Top reasons for reseller failure

Various high-profile resellers have entered administration recently. Dave Stevinson explains why

The IT industry is changing, and many resellers are struggling to diversify their product offering in line with consumer demand and maintain growth. This is ultimately why so many resellers have failed recently.

Having had the displeasure of reading several creditors' reports from customers that have gone bankrupt, I noted that directors quoted the same primary reasons for failure. Maybe others can avoid making similar mistakes.

Some appear to be failing to evolve in line with market requirements. The computing industry is in transformation, and we are right in the middle. Resellers that aren't thinking seriously about cloud, virtualisation and how to sell it are going to get left behind, for a start.

Cloud technology and cloud vendors are relatively new, so resellers may need to consider companies with which they may not have done business before, such as Amazon, Google or Rackspace, as well as a number of startups. VARs may also need to look at developing different skill sets.

Developers, for instance, could help reseller partners customise and build on top of various cloud applications.

Resellers need to have a plan, and then they should think about mobility and desktop virtualisation strategy, both of which are spreading rapidly through the customer base. If resellers don't make the change, they will be left behind.

There is also now a higher cost to acquiring new customers. We've all heard the saying that it costs more to acquire a new customer than to maintain an existing one.

I have also heard that existing customers are less sensitive to price than new customers, and are more likely to be a source of future referrals. So if ever there was a strong case for investing in and financing customer service, this is it.

The rise in demand for iPads and other tablet devices is also having an effect. Tablets and smartphones are already changing the way we do business. Apple reported it had sold nearly 15m iPads in 2010, many more than analysts had estimated. It is presumed that this had a knock-on effect on sales of PC-type devices such as laptops.

Consumers want more for less. So price and return on investment should be part of every conversation, and the reseller's job will be to find the right products that provide true value to the customer and help grow the business.

There has also been other changes in what consumers are demanding. For example, many now prefer to upgrade their computers, instead of simply buying a new one. Costs for processors, memory and storage tend to decrease by roughly 39 per cent annually. The rest of the money, I believe, is spent on other devices, such as iPads.

And on top of all that, there is a lack of understanding of today's marketing and advertising landscape. Print advertising now tends to attract fewer readers. It still costs the same, however, so you get fewer enquiries for each pound spent on print advertising.

The conversion rates on pay-per-click (with Google ad-words, for example) are also declining.

It is now crucial for resellers to have a social networking presence as more businesses and people are connecting across web 2.0 sites such as LinkedIn, Facebook, Twitter, Foursquare or Weebly.

It is almost unheard of for a business to have no online reach, and this includes exposure via social media. Twitter is a great online CRM tool, in my opinion. It can glean contacts in any niche through Twitter profiles or search. Promotions and offers can be seen by millions in minutes, as they appear on the Twitter network and Google, as well as on your Twitter feed.

It is important that time is spent connecting with those contacts, sending baiting offers, and maybe offering free merchandise. The latter works very well if it enables the harvesting of contacts' email addresses for direct marketing down the line.

Finally, many resellers do not believe how bad it is out there. The bottom line is that we all need to embrace change as the norm to continue to grow and thrive.

Dave Stevinson is sales director at VIP Computers