Incentives for Indirect Distribution Channels

by: Luke Kreitner October 14, 2020

When it comes to boosting product sales, indirect distribution channels are a strong tool for manufacturers looking to increase revenue without solely relying on an in-house sales team to promote their product.

Depending on the industry, indirect selling may make up the bulk of a product’s overall revenue or can be used to by a business to supplement direct sales without having to pay an additional sales employee salary.

While indirect sales can have its benefits, this channel is not without its challenges. Arguably the biggest challenge: with so many product options, how do you guarantee that your product is promoted over your competitors at the time of sale?

For businesses looking to make the most of this sales route, investing in channel technology to help track seller and buyer behavior is a key step. With the help of a channel incentive program, businesses can not only inspire product sales amongst third-party partners, but they can collect valuable customer data to help better steer sales and marketing initiatives and maximize indirect channel revenue.

Indirect Distribution Channel: Definition

Before we dive into the benefits of incentives for indirect sales, let’s break down the basics of indirect distribution channels.

Simply put, an indirect distribution channel is defined as the route in which a product moves from its origin of the manufacturer through various numbers of selling systems before eventually making it to the end-user or consumer. Examples of these intermediary selling systems include distributors, wholesalers, dealers, resellers, warehouses, and retailers.

In the world of tire sales, a consumer looking to replace their tires will never contact a tire manufacturer directly to get the job done. Instead, the consumer travels to a tire dealership to make their purchase and have their car serviced. Because of this indirect sales system, tire manufacturers must rely on both tire distributors, who store tires from various manufacturers to deliver to dealerships, and tire dealers, who sell various tire types, to promote their product at the consumer level.

Because of this, it is in the tire manufacturers best interest to incentivize:

    • the distributor to purchase their tires and promote them to trusted tire dealerships; and
    • the tire dealerships to promote their tires when recommending products to a customer.

The Benefits & Challenges of Indirect Channel Sales

Selling products through an indirect distribution channel has many benefits. Leveraging the help of third-party sellers, these businesses are referred to as “channel partners” for manufacturers as they partner to provide the product.

Manufacturers work to sell their products through the channel for the following reasons.

    • They are cost-efficient: Third-party resellers or wholesalers cover sales and marketing costs of the product so that manufacturers don’t have to.
    • They tap into a wide, existing customer base. Manufacturers form a direct line into markets and customers they may never have been able to reach without the help of the established trust and connection that an indirect sales channel partner can provide.
    • They increase the product's speed-to-market. Continuing off the point above, products make their way to the front-line with the rest of the competitors with very little promotion, cost, or risk. Indirect sales are a great option for newly established companies working to grow their business.

The challenges of indirect sales come into play particularly for companies who are fully reliant on the channel sales process. Manufacturers are completely removed from the end-consumer in the channel, making it hard on sales and marketing teams looking to better connect with customers. This inhibits the ability to build partner connections and establish brand loyalty.

Additionally, third party sales teams often have a variety of products they can offer to the customers. They are focused on making a sale, regardless of the brand the customer purchases, meaning manufacturers can’t guarantee that their product is being promoted over their competitors. They also cannot guarantee that resellers are equipped with the proper product knowledge that makes one’s product sell. For manufacturers looking to achieve brand differentiation, indirect sales come with a variety of roadblocks.

Incentives for the Indirect Sales Channel

Be it a B2B channel incentive program, or a customer loyalty program, incentives are a proven way for businesses to conquer the challenges that come with indirect distribution. Providing engagement and motivation at every link of the distribution chain, rewards are a powerful way to capture the attention of channel partners and keep them choosing your product at the time of sale.

With the help of incentive technology, collecting and organizing channel partner data has never been easier. An online reward platform allows businesses to form a direct line of communication with channel partners who often remain hidden. Track sales data, boost engagement and promote new products each time partners log into your rewards site. By providing an enticing incentive for selling your product and a seamless way to earn rewards, brand loyalty is guaranteed.

Incentives also help promote product education. With a virtual learn-and-earn model, partners are more inclined to participate in training, improving their ability to sell your product. When companies offer incentives, they are not only enacting a strong channel strategy- they are instilling a reputation of generosity into their brand and showing commitment to their customers.

About Luke Kreitner

Luke Kreitner is the VP of Sales at Incentive Solutions, an Atlanta-based incentive company that specializes in helping B2B businesses accelerate growth, increase sales, motivate channel partners and retain B2B customers.