This award willing article was published twice intenationally. The article presents important considerations (with examples) that are needed to create and optimize channel sales of services .

1. services sales and marketing
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Selling Services
through the Channel
Not a Rut for Manufacturers
by Jim Payne
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s technology advances for hardware and
software products, manufacturers’ sales
models increasingly have migrated toward
Jim Payne is president of S-Market Strategies
selling exclusively or partially through
of Rochester, New York. He has more than 25
years’ experience in all aspects of services man- channels. The potential to reduce sales
agement and marketing. Jim’s innovative strat-
egies, programs, and tactics have provided in-
costs while increasing exposure in the marketplace makes
creased market penetration, growth, revenue, channel sales a very attractive model during times of increased
and profits for businesses such as IT, healthcare,
entertainment, graphics, and government mar- pressure to grow revenues while reducing costs.
kets for both direct and channel sales. He is However, on the services side of the business, marketing and selling services
currently the AFSMI Finger Lakes Chapter presi- through the channel certainly can be more challenging than our tangible
dent and the International Awards Task Force counterpart’s experience. The intangible nature of services necessitates careful
marketing chairperson. For more information, consideration in deciding how to convey the marketing message effectively. Sell-
you may reach Jim at 585-368-0567 or ing services through single or multitier channels can feel like playing the “tele-
jimpayne@smarketstrategies.com. To obtain an phone game” with your marketing. The services message that you are trying to
expanded white paper on this important ar- convey may be eroded by the time it is passed to a distributor, through one or
ticle topic, visit www.smarketstrategies.com. more tiers of resellers, and ultimately, to the end user.
92 AFSM International www.afsmi.org

2. With business models migrating toward stronger reli- sidering services as an obligation that requires too much of
ance on services as a means of differentiation and increas- their resources to become a significant part of their business
ing profit potential, it can be difficult and often risky to rely strategy. The channel can be segmented as follows:
on others to communicate the message that represents your • The full services channel. The full services segment of
brand value. However, if done well, the channel can provide the channel truly understands the value that services bring
an extension of your message, achieving the intended ben- to its revenue stream, stability, and customer loyalty. In gen-
efits of using an indirect sales model. eral, this channel segment has invested in the people, pro-
cesses, and training needed to position services in all of their
Channel Structures sales effectively. They maintain dedicated contract admin-
In recent years, I have spent a considerable amount of time istration staff, a Level One call center, and a depot facility
working with thousands of resellers and distributors
and talking with them about how they view
services in their marketing and sales mod-
els. Based on this research, I have been
able to develop and implement im-
proved channel programs for manu-
facturers and independent services
providers. Although resellers and
distributors manage their businesses
using many different strategies and
methods, when you dig deeply
enough, they all have certain
things in common. They generally
fall into a small number of seg-
ments that can be identified and
considered in marketing strategy
development for channel sales of
services.
Whether the channel is a
multitier distributor/reseller model,
sales brokers, integrators, or
multivendor manufacturers’ reps,
they usually have defined their ser-
vices strategy as it fits into a model that
was developed originally to position
hardware, software, or solutions. Their
services segment generally lacks adequate
strategic intent and design to take full ad-
vantage of the opportunities in the market-
place.
However, some of the most progressive dis-
tributors and resellers truly understand the value
of selling services and have made it a strategic part
of their business model. At the same time, much of
the channel still treats services as an afterthought, con-
July/August 2005 Sbusiness 93

3. selling services through the channel
Selling services through single or multitier
channels can feel like playing the “telephone
game” with your marketing. The services this segment would seem environment where a few large dis-
message that you are trying to convey may to be a lost cause for sell- tributors that sell a controlling share
be eroded by the time it is passed to a ing manufacturers’ ser- of the products in your markets could
vices, with proper consid- challenge your control of pricing and
distributor, through one or more tiers of
eration, they may be will- ultimately impact your profit potential.
resellers, and ultimately, to the end user. ing to take advantage of Although there is no magic num-
the revenue and customer ber that is appropriate for all markets,
to optimize customer relationships and loyalty opportunities that services pro- keep in mind that there is a balance
revenue opportunities. Some in this vide. The key to this segment is to be between too many and too few distribu-
segment have developed their own field sure that you are fitting your services tors to be effective. Consider how many
force, but many outsource some or all products into their model rather than you can manage effectively and the
of this function, as it can add consid- trying to force them into your model. minimum number you need to main-
erable cost to develop adequate geo- Following are some additional im- tain control with adequate market cov-
graphic coverage using their own staff portant considerations for channel mar- erage and balance.
exclusively. The full services channel keting and selling services.
also is capable of handling more com- Competitors
plex services offerings. They have ra- Talk to Your Channel Understanding your competitors’ chan-
tionalized that there is adequate rev- First and foremost, you must develop nel models and their relationships with
enue potential in a full portfolio of ser- effective communications with your the channel can be an important factor
vices options that may include profes- channel partners so that you can un- in your effectiveness. In today’s times
sional services. derstand their real needs and so that of products with similar features and
• The part-time services channel. they can understand your intentions. It performance, you must be able to dif-
These channel partners will position is important to find out what makes ferentiate your offerings with the chan-
services if the subject comes up, but them tick—do not make assumptions nel. Certainly, the channel wants to
find it challenging and would rather not about what they need or want. Many make as much money as possible. How-
complicate the sale of the hardware and distributors, brokers, and resellers have ever, this does not necessarily mean
software with extra costs that might common needs, but each market has that the channel will sell only the prod-
make them less competitive. They tend its own unique dynamics that you need ucts and services that offer the biggest
to develop shorter-term customer rela- to understand. Investing the time to de- discount. Surprisingly enough, ease of
tionships and move on to the next op- velop relationships with your channel sale is just as important to the channel
portunity with less reliance on the full will pay a return with improved effec- as profit margin. Products and services
revenue potential of customers. This tiveness and success. that are easier to position allow the
type of channel partner often can be channel to sell more with a shorter
converted to a more effective seller of The Right Number learning curve and ultimately with less
services if you help them to make ser- At first glace, it may be tempting to effort on their part.
vices sales an uncomplicated activity. sell to one or two key distributors in Evaluating your competition
• The no-sell channel. This chan- order to minimize your interfaces in a should not be done with the objective
nel segment does not sell services and multitier channel model. However, in- of simply creating parity with them.
does not want to sell services. It is not creasing the number of distributors in Finding your competitors’ weaknesses
even on their radar screen. They would the first tier that you sell directly to in their channel relationships can pro-
prefer to sell boxes and prepackaged can help ensure that your markets are vide additional opportunities for dif-
or simple solutions, and they have no broad enough to take advantage of a ferentiating your relationship with
internal infrastructure for managing wide range of vertical markets. In ad- channel partners. However, anticipate
services sales. Their products tend to dition, relying on a small number of that your competition will do the same,
be priced lower, and they rely on vol- distributors can put you in a position and benchmark your practices. They
ume rather than longer sales cycles where you have minimal competition ultimately will duplicate the good
with larger revenue potential. Although in your channel. This can result in an things you do, but they also will dis-
94 AFSM International www.afsmi.org

