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:
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:
- High level of influence over the consumer
- Ability to get direct feedback about products and services from the customer
- 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:
- Value Added Resellers (VARs)
- Service Providers
- System integrators
- Managed service providers
- Independent software vendors
- 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 -> distributor -> reseller or SI -> 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.