Definition
A Value Added Reseller (VAR) in finance is a company that enhances or modifies an existing product, then resells it. They add special features or services to this product to make it more attractive to customers, thus adding “value”. Essentially, these companies buy products, tweak them to add more value, and sell them as complete, operational solutions.
Key Takeaways
- Value Added Reseller (VAR) is a company that adds features or services to an existing product, then resells it (usually as an integrated product or complete “turn-key” solution) to end users. This enhanced product can often offer a greater value than if the customer bought the parts separately.
- The specific enhancements added by a VAR provide the ‘value-added’, such as additional hardware, installation services, consulting, or software customization. The primary purpose of this business model is to provide additional value beyond the original product or component.
- Value Added Resellers are common in the IT industry because they can provide specialized knowledge and services which the original manufacturers may not offer. This business model has an immense positive impact on extending product reach and offering customers a wider array of solutions.
Importance
In the field of finance, the term Value Added Reseller (VAR) is important because it designates a company that adds features or services to an existing product, then resells it as an integrated product or complete “end-to-end” solution.
This practice is significant as it not only increases the value of the original product, but it also allows the VAR to establish a niche market or competitive advantage.
This model is beneficial for the end customers as they receive enhanced products tailored to their specific needs while the VAR has the opportunity to generate higher profits because of the additional value they have provided.
Explanation
A Value Added Reseller (VAR) functions as an enhancement to a company’s product sales or service delivery. Products or services are procured from a manufacturer or services supplier, augmented in specific ways, then resold to end users or other entities in the sales and service ecosystem. A VAR often specializes in a specific industry or market segment, bringing added value to the original product or service that ensures a better fit for customers in that sector.
They essentially buy an unfinished product, add their own value through customization or augmentation, and then sell the finished product as their own. Consequently, they enrich the productivity or usefulness of the product for their customers. Though they function in various sectors, VARs are particularly aware in the field of technology, where they add software, hardware, or services to original equipment manufacturer (OEM) products.
For instance, a VAR may buy a software program, customize it as per specific industry requirements, and resell it as a turnkey solution. They may also offer additional support, provide user training and assistance, or even install and maintain products. Hence, this concept of VAR has gained prominence in B2B sales where businesses seek for integrated solutions that not only meet their specific needs but also offer post-purchase technical support.
Examples of Value Added Reseller
Cisco Systems – They sell internet and communications technology to Value Added Resellers (VARs), who then package them with services or other products and sell them to end-users. For instance, a VAR could purchase Cisco’s networking hardware, integrate it with software application, then sell the combined product to businesses that need upgraded IT infrastructure.
Tech Data Cooperation – It is one of the world’s largest technology distributors that help companies like HP, Apple, Cisco, and Microsoft bring their products to market, providing a range of services and expertise. Tech Data could purchase computers from HP, and then add value by packaging these computers with specific software or services, such as installation or technical support, tailored to meet the needs of its customers.
IBM Cloud – They partner with numerous VARs to provide an integrated solution with its cloud computing services. One of their VARs could bundle IBM’s cloud services with a customer relationship management (CRM) software they have developed to create a specific solution for a client in the sales sector.
FAQ for Value Added Reseller
1. What is a Value Added Reseller?
A Value Added Reseller, often referred to as a VAR, is a company that enhances the value of third-party products by adding customized features or services. The company then resells these products to end consumers. For example, a VAR may purchase a computer system, add specific software or hardware, and sell the optimized system to businesses.
2. How does a Value Added Reseller make a profit?
A Value Added Reseller makes a profit by reselling products at a higher price than they were originally bought for. The added price is due to the extra features or services that have been included, which have increased the product’s overall value.
3. What are some examples of Value Added Resellers?
Common examples of Value Added Resellers can be found in the IT and technology sectors. These VARs often purchase hardware or software, customize it to suit their client’s needs, and then resell the modified product. These custom changes may include system integrations, training, or consulting services to support the use of the product.
4. What are the benefits of buying from a Value Added Reseller?
Buying from a Value Added Reseller offers the customer a convenient and time-saving solution. The customer receives a product that has already been optimally configured and customized, allowing them to start using it immediately without needing to spend time and resources on adjustments.
5. Can any business become a Value Added Reseller?
Any business can become a Value Added Reseller if they have the ability to legally purchase products, enhance them, and then sell them on. However, it’s most common in industries where products can be tailored or customized, such as technology, IT, and software.
Related Entrepreneurship Terms
- Channel Partner: This term refers to a company that partners with manufacturers or producers to market and sell the producer’s products, services, or technologies.
- Reseller Agreement: This refers to a legal contract between a producer and a reseller, which stipulates the terms and conditions for the resale of the producer’s products or services.
- Original Equipment Manufacturer (OEM): An original equipment manufacturer produces equipment that may be marketed by another manufacturer.
- Distributor: Similar to a reseller, a distributor is a business that buys non-competing products or product lines, warehouses them, and resells them to retailers or customers.
- Supply Chain: This refers to a network between a company and its suppliers, which is necessary for the production and sale of a specific product, including all functions that contribute to it, such as product development, marketing, operations, distribution, finance, and customer service.
Sources for More Information
- Investopedia: Provides deeply researched financial content, including detailed explanations on various financial terms and concepts such as Value Added Reseller.
- Channels – The Innovation Enterprise: Offers articles on finance, technology, and other related topics.
- Cisco: As one of the world’s leading tech companies, it provides comprehensive insights into various tech and business concepts, including Value Added Reseller.
- Business News Daily: Offers articles and insights into various business concepts and terms, including Value Added Reseller.
