Value-Added Reseller Guide: How Does a VAR Work?

A value-added reseller (VAR) is a business that produces a finished product from materials that are made by other companies. Original equipment manufacturers (or OEMs) make specific component parts for a product, which a VAR will assemble into a finished product and sell directly to the end-user under their brand name.

VARs add value to a product by offering brand trust, providing the consumer with services and support (like cloud computing or financial services), and sometimes producing specific kinds of hardware or software. For example, a VAR that builds cars will purchase auto parts from an OEM, assemble the parts, and rebrand the final product to sell to the consumer. VARs that use OEM parts to create their products are prevalent in the information technology and automotive industries.

Value-added reselling enhances the value of third-party products by adding integrated products or professional services to the original equipment. Here is an overview of how the value-added reseller process works.

1. 1. The VAR orders the OEM product. The OEM process begins with a relationship between the VAR and the OEM company. The VAR (or client) will order a specific product from the OEM which can be everything from car parts to microchips to handles. Occasionally, these OEM products will contain the VAR’s branding, like logos or other kinds of brand insignia.
2. 2. The OEM manufactures the product. Next, the OEM builds the number of specific products that the VAR ordered. This may be done in a factory.
3. 3. The OEM sells their product to the VAR. Once the OEM has completed their client’s order, they deliver their products to the VAR. The VAR pays the OEM.
4. 4. The VAR assembles their OEM products to create a new product. The VAR will assemble the parts of their product (sometimes purchased from different OEMs) to create the final product. They add their brand name to it, and sell it to the consumer.

Value-added reselling can have a series of advantages, especially with IT brands or other products that require user support. Here are some of the potential benefits of value-added reselling.

1. 1. Brand recognition: If they have a recognizable brand name whose name carries value, VAR partners can benefit the original equipment manufacturers by increasing the value of their products, making them more appealing to consumers.
2. 2. Single point of customer contact: A value-added reseller can act as a single point of contact for consumers who want to troubleshoot a brand’s valuable products. For instance, the customer service line of a VAR computer brand will communicate with customers to provide support for their specialty product. Contacting the OEM, however, may not be as fruitful because they may not be used to interacting directly with consumers.
3. 3. IT expertise: Value-added resellers are well-positioned to help customers with product-related problems, as they have a knowledge of the integrated software and hardware products making up the whole IT package. This makes things far easier for the consumer.

Here are some of the disadvantages of this business model.

1. 1. Pricing: A value-added reseller has limited control over the pricing of the finished product. The cost of the component parts directly influences the cost of the final product, often without much of a markup.
2. 2. Quality control: The value-added reseller has limited control over the quality of the final product or package, particularly when it comes to software produced by an OEM company.
3. 3. Competition with aftermarket products: If a component of a VAR product breaks, a customer might replace it with a generic replacement part, called “aftermarket” parts. These are almost always cheaper than the OEM replacement parts.

An original equipment manufacturer produces products that a value-added reseller customizes or assembles, then sells directly to the consumer. OEMs and VARs work closely together to create products for end-users. However, the VAR is the company that has the point of contact with the consumer, and therefore the product is typically branded as the VARs product even if an OEM is the maker.

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