Selling someone else’s products

Have you ever thought about selling someone else’s products? When you sell someone else’s products,  parts of that vendor’s business obviously become a part of yours: their products and services. However, the reality is a good bit more complicated.

Be sure what business you’re in

When you consider selling someone else’s products, it’s critical to assess whether the product is germane to what you do.

For example, it isn’t hard to find stores selling fidget spinners. They’re an impulse buy that could add a small bump to daily sales, so grocery stores, convenience stores and the like could justify selling them back when they were hot.

However, it makes little sense to see these gadgets advertised on outdoor signage at pawn shops and musical instrument stores – which I’ve seen lately. The logic behind advertising out-of-context impulse items on a specialty retail store’s limited outdoor signage escapes me – particularly on high traffic streets.

Will it confuse their market? Will they lose their focus by selling a few $2.99 items? Doubtful. While they’re trying something to increase revenue, the emphasis on an out-of-context, low-priced impulse buy product is the reason I bring it up. It makes no sense for a specialty retailer.

When you start selling someone else’s product, there are questions you don’t want your clients and prospects asking. They include “Have their lost their focus?” and “What business is my vendor really in?”  These questions can make your clientele wonder if another vendor would serve them better.

Should you sell out of market?

I had this “Is it in context?” discussion with some software business owners this week.

One of the owners (not the tool vendor) is asking the group to sell the development tools they use to their customers & other markets. Ordinarily, this would be a head scratcher, since most software development tools generate their own momentum, and/or are marketed and sold with a reasonable amount of expertise. That isn’t the case with this tool vendor.

However, the discussion really isn’t about that tool vendor, even though they’re at the center of the discussion being had by these business owners. The important thing for you is the “Should we sell this product?” analysis.

Start the conversation by bluntly asking yourself if makes sense for your business to sell this product.

Adjacent space or different planet?

If your company sells to businesses that develop software internally or for sale to others, then you might consider selling a vendor’s software development tools to your customers. It might make sense if you sell into enterprise IT.

However, if you sell software to family-owned, local businesses like auto parts stores and bakeries, it makes no sense at all. You’re going to appear to be from another planet going to these customers to sell software development tools.

If you try to sell these tools in an unfamiliar market, then you’re starting fresh in a market your team probably isn’t used to selling and marketing into. The chance of losing focus is significant unless you’re leading your current market by a sizable margin and have plenty of extra resources.

Ideally, a new product line feels congruent to your team, clients and prospects. Even when it’s a good match, the work’s barely started as selling and supporting a ready-to-sell product requires a pile of prep work.

Your sales team needs training to sell the product and know how/when to integrate it into multi-product solutions. You need to include the product in your marketing and training mix. Your support team needs training to provide the level of support that your customers expect. Your infrastructure team needs to incorporate it into your CRM, accounting, website, and service management systems. Your deployment team may need training as well.

What if the new product’s vendor has problems?

Reputation damage is one of the biggest risks when selling someone else’s products, particularly if you have to depend on the other company to service and interact with your customers.

Does the product vendor provide support as good as yours? Do they communicate in a timely & appropriate manner? Do they service things promptly? Are they a good citizen in the developer community? These things are important in the software tools market. In your market, they may not matter.

The actions of the product’s creator reflect on you, since YOU sold the product to YOUR client. Carefully consider the risk/reward. Your entire clientele will be watching.

When is it OK to kill a product?

Does your company struggle with product life cycles? Some products make it easy to exterminate them. They get a tepid welcome in the market, produce little sales and/or are difficult to sell. It gets difficult when these product produce a decent amount of revenue – say 10% of your company’s gross income. In more difficult situations, these products may turn a profit, but it might be hard to find.

All of the sales, marketing and intellectual effort combined to keep the product alive can match or even exceed its revenue – making the decision seem easy. If there are multiple products in that situation and several of these products aren’t in the early part of their life cycle, you have work to do and revenue to replace.

In a manufacturing or assembly situation, there is inventory, equipment and floor space to consider, much less the potential lost opportunity cost of the space and funds being consumed for this product. When it comes right down to it, it’s hard to cut yourself off from that 10% of gross revenue.

If the product is profitable, we might only be talking about two or three percent of your profit. To a company with profit all over the building, the decision is probably easy. To a company losing five to ten percent of revenue, it means going in the red, even if only for that year. The repercussions of that loss can be more serious. There could be tax implications and possible impacts on lines of credit, etc.

Given all these considerations, how do you decide when a revenue-producing product’s life cycle is over? No one ever said this would be easy.

What makes it easy to kill a product?

I suspect I can get easy answers from your team about products they’d love to get rid of. The answers will sound something like this:

  • The product requires a difficult on-boarding, ramp up and/or installation process that customers don’t enjoy.
  • It’s difficult to pay a sales commission on the product, making it less attractive to the sales team, which makes it harder to sell.
  • The product requires substantial ongoing support or customer service.
  • High maintenance and service costs and related downtime make the product value harder for clients to realize.
  • The product attracts the worst kind of clientele. “Worst” from your company’s perspective, not mine.

You may have other reasons more specific to your situation.

What makes it hard to kill a product?

A better question might be “When is it not OK to kill a product?”

You can find any number of books, courses and strategic direction documents on how to manage a product life cycle. You may be an expert at managing a product through its life cycle. Even so, there are reasons why you wouldn’t want to kill a product that would normally get the ax for overhead or other financial reasons.

A few answers come immediately to mind:

  • When the product consistently attracts new customers who historically have a high LTV (lifetime value – ie: the revenue gained on average per customer), even if the value is usually delivered by another product.
  • A substantial percentage of the product’s customers ascend your product ladder.
  • The product acts as an add-on to your higher-end products.
  • Deployments of this product are an essential component of your product platform or ecosystem.
  • The addition of this product, however trivial, makes your overall offering unique and/or as a whole allows it to create much higher value than competitive product platforms.
  • This product attracts customers who can be described as ideal takeaways from your competition. I’m not a big market pie slicer (vs. expanding the size of the pie), but this is different. Ideal takeaways are the clients that you would cherry pick from your competition, if you could choose.

Bigger picture considerations

Before you kill a product, make sure that you’ve looked at it holistically, in other words – in the context of the entire company, strategy, market and the life cycle of your client community.

Does the product fit your overall strategy? Do the product’s clients fit the profile of clients you want and need? If the product still seems wrong when considering those two items, you may find that your overall strategy and/or client profile requires re-examination. In an extreme case, the “bad product” might be telling you that the market has changed and that it’s time to “fix the company”.

Photo by oneiric wanderings