Although manufacturers in 2003 will generate 40% to 60% of the estimated US$1.1 trillion of global IT sales through business partners, many face a significant competitive disadvantage from outdated or dysfunctional channel strategies, according to ChannelEdge.
Technology vendors sell directly (through their own sales force or company-owned outlets) or indirectly (through dealers, distributors, resellers and other partners). Such indirect outlets are commonly grouped into a sales category called 'the channel', along with other business partner relationships needed to deliver their IT-based solutions. While such channels exist in nearly every industry, they are most prevalent within the technology sector.
Bad channel strategies?
According to Ketchum, many high-tech companies employ obsolete and unproductive channel strategies, and fragmented communication across the channel often sparks confusion and conflict. This problem costs the industry millions in lost revenue and profit while damaging relationships and even losing valued customers.
"Vendors often regard these partners as operational liabilities rather than strategic assets," adds Janet Waxman, vice president of hardware channels at IDC. "But interest in the channel is accelerating and, in the not-too-distant future, we predict that Wall Street will judge a technology supplier heavily on how effective (or ineffective) its channel strategy is." According to IDC's research, current challenges to channel strategy include:
- Customers are buying (or want to buy) in ways that companies are not yet able to provide for.
- The need for a total solution rather than component products is forcing suppliers to form ecosystems that involve many different types of channel and alliance relationships
- Business partners' roles and expectations are shifting, triggering frequent channel conflict
- Fragmented communications across the channel creates confusion, leading to significant lost opportunities
- Companies find themselves competing with their own channel partners
- Companies run the risk of reducing margins through competitive sales strategies and the inability to sell solutions.
IDC estimates that more than 90% of technology vendors are targeting the small and medium-sized business (SMB) market to help increase sales. But the firm's recent study, IT Partnering Survey Q1 2002: Meeting the Needs of the SMB Channel Business, indicates that vendors face several big challenges. While almost 70% of partners focused on the SMB market are generally optimistic about their revenue potential over the next year, almost half state that fulfilling partner programme requirements is "very difficult".
The study also suggests that vendors aggressively pursuing the mid-market may be making it harder for larger partners (i.e., those with more than US$5 million in annual revenues) to compete, resulting in only one-third of these companies anticipating revenue growth in the next year ahead.
The study confirms that SMB-focused partners are an important element of a vendor's strategy to deliver customers a complete solution, with 60% of these organisations selling both hardware and software compared to only 40% of partners focused on enterprise accounts.
"Our research has highlighted the significance of effective partnering as a key ingredient to success for technology companies," said Dennis Philbin, IDC's senior vice president for new business initiatives.
ChannelEdge, an initiative which helps companies define and deliver effective channel strategies and communications, is a joint venture from IT research firm IDC and public relations firm Ketchum.