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The 4 Types of Channel Marketing Partners
Navigating the world of channel marketing can be tricky, especially when common industry terms overlap.
You might find yourself discussing partnership strategy, believing you and your partner are both on the same page—only to find out later that you both were discussing entirely different ideas. Which benefits will you offer to your partners? Will they help support existing customers or focus only on bringing in new leads? Why should you choose one type of partnership over another?
To help unravel some of the confusion around the different types of channel-marketing partnerships (and to help you save face with your partners), here’s everything you need to know about the four main types of channel-marketing partners.
Channel Partnerships, Untangled
There are four different types of channel-marketing partnerships:
1. Affiliate Partnerships: Partners use their website and audience to drive traffic to your site, and in return you pay them a percentage commission on any sales that traffic produces
2. Referral Partnerships: Trusted partners refer qualified customers to your business, and in return you pay them a percentage commission on any sales that traffic produces
3. Alliance Partnerships: Partners in related businesses share customers with your business, spreading awareness and selling each partner’s products in exchange for a percentage of sales revenue
4. Reseller Partnerships: Partners purchase goods or services from your business with the intent to resell them, often adding value through additional services.
Each of these partnership types can help drive new customers and revenue growth for your business, each utilizes indirect advocates to make sales, and each provides an impressive return on your marketing investment.
If the benefits of each option are much the same, which partner types should you choose for your partner program?
The answer lies in the additional capabilities each partner brings to the table. Although the benefits might be similar, different partner types can provide a boost at varying stages of the business process. While some partners might focus on bringing in new leads, others might take a more hands-on approach to sales, customer operations, and more.
Understanding how each type of partnership fits into your overall business process will help you focus your efforts on working with the right kinds of organizations, providing the greatest return for your company.
To help illustrate this, we’ve put together a simple color-coded chart that lists business areas that most companies share. Each of the seven columns represents one business area where partners typically provide help. The colors on each chart represent the level of responsibility your partners assume concerning that area of the business; green signifies the partner is undoubtedly responsible for that area, while orange means the partner may or may not be responsible, depending on how your partnership is structured.
Now that you have a background understanding of the different types of channel-marketing partners, let’s jump in and break down the four types of partnerships in more detail.
The Rise of Affiliate Partnerships
Affiliate partnerships—sometimes referred to as affiliate marketing—are a type of performance-based marketing in which you partner with a third-party website to drive traffic to your site. In return, you pay a commission to that site’s owner for any sales generated from the traffic they send your business.
Before the internet, this was merely called referral marketing—affiliate partnerships are most often linked to web-based businesses, although some do exist in the off-line world as well. While affiliates are a great way to increase awareness of your product with adjacent audiences, they won’t sell for you. It isn’t your affiliates’ job to convince visitors to buy—it’s their job to convince visitors to click through to your site, where you can nurture them further. Because of this, affiliate programs tend to be driven more by volume than by healthy relationships.
The advent of the web made it easy to build traffic on a massive scale, with affiliates reaching such a large number of leads—regardless of how qualified those leads are—that affiliate partnerships quickly became one of the fastest growing digital marketing channels. In fact, a Forrester report predicts that U.S. affiliate-marketing spend will top $6.8 billion by 2020.
The low risk of affiliate programs makes partnerships especially attractive for host companies. Setup costs aside, you pay for sales, not clicks, shifting the risk of reaching qualified leads to your partners and reducing wasted spend over PPC programs. You can also easily control the cost of your program and your growth rate by adjusting your commission percentage: Generous commissions spur faster growth; reducing commissions can ensure costs remain in check.
Referral Partnerships Hinge on Relationships
In affiliate partnerships, it’s likely your partners don’t know the customers personally; their primary motivation for referring customers is financial gain.
Referral partners, on the other hand, recommend your product and brand to customers, colleagues, friends, and family members. Their motivation is based more on a healthy, trust-driven relationship between themselves and the potential customer than on financial benefit. Referral programs focus more heavily on customer engagement, building a strong relationship with your customer and partner base to the point where they feel your brand is good enough to share with colleagues and friends.
Because of the existing trust-based relationship between the referrer and the potential customer, leads from referral partners tend to be of higher quality than those gained through affiliate partnerships. Often, your referral partners will understand who might make a good customer before making the referral, or you can provide partners with training and sample questions they can ask potential customers to help prequalify them for you. While building trust and engagement up front does take more effort, you’re rewarded with leads who are more inclined to engage with your brand and become customers and advocates themselves.
