Promoting channel loyalty

Resellers can be a fickle bunch tempted by any special promotion that tops up the usually wafer-thin margins on IT product. With many vendors pushing similar products at similar prices, it can be the smallest of variables that influence resellers' recommendations when it comes to brand. Vendors are engaged in a complex game of cat and mouse to come up with the pricing strategy and channel incentive schemes that really appeal to resellers.

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By  Stuart Wilson Published  May 8, 2004

Resellers can be a fickle bunch tempted by any special promotion that tops up the thin margins on IT product. With many vendors pushing similar products at similar prices, it can be the smallest of variables that influence resellers' recommendations when it comes to brand. Vendors are engaged in a complex game of cat and mouse to come up with the pricing strategy and incentive schemes that really appeal to resellers.

There is actually very little to differentiate the products of many major vendors. Standard components are arranged in a standard configuration and packaged up in a standard fashion to be pushed out into the channel. In many cases, multiple vendors are actually using the same contract assembly partners to manufacture their goods. What this means is that, in some cases, the only real distinction between two rival products is the badge, the box and the brand equity associated with it.

With differences in product specification and pricing becoming smaller, sales results are increasingly attributed to specific channel promotions — a vendor’s push marketing strategy. This element of business development is backed up by pull marketing whereby a vendor builds up the brand equity in the mind of the end-user.

The secret for vendors is to build channel promotions that encourage long-term commitment from their partners but do not become overly complex. This can be through quarterly rebate schemes, offering special prizes or even offering temporary discounts on certain products.

The power of channel promotions should not be underestimated. HP has actually embarked on mystery shopping exercises in western Europe to assess the performance of its channel partners and measure the brand that they recommend. HP has outsourced this role to a third party provider that sets up dummy companies and websites and poses as a customer to channel partners.

Jos Brenkel, VP and general manager, Solutions Partner Organisation (SPO) in EMEA at HP, explains the results: “In western Europe, HP discovered that 89% of its channel partners recommend HP first. That is a huge competitive advantage. On a more negative note, we found that very few channel partners sell up or have the ability to give quotes instantaneously. These mystery-shopping exercises allow us to learn an enormous amount. We can actually see when competitive promotions occur in the channel from rival vendors because the loyalty switches.”

HP has plans to launch similar schemes in the Middle East and Africa soon as part of its channel development plans. The emphasis is on measuring Total Customer Experience (TCE) and Total Partner Experience (TPE). Talking to vendors in the Middle East, one point is clear: the influence of special promotions and schemes on channel loyalty should not be underestimated.

“The effect of tactical sales out benefits in the SMB space is profound,” explained Wael Fakharany, regional manager at 3Com Middle East. “An extra US$1 rebate on a 5-port hub can double sales in a week. We have 23 incentive programmes running at the moment. These have involved everything from Formula 1 trips for top-performing SMB resellers through to SPIFs.”

The Middle East market contains a massive amount of vendors attempting to sell through the IT channel. In more mature markets such as Western Europe, the market tends to be dominated by a few major vendors that stand head and shoulders above the competition in terms of brand equity by virtue of their history and customer perception. This is not the case in the Middle East where vendors from the Far East have been able to build brand equity on a par with the US power brands.

With so many vendors on equal footing, channel loyalty is hard to come by. Resellers will chop and change their allegiance in accordance with the vendor policies that are financially most attractive. It is a problem that vendors will strive to overcome as the channel matures. They don’t want partners playing away from home with a rival vendor but also know that their ability to lock resellers into their product set is limited. Partners can only be loyal to a vendor that consistently puts the best offer on the table for them.

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