Dear Routes to Market

I work for a major software vendor, which is wrestling with how to transfer named accounts to partners.  There are several big problems.

Firstly, I would like to know how to manage the expectations of the customers who are being transferred.  The truth is that many partners don't want to pick up the gamut of processes that we carry out.  Often our partners want to sell boxes and aren’t interested in holding the customers’ hands and having a long-term relationship with them.  They don't want to answer the countless customer questions and queries we answer. 
 
We are also finding it difficult to work out which accounts can and should be transferred. Some of them are not going to produce any business at all for two to three years, so we really don’t feel we can give those to partners.  But we don’t want to just hand over our crown jewels.
 
Margins are also an issue.  Our large direct accounts get 40% discounts and yet our partners only receive 30%, so some end users will inevitably see price rises.

Please help!
BH, Enterprise Software Vendor

My first question would be: "Why do you want to hand over these accounts to your partners?"  I guess it will be either because you think the channel will be able to do it more cost-effectively, or because you think that partners will increase your sales.  You need to be clear what you are looking for – it may be worth giving partners more margin, if you think they will increase sales by 5%.

Either way, you need to be clear about your real cost base.  Do you know how the cost of directly managing these accounts compares to that of going through partners?  Until you can answer that accurately, it is difficult to see a way forward.

Perhaps you could try a hybrid mix.  At Oracle, for instance, we tend to keep an account manager involved in accounts where we think there is long-term value – even if a partner is undertaking a project. 

You could also move away from a straight discount to one that rewards added value.  At Oracle we give rebates to value-added distributors who run training or who exceed their partner-recruitment targets.
Tony Mulligan, Oracle

You need to create real incentives for your partners to move and change their approach away from this box-shifting mindset that you mention.

Agree a migration plan for handing over accounts.  This should include representatives from the customers themselves as well as partners.  That way, this becomes an opportunity to agree the type of relationship the customer wants.  Make it gradual, with review points at each stage.

Look at some short-term incentives/rewards to encourage success.  This could be in the form of training, information (customer and manager), short-term discounts/rebates and additional resources to manage transition.

Provide an opt-out point if it's really not working.  (Then look at whether the partner is worth hanging on to!)

Pilot all this before going live.  Then communicate the success stories.
 
You are uncertain which accounts to transfer.  I think you may have to offer some of the best accounts to ensure the process goes smoothly.  Is there a way of assessing which accounts are the most profitable? 

You could then set out a formula to decide which type of account each partner gets: one Class I, two Class IIs and three Class IIIs.  This could link inversely to the short-term incentive package –  the poorer the quality of the account, the more support in the form of discounts, training, etc.
Rosemary Wyatt,
VIA International

Sounds like you need to do a price-waterfall-type analysis of your direct accounts.  Explode the costs of all your activities for direct.  What is the cost to serve?  And how does it break down?  What is the average real discount?  This will give you a good idea of how much you should be paying partners for taking on these tasks.

Of course, your partners won't want to pick up the gamut of marketing activities if they are used to being handed hot leads and getting involved when the sale is almost closed (and still getting 30% margin).  Doubly so, if they aren't going to get remunerated for the additional activities.  What's it really worth to you to get the partners to do these channel activities?  If it is worth something, then they need to be paid to do it.  Crucially, you should be comparing the net profits you currently make from direct and from channels.  You may find that channels are much more profitable and that it would make sense economically to give them a 50% margin.
 
You need to restructure your partner remuneration based on the activities you want the partners to do for each segment of the market, the cost of these activities and their value to the end customer and the vendor.  Maybe you are overpaying your partners for the little they currently do!  Could be a tough message, but maybe it is time to "give to get".
Chas Pell, VIA International