Programmed for success

Channel programmes are meant to lay out the basic guidelines for the relationship between vendor and partners in order to drive sales. But what makes a good channel programme?

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By  Mark Sutton Published  June 30, 2003

Driving sales|~||~||~|While the rest of the world languishes in an ongoing slump, the Middle East IT markets still show signs of double-digit growth. This continued performance, marked by an increasing maturity in IT markets is attracting more and more vendors to the region, but with varying degrees of success. There are many different factors that drive success, but one of the most important is whether or not a vendor knows how to manage its channel partners, particularly in the Middle East where different local markets, customers and business practice make it almost impossible to go direct to customers in an economical fashion. But do vendor’s channel programmes really provide the best way to manage Middle East markets?

At the heart of any channel programme is one simple aim—to increase sales. Most vendors cannot and would not employ enough people to be able to address every single customer directly, it would simply not be feasible. Therefore the channel partners come into play, but when you have partners all across the globe—Cisco’s channel partners employ some 500,000 people—managing them requires structures and rules to define the relationship and avoid conflict, not to mention rewards to recognise success and build loyalty.

In the past Computer Associates (CA) was not a company with a very ‘channel-friendly’ reputation, but that is something that the vendor has been trying to remedy. In 2001 the directors of the company decided that they wanted to see 50% of CA revenue come from channel partners. As its range of software products have become increasingly successful in the region, so Computer Associates Middle East has decided to put in place a more developed channel. The vendor has appointed a distribution channels manager and two managers to handle security and storage business with partners, and is launching a new channel programme to help drive sales through two tier distribution.

While the company has previously had partners selling its enterprise products, little was done to support them. Now the new programme will offer a number of things to members—called affiliates in this case—to help them sell, but most importantly of all will be the margins that can be made, according to Rabie Fares, sales director for distributors channels CA Middle East. “CA is one of the few IT suppliers that gives a huge margin to our resellers,” he said. “If you go to other brand names, rarely will you find [margin] exceeds 7-8%, we are giving 30-45%. We give the bulk to the distributor, but there is no reseller in the Middle East who receives less than 20-25%.”

Of course, not all vendors can offer such attractive margins to motivate channel partners. Much more common is the use of rebates to create loyalty and profits. The form and value of rebates differs widely between vendors and programmes, but in general, they mean money back to the reseller as a reward for sales. The problem is that rebates often cause so much trouble that they end up as an area of contention between vendors and channel partners.

Dhruv Srivastava, PC components business unit manager for Tech Data said that while some of the vendors, such as Intel, have very good programmes for rebates, other vendors are not particularly responsive, which creates problems for the smallest resellers who rely on rebates to make a profit.

“With the smaller systems builders, especially those in Saudi Arabia, they buy from the distributor as they are hoping to get the money back straight away, but when they don’t get it for three months or so, it causes problems. The turnaround time should be not more than three weeks,” Srivastava said.

||**||Incentives and rebates|~||~||~|BenQ is another vendor that has recently been increasing its channel business. After being formed in late 2001, the company decided to push channel programmes directly to second tier resellers from the second quarter of 2003, Manish Bakshi, director and chief operating officer for BenQ Middle East explained. “This is the first time that BenQ has penetrated directly to the resellers, we interacted with around 30-40 resellers in the UAE, and we told them that as soon as they provide us with purchase orders for products bought from any of our distributors, we would directly give them a cash rebate, reimbursed to them on a monthly basis.”

Rebates and other cash incentives such as market development funds are often abused by companies in a number of different ways, sometimes going to the companies bottom line, sometimes going into the owners pocket, and sometimes used as a negotiating tool between vendor and channel partner. When rebates that have been earmarked for training or marketing get diverted into profits, more problems are caused. The answer is to make rebates as simple as possible, according to Neo Neophytou, channel development consultant with third party channel development company Adaox. “A much more straightforward and simple approach [to rebates] would save the hassle for the vendor and the partners, of having to manage logistics of who owes what, where the money was spent and so on,” he said. “If you have better understanding of what the revenue expectations are, what the [rebate] opportunity is, it is much better than a complicating the model and making people think smartly about how to get the money to the bottom line. At the end of the day, if the vendor’s money does not meet the objective of creating demand for its products, it might be used to create demand for a different vendor, which is even worse.”

