End user survey: Selection criteria for VARs

Competitive bidding practices and an increased amount of support and services from manufacturers and vendors leaves VARs struggling to establish a foot-hold in the market. Our end user survey of over 600 readers helps VARs to understand end user's selection criteria and learn about emerging areas of concern.

Section 2 -- Understanding the end user's selection criteria

End users watch the bottom line just like you do. Yes, they want talented solution providers, but winning that next bid is hardly a foregone conclusion. You'll need to make each potential client aware of your expertise and specializations, and be ready to compete for every dollar.

Expect bidding competition from other VARs and manufacturers

You're typically not alone when bidding on a project or value added service. Our end user survey showed that only 26% of respondents rely on bids from one to two VARs, while 61% will use three to four VARs. Just 13% of respondents solicit more than four bids for a project. About 71% of end users solicit bids for consideration from multiple VARs.

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In addition, a full 60% of respondents will solicit competitive bids from both VARs and vendors, so VARs can easily find themselves up against other manufacturers (sometimes their own vendor partners). The good news is that 48% of respondents will evaluate vendors first, and then select VARs for the actual implementation, but only 13% select VARs to implement a project based on a consultant's assessment or needs evaluation.

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This is not surprising to analysts like Laliberte. "This is the end user keeping their partners honest," he said. "VARs need to recognize end users' biases before responding to bids, if they are not part of the RFP (request for proposal) building process, they are most likely being used to get a lower price from a trusted partner."

This data reinforces the need for VARs to present their strongest case or most cost-effective solution in response to a client's RFP. Often, this means differentiating yourself or your offerings from competitors. Differentiation may be in vertical experience or technical prowess, but emphasis should always focus on the VAR's unique value proposition and value added services.

VARs should pay close attention to manufacturers or vendors that bid against them, and seriously evaluate their relationships with any vendor partners that engage in competitive bidding practices to attract (or "poach") clients away from their VARs. "This is happening more and more today," Zuk said, noting that vendors are acquiring service companies, increasing their ability to handle assessment and implementation. "For example, HP's recent acquisition of EDS demonstrates that vendors are looking to carve out market share that VARs operate in."

"I can empathize with that problem," said Andrew Plato, president of Anitian Enterprise Security, a security solution provider headquartered in Beaverton, Ore. "We have had our own partners try to do an end-run around us and take deals direct. It's hard to find loyalty in a tight market."

Better price and support can pull end users from VARs to manufacturers

Competition from manufacturers or vendors is a huge problem for resellers. Potential clients will often opt for manufacturers when they can get better pricing and support directly from the source. About 61% of respondents will deal direct when the manufacturer's pricing is better, and 50% will deal direct when the manufacturer's support is better. "I believe this is why focusing on services, and being a solution provider, is more important than focusing on reselling," said Dave Sobel, CEO of Evolve Technologies, a solution provider located in Fairfax, Va. "Adding services to create a complete solution is vital to being a successful solution provider."

And there are other reasons for a VAR to lose bids. About 46% of end users will opt for a manufacturer if product availability is better, 44% will deal direct for the manufacturer's in-house consulting or professional services, and 36% will deal with manufacturers if the warranties or services are more attractive.

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IT product sales also involve the secondary market (also known as the IT aftermarket), where clients can acquire used (but fully functional) systems. Less than half (44%) of respondents indicated that they would buy from the secondary market, but it's a significant response that VARs should consider when dealing with price-sensitive clients.

Zuk points to the secondary market as an emerging area of concern for VARs, noting that small companies are appearing and growing quickly in the used IT equipment resale space. "One example, Vibrant Technologies, started with three staff [members] in 1998, now operates with 30 staff [members], a huge warehouse inventory and a professional tech support center combined," he said. The availability of used equipment, coupled with more tech-savvy clients, can spell trouble for VARs. "End users that are price-sensitive will bypass the VAR completely."

