Viewpoint: Good strategies beat bad tactics

Services, not products, will give resellers the evolutionary edge to escape extinction, says Denise Sangster

The reseller of today is quickly becoming a dinosaur. Yes, a dinosaur. Over the past two years, product margins have been driven lower and lower as customers have refused to pay for value bundled into the price of the product sold by resellers.

At this rate of margin decline, and with minimal non-product offerings (services), many resellers could go broke within the year. Their two most critical challenges are to hold on to what?s left and to make money round the product.

The obvious strategy is to become a service provider who also happens to sell products. Although this is not a new concept, it is one that?s worth dusting off.

Case in point. Last week I met the head of IT purchasing at a car manufacturer. The company?s IT business concept is to use technology to ?do more at a lower cost?. But more what? The plan is to improve the manufacturer?s competitiveness through more creative use of technology with a lower total headcount and lower overall costs. That?s not untypical.

When I asked who was driving the strategy, the answer was very clear ? the chief executive and the board. And they were questioning every move on continued IT spending. Why? The IT executive answered: ?Because customers have learned that hardware and software products represent only a fraction of the total cost of a product. And it has become hard to capture the total costs at purchase, so we are changing from the way we purchase products and who we buy them from in order to solve our business issues.?

A significant number of executive management teams are placing more pressure on their IT groups to drive down total costs and to bring IT spending and purchasing in line with the company?s capital purchasing.

Customers want to purchase more on real price and less on perceived bundled prices, because they believe that there is less and less value to work with a reseller beyond product fulfilment.

There is no doubt that either product and solution knowledge has decreased almost in parallel with the decline in margin among resellers, or the service offerings have become so tactical that customers are not willing to pay for them.

?We drive the product costs lower and lower from [our] resellers. We see no profitable future for resellers because they have only limited strategic [value] offerings,? said the car industry executive I was interviewing. ?We now actively seek assistance from pure consulting companies because they offer better strategic help on products and overall services, and we are willing to pay for strategy, not for tactical offerings only.?

What?s the answer for resellers? Shift from a product sales strategy to a service sales strategy, or think of it as moving from selling products first to selling non-products, or brainware, first?

When we look at local competitiveness, many believe there are too many resellers competing for a small customer base. I don?t agree. There is, indeed, over-competition among product resellers, but there is relatively little competition among service resellers.

Think about it in terms of technology. Most products developed in the early 1990s are now obsolete and long gone from the resellers? product catalogues. The same should be true for resellers? offerings. What was on their ?to sell? list in the early 1990s should not be there any more. Unfortunately, most resellers? strategies, product offerings and service strategies have not kept pace with market technology and customer evolution. Since 1992, our industry has gone through over 12 life cycles. But most resellers have made only minor changes to their businesses, leaving customers wondering why they should still work with them. Most services are old and have become purely tactical, not strategic at all, which is what drives account control.

The increasing speed of change creates opportunities ? and challenges. The real choice facing resellers now is: get strategic services first, or continue to be tactical by putting products first ? and go broke.

Do you want to know what?s going to happen? Within 18 months, top resellers ? not necessarily in terms of size, but in terms of customers ? will earn the bulk of their revenue from products. But the bulk of their margin and profit will come from non-product offerings.