Value Added Reseller (VAR)

Posted in Marketing and Strategy Terms, Total Reads: 845
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Definition: Value Added Reseller (VAR)

A Value Added Reseller (VAR) is a company that buys an existing product or good in bulk from a vendor and adds specific features or services to it so as to customize it for a specific customer and then sells it to the end customer. The customer benefits in case he/she lacks the necessary expertise, time or resources to build or create the value added product. On the other hand the VAR benefits due to its scale and in turn is able to charge quite a high price for its value addition with the differential accruing to it as a profit.


The VAR may provide additional services in the form of annual maintenance contracts and services that the customer may want including training on specific tools or packages. This business model is particularly noticed in the information technology industry where customers often demand customized solutions to their problems and yet do not have the wherewithal to do so.


For example: A computer customer may require special engineering software pre-loaded on its computer and at the same time additional sensors that are able to track a particular variable of concern to it. Also it wants the computers maintenance and service to be taken care of by a third party. In such a case a Value added reseller will buy the computer from the vendor, prepackage it with the software and the sensor and sell it to the customer. Also it will take responsibility for the service and annual maintenance of the device. An illustration of this provided in the table below:

 

Cost For VAR

All figures in INR

Computer

45000

Software Package

75000

Maintenance and Service

4000

Total Cost for VAR

124000

Price charged to Customer

 

Hardware and Software

140000

Service and Maintenance

5000

Total Price charged to the consumer

145000

Profit in Year 1

21000

Profit in Subsequent Years

1000


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