The best laid plans

The best laid plans of mice and men often go awry. With Gitex just around the corner, vendors, distributors and resellers are embroiled in a tactical battle to make sure they are in prime position to take advantage of the dramatic upturn in sales that many believe the mammoth trade show will spark off after a quiet summer. Not everyone will get the plan right.

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By  Stuart Wilson Published  September 22, 2004

The best laid plans of mice and men often go awry. With Gitex just around the corner, vendors, distributors and resellers are currently embroiled in a tactical battle to make sure they are in prime position to take advantage of the dramatic upturn in sales that many believe the mammoth trade show will spark off after a quiet summer. Not everyone will get the plan right.

While the tactics may look great on paper, the current market dynamics are having a profound impact on Gitex preparations and planning at every level of the IT channel. There is no guarantee that everyone will pick the right strategy to pursue and some companies will emerge post-Gitex in a weaker position than beforehand.

Many reseller ‘mice’ are currently taking a ‘wait and see’ approach pre-Gitex and holding off buying large volumes of stock until the last minute. At the same time they are trying to sell out existing inventory to put them in reasonable financial shape ahead of the forecast Gitex sales bonanza and the orders expected in the weeks that follow.

And let’s not forget the stock being sold below cost that is still working its way out of the channel. The fleeing resellers that dumped stock for a cutthroat cash price before jumping in the first taxi to the airport have left a lasting impression on the market. Some resellers claim to have been offered LCD monitors US$60 below list price and certain printer models have also been available below cost.

This situation has put a temporary block on distributors’ ability to sell these products into the second tier resell channel until the glut has been cleared out. The distributors themselves have their hands tied to cut prices to kick-start demand unless the vendors step in to assist them.

In certain product areas, such as printers, some vendors have now responded and it is no coincidence that there was a discernible rise in promotions, rebate schemes and discount offers being offered to resellers through major distributors during the last month. After all, vendors have targets to meet too and need to keep their distribution sell-in figures ticking along nicely even if the sell-out isn’t really there. Often there is a fine line between promotions and channel stuffing.

Finally, it is necessary to consider the fact that the reseller ‘mice’ are watching purchase prices plummet on major product lines such as LCD monitors. It is little wonder that they are holding off buying until the last minute. After all, no one wants to stock up early only to find out that a rival buying a few days later negotiated a better purchase price and can easily undercut while still maintaining a margin.

If the resellers are the channel ‘mice’, then the vendors must be considered the channel ‘men’ in this particular metaphor by virtue of their position at the top of the IT channel food chain. And that makes the distributors the mousetrap aiming to provide the right combination of product, price, availability, offers and credit terms to serve as the cheese that lures the ‘mice’ in.

Distributors are quietly confident that demand will spike in the days leading up to Gitex. If it does they will however face a dilemma. To secure the large orders they may well be asked to provide large credit facilities as well. Given recent events in the market, they may well be wary of putting too much credit in front of the resellers. After all, it is not unknown for the odd mouse here and there to take a big lump of cheese from a mousetrap and run off unscathed never to be seen again.

Up at a vendor level the gloves will come off in terms of pricing during Gitex. Distribution sources claim that one notebook vendor has vowed to undercut a bitter rival by Dhs50 no matter how low its competitor is prepared to go on price. This could well spark off a price war where no one emerges a winner. Some of these vendors may be motivated by a desire to produce sales regardless of the bottom line implications. Sources reckon that one major vendor is attempting to crack the US$1bn annual sales barrier in the region and still has some way to go to meet its target before the financial year ends.

The channel can cope with vendors fighting between themselves so long as they do not start to mirror this behaviour. When distributors and resellers start ruthlessly undercutting each other and offering ridiculous prices just to boost sales, there are no real winners. Last year, massive discounting during Gitex eroded price points massively in the regional market. Vendors and channel players struggled in the months that followed to return margins to some semblance of normality.

Ahead of and during Gitex, the channel needs to be aggressive and competitive but not lose sight of the bottom line fundamentals. Figure out the strategy now and stick to it. Yes, Gitex is about doing the deals and trading, but increasingly it is also about building long-term business relationships. Channel players (at any level) seduced by the lure of a quick buck at Gitex could live to regret it if the desire to make the sale made them lose sight of business basics.

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