Sales by definition is a way of
bringing products or services to market so that they
can be purchased by consumers. In any business, sales
is the activity that generates revenues and is undeniably the most important
activity. Robust manufacturing processes, or lean the cost structure or progressive
management team cannot keep a business alive for long without the financial
horse power. Unless an investor is pumping cash into the business, sales is
probably the only path for a company to generate revenues to be in a self-sustaining
business model is of utmost importance.
There are broadly two main ways of selling
goods and services:
1. Direct
2. Indirect
Direct sales, as you may already know,
is the process of selling goods and services directly to consumers without the
involvement of an outsider or a third party. Direct sales, also known as B2C - Business
to Consumer sales, includes anything from selling directly on a company website
to employing sales folks to reach out to customers to sell products and
services. Direct selling has some key benefits associated with it, namely:
1. High level of
influence over the consumer
2. Ability to get
direct feedback about products and services from the customer
3. Complete
ownership of the profits
Direct sales process typically tends to
have a shorter sales cycle and lower price points. Also as direct sales team reaches
the consumers directly, so they face with lesser number decision makers in the
process. While these benefits make direct selling to be the best strategy but
on further consideration this may not be the case always. Direct sales come
with some hidden (and no to hidden) costs – salaries, and overheads. Also, it
may be difficult to reach all types of consumers in different countries through
a direct sales force. Imagine how it would sound if Apple or Microsoft have to
reach each consumer directly to sell their products all the time.
So companies resort to indirect strategies
of selling goods and services. Indirect sales is the process of selling goods
and services through 3rd party websites, market places and channels.
Indirect sales is also known as B2B, Business to Business sales, or channel sales.
There are many different types of channels for a company to choose from
depending on the nature of their products and services, and their business
model. Some of more common ones for a technology company are namely:
1. Retail
2. Value Added
Resellers (VARs)
3. Service
Providers
4. Distributors
5. System
integrators
6. Managed service
providers
7. Independent
software vendors
8. Original
Equipment manufacturers
Retail: These are outlets
such as Walmart etc that directly stock vendors’ products and sell them
directly to consumers. Retails stores offer consumers the experience of physically
touching and browsing before they can buy a product, something that big
companies cannot offer on a large scale to consumers.
Value Added
Resellers: These are companies that resells products / services and provides
value beyond order fulfillment. Traditionally, a VAR put together products from
a single or multiple vendors along with its customer applications and sell as a
turnkey solution. These days, many VARs have turned to services as their key
value-add.
Service
Providers: These are VARs that provide consulting, design, implementation and
training services around the products it resells. The main focus of these VARs
is services rather than developing custom applications to develop solutions for
the products they resell.
Sometimes, smaller VARs or SPs are
serviced through a distributors if the vendors have an active distribution
network built out.
Distributors: These are intermediaries
between a producer of a product and another entity in the distribution channel or
supply chain, such as a retailer, a value-added reseller (VAR) or a
system integrator (SI). The distributor performs some of the same
functions that a wholesaler does but generally
takes a more active role. At a minimum,
distributors handle payment and procurement like wholesalers but also
frequently take a more proactive approach in educating resellers about new
products, through activities such as presales training, road shows, and demos
on behalf of vendors. Although
the specific entities and orders involved can vary, the supply chain or
distribution channel involving a distributor is generally:
Vendor à distributor à
reseller or SI à
End customer
System
Integrators: A systems integrator (SI) is an individual or
business that builds new systems for clients by combining products from
multiple vendors. Using a systems integrator, a company can align cheaper,
pre-configured components and off-the-shelf products to meet key business
goals, as opposed to more expensive, customized implementations that may
require original programming or manufacture of unique components. Some systems integrators working in specialized
areas, like SAP installations or
upgrades, may offer more customization for specific applications.
Managed service
providers: These are typically IT providers that provider a defined
set of services to its clients. MSPs usually operate with a flat monthly fee based
subscription model. MSPs often provide their offerings under a service-level
agreement, a contractual arrangement between the MSP and its customer that
spells out the performance and quality metrics that will govern the
relationship. MSPs are different from other channel partners in a way they
model their services on subscription model and depend on recurring revenues
rather than one off services.
Independent
software vendors: These make and sell products for particular business application
to run on different operating system platforms. The companies that make the
platforms like Microsoft, IBM, Hewlett-Packard, Apple etc encourage ISVs, often
with special "business partner" programs. In general, the more
applications that run on a platform, the more value it offers to customers.
Original
Equipment manufacturers: OEM (original equipment manufacturer) is a broad
term whose meaning has evolved over time. In the past, OEM referred to the
company that originally built a given product, which was then sold to other
companies to rebrand and resell. Over time, however, the term is more
frequently used to describe those companies in the business of rebranding a
manufacturer's products and selling them to end customers. An OEM might
acquire a hardware product from a vendor, rebrand and sell them without
modification. Alternatively, an OEM may incorporate and bundle the vendor’s products
with its own technology for resale. Even big companies, such as Dell, EMC etc,
get products from smaller vendors, rebrand and sell them under their own brand.
On the whole, gone are the days when
companies could survive with just one sales channel, primarily the direct one. However,
to defend their turf, expand market coverage, and control costs, companies have
to employ a hybrid sales strategy, using a combination of direct and indirect
sales methods, to reach different customer segments and under different
circumstances. Some of the modern day examples are companies such as Apple, Dell
etc. Apple computers started out with a clear and simple channel strategy of
distributing its products through an independent dealer network. But as the
products began to get more sophisticated systems, it hired a set of 70 national
account managers as part of a direct sales strategy. On the other hand, Dell famously
started with direct sales strategy and heavy customization. It stuck to its
guns for a very long time. However as the market dynamics began changing with
personal computers becoming increasingly commoditized, Dell had to evolve its
market strategy and adopt indirect sales strategy along with direct sales. In
fact, today it uses multiple indirect sales channels, such as distributors,
VARs, SPs etc.
