4 min read
Jan 05, 2024
In today’s competitive business landscape, companies are constantly seeking ways to expand their reach, tap into new markets, and enhance their product or service distribution. One effective strategy for achieving these goals is by forming a channel partnership.
This article delves into the fundamentals of channel partnerships, defines what a channel partner is, discusses different types of channel partners, and explores the reasons why businesses should consider using them.
Throughout, we’ll provide real-world examples and relevant statistics to illustrate the importance and impact of channel partnerships.
What is a Channel Partner?
A channel partner, often referred to as a distribution partner, is a company or entity that collaborates with a product or service provider to promote, sell, or distribute their offerings to end customers.
Channel partners serve as intermediaries, bridging the gap between the manufacturer or service provider and the end-user.
These partnerships are built on a mutually beneficial relationship, where both parties work together to achieve their respective goals.
Different Types of Channel Partners
Channel partners come in various forms, each catering to specific business needs and objectives. Here are some common types of channel partners:
Resellers or Retailers
Reseller channel partner purchases products from the manufacturer or supplier and sells them to end customers.
This model is prevalent in industries like electronics, where retail stores sell products manufactured by companies like Apple, Samsung, or Sony.
Example
Apple’s channel partnership with various retail stores and online marketplaces globally.
In 2020, Apple’s net sales from the Americas, Europe, Greater China, Japan, and the rest of Asia Pacific amounted to approximately $274 billion, demonstrating the success of its channel partnerships (Apple’s 2020 Annual Report)
Distributors or Wholesalers
A distributor channel partner purchases products in bulk from manufacturers and then resells them to smaller retailers. They often provide logistical support, inventory management, and quicker access to a wide range of products.
Example
Coca-Cola partners with various distributors to ensure its products are available in stores and vending machines worldwide.
As of 2020, Coca-Cola’s global unit case volume amounted to 24.4 billion cases, highlighting the effectiveness of its distribution partnerships (The Coca-Cola Company 2020 Annual Report)
Value-Added Resellers (VARs)
VARs not only resell products but also add value by customizing, integrating, or enhancing them with additional services. Such a channel partner often focuses on niche markets and offers specialized expertise.
Example
Salesforce’s channel partnership with various VARs to deliver customized solutions to clients.
Salesforce’s global revenue reached $21.3 billion in 2020, showcasing the success of its VAR-based channel partnerships (Salesforce 2020 Annual Report)
Strategic Alliances
Such a channel partner involves collaborating with other companies to expand market reach, share resources, or jointly develop products or services.
Such a channel partnership is often seen in the technology industry, where companies team up to integrate their technologies for a more comprehensive solution.
Example
The channel partnership between IBM and Red Hat, which resulted in the creation of hybrid cloud solutions.
This collaboration helped IBM’s cloud and cognitive software segments generate $23.5 billion in revenue in 2020 (IBM 2020 Annual Report)
Why Should You Use a Channel Partner?
Now that we’ve defined channel partners and explored different types, let’s delve into the compelling reasons why businesses should consider using them!
Market Expansion
One of the primary benefits of a channel partner is the ability to reach new markets in addition to existing customers.
By leveraging the established distribution networks and customer bases of channel partners, businesses can expand their presence geographically without the need for substantial investments in infrastructure or market research.
Stat
According to a study by Deloitte, 79% of companies with channel partner programs reported an increase in sales in the past year, demonstrating the effectiveness of channel partnerships in driving market expansion (Deloitte, “2019 Channel Partner Survey”)
Example
In 2019, Netflix partnered with local telecom providers in India to distribute its content to a wider audience. As a result, Netflix’s subscriber base in India grew substantially, contributing to its global expansion strategy.
Cost Efficiency
Collaborating with a channel partner can lead to cost savings.
For instance:
Manufacturers can reduce the costs associated with maintaining their own distribution infrastructure, warehousing, and sales teams. Instead, they can rely on the expertise of their channel partners in these areas.
Stat
A survey by Forrester Consulting found that 54% of companies reported a reduction in operational costs through channel partner programs (Forrester Consulting, “The Total Economic Impact™ Of Partner Relationship Management (PRM)”)
Example
In the automotive industry, Tesla partners with local dealerships to handle sales and servicing. It is a prime example of cost efficiency.
This allows Tesla to focus on innovation and manufacturing while benefiting from the cost-efficient distribution network established by its partners.
Specialization and Expertise
Channel partners often possess specialized knowledge about their respective markets or industries. They understand local customer preferences, regulations, and market dynamics.
By collaborating with these experts, businesses can tailor their products or services to better meet local needs.
Stat
A study by Aberdeen Group found that companies with channel partners achieved a 30% higher customer retention rate compared to those without channel partnerships (Aberdeen Group, “OMNI Channel Global Trade”)
Example
Adobe’s partnership with various marketing agencies and consulting firms.
These partners assist clients in implementing Adobe’s marketing solutions effectively, leveraging their specialized knowledge in digital marketing.
Faster Time to Market
Channel partners play a role in expediting the time it takes for a product or service to reach a wider audience.
They already have established distribution channels and customer relationships, allowing businesses to tap into these resources for quicker market entry and sales process.
Stat
According to a survey by SiriusDecisions, 60% of companies reported that channel partners helped them bring new products to market faster (SiriusDecisions, “Forecast channel partner growth”)
Example
Microsoft’s partnership with various software developers who create and distribute applications on the Microsoft Store is an example of a software reseller.
This ecosystem enables a rapid influx of new software offerings, benefiting both Microsoft and developers.
Risk Mitigation
Collaborating with channel partners can help spread business risks. If a company relies solely on direct sales and distribution, it may be vulnerable to market fluctuations or disruptions.
Channel partners diversify the distribution network, reducing dependence on a single channel.
Stat
The Global Trade Magazine reported that companies with diversified distribution channels are 30% less likely to experience severe supply chain disruptions (Global Trade Magazine, “Diversify Your Supply Chain and Reduce Risk”)
Example
Procter & Gamble’s extensive network of retail partners worldwide. This diversification helps P&G weather economic downturns or market-specific challenges in various regions.
Conclusion
In summary, channel partnerships are a vital strategy for businesses looking to expand their market reach, increase efficiency, generate more revenue, and tap into specialized expertise.
By collaborating with channel partners such as resellers, distributors, referral partners, value-added resellers, and forming strategic alliances, companies can benefit from market expansion, cost savings, specialization, faster time-to-market, and risk mitigation.
The statistics and examples provided demonstrate the tangible advantages of channel partnerships, making them an essential element in modern business strategies.
Whether you’re a manufacturer, software provider, or service-oriented business, exploring and nurturing channel partnerships can be a game-changer for achieving mutual growth and success.
