Loyalty Taken To An Extreme Can Be Very Dangerous

During the past several weeks, the VARBusiness team has been on the road visiting companies that participated in our Annual Report Card (ARC) survey. The main purpose of our visits is to take the valuable feedback solution providers gave us on each vendor and discuss those results in detail with top channel executives and, in many cases, corporate executives who run sales, marketing or overall strategy. It is a time-honored tradition, and a fascinating--albeit tiring--experience.

No doubt, vendor executives take the results of our study seriously. They possess a keen interest in the opinions of their solution-provider partners for a variety of reasons. Chief among them is their desire to grow sales of their products and services through the channel--not exactly an earth-shattering observation. Still, those on the vendor side believe if they can master channel satisfaction and harness the good will created by that effort, they should see an increase in product flow through the channel. A happy channel, they presume, is a loyal channel.

Yes, there is a strong correlation between satisfaction and loyalty, considering many of the ARC's top winners had high loyalty scores. But there are so many other factors that can get in the way of success, such as product-quality issues, availability and partner conflict. The reason I bring up loyalty is that many of today's leading vendor executives say they are focusing on building programs and incentives to generate more loyalty in the coming year. That's a change from years past, when loyalty only received polite attention from, say, the executives at Maxtor or Intel. Today, those same executives have discovered loyalty like Johnny boy finding a new bicycle under the Christmas tree. It's shiny and holds such promise. Expect your vendor partners to play the loyalty game in the coming months.

That, of course, can manifest itself in myriad ways. Let's take the benevolent, loyalty-building strategy that comes in the form of incentives, rewards, tools, personal coddling, tech training and other assorted goodies. Yes, administering it is a headache, but expect your distribution partners to play more of a role in that process. So, for example, the more Maxtor storage you sell, or the deeper the commitment you make to the vendor, the more Maxtor is going to provide you in soft and hard dollars.

Now, not every vendor is playing Mr. Nice Guy. Hewlett-Packard, for example, is using terms like "doubling down" when it comes to generating loyalty. HP CEO Mark Hurd, like many CEOs, wants solution providers to make a deeper commitment to his platform and products. "Sell more of my software, and I can get you better terms on your hardware," they say. Sounds reasonable. "Help me penetrate the midmarket, and I can help you connect with my services division," they add. What a wonderful leverage point--logical and one that has to scare the dickens out of the single-product players.

The question is: Will what they say work? For every stroke of the loyalty pen that, say, HP makes, other vendors can counter with innovative programs of their own--and they better get out in front of this trend fast or they will lose ground.

That said, while it's easy for vendors with broad product portfolios to have such one-stop-shop dreams, the reality is solution providers want to carry a broad product selection for their customers, one that offers the best possible solution for their problems. VARBusiness 500 CEOs have often told me that a one-vendor solution does not always instill confidence in a customer that the best possible choices are being presented. Sure, companies like HP and IBM have a great many tools in their boxes when it comes to playing the loyalty game. At the same time, solution providers--along with their investors, boards and bankers--don't want to be overly reliant on one vendor. In a heated exchange at our recent VARBusiness 500 Roundtable, several CEOs pressed hard on an executive who had built a business around a single vendor. It's too risky, they warned. They nearly brought this executive to his knees before he caved in, realizing he had taken loyalty to an extreme.

Second to loyalty on the priority list of vendor executives is the issue of profitability. No, not exactly your profitability overall, but the amount of margin you make by product line. Yet, it is most likely that loyalty and profitability go hand-in-hand. After all, what self-respecting VAR is going to be loyal to a vendor or product that isn't a money-maker?

A Tale of Two Allisons

Two of the industry's most powerful executives--who share the same name but spell it a tad differently--are embarking on new endeavors. Allyson Seelinger, who ran Symantec's domestic and worldwide partner program for several years, has decided it is time to step aside and walk away from the security of the security business. She will clearly be missed by the channel and vendor community. Seelinger was one of those individuals who found herself in the right place at the right time, and she did the right thing. She helped build Symantec's channel during the boom in the security business; -in the past four years alone, its stock has risen nearly sevenfold (factoring in splits). Seelinger is truly one of the nicest people in the business and is going out on top. Succeeding Seelinger is Julie Parrish, who is no overnight sensation. Parrish ran 3Com's channel at the apex of its satisfaction, and quietly worked her way up the ladder at Veritas where she eventually got the corner office, along with responsibility for the company's channels.

Now, the other Allison goes by the last name of Watson, and now in addition to running Microsoft's worldwide partner program, she has picked up responsibilities for the company' Worldwide Small Business Group. With this move, Watson gains enormous stature inside the company given that much of Microsoft's business revolves around the needs of small businesses. She is also integrated with key product executives, including Jeff Raikes and Ray Ozzie, which bodes well for the channel. Watson has brought in a slew of new executives and turned over responsibility for the Microsoft Partner Program to Sherle Webb-Robbins, a longtime Sun executive who joined Microsoft last September. The implications of this move for partners are enormous, and Microsoft is going to have to clearly explain how Allison's new role and structure are going to benefit them.

Let me know what you think of the loyalty factor, as well as the Allyson/Allison news, at [email protected].