4. cover and learn from your weaknesses. all programs and create a more stable able to them, it is difficult to learn
Be proactive by evaluating your own relationship. in-depth details of any one manufac-
effectiveness regularly so that you can turer or product. Consequently, the
evolve ahead of your competition and Keep It Simple channel often migrates to the prod-
maintain distinct differentiation. “Simple” is the key to success in mar- ucts that are the easiest to learn, mar-
keting and selling services through the ket, and sell. This could mean that it
Needs vs. Wants channel. When you consider that many is easy to position, configure, use,
If you ask the channel what they want, resellers and distributors offer product price, or distribute. In the case of ser-
you most likely will be told that they lines that include dozens or hundreds vices, it is often outside of what they
want improved financial opportunities of manufacturers and possibly thou- consider simple, because they feel it
such as increased discounts, drop-ship- sands of different product models, their takes more complex marketing and
ping, and other features that can im- business can be very complex. With the selling strategies to position the in-
prove their profitability immediately vast number of product options avail- visible product.
without necessarily increasing their
sales volume. Offering increased dis-
counts likely will create price compe- Simplified Services Example
tition with the other manufacturers who
then will react to your changes in an In evaluating one product with poor channel sales of service, it was dis-
effort to maintain their own share. covered that the channel just couldn’t figure out how to price the service
However, if you take the time to and consequently sold it without maintenance agreements. When all of
truly understand the channel business the accessories and options were factored in, the product had 27 possible
model and what keeps them up at night, configurations that could be purchased. The 27 hardware configurations
you can develop programs that respond were enough of a problem, but when you considered all of the options
to their real needs. By creating offer- available for maintenance agreements on the product, the services offer-
ings that will allow them to increase ings more than tripled the hardware list of catalog numbers. With this
sales volumes and promote upsell of level of complexity in the service component of the sale, it made the
other products and services, they can service for the product too difficult for the channel to position.
increase sales and ultimately improve In an effort to get the service sales for the product back on track,
revenue on each sale. the pricing structures were evaluated and modified to simplify sales
Be sure to let the channel know through the channel. The new service pricing structure for the product
that you are listening, and provide feed- reduced the service catalog numbers from nearly 100 to only one. With
back on what you have learned from the redesigned pricing structure, all configurations used the same main-
them. Dialogue and feedback is truly tenance agreement catalog number with one configured price no matter
critical to a manufacturer’s short- and what accessories were purchased. Because the cost to service the differ-
long-term relationship with its chan- ent hardware configurations were actually very similar, there was no
nel. Developing and promoting oppor- real need to price them differently. A configured price was determined
tunities for allowing the channel to by taking into account the total projected revenue using the traditional
communicate with the manufacturer on pricing structure and creating a configured price that produced the same
an ongoing basis develops trust and total revenue potential.
loyalty between the channel and the The launch of the simplified pricing structure was communicated to
manufacturer. When using traditional the channel in a way that conveyed it as an improvement in response to
communication tools such as channel their desire for less complicated pricing. When the channel realized how
newsletters, the message should con- easy it was to price the service for the product, they responded with sig-
vey your desire to help the channel nificantly improved service sales. Before long, the channel was requesting
achieve success. The relationship similar configured pricing structures on other products as they realized the
should take on a tone of a team effort added benefit to their sales model. w
that can improve the effectiveness of
July/August 2005 Sbusiness 95

5. selling services through the channel
However, effectively conveying
the value of services doesn’t have to
be complex. In order to be channel-
friendly, manufacturers must make a
conscience and significant effort to
make their products and services
“simple” in the eyes of the channel.
However, it will not always simplify
the life of the manufacturer when ser-
vices are made to be channel-friendly;
depending on the situation, it actu-
ally may increase the internal infra-
structure that is required to create a
simplified service product for the
channel. But the investment can be
well worth the effort with increased
sales volume and loyalty.
Simple, Simple, Simple
When it comes to making it simple
for the channel, it should not stop at
pricing structures. Consider simpli-
fying the entire chain, including the
marketing, sales, quoting, ordering,
and distribution processes. Imple-
menting package services along with
pricing, marketing, and sales tools can
improve effectiveness, channel
friendliness, and channel stability. w
This article originally appeared in the July/August 2005 issue of Sbusiness, a publication of AFSM International, Fort Myers, Florida.
96 AFSM International www.afsmi.org