A channel partner is a third-party organization that helps distribute a manufacturer's products and services to the end consumer. The partner obtains the rights to sell and distribute the product and might add additional value through its own set of services. Co-branding between the two organizations is common, but the channel partner is not considered to be a subsidiary of the manufacturer.
The wireless telecommunications industry is a prime example of the use of value-added resellers, which is a type of channel partner. Wireless service providers license the sale of their phone equipment and service plans to third-party dealers who specialize in electronics. These dealers initiate service contracts for consumers and sell the manufacturer's equipment. They may offer additional warranty options or special promotions that the manufacturer does not offer its direct customers.
Third-party dealers often help the customer set-up the wireless service, exchange defective phone equipment, and may help the customer troubleshoot his service. The third-party dealer does not however provide the wireless service to the customer. A dealer does not work for the manufacturer, but will often advertise the manufacturer's brand logo alongside its own. This co-branding strategy is designed to draw foot traffic into the dealer's store locations based on the reputation of the manufacturer's name.
In a channel partner relationship, the third-party dealer will usually receive compensation that is directly linked to the sales volume it achieves on the manufacturer's products and services. The manufacturer receives increased market penetration since it is not always cost effective to operate company-owned stores. One of the risks associated with a channel partner relationship is that the third-party vendor will not handle customers with the same level of service expertise. This gap can be bridged through training of the vendor's employees, clear and concise performance expectations, and agreements that stipulate certain performance measurements.
Another challenge with channel partner relationships is that third-party vendors often sell products for other manufacturers. These products are usually considered to be direct competitors. Third-party dealers of wireless phones and services will typically feature several different brand names. In an already fiercely competitive industry, the customer that walks into a third-party dealer to purchase service has more control over which company he chooses. In addition, the employees of the third-party dealer aren't necessarily going to advocate one wireless provider over the other or they may not adequately inform the customer about the company that is going to be providing them with service.