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Channel conflict - poaching customers
Post #1
02-22-2005, 11:09 AM
garyh
Site Member (current)
We have overlapping Reseller territories in several cases. The good news is sales in these regions usually get much better when the competition is there. Resellers do a better job with new and existing customers. But Resellers place orders from the other reseller's customers. Our policy has been, you get the order, the customer is yours. From a customer service standpoint, this is much easier to fill the order than to reject it because it is not their customer and just change the reseller name. The ugly part is in one case it is turning into a price war. The money comes out of their pocket, not ours. The customer gets a good price, but the value of our product is reduced in that region. The obvious solution is to ban poaching which creates much more work in the home office because it still will happen.
Any creative suggestions?
Post #2
02-22-2005, 12:03 PM
Ken Beam
Moderator
Channel conflict is generally self inflicted...
Are there any conditions or restrictions in your reseller agreement (contract) that apply to exclusivity, territory, industry or other identifier of "assigned" region? Do you have something to fall back on when a reseller is committing grand-theft poaching based on price alone? I'm guessing, no.
Do you also sell direct and, if so, are they also struggling with this counter productive reseller's practices?
There are a number of actions you can take that should reduce your Channel conflict problem short of dumping the problem(s). It's too late for the first option - "Plan your Channel to avoid conflict".
In between those options you've got reseller discount tiering, end-user (1 year or reviewable based on merit) Volume Purchase Agreements (VPA) registered to an assigned reseller, deal or opportunity registration with rebates or bonus discounts, vendor/agent agreements with paid invoice rebate to agent, etc.
With little exception, I have a very heavy handed response to repeat instigators of partner-to-partner Channel Conflict - regardless of their "on paper" contribution to the revenue stream; and have found that when the problem was either resolved or removed (my personal favorite) overall profitability went up and remaining partner loyalty soared.
I’ve published a good deal of information regarding "The Hidden Costs of Channel Conflict" and would be happy to make it available to you.
Get Mean ...and, Good Luck!
Channel Cheers,
__________________
Kenneth G. Beam
Team Captain
The VAR-City
"
...solving the Partnership Puzzle"
Phone: 972.240.8793
Web: http://thevarcity.com
Email: kbeam@thevarcity.com
Post #3
02-22-2005, 01:25 PM
garyh
Site Member (current)
Self inflicted - absolutely!
Thanks Ken,
In most cases the poaching is within the Resellers territory. We get mean when they go outside the line. We don't do exclusives, but some territories are only one Reseller. The threat being that there could be another.
We do not sell direct at all. And due to the techical and sales capability of both, it would be difficult to pick one to kill. Both are poaching and getting proof that they are doing it on price is difficult.
We don't want to go back to one, because history has shown us that 2 small resellers have more feet on the street than one larger one ever would. Plus the fear of losing to the package you sell, keeps them on their toes.
Annual contracts are coming up in a few months so it would be a good time to put in some stronger language. Even though ot means more work and policing for us, we may have to assign a reseller.
The "hidden Costs" you mentioned is a good idea. Thanks.
gary
Post #4
02-22-2005, 03:21 PM
Ken Beam
Moderator
Stronger language to prohibit (as best you can) poaching and identify violations of their reseller agreement is always a good thing. If they balk at stronger language you should remind them that it's to protect their customer base, not restrict it. They're welcome to go out after all the new business they can consume.
If these two, or any two, are on a regular basis, busy bickering over who gets a particular invoice they're not doing their job of evangelizing your product to the masses and generating incremental business for you or themselves.
Is it possible that we're talking about one particular end-user who is playing the two against each other time and time again? If that's the case, unless either of the Value Added Resellers can establish their value add to the customer well enough to earn their business - I'd take the account direct and avoid the time wasted arbitrating their spats. I know, you don't do direct, but if they can't stop abusing your time and diluting margins...take the order.
If it's a case of a new end-user customer each time, then something just doesn't sound right. Are the disputed sales coming from leads that you generate and hand to both of them to take their best shot and close?
Would you mind sharing your primary products' price point (at list), the average sales cycle and any services to implement your product? What does your product do? Probably should have asked this earlier - could you briefly profile your reseller type, e.g. integrators (hw or sw), retailers, Ma & Pa Dell and Citrix shop, or...?
In addition to deal/opportunity registration with rebates, you might consider a "new business" uplift offering; but, I'm still not clear on how many resellers you have or your product and lead delivery model. I’m sure I must be missing something important here.
Channels are far more demanding and difficult to manage than any end-user account, no matter how you cut it...you will be required to work hard and police the group.
As I mentioned earlier, the best way to avoid reseller-reseller conflict is to have designed a partner program that clearly identifies boundaries from the beginning, whether they're geographic, vertical, named account - whatever works best for your product and Channel infrastructure...and enforce your rules of engagement without favor or delay. If you need to make an example of a chronic violator to reduce your time in arbitration - so be it! There are other resellers out there who understand the meaning and compromises of a good partnership - go after them.