Creating market demand is another function of channel programmes that tends to cause contention. Most vendors will provide partners with marketing collateral such as point of sale stands and posters, but there are different attitudes when it comes to buying advertising, providing demonstration units and other more expensive means of creating market awareness. Most resellers and distributors see market demand creation as the role of the vendor, but abuse of marketing funds and other issues mean that not all vendors agree. CA will invest in advertising and other product marketing, but for the channel it prefers to focus on raising awareness among reseller partners.

“The market always exists, but the product is missing,” Fares said. “We don’t create the market, the question is to tell people that we have products and go sell them. If we don’t have somebody to push the resellers, they will never sell.”

Neophytou believes that vendors have to work with channel partners on all aspects of marketing, to make sure that they are addressing the market properly, particularly to make sure that sales move through the channel to the end user. “In our experience, vendors confuse partners with end users. It is a major thing to convince clients they are different—they make the classic mistake of stuffing the channel. Vendors are happy to see those initial couple of orders go out, but the products are not sold, they are sitting in the channel. A key element is how [vendors] use their money to create a demand—it should always be done with the local partners to make sure it is the correct message for the local markets,” he said.

||**||Reseller commitment|~||~||~|Virtually all channel programmes contain an element of training, be it sales or technical training. In the vast majority of cases all parties involved appreciate training. Resellers gain more knowledge on how to sell and support products, and can sell their skills to gain added value. Vendors gain the confidence that channels know what they are doing, and they create more loyal channels through better mindshare, which in turn creates better sales. For the larger vendors provision of training can even be a revenue generation stream.

The major concerns over training are when channel partners collect certifications and training simply to be able to use them as marketing leverage without understanding the underlying issues. There are also problems when vendors use training as a control on what their channel partners can and cannot sell, and while most channel partners accept training as a necessary expense to sell (when the cost of training is not rebated by the vendor), it can sometimes drive unqualified channels to grey market dealers.

Limiting access to channel programmes is an important part of managing the relationship between vendor and reseller. Most programmes include different levels of reward for partners based on different criteria. For BenQ, the top resellers from its UAE programme, based on sales, will be awarded ‘preferred’ status, and will then be able to resell the whole BenQ range rather than just being limited to LCD monitors and projectors. While vendors naturally want as much market penetration as possible, they do not want to stuff the channel and create excessive competition between resellers.
They also want to reward resellers that show commitment to them.
Fares explained: “We tried to find a fair equation for our resellers and distributors. What we used to do was anybody who made a single order, we made them a reseller. Now we are classifying our resellers under two membership levels, affiliate and affiliate plus.”

The affiliate plus resellers will get enhanced support and training and so on from CA; in return they will have to reach a certain level of orders each quarter, to ensure commitment to the vendor.

Another concern for vendors is to ensure that they have a manageable channel. US Robotics is currently launching a new channel programme for its VAR and retail partners in the region. While all of the partners will be under the ‘Ready-Set-Connect’ programme banner, there will be different levels within the programme for each type of partner. Yusuf Syed, regional sales manager, Middle East & India, said that numbers will be limited. “We don’t want everybody in the reseller programme—any programme requires resources to be managed, we won’t do it just for the heck of it,” he said.

Syed also explained that while the programme is actually an EMEA level programme, US Robotics Middle East has been careful to tailor it to the regional markets. Things such as differences in pricing, product availability and the size of the market in each country mean that it would not be appropriate to simply transplant a European or US programme here. Vendors also have to be conscious of things like adequate levels of RMA stock that they provide to partners, and the importance of personal contact.

Probably the most fundamental element of any channel programme is being able to gauge its success. While sales results are the bottom line, vendors also need to make sure that partners are happy with the programme. US Robotics will be listening to its VARs and distributors and will also provide web-based facilities for feedback to partners. For BenQ, its sales staff are out in the market visiting resellers at least once a week, Bakshi said. The company also made sure that resellers knew who to contact for issues with sales, services or marketing, making sure from the start that resellers had all the information they needed about the programme.

Being clear about channel programmes, and being able to deliver is vital from the start, Neophytou said, to make sure that channel programmes are sustainable: “One of the most important things, especially for the smaller vendors, is they are tempted, and delighted by the initial sales reaction in the Middle East market. If they select the right partners, they can easily provide good initial sales which you might not get in larger markets like Europe, without having to apply sophisticated sales techniques with a longer sales cycle.

“But [vendors] start sales and they are not ready, they do not understand what to do in order to maintain continuity, what basic changes vendors need to make in order to respond to the channel,” Neophytou said. “They need the initial investment and more, to continuously invest in order to grow, to maintain revenue and good relationships with channel partners.”||**||

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