What are the benefits of moving to a solutions-based channel model?

October 3, 2011

3 Min Read
Profiting From Transformation

By Khali Henderson

In this installment of our ongoing report on the channels movement away from transactional models, we will take a closer look at the benefits of transformation.

Box pusher.” Circuit slinger.” Quote shop.” These are not the adjectives that channel partners use to market their businesses (though many still operate them accordingly). Instead, they use descriptors like: Solutions provider.” Value-added reseller.” Trusted adviser.” Why? Because these words imply that the partner brings value and has developed a relationship with the customer. Without that, partners are in a commodity sales business.

Tiffani Bova, vice president of research for Gartner Inc., explains: Transactional sales provides little differentiation and loyalty from customers. Without some additional value you will risk being forced to compete on price and price alone. Transactional sales absolutely have their place; however, [its] not a good long-term business strategy unless you have the volume to sustain it.”

The reality is that few rank-and-file channel partners fall into this category. To accelerate and maintain revenue and sustain profitability, partners need to develop solutions that add value to their customer engagements,” said Lawrence M. Walsh, president and CEO, The 2112 Group.

As noted in the kick-off to this series on transformation, the advantages of moving away from a transactional model to a solutions model can be felt throughout the customer life cycle, beginning with increased competitiveness in acquiring customers and greater success in keeping them.

Customer Acquisition Benefits

  • Greater differentiation a consultative focus not only distinguishes you from your competitors but from the status quo

  • More revenue per customer by selling a solution consisting of multiple products and services, your deal size will grow

  • Lower cost of acquisition customers are more likely to re-engage your company on future opportunities if you are more than just a quote shop

Customer Retention Benefits

  • Account protection by having a more holistic view of a customers needs, you will be less vulnerable to solutions-based competitors

  • Greater customer satisfaction by selling solutions, rather than a brand or technology, customers are likely to be more loyal

  • Stickier revenue base the more services you provide to a customer, the less likely they are to churn

Revenue Benefits

Improvements in customer acquisition and retention areas translate to increased ability to build revenue over time rather than just treading water. For hardware and software VARs, the solutions-based approach stops them from having to sell the same gross margin every month. And, for carrier sales agents with recurring commissions, it stops them from having to sell new accounts to replace those that churn.

In addition to a more predictable revenue stream, there are the added benefits of a solutions-based approach including a diversified revenue stream and the potential for higher margins from internally developed and delivered services.

Business Development Benefits

The transactional partner exists at the pleasure of a certain type of customer who prefers to buy point products/services; experts agree on this. It is not surprising then that a byproduct of transformation to a solutions-based offer necessarily means that partners will be dealing with a different type of customer that prefers a consultative approach. It also often means conversations between a channel partner and the customer are elevated beyond technology to business process, which in turn moves the discussion to include a higher level of decision-maker within an organization often the CFO or CEO.  Here, the stakes may be higher, but the payoff is greater for the channel partners that can rise to the occasion.

Over the next several months, and with the help of experts, including analysts, suppliers and partners, Channel Partners will be exploring some of the important questions about how partners can transition their businesses away from transactional models, including possible new models and how to get there. We will feature regular installments on the Transformation Blog examining five partners that have successfully made changes to their business models. We also will be publishing a Transformation Issue in December.

Additional reporting by Kelly Teal.

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