Channel disclosure

Vendors are demanding more and more disclosure from channel partners on the customers they are selling to and what the products are actually being used for. Information disclosure is becoming part and parcel of the channel's role in the Middle East

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By  Stuart Wilson Published  February 28, 2004

Vendors need to keep a close eye on their channel to make sure that any association with unscrupulous partners is not damaging their brand equity. But monitoring the channel can only go so far, and ultimately, vendors also have to display a degree of trust.

Middle East IT channels are coming under increased scrutiny. A combination of factors including trade embargoes on certain countries, legislation requiring US vendors to get details of the end users purchasing their products, and the need to protect brand reputation, has put increased pressure on vendors to monitor their channels-to-market and for partners to provide them with more detailed information about their activities.

If vendors are going to ask for greater disclosure from their channel, they need to ensure that the requirements are consistent across each and every partner that they work with. This means treating all partners equally and also understanding the extra pressure this puts on partners and the additional resources they often have to deploy.

US vendors also need to understand that the extra disclosure requirements can be a difficult burden for distributors to bear. Keeping an eye on every reseller that purchases certain products and asking them for details of the end-users they supply can be a time-consuming and labour intensive operation. It can also result in rival vendors, without the need for such high levels of information disclosure, becoming more attractive in the eyes of the customer.

There is a need for greater channel transparency in the Middle East, allowing everyone to fully understand who is buying the product and how they are sourcing it. But this level of transparency will take some time to achieve. The channel structure in the Middle East remains complex and multi-tiered. This is a reflection on the fragmented nature of the regional market, logistics issues and the different stages of IT development in various countries.

Greater disclosure is a positive step but it cannot be implemented overnight. Those that try to do so will find the information is patchy at best, plain wrong at worst. Because of the unique challenges of the market, vendors should not simply be ‘passing the buck’ onto distributors to go out and collect the necessary information. Margins are slim enough already and this extra burden is difficult to bear.

One way around this problem is for vendors themselves to develop greater links with their second tier partners beyond the distributor. Recent channel initiatives from a variety of major vendors have been implemented with a view to achieving these relationships. By tying rebate and incentive schemes to second-tier partners’ sales, vendors can also ensure that they receive a constant supply of information on sales out by their resellers.

Vendors also need to ensure that distributors supply them with equally detailed sales out data. Then it is just a simple matter of tallying up the information coming from distributors alongside the information from the second-tier resellers. The problem is, in reality, it is not that simple at all. These levels of information — particularly from second tier resellers — remain difficult to obtain at present. Vendors need to understand the dilemma facing the channel when it comes to providing in-depth details on where their product is going. There is a fine balance to be achieved between the channel’s role as a sales engine for vendors and a means of obtaining market information. Vendors putting too many pressures on the channel to disclose sales and customer information will find that this detracts from partners’ ability to drive sales growth. Vendors have to decide where their priorities lie. They can’t have the best of both worlds.

If you have any thoughts on this subject, do let me know. The best responses to eChannel Editorials are published in Channel Middle East.

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