The Risky Business of Exclusive Reselling

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Last month, Eloqua terminated its reselling relationship with The Pedowitz Group, a marketing automation reseller.

Rob Brewster, SVP Business Development at Eloqua explained in a blog post that The Pedowitz Group’s decision to partner with some of Eloqua’s competitors jeopardized Eloqua’s IP (Intellectual Property) and caused Eloqua to make the change.

Steve Woods, CTO of Eloqua, in an online discussion noted that the transparency and clarity of reseller partnerships was critical to Eloqua in meeting customer needs.   To ensure this, Eloqua requires exclusive  relationships with resellers.

The Pedowitz Group (TPG) stated in a press release that by representing multiple marketing automation vendors, TPG is best serving its customers.   Marketo, one of TPG’s marketing automation vendors, supported TPG’s position on the exclusivity issue in this blog post by Marketo CEO, Phil Fernandez.

VARs are led by entrepreneurs with a high tolerance for risk.

Is a VAR who is exclusive with a vendor exposed to excessive business risk?

Too few customers or too few suppliers can create undue risk for a VAR.    A VAR may choose an exclusive relationship with a vendor due to the deep technical requirements on a vendor’s solution that necessitate specialization or the attractive rewards that vendors provide to a VAR in exchange for exclusivity.

However a number of significant events may jeopardize a relationship between a vendor and a VAR.    In extreme cases, this could destabilize a VAR’s business:

A Falling Out

Leaders at VARs can often be described as ‘big personalities’ that don’t fit the corporate mold.

Emotional friction can be caused when the parties approach the business differently: where small business (i.e. the VAR) is collaborating with large business (i.e. the vendor) in selling to large business (i.e. the mid-market or enterprise market).

The Pedowitz Group (TPG lost) is run by a former Eloqua executive and is Eloqua’snumber one reseller, yet the relationship was terminated by Eloqua.    Although I have no insight as to the decision on either side, I suspect that that the issues ran deeper than IP and exclusivity.

The consequences for TPG could have been disastrous should TPG not also have reselling relationships with two other marketing automation vendors.

A Vendor Sells Direct

A vendor may change the mix of direct sales to channel sales.    For example, a vendor may have sold 100% through VARs but determines that enterprise accounts are being under-served.   A vendor may then ‘take-back’ enterprise accounts leaving VARs with only SMB accounts.

In economic downturns, vendors hungry for margin have been observed to increase direct sales.

A Vendor is Taken Over or Bankrupt

If a technology vendor is taken over, a VAR may find that the acquirer has a different go-to-market strategy of selling through the channel.

For example, after Oracle acquired Sun it was announced that Oracle was expanding its direct sales force and affirmed its preference for direct sales.  

In the marketing automation space, Market2Lead was aquired by Oracle earlier this year.

A Vendor launches a Cloud Solution

The Cloud Computing model changes the relationship that VARs have with vendors and customers.  

The lower risk associated with subscription sales and freemium models, creates a unique sales model for cloud solutions (read more on my recent blog post).

From inquiry to close to solution provisioning to renewal, vendors play a larger role and VARs will no longer provide on-site installation services.     Vendors, given their closer customer relationship will have greater customer insight and ownership. 

What is your opinion:  what are the pros and cons of  reseller exclusivity?

 

Note: Direct Impact Marketing is a reseller (VAR) of lead generation solutions and is currently evaluating marketing automation solutions.

Photo Credit

Republished with author's permission from original post.

Robert Lesser
I am the founder and President of Direct Impact Marketing, a provider of a sales productivity solution and consulting services to technology organizations. Prior to stepping out as an entrepreneur, I held a number of marketing positions at Dell, IBM, Reckitt Benckiser and Loblaw Companies.

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