutions providers by the vendor.
Third, have they designed and offer specific marketing and incentive programs (such as price protection, special pricing, volume targets, etc.) that encourage the solution provider to exhibit the right behaviors and reach market targets? That includes having clearly defined program terms and conditions, reporting, claims verification and payment processes.
Fourth, do they offer service and support programs that let you offer your own branded or their brand of services and support to the ultimate end customer?
And finally, have they developed and do they enforce channel partner policies (to ensure a level playing field for competition between solution providers), including:
• Defining reporting requirements (e.g., POS or sales out, inventory and level of detail)
• Defining channel segments (direct vs. indirect)
• Policies and expectations aimed at decreasing gray marketing or counterfeiting
• Communicating expectations related to compliance with applicable laws and regulations, and expected ethical behavior
• Requiring periodic reviews to effectively monitor service and support quality
Successful solution providers should expect their vendor to require them to be subject to a robust onboarding program as it signals the commitment to a strong relationship. Solution providers should be prepared to undergo a thorough partner vetting or due diligence process that can help lower the risks inherent in the new partnering agreement.
The process may include gathering information on ownership and other related parties, credit checks, and service and support qualifications. Also, solution providers should expect that some of their vendors will conduct pre-contract reviews to evaluate potential partners’ ability to meet reporting, performance targets, and other contractual requirements.
Transactions Reporting and Incentives
Solution providers will also want to ensure that they have the systems and processes in place to accurately manage and report the information required, such as POS, inventory, support service renewals, and customer support activity. If the process can be automated, it should reduce the risk of errors and time required to respond to reporting questions. This ensures that the solution providers finance, sales, marketing, supply chain and service and support organizations will be able to meet the needs of the various Vendor stakeholders in a timely manner.
Do the vendors have the required monitoring systems to help maintain the integrity of the channel and your business relationships? Having appropriate monitoring can ensure the identification of potential “red flags” or errors such as incomplete reporting sales spikes, sales in/sales out discrepancies (vs. reported inventory), below target attach rates and inefficient support performance. All of those could indicate reporting problems which could impact the timeliness of your program payments.
To be effective, you should expect vendors to leverage experience from other similar vendors to:
• Use data analytics to identify red flags
• Develop a robust “risk ranking” process for identification of issues and potential partner review
• Promoting training for its partners to communicate and clarify the expectations of working together to ensure channel compliance
• Use third parties to perform a channel partner review to identify and validate reporting and incentive program issues, etc.
• A defined consequence management policy that considers potential issues and helps ensure equitable and consistent treatment of partners often resulting in recoveries of inappropriately paid amounts and clarification of relationship expectations going forward.
True Partnership = Success For Both
Solution providers should expect their vendors employ an active channel management program that includes structured processes to maintain integrity and consistency and help optimize the success for both the solution provider and vendor. Active channel management is critical to help mitigate risks and drive total value-add solutions to customers. Also, channel management can help protect margins and enhance revenue by mitigating these risks and encouraging vigilance over the channel to minimize the incidents of gray marketing, unauthorized services and support, plus counterfeit product sales that may damage the authorized channel (and the vendor’s brand which in the end will impact the solution provider’s ability to sell product).
Ultimately, successful relationships are based on a true partnership between the solution provider and its vendor.