End users rely on manufacturer contacts and referrals to find VARs

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Don't underestimate the importance of close relationships with vendors and other solution providers. About 76% of respondents to our end user survey find VARs based on manufacturer's channel partner contacts, while about 43% of respondents find VARs based on recommendations from other VARs. This means you need to be part of the channel partner program for each manufacturer or vendor that you represent. Consider ways to highlight yourself or attract added attention as a "preferred" channel partner. One tactic is brand (vendor) loyalty. Laliberte notes that even vendors that sell direct often fulfill through the channel. "Being part of a channel partner program is useful, but VARs need to be careful not to alienate vendors by reselling competitive products," Laliberte said "Vendors prefer loyalty, so channel partners are wise to find complementary offerings."

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Still, the notion of such brand (or vendor) loyalty rankles experienced solution providers like Sobel and Plato, who follow a distinct "vendor-agnostic" approach, which can potentially offer more alternatives for the client. Their argument is that a VAR may move the most products, but not necessarily provide the best solutions, expertise or quality of service. "Our strategy has always been to sell our company first, and our partners second," Plato said. "This has caused some of our partners to keep us at arm's length, since we won't commit exclusively to them."

VARs can also benefit from attending and participating in industry groups, peer groups, meetings and events where you can meet and learn about other solution providers -- the contacts and networking gained from such involvement can lead to future referrals.

End users work with a limited number of VARs and manufacturers

It's common for clients to work with both manufacturers and VARs to meet their IT needs, but the stable of both VARs and manufacturers is generally small. About 59% of respondents work with five or fewer VARs, while a total of 81% of respondents work with 10 or fewer VARs. Only 19% of all respondents work with more than 10 VARs.

The numbers are similar for manufacturers and vendors. About 56% of respondents work with five or fewer manufacturers/vendors and the same 81% of total respondents also work with 10 or fewer manufacturers/vendors. Again, about 19% of respondents work with more than 10 manufacturers/vendors.

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"Customers don't want to have to deal with too many relationships, purchasing departments," Laliberte said. "They don't want to qualify too many vendors, etc."

SMB clients will tend to stay with VARs they know and trust. This underscores the potential difficulty for VARs to win new business, making it particularly important for VARs to emphasize complete and tangible solutions for the client rather than simply presenting "areas of expertise" -- especially when faced with competition from manufacturers. Even though clients may stick with an established stable of VARs, it's still vital to maintain contacts and relationships that keep the client updated on new offerings.

Larger organizations are under increasing pressure to shuffle VARs and put new projects up for open bids. "I have seen instances where VARs become complacent with their situation, thinking that they have been a client for a particular organization, with established contacts and relationships and considered themselves insular from change," Zuk said, noting that VARs can sometimes find themselves blindsided as established customers unexpectedly end long-standing relationships. "VARs constantly need to reassess their business relationships, both with existing customers as well as establishing new ones."

Size and distance are not significant factors in VAR selection

Most end users don't care significantly about the size of their VAR. About 44% of respondents to our end user survey work with midsized VARs offering extended product lines, while 39% expressed interest in midsized VARs with limited product lines. Small focused VARs and (interestingly) large diverse VARs both ranked about equally with 31% of respondents expressing interest. This means midsized VARs appear most popular to end users, but not by much.

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Similarly, geographic distance between the VAR and end user does not play a large factor in the decision-making process. About 53% of respondents don't care about distance at all, and only about 10% of respondents use VARs less than 10 miles away. This is likely due to the regional presence and mobility of many midsized and larger VARs that are able to reach clients regardless of location. "It may also speak to working with a VAR that has a unique specialty and skills, and its size isn't as important as the value it can bring," Laliberte said.

Go to the next part of this article: End user spending and engagements

Or skip to the section of interest:


End user survey shows what clients want from VARs and vendors
  Introduction
  Section 1 -- Understanding end user expectations
  Section 2 -- Understanding the end user's selection criteria
  Section 3 -- End user spending and engagements

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