__________________
Kenneth G. Beam
Team Captain
The VAR-City
"
...solving the Partnership Puzzle"
Phone: 972.240.8793
Web: http://thevarcity.com
Email: kbeam@thevarcity.com
Post #5
02-22-2005, 05:40 PM
cfrancisvoice
Moderator
I think long term you are creating relationships problems by allowing your resellers to poach. Potentially resellers will leave you if they perceive you are treating them unfairly. Worse case, they can hurt your reputation. As a business owner that is not a risk I would want to take.
I would stipulate "named accounts" once a reseller as made the first sale to a customer. They should be allowed to work their relationship inside that account without risk of other resellers trying to scoop the business.
__________________
Colleen
Engage Selling Solutions - Inspiring Results
www.Engageselling.com
Post #6
02-23-2005, 07:43 AM
garyh
Site Member (current)
This is great stuff!
Thanks both. Here are some answers.
Reseller retention is not a problem. Over 90% of our Resellers have been with us for over 15 years. In the 13 years I've been here, we've had one move to a competitor. We have canceled Resellers due to non-performance, but that happens more internationally.
This is not often a new customer, usually existing which is harder to hide from us. Within the territory we do not allow a special price from us because of competition unless it is proved that the competition is not our product. So we do not take a financial hit. An end user playing resellers for price? Yes, especially in Asia which is a different set of problems. And it is lost on the reseller that if they do it once they will always have to do it.
We are a PC-based CAD/CAM developer. The Cam end is support intensive especially during startup. A reseller needs to become an expert and the customer base is unusually loyal which is why the Resellers retention is so high. Many Resellers only sell our product and perhaps a few complimentary add-ons, others sell a CAD only product as well. Some sell machine tools which is the industry we are in. Our top Resellers are 20 person companies usually in a great geographic location, our next level is 5-10 employees, and 60% are 1-5 employees. Price range is typically $5000-$15000 depending on application. Sales cycle probably averages out to 2-6 months, though a surprising number are less than 30 days. When they need it, they need it now. Thanks again,
gary
Post #7
02-23-2005, 08:57 AM
Ken Beam
Moderator
Thank you Gary, that was very helpful. It sounds like you have a very healthy and productive reseller Channel with some nagging pains that appear to have more negative impact on the reseller than your organization.
Your policy of - "...get the order, the customer is yours.", would make good sense in this case. The Channel Conflict issues you've described shift more to the competition spectrum than conflict. Although, when you're on the receiving end of the loser's frustration and grief...that's little consolation.
When it's all said and done, the customer owns the right to decide who they buy from and they can often be the original flash point for conflict. Also respect your decision not to provide additional margin in "non competitive product" scenarios...it discourages more bad behavior.
Since this is more of a reseller problem than yours (your invoice is the same regardless of the discount offer they used to buy the business), would it make sense to let them help you craft the solution?
Sometimes peer pressure fortified by a Reseller Council can be effective. I would not recommend this course of action with a younger Channel, but I'm sure these people know each other very well, and perhaps they could unite to craft a citizenship position paper for the partner community. These councils include each of your resellers and they elect their own governing body who becomes the partner pipeline to your organization. It can be as formal or as informal as you wish.
When (some of) the responsibility of managing their own behavior is placed back on them it's surprising how things can suddenly get ironed out...and you're not the bad guy.
The downside is that they can start feeling too powerful and demanding, it's tricky to manage but can be effective.
Another option might be to tie ownership to the account through the reseller who sold the maintenance contract. Or put a site maintenance contract on the table for the squabbling resellers to fight over. The end user should choose the VAR best capable of serving their shop and enterprise needs and if you linked a VPA with the site maintenance that might reduce the conflict disputes to one annual event instead of every sale.
Or, maybe the end user could designate their preferred reseller, and for a one year period place orders directly. The designated reseller receives the margin delta following paid invoice.
My experience is, this is a problem that can often be solved behind closed doors between the offending resellers and their (empowered) Channel Account Manager. As the Channel Account Manager I determine who receives which leads, it's my call...and they will go to the customer (VAR) who makes my life the easiest. I decide how and when they can use their MDF; I decide who joins us in the booth at a trade show.
Deal, opportunity or customer registration with a guaranteed rebate (regardless of who the end user buys from) is becoming a more popular option these days – but could pinch your profits a wee bit. Question is, does a simple solution to the problem with less backend involvement justify (or offset) a few more percentage points?
Channel Cheers,
__________________
Kenneth G. Beam
Team Captain
The VAR-City
"
...solving the Partnership Puzzle"
Phone: 972.240.8793
Web: http://thevarcity.com
Email: kbeam@thevarcity.com
Post #8
02-23-2005, 02:22 PM
garyh
Site Member (current)
Thanks again.
We had come around to several of your suggestion roughtly about the same time. We were thinking of bring them in, and working it out together.
We are also debating ownership by maintenance contract at this point also.
