Pointers For Eliminating Channel Friction

All channels have friction costs, and we think of them as the costs of doing business. But friction costs seem way higher in the IT channel than in any other industry. One example of friction involves deal registration. Many vendors have extensive registration programs, where solution providers sign up for a job, demonstrate their qualifications and get first dibs in the form of special pricing or other benefits.

Sounds like a good idea at first--after all, doesn't registration protect value-selling resellers from lowballing interlopers? But think how much it costs to run a nationwide registration program not just in terms of design and development, but in ongoing monitoring, dispute settlements, filings and so on. To make matters worse, these programs don't always work. At least that's what we hear.

Friction costs are, in essence, the cost of mistrust. Trust in the channel is low because almost everyone has been burned at some point--from vendors to distributors to solution providers. Other friction costs that seem out of whack include policies that require solution providers to pay for certification programs, channel access or technical assistance. And then, of course, there's the cost of writing and protecting contracts.

Why are friction costs in IT so high? Lots of reasons. Unlike other industries, the IT sector has countless new products and technologies, each carrying its own registration, certification and channel programs (all of which stay in flux due to short product life cycles). It's also a large numbers game: There are so many jobs in IT, so many customers and so many resellers that vendors simply can't exert much control over what happens within the channel. Moreover, no one wants to get burned again, so channel players safeguard their involvements with complex contracts. And, most vendors are still chasing Dell, so they're trying to minimize the channel's involvement, which has created fluctuating rules of engagement and channel programs.

How can friction costs be reduced? In other words, how can trust be re-established so everyone can drop their guard and work together?

That's a tough one, but we have a couple of suggestions. First, forbearance. That just means quit taking advantage of the other party for short-term gains. Vendors should stop breaking their own rules of engagement; distributors should stop going direct around solution providers; and VARs should stop playing multiple suppliers off one another opportunistically.

Second, strive for stability. Vendors can help reduce confusion in the channel by having stable reseller programs.

Third, and most important, enforce policies. When vendors don't enforce their own policies for certification and registration, it creates cheating on the other side of the fence. After all, the vendor's role is to protect its channel. If vendors monitor their policies and clean things up a bit, it will give solution providers both the ability and the desire to trust the channel. Then, friction costs might begin to go south.

DAVE GILLILAND is associate professor of marketing at Oregon State University and STEPHEN KIM is associate professor of marketing at Colorado State University. They engaged with the CMP Channel Group on a study to compare the evolution of the IT distribution channel to that of other industries. This is the second of two commentaries.