A value-added reseller (VAR) enhances the value of third-party products or services by adding or bundling additional products and services for the end user. In the IT industry, several VARs develop add-ons and additional services for existing IT products. Read on to learn more about what a value-added reseller is and the benefits they offer to both vendors and customers.
See also: OEM.
In this definition...
What Is a Value-Added Reseller (VAR)?
A VAR is not just a middleman between vendor/OEM and end user but adds value by enhancing the offering. For example, a VAR can combine multiple products to offer a more comprehensive turnkey solution for customers.
It is common for VARs in the IT industry to combine hardware and software solutions to offer a bundled product to end users. In some cases, hardware or software is customized or developed in-house by the VAR. VARs can also offer additional support services such as consulting, training, technical support, installation, monitoring, extended warranties, and service level agreements (SLAs).
Example of a value-added reseller relationship
Here is an example of how VARs play a prominent role in the IT industry. Tech giant, Infosys, offers a variety of software solutions to meet the requirements of its customers, ranging from small startups to large enterprises. Some of the products Infosys develops can become obsolete quickly and with such a large customer base, it can be challenging for the vendor to analyze the unique requirements of each user and how to make Infosys products and services fit those needs.
To counter these issues, Infosys uses a network of VARs that are trained to resell old software programs by bundling them with new services and programs. With this program in place, Infosys is able to indirectly offer a complete business solution to its customers.
Value-Added Reseller vs Original Equipment Manufacturer (OEM)
An OEM, or original equipment manufacturer, is a company that produces equipment, software, and/or parts that are used as components by another company that offers a whole system or product. For example, Microsoft is the OEM that provides the operating system that is used in PCs made by HP, Dell, and Samsung.
In some cases, OEM products are simply rebranded by another company, such as a VAR, and sold to end users. VARs are authorized distributors and dealers of OEM products. They can sell individual OEM products or bundle them with other products or services. There are also cases in which the OEM is also a VAR that can use third-party hardware or software products to produce their end products.
The most distinguishing feature between a VAR and an OEM is that OEMs sell their products through a B2B model, whereas VARs operate on a B2C model and sell to consumers.
How Does Value-Added Reselling Work?
Value-added reselling can operate on a variety of different business models. VARs can partner with OEMs. They can also purchase rights from the vendor to resell, rebrand, and reconfigure OEM products. The rights acquired by the VAR may include the freedom to customize OEM products. The OEM can also require the VAR team to get a certification or opt into continued OEM training in order to maintain their status as authorized resellers of OEM products and services.
In some cases, original equipment manufacturers require value-added resellers to achieve annual revenue targets to continue their contracts or partnerships. VARs can also go into an exclusive contract with an OEM, through which they are the only company that is allowed to sell products of the OEM to end users.
As the complexity and cost of maintenance of on-premises hardware increases, several VARs offer their solutions through cloud computing. To allow for a continued revenue stream, many VARs also offer consulting services and transition into a managed service provider (MSP) role.
Pros of Value-Added Reselling
A VAR typically understands the needs of businesses better than OEMs and can offer a solution customized to client needs. The VAR’s expertise helps them to guide the OEM on market demand and market risk, making it possible for the OEM to recalibrate its offering to meet the unfulfilled needs of the market. This could be a game changer for the OEM as it can offer them a competitive advantage.
The OEM can also train the VAR team on best practices for the implementation, installation, and support of OEM solutions. This allows the OEM to reach and support a larger network of end users.
Customers benefit from the VAR when their unique requirements are met through customized VAR solutions. They can also benefit from getting multiple services and products through a single, combined solution. Compared to most OEMs, VARs offer a larger menu of products and services for end users, allowing the end users to work with a single vendor for multiple solutions.
Cons of Value-Added Reselling
Using a VAR can reduce the profit margins of OEMs depending on market competition. For the OEM, using a VAR to sell their products or services means they need to rely on the VAR to complete the sales and after-sales processes, which requires certain expertise that the VAR does not always have. The OEM also has to risk its reputation on proper implementation, installation, and support provided by the VAR.
For the VAR, working with a large number of OEMs can be challenging as they would need to manage and master a large number of products or services. The VAR also has to manage price fluctuations from the OEM, which can dig into its profit margins.
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