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Program With A Double Edge

The pros and cons of volume-based discounting.

The number three. Three represents the number of times a topic has to surface during my conversations with channel chiefs or partners before, in my mind, it qualifies for investigation here in the IPED column.

This month, the topic that reached that tipping point is volume-based discounting. Let me get right to the question at hand. For the average solution provider, is a volume-based discounting scheme to your advantage, i.e., your friend, or does a volume-based discounting scheme impede your ability to invest in new vendors and technology as it is introduced, i.e., your foe?

There is no question in my mind for a large, national or regional solution provider or corporate reseller, volume discounts are part of a larger, comprehensive contract that may or may not include funded vendor staff on-site, marketing campaigns and other investments tied to a revenue target. Further, the discount schedule incorporates greater discounts commensurate with the size of the revenue commitment and subsequent performance. When vendor discounting is set in this fashion, the discount advantage of the higher-volume reseller is carried into the product distribution ecosystem, making it difficult for the average solution provider to compete. For the typical solution provider, this is where your ability to design a solution to a business problem up front, fulfill the product sale and then implement the solution separates you from the pack of pure resellers.

Let’s, however, focus on a program specifically for solution providers. For the partner program that offers the largest discounts to and through the highest levels, there is the potential for the “large to become larger,” meaning the largest resellers are entitled to the largest relative discounts and are, therefore, competing at a price advantage when compared to the solution providers in the lower levels of the program.

Contrast this to partner programs that offer enablement, marketing and sales support that vary by program level: The discount is tied to partner business model and role, for example, a discounting scheme for partners who resell, a separate discounting scheme for partners who embed, a scheme for partners who distribute, etc. In this model, partners of similar business models are on “equal footing” regarding discount and, therefore, pricing. The competition for the customer becomes one of partner capability and value rather than one of price.

So is volume discounting good for you? The answer depends. If you have completed your certifications and achieved revenue volumes with a vendor utilizing volume-based discounts, you are likely at a price advantage to other solution providers, and this works for you. The program is your “friend.”

If, however, you are considering adopting a new vendor or technology and you find yourself at the bottom level of the partner program where discounts are relatively lower, you are now at a disadvantage in selling a new and, what may be critical, technology. In this case, the program is your “foe.”

The barrier to entry is high for new partners when a vendor offers a volume-based discounting program. It is difficult for you to add new vendors and for vendors to add new partners. For this reason, we see the industry trend of “capability”-based partner programs and separation of the discount from the enablement program benefits.

Have you had a different experience? Let me know.

BACKTALK: Contact SVP, IPED MarketBridge Alliance Rauline Ochs via e-mail at rauline.ochs@ubm.com.

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