This doesn’t mean that you can avoid financial incentives entirely. Offering commissions to referral partners can help motivate them to continue passing along high-quality leads to your company, and since those leads are more likely to convert, referral commissions can be higher than those offered in an affiliate program.
Co-Selling Through Alliance Partnerships
An alliance partnership, also known as a sales alliance or a co-selling alliance, is an agreement where a business shares its customers with a partner brand. Alliance partners help create awareness within their existing customer base, working to sell their partners’ products in exchange for a percentage of sales revenue.
Established brands that have taken the time to build relationships with their existing customers have massive sales and marketing advantages over a new company trying to reach those same customers. By creating a sales alliance with established businesses, younger companies can leverage the goodwill that customers have toward the established brand to quickly grow their customer base more cost-effectively. Alliance partnerships, then, tend to be more strategic and longer term than other partnership types.
Alliance partnerships work as host-beneficiary relationships—the host partner offers access to their customers in exchange for a valuable offer from the beneficiary partner. If you’re looking to gain access to new customers, you want to be the beneficiary of the alliance. Look for companies who already have access to the customers you’re hoping to reach, and put together a promotional deal for the host company to present to their customers. You pay any marketing costs and split any revenues with the host company. While you’re not getting full revenue from any sales made, you benefit from gaining access to additional customers who otherwise might be time-consuming or expensive to reach.
If, on the other hand, other companies are looking to gain access to your customers, there are incentives for you to create alliances as the host. Offering special promotions from beneficiary partners helps build trust and loyalty with your customers, and the splitting of revenue from any sales unlocks a new revenue stream for very little work.
In the best sales alliances, both sides benefit equally, trading access to your customer base for a share of profits. In some situations, though, you might consider adjusting the profit split so that it’s not 50–50. For example, if you expect many repeat sales, the beneficiary might give up a more significant share of the initial revenue, or even all of it, in exchange for those residual sales. Likewise, if a beneficiary is looking to grow quickly, they might give up a higher percentage of sales revenue to motivate the host company to help them grow more rapidly. These are negotiations you’ll have to make for your specific situation, with no hard and fast rules.
Reseller Partnerships – the Traditional Channel
Most of the time, when a company says they sell through “the channel,” they are referring to a reseller- or distributor-partnership agreement. A reseller will, at minimum, qualify leads, market and sell your product, and own the ongoing customer relationship. In return, resellers pay a royalty or licensing fee back to you.
Channel partners vary significantly in their reach and capabilities, covering the entire spectrum from solo consultants and consultancies to value-added resellers (or VARs), retailers, and systems integrators. Depending on the skills of each partner, they may generate leads themselves, or sometimes you might be expected to send them qualified leads as part of your partnership agreement. Each partner is then responsible for turning those opportunities into sales, as well as managing the ongoing customer life cycle.
Value-added resellers go one step further, creating additional value for customers by bundling additional features or services with the original product and then reselling the bundled version to their customers for an additional fee. They also shoulder the responsibility of deploying the solution for the end customer as well as managing ongoing customer support.
Reseller partnerships represent a more quantitative opportunity than referrals—outcomes are measured in volume and discounts rather than in benefits and opportunities. This makes reseller partnerships more suited to established companies that have already found product-market fit, have an established customer base, and are looking to optimize their supply chain to grow their sales.
So Which Channel-Partner Type Should I Choose?
Unfortunately, there isn’t a one-size-fits-all answer. Choosing the right partnership strategy is a dynamic and often complicated process. But there are a few rules of thumb you can take advantage of when building your partnership strategy.
If you’re looking to scale quickly, consider an affiliate or alliance program. Affiliate and alliance partners both have preexisting audiences and customer bases full of potential customers; often, they need only a little nudge to drop into your sales funnel.
If you’re looking to optimize your sales processes for volume, try a reseller program. Once you’ve figured out your marketing message and have robust procedures in place for direct sales, a channel-partnership program can help optimize the return on your sales investment without endlessly scaling your sales team.
If you’re still developing and improving your product, look for referral partners. Referral customers tend to be early adopters and can provide valuable feedback to help refine your product and positioning before you’re ready to scale. The trusted recommendation of a friend or colleague is frequently the piece that’s needed to push them to become a customer.
Allbound’s simple, powerful partner relationship management software works just as well for affiliate programs as it does for alliance partnerships. So whichever route you choose to take with your partner program, you can be sure Allbound is there to help guide you along the way.