THE RESELLER
SPECTRUM

HOW MUCH CONTROL
IS NEEDED?

Issue No 30

THE RESELLER SPECTRUM - HOW MUCH CONTROL IS NEEDED?

In today's boom times, companies are finding it difficult to control, manage and motivate their resellers. As a result, many organisations are replacing loose arrangements with tightly controlled contractual relationships such as franchises.

IF's Marketing Channel Spectrum (Figure 1) illustrates diverse channel partner relationships and the degree of control and formality involved with them.

Our spectrum moves from loosely controlled relationships such as independent resellers to high controlled, comprehensive relationships such as franchises or company ownership.

Marketing Channel Relationships
Suppliers are tightening and formalising their reseller relationships to maximise the benefits of consistent brand image, service and product offering.

Statutory costs of employment are increasing, motivating organizations to move from company ownership to owner-operator networks. Owner operation usually results in lower costs and higher sales due to owner operator motivation.

However, with the emergence of new marketing channels, distinctions among channel relationships are increasingly blurred. IF's Marketing Channel Spectrum, while a good guide, is not precise because so many different words are used to describe reseller relationships. For example, insurance agents, now accumulate goodwill and many older traditional dealer networks such as service station networks are becoming business format franchise structures - some by law, as in Australia, and some by oil company choice, as in the USA.

The table below summarises the historic characteristics for each of the relationships types.

Network Issues
Loose channel relationships are difficult to control. They exhibit:

• Few rules
• Low commitment levels of both company and resellers
• Low Centralised control over resellers usually resulting in low quality resellers and operations.

For example, dealers are not usually dedicated resellers. They are frequently either add-on businesses or parts of existing businesses. There is always a question of divided loyalties, creating an ongoing need to bolster dealers' loyalty and ensure they spend sufficient time on a principal's products or services.

Loose channel arrangements exhibit the following characteristics:

• Reseller - no initial payment for the rights to the business or for training, resulting in low commitment (free is usually worth what you pay for it)
• No reseller security of tenure, further limiting commitment
• No assignment rights, which because there is no sanctioned goodwill, deprives resellers of a tangible asset and limits their motivation.
• Poor controls over operating standards, resulting in low levels of customer service and, ultimately customer dissatisfaction.

Loosely controlled networks are usually not a primary marketing channel, but a second distribution tier. Having a second tier created problems.

• Fuzzy delineation among channels
• Channel conflict caused by vaguely defined responsibilities between tiers.
• Second tier distribution often causes territorial infringement.

The Future
The future will bring increasing formalisation of reseller networks and, in many cases, complete restructuring with:

• More rules
• More controls
• Detailed operating manuals
• Better training
• High supplier margin costs

With change, the accumulation of goodwill for resellers is highly likely. Organisations should now be developing programs to control and harness the incentives provided by resellers' opportunity to realise the goodwill of their channel relationships.

More comprehensive controls will be accompanied by more support, leading to more comprehensive business systems and more structured relationships.

Distribution networks have differing objectives and influences. While many factors are involved in structuring reseller networks, a move to more tightly controlled networks is vital today.

IF View may be reproduced provided IF Consulting is acknowledged.