I’ve worked for manufacturers and channel partners. The dynamic for each, particularly in technology, is an interesting one as both recognise the need for each other, yet there is almost always some degree of friction between the two.
Relationship Challenges
Manufacturers use distributors to reach smaller customers that they couldn’t service cost-effectively, while integrators and VARs provide additional services for the end customer. So there is clearly value in the channel, both in terms of efficiency and maximising the markets that any manufacturer can reach. Yet you’ll often hear manufacturers worry that their partners are favouring other suppliers, not doing enough promotion or taking too much margin.
On the channel side, there will always be concerns about large businesses going direct and the lack of support from manufacturers. That perception has been exacerbated by the advent of e-commerce which has given rise to a trend for manufacturers to support direct online purchasing, something that channel partners might feel is “cutting them out of the loop”.
Stronger Channel, Stronger Supplier
Even though there can be issues in the relationship, the reality is that manufacturers need strong channel partners to succeed. The channel remains a vital part of the way that many B2B products are sold, with partners able to drive growth with a very different set of resources than those that are available to manufacturers.
Doing Marketing “for the Channel”
We’ve seen a trend recently where several manufacturers who are Napier clients have allocated money to marketing that might traditionally be seen as the responsibility of their channel partner(s). At first, this might seem strange: spending valuable marketing budget to influence the results of partners who have their own marketing budgets and are usually also incentivised by co-op or sales performance incentive funds (SPIF).
Our clients, however, are really smart. Sometimes there are great reasons to fund additional marketing that – at first – might not seem like the responsibility of the manufacturer. Here are two great examples of how savvy clients have deployed marketing to increase their profits.
Reducing Stock Returns
Channel partners that hold stock typically have the right to return that stock under certain conditions. This might be due to products becoming obsolete, or simply stock rotation rights that allow the partner to switch out stock that is not selling. These terms make a lot of sense: the stock held by partners does boost sales figures, but there is no benefit for either the manufacturer or the partner if money is tied up in stock that just won’t move.
Unfortunately, when products approach end-of-life, there is little incentive for the channel to put additional effort into selling them: they know they can return the products without penalty when they are declared obsolete. This then leaves the manufacturer holding stock that is often unsalable. A similar effect is seen with stock rotation when new products are introduced: there is less incentive to focus on the older model as they can also be returned.
Smart manufacturers, however, can recognise a potential problem and address it before they are left having to take back products. We ran a very successful campaign with one client who was launching a new product. They knew that the new product would kill demand for the previous generation, so they ran a search campaign to maximise sales before the new product was released, thereby minimising any dead stock they would have to accept. This not only helped the manufacturer but also meant that the distributor paid more attention as they saw a nice uplift in sales, followed by the excitement of a new product to offer that generated further improvements in sales and SKU figures.
Building Communities
Channel partners are often great at building communities. In many cases – particularly if a manufacturer doesn’t have a local office – online community building is an important part of their role. Typically, they give their suppliers access to their communities for marketing purposes, and the best suppliers are quick to take maximum advantage.
We worked with a client who helped their partners build their online communities by running social media promotions encouraging prospects and customers to connect with their respective partners. As each partner was better placed to build communities in the target market, and their supplier was able to use the community for marketing, it benefited the channel partners and the manufacturer.
Real Partnerships Work
These examples show that by really engaging with, and being prepared to invest in, the channel, manufacturers can extract benefits that will deliver significant improvements to their bottom line. When marketing really engages with the channel, rather than seeing it as a necessary evil, or even competition, investing in innovative campaigns will produce a great return on investment.