IT Vendors Make Broad Changes To Channel Strategy

T firms of all types have been leveraging the channel for more than a quarter of a century to augment the sale and delivery of their offerings and to more cost-effectively extend their market reach and expertise. During the past three years, however, there has been a measurable increase in the attention paid to channel programs by many IT vendors and providers. Additionally, many IT firms that had never seriously considered building a channel program have gotten into the game. Several factors are contributing to this enhanced focus, including economic pressures, efforts to gain a foothold in the SMB market, a focus on vertical and emerging global markets, and an increased demand by clients for solutions.

In an attempt to optimize the results of their channel initiatives, IT vendors are refreshing channel strategies and retooling channel-organization models. Gartner recently conducted research with channel-recognized IT vendors to determine how they are changing their channel strategies and models.

As seen, the primary strategy for the channel programs of these companies tends to be to expand market reach and depth, or to grow revenue and profits. In addition, channel-segmentation strategies are primarily based on markets. This market segmentation can be built around specific geographic markets or by the size of the companies being targeted (i.e., enterprise, large, SMB or consumer). Distribution strategies of IT providers find them using an average of more than 18 distributors globally for a wide variety of distribution, logistics and support functions. Global channel strategies typically find a consistent, unified worldwide strategy, incorporating regional or country-specific adaptations. IT distributors play a significant role in the global channel and go-to-market strategies of IT providers. Finally, channel-compensation strategies are witnessing the emergence of loyalty-based elements.

The vast majority of IT providers are leveraging channel partners for increased penetration into specific vertical markets. This strategy is aimed particularly at the huge and fragmented SMB market, where many IT channel companies focus and offer experience and tailored solutions for specific verticals. The primary criteria used to select these sales-channel partners are geographic coverage, technical expertise, having a sales team willing to focus on the vendor's offerings, and vertical-market expertise and knowledge. IT vendors also are starting to concentrate on IT channel best practices as a component of optimizing the results of their channel programs.

Two prevalent best practices to focus on include ensuring program simplicity and increasing partner loyalty. Expected changes to channel strategies during the next couple of years include the tiering of margins a partner can earn based on commitment (loyalty and wallet-share), altering MDF programs to tie them directly to results, and joint business planning and increasing partner-profitability opportunities, specifically through increasing the service-related opportunities for partners.

In response, one of the most significant changes seen in the channel programs of IT providers is the collapse of multiple programs into a single program. This is intended to improve the simplicity with which a partner can navigate the program, provide a single point of contact within the vendor's organization and enable recognition for partner contribution across the entire scope of the vendors' offerings. In addition, the program focus is going from a volume model, in which partners are recognized and promoted based on increased revenue, to a value model, where partners are rewarded for contributions beyond volume.

Traditional channel-organization structures under which vendors have operated are no longer appropriate and effective in this changing IT business environment. Thus, IT providers are implementing channel-organization changes in an effort to effectively capture new market opportunities, attract new partners, and increase the productivity and loyalty of existing partners. Channel-program structures are evolving from a traditional triangular (or pyramid) model, in which the majority of partners who reside in the least valuable (lowest) tier are engaged primarily for driving sales volume and are managed at an arms-length relationship, to a diamond-depicted structure, in which the majority of partners who reside in the middle tier are engaged for their value and expertise, and are treated on a more strategic level.

Michael Haines ([email protected]) is research vice president of Gartner Dataquest.