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Using distribution channels to grow market share

by Greg Williamson

In their 2009 financial year, Microsoft spent almost $NZ18 billion on sales and marketing.

According to the Technology Investment Network, the entire value of New Zealand’s technology exports is little more than a margin note in Microsoft’s annual report, earning approximately $5 billion in the same period.

The scale of our export markets, and the companies playing in them, is mind-boggling.

New Zealand is dominated by small (on world standards) companies that often lack the reach, resource and capital to take their products to market.

Typically we need to establish relationships with international players to succeed, so why aren’t more Kiwi companies, especially from the technology sector, using distribution channels?

Results from the 2010 Market Measures survey, conducted by Concentrate and PricewaterhouseCoopers, showed that only 25 percent of Kiwi technology companies are selling indirectly in export markets.

Over 60 percent were slogging it out direct selling.

What does selling indirectly mean? The main method is through resellers who typically handle the physical distribution, sales and implementation of a product.

Licensing is another indirect option, where a company can use your product, or a part of it, as their own branded product is an increasingly common approach for number of successful technology exporters.

And there are many variations on these themes.

Can Kiwi technology companies not succeed without a giant international partner? Of course they can. There are lots of examples of companies who are doing well selling their products directly.

SLI Systems is growing fast by marketing their software primarily direct to the US market, and Software of Excellence has managed to exploit the UK market well. But to do this companies need to be focused and willing to invest significantly in developing their chosen markets.

Developing channel partners

Cracking the US, European or Asian markets is a huge challenge for any budding New Zealand exporter. Using New Zealand dollar cashflow to fund a direct international sales force is daunting.

An obvious alternative is developing channel partners, companies who can resell or distribute your product within targeted export markets. Contrary to the belief of some budding exporters, this is not the easy solution – in fact doing it effectively can be harder than simply selling direct.

It’s not about securing resellers and sitting back and watching the money roll in. The fundamentals of marketing exist whether you are selling directly or indirectly.

Unless you understand the needs of the ultimate user of your product, and determine which of these have the greatest need and therefore are likely to the most profitable to target, how can you even know which resellers will be effective?