Another thought that may help slow it down was when it did happen, half their commission would go to the other Reseller as consolation. Although that could encourage it to happen again.
We do split leads, so as not to invite the problem, and we have used loss of leads as punishment. Although, these days people tend to go direct to a Resellers website instead of stopping at ours to ask where to buy.
Thanks for your advice though, it's been a great help.
If there is some resolution in the near future, I'll let you know the results.
regards,
gary
Post #9
02-23-2005, 02:33 PM
Ken Beam
Moderator
Happy to help, please let us know how your final resolution works out. Would also enjoy hearing of any other clever options you may come up with...it's a great assistance to all of us.
Channel Cheers,
__________________
Kenneth G. Beam
Team Captain
The VAR-City
"
...solving the Partnership Puzzle"
Phone: 972.240.8793
Web: http://thevarcity.com
Email: kbeam@thevarcity.com
Post #10
02-23-2005, 08:14 PM
LisaMoody
Moderator
Don't forget the customers in all of this, perhaps they wanted to switch to a different provider. I've had situations where I want a certain software solution but found the originating reseller to be inadequate and switched to a different one. If you gave credit to the original one, I would have left as a customer.
In one company, we used to verify this directly with the customer and if they were the ones who instigated the switch, we would have them sign a very brief form stating so and make the switch in our system and communicate to both resellers. This served two purposes, gave us the intel about what was going on and gave the resellers feedback about things that were driving the customers to the other reseller. It made the playing field more level.
Lisa
Post #11
02-24-2005, 12:51 PM
garyh
Site Member (current)
Generally the first thing a Reseller would tell us is the customer wanted to change. The customer is is our next phone call. And now that the Resellers realize this, that excuse is not used as often. If the customer is not happy with his current reseller, we ask for the reasons in writing. Sometimes we get it, sometimes not. More often, price is the reason.
We try our best not to put the customer in the middle but sometimes we have to tell them they have to work it out with the original reseller. In most of these cases there is still some financial issues between the customer and the original reseller.
The problem is small enough in the US that it is not a full time job, but it is a monthly task somewhere. Internationally, language complicates it and all we can usually get is the Resellers side.
Thanks,
gary
Post #12
02-24-2005, 04:00 PM
LisaMoody
Moderator
Make the new reseller get the form signed by the customer, that will REALLY cut down on it .
Do like Tempurpedic does with their mattresses -- they don't allow their resellers to sell it for another price, the price is set and that's what you pay regardless of where you buy it. Ever noticed that you can't find Tempurpedic on sale, that's why. That will eliminate price wars and force your resellers to focus on customer service to keep their clients.
Lisa
Post #13
02-24-2005, 04:24 PM
Ken Beam
Moderator
Let me sleep on that one....hmmmm?
Lisa has brought up a good point...as usual.
To carry that scenario one step further, I again return to the Volume Purchase Agreement (VPA) concept. Instead of fixing the price for the resellers, it might be safer to fix a pre-negotiated price for the buyer in a manner similar to the Federal GSA Schedule.
If you have a good repeat end-user, and they're willing to commit to an annual minimum purchase agreement, you can offer a special (at reseller margin plus a few points) price to that customer based on a volume agreement. The end-user always knows their price and even shopping it around won't bring a better discount, thus taking the partner conflict out of the equation. Offer the partners a "customer satisfaction" rebate that will, as close as possible, make them whole on the deal.
This will pinch your profits somewhat, but in time saved and continued partner loyalty, those hidden costs I mentioned earlier and soft dollar costs could - in the long run - offset the thinner margin.
With this approach you won't have to concern yourself with whatever partner tiering and associated discounts those levels may currently offer, and simply establish a new class of customer for your resellers to work into their sales strategy.
__________________
Kenneth G. Beam
Team Captain
The VAR-City
"...solving the Partnership Puzzle"
Phone: 972.240.8793
Web: http://thevarcity.com
Email: kbeam@thevarcity.com
Post #14
02-25-2005, 09:58 AM
garyh
Site Member (current)
All good suggestions, but...
We have quite an interesting market.
The funny thing about having the new reseller manage the form is that the excuse tends to be the same, and pre-printed. We've found calling the customer is usally best, but in a few cases, the sentences were verbatim from the last one. These cases are dealt with and the reseller is spanked.
There's a blurry line betwen product and service to get the correct output for the customer's machines. Fixing a price can impact the resellers service program as it is often quoted as a bundle to provide a specific solution.
The majority of our customers are small shops. They would not commit to a VPA, nor would they necessarily need to buy something every year other than annual maintenance. Good idea for our larger customers but not a good fit for our smaller ones. I personally do not like discounting maintenance as it becomes forever not just one time, and devalues your product.
In our market, refusing to deviate from a price can often mean a lost sale. These days the person making the decision is often not the user, and may perceive all the bids on the table just another brand of pencils. So the Reseller while not deviating from our price, would cut somewhere else. It's definitely a buyers market in our industry today with a lot of similar competitive products.
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