Boutique Or Price Club: What Is Your ECM Shopping Style?
When a VAD (value-added distributor) claims to have the lowest price and best availability (and who doesn't?), it's time to ask what else you get for your money.
Some VARs approach buying hardware the same way they approach buying toothpaste: they know what brand they like, so they might as well buy it at the cheapest place they can get it. While that approach may be great for commodities like toothpaste, it isn't always applicable to items, like scanners and optical jukeboxes, that can make or break a content management solution. That's why choosing the right VAD (value-added distributor) can be vital to the growth of your business.
The Right Product, The Right Place
Most VARs in the imaging market don't identify themselves as hardware resellers. More often they refer to themselves as forms processing or records management VARs. Increasingly, they affiliate themselves with a vertical market such as health claims processing. Who can blame them for focusing on the solution rather than the product? Software is often the recurring revenue opportunity because of click charges, integration, or consulting. Success, however, depends on having the right product for the application.
Obviously, buying a production scanner is more complicated than buying toothpaste. After all, in six months or a year, you'll probably be brushing the same set of teeth, but every customer site is different. For example, if you're not processing checks today, do you know who is offering the best MICR (magnetic ink character recognition) readers when a valuable customer wants to expand your relationship? Is it time to upgrade to SCSI-2 (small computer systems interface) or USB (universal serial bus) 2.0 connectivity? Unquestioningly buying the same brand for every engagement might not make sense, but how can a VAR keep up with the latest innovations? Being an objective source of advice for VARs is one area where distributors add value.
In order to provide advice, a VAD has to have a tenured staff with field experience. Joel Port, VP of sales for NewWave Technologies, Inc. (Gaithersburg, MD), says that distributors are rapidly becoming the primary source of product information as vendors lower their own overhead by relying more heavily on distribution partners to spread their message. This has an added benefit for VARs. "If an unknown company brings out a scanner that fits a particular need in the market, a distributor can help VARs learn the benefits," says Port. Much of the due diligence can be done by the distributor and that information made available to VARs.
Todd LeVeque, national sales manager for Cranel Imaging (Columbus, OH), points out that it is knowledge of the needs of imaging VARs which sets some distributors apart. "Some organizations that classify themselves as VADs are really just fulfillment houses," says LeVeque. "They focus on a product set and margins, but they really don't support their VARs. Others are crossover resellers who offer just a small line they have had success in selling. A true VAD offers expertise in a particular industry and best of breed product set. There's no way a distributor can support everything from copiers to cameras with any depth of knowledge." LeVeque adds that support includes everything from designated CDIA (certified document imaging architech)-trained field reps to a shipping department that recognizes when the wrong cables are shipping with a product.
According to LeVeque, the move toward verticalization among VARs is another factor that makes the choice of a distributor especially important. "The markets have become so big and the apps so much more defined that VARs are finding it hard to be all things to all people," he notes. "VADs who are heavily involved with their VARs at trade shows and in the field can help share that expertise among resellers."
Wendy Rausch, director of product marketing, peripherals division, Tech Data Corp. (Clearwater, FL), counters that dealing with a larger, more diverse distributor could be an opportunity for VARs to expand into other areas. "A distributor can help resellers cross technologies and act as an educational resource. Education is a part of what every distributor should be doing; a larger distributor can do it cheaper and more efficiently."
For instance, an imaging VAR might be interested in claiming a larger portion of his customer's IT budget. Instruction in the important aspects of wireless networking or NAS (network attached storage) integration may be among the services a diverse VAD can offer.
The Price/Performance Equation
Ask any distributor what the most important factor is in selecting a distributor, and the answer will almost always be "price and availability." When you buy toothpaste at Wal-Mart, you may get the lowest price, and that's appropriate for products that don't require any specialized knowledge about how to use them or with what other products. "There are services you'll get with a true VAD that you won't get with a company that focuses on low margins," warns LeVeque. "You need an RMA [return merchandise authorization] manager, contract management services, a product manager that knows a specific line inside and out, and a POS [point of sale] manager to track rebates. A distributor can't keep those services if they can't afford to pay the employees who have that kind of expertise."
Most distributors will agree that the difference in price between the market leaders is usually just a couple of points. However, there is a lot that VARs might be able to get for that small difference in price. For instance, as VARs are less restricted by geography, an east coast VAR may need a distributor who can quickly get products to the west coast or even to Canada. The small difference in cost may support multiple shipping facilities across the country and speed product delivery by days.
Rausch says designating resources to reseller support issues is evidence of a distributor's commitment to its channel. Services such as back office logistics management, private labeling, and partner Web site hosting help resellers become successful and are ways a distributor can promote that organization in the background. "Services such as drop-shipping on behalf of the VAR have to be invisible to the end user. Distributors offer management, but never actually touch the VAR's business or relationships," says Rausch.
A good VAD is bringing more than just the latest products to your door; it's also bringing business in the form of leads or marketing support. "A VAD should direct sales right to a VAR's front door. If a reseller is going to a show or is going to hold an open house, he should be able to expect some assistance from a VAD," says Port. "It could be sending a rep, offering a door prize, or even lending a booth. Sometimes a distributor will even sponsor vertical shows and invite resellers to set up booths to attract end users."
Get The Credit You Deserve
Of course, no discussion of distribution partners would be complete without a discussion of credit. VARs rely on establishing a line of credit to fund the delivery of products to the customer, but recent events in distribution have brought the issues of credit and accounting to the forefront. "The industry was really shaken up when one of the biggest players in ECM (enterprise content management) distribution closed last year," says Rausch. "VARs have been looking for financial commitments and programs validated by the manufacturer. Previously, VARs thought they couldn't get the same kind of relationship from a large company. Not only are they realizing that's a myth, but VARs are more comfortable dealing with a public company that has checks and balances."
"The financial stability of a VAD has never been more important since the demise of Law Cypress," agrees LeVeque. "We've been told we're not the easiest people to get credit from, but we see that as a good thing. It's important to offer credit, but we also want to make sure our partners are stable. VADs who don't take undue credit risk don't have to distribute that burden by raising prices or cutting services." Since VARs depend on being able to provide products, leasing and other alternative means of financing can be important factors in selecting VADs who can deliver the products and services without endangering a VAR financially.
The Real Costs Of Choosing The Wrong Distributor
The emphasis on low prices has backfired for VARs to a certain extent. "The biggest danger in the reseller channel is e-tail," says Port. "Some vendors are just filling demand and not monitoring where the products go. Some big distributors sell products to e-tailers and have the product shipped directly from the vendor. The distributor never actually touches the product and without a brick-and-mortar operation, e-tailers have little overhead, thereby allowing them to compress the margins on products. VARs and integrators create demand for products by recommending them, yet they may not even be able to make the sale because the customer goes on the Internet and buys for price." Port says that VARs who support distributors engaged in this practice are undermining their own interests.
Regardless of which distributor you partner with, you'll be paying the margin. The question you need to ask yourself is what that margin is buying for you - and shop accordingly.