Diane Croessmann deploys leasing and managed solutions programs world- wide and develops early strategy for captive, vendor leasing and managed solutions programs, executing these programs and restructuring sales operations.
Funder and vendor partnerships have long been a staple of the financing industry, and a good partnership can benefit both parties. But unexpected changes can catch vendors flat-footed, especially if adherence to their contracts won’t allow for adapting to new circumstances. Diane Croessmann examines some of the ways these partner programs work, along with what changes can cause them to malfunction.
Vendor partnerships have existed for decades and continue to be a staple in the equipment leasing and financing industry. Manufacturers and resellers who rely on these programs understand that when vendor partnerships work well, they provide high value. However, during periods of rapid transformation, as we are seeing today, the success of these programs can be threatened and get out of sync. To mitigate the risk of having unanticipated events impact the alignment of these partnerships, it’s becoming increasingly imperative for vendors to stay on top of changes.
When Programs Work Well
In-house financing programs that require on-book financing and internal administrative support are a challenge for some manufacturers and resellers of hardware and services. The cost of committing to and implementing an adequate support structure can be daunting for many of them. As more and more vendors understand the value of providing custom financing options to their end users, they find the vendor partner programs provide the solution.
Partnerships between funders and vendors can enable efficient and economical alternatives for end-user financing. From the vendor’s perspective, the turn-key reliability of the funder’s expertise, funding capacity, tools, and processes are an attractive enticement to creating branded or non-branded offerings for their end users. From the funder’s perspective, an alliance with a successful vendor creates an opportunity for collaboration in building efficient funding volume.
Although there is an element of control that is relinquished by both parties, these programs have a long history of success in establishing and achieving mutual goals. This is especially true when they are built on a solid foundation that includes a shared understanding of both hardware and financial offerings, customer segment strengths and weaknesses, geographic coverage capabilities, and go-to market strategies. When there is on-going collaboration in building alignment of these critical components, partner expectations are more realistic and performance objectives can be properly gauged.
When Programs Don’t Work as Well
However, even the best programs can get out of alignment during periods of rapid transformation. As we advance in the digital era and feel the impacts of true globalization, we see the financing industry becoming one of many industries that are absorbing aggressive changes.
Some of the most disruptive changes that can impact vendor programs include:
• Funder Changes: Funding sources occasionally make strategic decisions that impact their ability to support industry verticals, customer segments and geographies. This has occurred and re-occurred on a regular basis for decades. However, there are periods of market withdrawals and consolidations that are more intense than others and deserve special consideration. The recession of 2008 is still a vivid image in the rear-view mirror for some vendors who experienced a disruption — or even complete withdrawal — in customer financings as their funding partners were shut out of the capital markets. Vendors who don’t want to experience the same disruption again should be thinking about the right offense now in advance of the next economic recession. During this upheaval period, vendors can be left with significant unanticipated gaps in coverage. So, whether a funder’s exit is driven by external events or is planned, the impact to end user customers can be chaotic if financing support is inconsistent during a transition period. All of this translates to high risk to the equipment provider in terms of customer loyalty and retention.
Generally, a partner’s withdrawal from a market does not come with a significant notice period for a variety of legal reasons related to public disclosure. As a result, vendors can experience a more significant loss of control in filling the gap, because the window to close the gap may be shorter than required for a successful transition. Every new partnership is entered into with high hopes that obligations will be fulfilled for the duration of the contract period. However, unanticipated funder strategic changes can and do occur. Having a pro-active contingency plan that includes a thoughtful and current strategy for sourcing alternative providers can reduce the chaos. Contingency planning also requires maintaining a keen eye on the ever-changing landscape of current funders.
• New Customer Preferences: Even the best partner relationships can be strained when industry or market preferences change. Funders may provide exceptional tools and processes for traditional financing models but may not be investing in infrastructure to adequately address new preferences. This can be seen in the shift to end user demands for more efficient and streamlined fintech applications or in the trend from ownership to usage models. Vendors need to be vigilant in regularly assessing the services they require versus the services that are available from their existing partners under these programs. Staying competitive and managing end user customer loyalty demands a sensitivity to the rapid preference changes that are going on in the industry. So, in addition to being vigilant to funder capabilities, there is also a necessary requirement to stay tuned into market preference changes.
• Digital Transformation: Blockchain, artificial intelligence and the Internet of Things are all disruptors — in a good way. We are seeing new application service and fintech providers taking advantage of these new technologies to streamline all aspects of the equipment financing value chain. With the introduction of these new technologies, risk can be significantly reduced, service maintenance can be more efficient and document tracking can be bullet proof.
And that’s just the tip of the iceberg. Although these advanced applications are destined to become mainstream, funding partners may be in different phases of prioritization and implementation. This can create gaps in providing more efficient and contemporary solutions. If a process is less efficient, it is more expensive. All of this translates to finding the most competitive offering that can be made available to an end user. Keeping up with digital transformation initiatives is challenging. However, being prepared includes participating in industry forums, learning from industry white papers, and seeking expert advice. This level of involvement provides better assurance that you are tracking proactive change in order to maintain a competitive advantage in the market.
Due Diligence to Optimize Vendor Programs
The contribution of vendor programs to the success of this industry is unquestionable. However, as the industry adapts to transformative change, vendors will be forced to exercise increased due diligence in defining and measuring performance to ensure they are getting what they require from these programs for their customers.
Generally speaking, a vendor program is established based on a formal or informal request for proposal (RFP) process. During this initial period of due diligence, the vendor has the opportunity to examine multiple providers. Once a multi-year exclusive contract is finalized, however, vendors often ignore relevant changes in the industry and among the various funders unless the next decision point in the contract triggers a fresh review. This is when disruption can catch a vendor off guard. It is no longer acceptable for vendors to lean on dated results from an RFP in an industry that is undergoing so much change on an annual basis.
More frequent vendor assessments, with more empirically reliable data, is the new norm for vendors who are managing their company’s programs. There are a number of activities that can assist in providing insight into market variability and enable confidence in the strength and durability of existing programs.
Vendors should routinely educate themselves on the spectrum of partner options that exist for various geographies or segments. Information of this nature can be assembled through benchmarking surveys, requests for information (RFIs) or staying plugged in to industry events with funder participants. Vendors should also challenge existing partners to provide higher levels of capabilities so their offerings do not get stale. In order to stay alert to emerging industry and marketing practices, one option is to conduct periodic customer surveys or focus group panels to solicit feedback.
One last consideration: to remain proactive in addressing rapid industry change, consider enabling more flexibility in vendor program agreements. Contract relationships that have successfully existed in an exclusive form may be better suited to non-exclusive or multi-funder relationships going forward. This will provide vendors with options to augment programs for new opportunities that arise. Having foresight during the vendor program agreement negotiation process is critical to ensure the level of flexibility that will be demanded.
There is no doubt that vendor programs will continue to provide high value for both vendors and funders. In order to preserve the integrity of these programs during periods of transformation, it’s important that vendors look at their roles a little differently and adopt a more proactive position in setting expectations. Vendors who incorporate higher levels of due diligence into their program management responsibilities are more likely to overcome the disruption by accommodating foreseen and unforeseen market changes. Being ever mindful of change and embracing it will not only help sustain strong existing partnerships, it can open the door to new opportunities.
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