Show me your Value

Several years ago, I did a piece of work to help the EMEA arm of a technology giant to understand the business dynamics within their partner channel. There were a number of conclusions to the work of which, two stand out. There was the rather obvious fact that partners will do what makes them money and hence the need to align partner rewards with the vendor’s goals. The other was that any part of the vendors value chain that did not offer value as perceived by the customer, then commoditization and competition in that part of the value chain would drive the margin down to around 1%. My supporting evidence for this was several examples from outside the IT world where this process had already taken place.

Fast forward to today and these two conclusions are still true. If you are an ISV selling through partners, you will surrender a significant amount of margin to those partners – how do you know whether that is money well spent?

A very effective way of finding out is to analyse your value chain from the customers perspective. Where do they source the different elements of value that need to have delivered them to generate a successful sale? What do they specifically value, and who do they rate as good providers of value?

It is tempting to carry out this activity in the form of a customer survey. While this will produce quantitative data, gaining qualitative data is equally important as it will highlight areas of value that the survey may not have identified (i.e. their view of the value chain components – not just yours) and also provides valuable feedback as to how well you (and your partners) are currently providing that value.

An additional benefit of analysing your value chain is that the research can be used as marketing collateral to help highlight to your customers that your channel partners deliver well and/or to support an initiative to improve your partners performance.

One word of caution to finish. If you do use this type of research for marketing, please ensure you review your marcoms from your customers/partners perspective before publishing it. In the example I started this post with, the final presentation had several examples where margin had been reduced to 1%. My throw away remark at the conclusion of this section was ‘welcome to the 1% world’. The vendor unfortunately used this phrase in their marcoms around the research, provoking alarm in several of their partners that the plan was for the vendor to reduce partner margins to 1%.