Creating Profit Through Alliances - business models for collaboration E-book | Page 69
In a number of industries such as IT, the large and
lengthy sales processes make it customary to offer
additional discounts on the purchasing price to the
distributor that first discovers and registers a sales
opportunity in the supplier's administrative system.
This allows supplier and distributor to respond more
effectively to an opportunity, for instance by
approaching the buyer even before he issues a
Request for Proposal. This discount, which is for that
one distributor exclusively, enables him to reduce his
price even further and so to increase his chance of
winning the order, or to better maintain his own
margin. With Oracle, for example, this discount is 5%
but only applies if the order is confirmed within six
months after registration.
A number of preconditions need to be observed for
these types of price structures to work properly:
The price structure must be established
beforehand and be entirely transparent.
Differences between distributors may occur, but
they need to be objectifiable: it is fine for a
certain distributor to obtain an additional
discount for a large volume or on account of a
specific agreement, but then this should, in
principle, be attainable for other distributors.
Any channel conflicts must be tended to: it
should not be possible to obtain a greater
discount via a longer or different channel, on
the basis of certain agreements, then when
making the purchase as directly as possible
from the supplier. The supplier should carefully
define the application of any exceptional
arrangements.
A good example is how Oracle operates. As one of
the largest software suppliers worldwide (and also of
hardware, since its takeover of Sun), Oracle has
developed an elaborate policy that is, for the most
part, open to examination by third parties.
The Oracle Partner Network consists of three
membership levels -- Silver, Gold and Platinum -- that
are each associated with different demands and
different annual contributions. Partners are supported
in different aspects, including an unlimited number of
demonstration licences or development licences,
access to knowledge databases, and certain forms of
technical support. Partners may use the Oracle logo
and can specialise in certain competences.
Partners can move up through the membership levels
based on their development of certain competences
to a certain level, the number of successful
implementations, and the number of leads
contributed. The amount of technical and marketing
support increases accordingly, as does the discount
offered when purchasing licences.
Oracle collaborates with partners/distributors
according to two models:
Reselling: the turnover is recorded in the
partner's bookkeeping
Co-selling: the partner advises but does not sell
licences, which need to be purchased directly
from Oracle.
Oracle applies an „open market model‟: all
distribution channels are given the same discount on
the standard price list. A distributor gets a 30% to
40% discount, depending on the turnover. Higher
discounts may be offered if Oracle is directly involved
in a deal, but the principle remains that partners
need to achieve a margin of at least 5% on the resale
of licences.
When a customer buys Oracle licences, he is given an
Unlimited Licence Agreement, including the right to
upgrades and support. The discount applies to the
entire package, in terms of the purchase as well as
support. Support is always 22% of the purchasing
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