Put yourself in the position of Head of Sales / Marketing in a communication network service provider. One day, your CEO asked you what is your sales and marketing strategy. Your company sells its services to corporates in various verticals, those who need an internet backbone or digital data networks to connect their branches. So far, you have been selling to channels in many different countries. Only in a few countries you have a local company with some sales staffs and in a few others you only have one or two sales guys without any local company. In majority of the countries where you potentially can deliver the services, you don’t have anyone in the ground, hence relying heavily on channel partners. The biggest chunk of your revenue is coming from channel sales. Direct sales is less than 20% of the service revenue but it is growing. Due to stiffer competition, you start thinking whether you should prioritize on going direct rather than going through channels.

For this specific business case, I have listed some pros and cons of direct approach as follows:

Pros

1. As you shorten the food chains by going direct, you can give lower price to the end user while maintaining the same profit. No added margin between you and your customer. Hence you become more competitive in the market
2. You have control over your end customer. You can claim them as your customer and use them as your references. This may not happen if you sell through channels. Your channel most likely will label the service as theirs with their added values thrown in. The end user may be blind about your company and what you are doing.
3. The number of customers your company is serving will increase. This will spread the customers churns risk. Previously you had several customers who were basically your channels, but now you have hundreds of end customers. The impact of losing a few customers among hundreds of them would not be a big as losing one channel who manages hundreds of end users.
4. A larger customer base will allow your company to be seen as more stable and robust, a major benefit in the eyes of investors.

Cons

1. Direct approach will require more resources in sales, marketing efforts, advertisements, billing, and customer supports. You need more sales staffs and aggressive service-awareness programs. Your billing system has to be revamped as much more customers need to be invoiced. If previously your channel partner did the first level support, now all the calls and problems will come to your door step.
2. In majority of countries, especially for communication services, an operating license with local company is mandatory. You can’t leverage on your channels as you decide to go direct. In some verticals, for example Government, Military, Oil and Gas, additional requirements such as supplier registrations, HSE, security clearances, import license, etc, more often than not, are required
3. As you have been enjoying the revenue streams from your channels, the day you decide to bypass them, they will see you as a threat. You need to anticipate the steep drop in current revenue before your foundation for direct approach ready.
4. As you establish a local entity with all administrative requirements in each potential country, you are faced with wide network of presences which you need to turn into profit centers eventually. Your management structures becomes wide, more complex, and hierarchical. This will bring an extra challenge and cultural adaptation as your company is moving toward multi national.

At the end of the day, the pros and cons of going direct must be weighed carefully as significant change will happen as you shift your strategy. If you are prepared to overcome the hurdles, direct approach will be obviously more efficient and will contribute more significantly to your company’s sustainability in the long run.