Is Your Product “Channel-Friendly?”
Great products need distribution channels in order to be a great success in the market. All too often, however, companies and its product managers consider channels as an afterthought to the product development process. This often leads to disappointing revenue growth and a product manager left wondering what went wrong.
So how should executives and product managers factor in the business drivers that are essential to driving sales through and with channel partners? This article offers eight recommendations based on practices of high tech companies that have proven most effective. I gave a talk on this at the Silicon Valley Product Management Association this month. Download the slides here.
What motivates the channel sales rep?
Let’s start by understanding the channel and its sales representatives. If you are a vendor, you see the channel as a route to market for your products, a way to distribute your product. If you’re a customer, you see the channel as the place where you buy products and get service. Channel sales reps, therefore, are focused on their customer relationship not yours. The typical channel rep represents over 40 products/services and an equal number of vendors trying to woo them with promotions, special sales incentives, bonuses, and marketing activities to spur demand. Reps see their quotas increase every year but aren’t given more pre-sales technical resources.
That means channel reps will only focus on a few hot selling products that they know will close quickly. The onus is on the vendors, you, to make their product incredibly easy to sell, easy to buy, and easy to use. It’s your job to make your product their #1 preferred product to sell.
What should I expect from the channel?
Most tech executives and product managers have an entitlement attitude when it comes to channel sales. They don’t appreciate that channel reps face the above challenges and many
competing demands for their attention by companies that may not even be your direct competitors. So here are eight recommendations that will help you shift your team’s thinking from entitlement to enablement. With apologies to JFK, you might “ask not what your channel partner can do for you, but rather ask what you can do for them?” A service oriented attitude and tactics have proven to get far better results than demanding performance.
Do you have a compelling, one sentence value prop?
One of the most successful tech companies to leverage the channel most effectively is VMware.
They went from zero to over $100M in sales in less than four years almost purely based on channel sales. One of the ways in which they did that was to simply the product value proposition. Here it is ““Bring unmanageable server sprawl under control by using virtualization to run multiple workloads on fewer servers.” That’s it. Short. Sweet. Effective. Do you have a similarly simple
Do you offer attractive margins for the channel?
If reps are motivated by quota, they are often equally motivated by “gross profit margin” targets that their company sets in order to maximize sales of the most profitable products. Here are some rules of thumb that we’ve seen from studying some of the best tech product companies: They offer at least 30% discount off street price (the actual price the customers pay not the list price). They pay 5-10 % of annual support contract because they see that the channel should be rewarded for repeat business. Vendors offer 5-10% for “deal registration” which means extra
points for bringing a new customer. And finally, they offer at least 2% marketing distribution funds. So how do your incentive practices measure up to these?
? Copyright Sridhar Ramanathan Pacifica Group