Distribution, the “Other” Channel Partner… by Tom Burns

It happens frequently; I hear a discussion or read an article about the benefits of ‘leveraging the

channel’ yet almost inevitably distribution is quietly missing from the dialogue. As a long-time

channel advocate who’s worked both inside distribution and with distribution as a vendor

partner, I understand how to maximize what distribution has to offer. I also understand why it’s

confusing to so many.

I get it – Distribution isn’t sexy or glamorous and is often misunderstood. Frankly, opinions

about distribution vary widely. I’ve heard some executives hail it as “value add” while others

have called distribution a “tax” on vendor margins. Wherever your opinion falls, the fact that the

five largest technology distributors deliver a staggering $136 Billion in annual revenue means

that business development professionals need to understand these “Other Channel Partners”.

Obviously a successful go to market strategy doesn’t require using distribution; however,

because of the impact on things like pricing, product warranties, reseller certification- the

possibility of utilizing the two-tier model should be carefully considered when planning your

channel strategy. So, why do vendors use distribution? Let’s explore that.

Manage costs: How many A/R and credit people would a vendor need to manage the receivables

of 500 customers? How many inside sales people would a vendor need to process 100, 500 or

1,000 orders a week? What happens if volume drops or spikes? Selling through distribution

effectively outsources much of the sales, credit, inventory warehousing and shipping activity to

the distributor. In exchange for these activities, distributors are paid by vendors through the gross

margins collected via sales. In this way the vendor can have finished inventory in the channel

available for sale without incurring the fixed costs associated sales and product fulfillment. It is

not unlike other activity based business models like Cloud.

New business and customer acquisition: Distributors generally have thousands of resellers that

buy a variety of products from them. One of the most difficult and expensive challenges for

vendors is finding new customers to sell their product to. Simultaneously, distributors are

looking for new products to sell to their existing customer base. It’s a great cross-sell opportunity

for them when your product is complementary to another vendor’s product. Distributors can

identify customers that are buying those complimentary products as well as find other customers

with similar characteristics and help you to market to them.

Trend spotting: A valuable bi-product of multi-vendor sales aggregation over time is data. If

segmented and analyzed properly, it can provide useful market feedback on trends. While this

information needs to be calibrated for various biases, distributors can provide unique insights

into markets.

Sometimes it’s required: Some large Direct Marketers mandate vendors below a certain revenue

or investment threshold to be aggregated through distribution. Knowing who these partners are

and properly setting up the pricing model ahead of time is critical - failure to do so will either

upset your channel pricing or cost you profitability.

These are just a few basic reasons why vendors work with distribution and while all of this is

simple and makes sense, you may still ask how do I get the most out of distribution?

Know thyself: Every vendor should have an honest understanding of ‘who they are’ within the

market (think Michael Porter, SWOT, etc.) and what they aspire to be. Attributes like brand

power, high value vs low cost, solution vs commodity, complex vs simple and the competition

level are important to know and use to create your go-to-market plan. Don’t under estimate the

need to repeatedly evangelize your value proposition to the distributor and their resellers in a

succinct, simple manner.

Distributors are not created equal: Choose the right tool for the job. Distributors differ by who

they reach, how they reach them and what they charge to reach them. Some have direct

relationships with end users while others consider it a strategic tenant not to have those

relationships. Some have many small branch locations across North America promoting more

face to face interaction with customers while others use a centralized approach and rely more on

phone and email communications. Some have a GSA schedule, some offer professional services,

some offer contract manufacturing services and some offer technical support. Bottom line: there

are some great distributors out there with very different capabilities and therefore selecting the

partner that is the best fit and winning and maintaining their attention is important.

Have measurable goals and the right resources to support them: Each new year should begin

with establishing a few clear, measurable goals. Every business goes through cycles and the

goals should target objectives to reflect that, such as; reestablish brand dominance, maintain

share against competitors, grow revenue, grow margin, acquire new customers or cross-sell

deeper within existing customers. Obviously an adequately resourced go-to-market plan is

critical to achieving the desired results. Distributors have many options to influence behavior like

rebates, spiffs, project registrations, headcount funding and organization sponsorships to name a

few. Regardless of the activities you select, make sure you identify the desired measurable

outcome and follow up quarterly to track the performance.

Common vendor mistakes and advice: Do the necessary pre-work, be prepared and know what

you want to accomplish. Ask questions, especially if you’re not sure who the best distribution

partner is for you. Don’t put inventory in a distributor’s warehouse unless you’re ready to help

sell it or take it all back in 3 months. Adhere to the Routing Guide, it will save you reconciliation

issues in the long run. Create programs that incentivize the key influencers. Stay involved by

meeting quarterly to evaluate the business and make adjustments as necessary. Always support

the reseller and end customer.

Ultimately, managing distribution requires focus and you should be mindful as well that you are

competing against hundreds of vendors for their attention. In the end, if you can get it right,

distribution can be a force multiplier for your business.

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Here is a partial list of some of the more prominent North American distributors (in alphabetical

order): ADI, Almo, Anixter, Arrow, ASI, Avnet, Blue Star, D&H, Graybar, IAVI, Ingram Micro,

Petra, ScanSource, Stampede, Synnex, Tech Data, Wave, Wesco