The Value Added Reseller [VAR] business model incorporates additional products or services with the purchase of an initial or qualifying item. The most common place a VAR model is seen today is with mobile devices, PCs, and laptops where software is included with the hardware that is purchased. If you buy a new Lenovo laptop at your local retail outlet, for example, you don’t have to purchase Windows 8 as well. The operating system comes installed.
What Are the Advantages of Using the VAR Business Model?
The Value Added Reseller business model can be used in any business or industry, but it has to be incorporated into specific situations at times for it to create profitability. A service-orientated business that adds on free services to a purchase may not benefit like a computer reseller would because most of the profits of the service-based business come from services rendered.
As long as there aren’t any conflicts in place, then these are the advantages of adopting the VAR business model.
1. The costs are lower upfront.
This generally applies to the sales channel. Instead of trying to find the right people to market and produce goods or services, the costs are paid when there is a sale of the product.
2. They make an upsell a lot easier.
By adding more value to a purchase, it becomes easier to convince a prospect to make a purchase. If you had to spend $500 on a new laptop, $200 on an operating system, plus add on the costs of tax, warranty, and other upgrades, it wouldn’t be as tempting of a purchase.
3. It is infinitely scalable.
It only takes more resellers to create more profits in the VAR business model. This limits the risks that are faced because supply is easier to adjust to demand.
4. It creates relationships.
Without relationships, there really is no opportunity to do business. Resellers already have relationships in place that make it really easy to add on other products to enhance the customer experience.
There are two ways to begin incorporating the Value Added Reseller business model: a business may do it on their own or seek out partnerships that benefit everyone.
There Are Some Disadvantages to the VAR Business Model As Well
If you have signed onto some partnerships to expand the reseller population for a product or service, there is no real guarantee that the resellers are going to actually sell your product. Most businesses are going to focus on selling their product. Think about the Lenovo/Windows relationship. Most people shop for the brand of the computer and don’t think about the operating system. At best, Lenovo might say it is a Windows-equipped computer.
This means even though there are resellers in place, there will always be a need to market the product. Here are some of the other disadvantages of using the VAR business model.
1. The long-term costs are much higher.
Most reseller arrangements have a pretty healthy margin for the reseller. These costs cut into core profits over time and eventually the business model becomes unsustainable without changes being made to it.
2. There can be reseller conflicts.
If there are a large amount of resellers, then there will be conflict someone along the sales chain. You see this in the retail market all the time. You can go to Best Buy to purchase a Lenovo computer or you can shop online at Amazon. You can purchase a Lenovo computer with Windows or you can purchase an HP computer. Conflict creates less profits for the resellers because there is a finite market for the value-added resource.
3. There is not as much control.
Because products or services are an add-on, there can be fewer metrics available to determine who is purchasing products and why. When there is limited feedback, it can be virtually impossible to develop an accurate forecast for the items in question.
Why Choose the VAR Business Model?
Although there are some challenges to the Value Added Reseller business model, it can be an incredible success. The key to finding that success is to engage the sales teams of the resellers so that they know how to sell the product. They already have information about targeted customer segments and positioning with the market. A business practicing this model needs to give resellers the tools to target those markets.
The VAR business model can be tough at times, but it can also be highly profitable. For this reason, it should be considered as an option whenever a product or service is being introduced to the market. By adding to the value of something that already has a strong reputation, customers will see a unique advantage that will often inspire a purchase.