Seasonality: myth or reality?

Demand for IT products in the Middle East fluctuates throughout the year. Specific events and buying patterns mean that vendors and distributors have their work cut out to balance the supply and demand dynamic.

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By  Stuart Wilson Published  November 29, 2004

Seasonal shifts|~|Murthy,-Krishna-----ACER--C.gif|~|Krishna Murthy, general manager at Acer Middle East|~|Demand for IT products in the Middle East fluctuates throughout the year. Specific events and buying patterns mean that vendors and distributors have their work cut out to balance the supply and demand dynamic. From the vendor (V) perspective, Manish Bakshi, regional manager at BenQ, Ahmed Khalil, general manager Middle East and Africa at Toshiba and Krishna Murthy, general manager at Acer Middle East walk us through the peaks and troughs that characterise the region's IT market. Ashish Panjabi, chief operating office at Jacky's Electronics provides the retailer (R) perspective with Vijay Saraf, director of sales and marketing at Emitac putting across the distributor (D) point of view.

CME: How much seasonal variation do you actually see in terms of demand for IT products in the Middle East? Is this still an important factor to consider?

KRISHNA MURTHY (V): If I divide the whole calendar year into four quarters, traditionally the first quarter accounts for 25% of sales, the second quarter for 20%, the third for 15% and the fourth for 40%. The fourth quarter normally includes Gitex Dubai but because of this year’s event timing, many of the Gitex shipments actually entered the channel in September and were accounted for in the third quarter.

ASHISH PANJABI (R): There is definitely some variation in demand. What we have seen is the gap that used to be there between the peaks and the troughs actually reducing in size. This is mainly because of sales growth in the periods that used to be slower. Product lifecycles have shortened and IT products now appeal to a wider consumer audience.

AHMED KHALIL (V): The first and fourth quarters have been identified as the high sales periods with the second and third defined as normal sales. In the last few years, the efforts of retailers and the creation of shopping festivals and other initiatives has normalized the demand curve. This is especially true in markets such as Saudi Arabia that used to have extremely low sales periods.

Cme: What factors and specific events drive demand variation during the year?

MANISH BAKSHI (V): Gitex Dubai usually falls in the fourth quarter and there is also Ramadan and Christmas to consider. We then jump straight away into the Dubai Shopping Festival (DSF) in January. Climate wise, the conditions are also favourable during the fourth and first quarters. Vendors launch new products during this period and the channel runs aggressive promotions. The four Ps are all there: price, product, place and promotion.

VIJAY SARAF (D): There is a dip in the summer months but events like Dubai Summer Surprises (DSS) and back-to-school campaigns drive up demand with special product promotions from vendors and distributors. The same holds true during October and November for Gitex. Although Gitex is held in Dubai, you can see its effect across the Middle East.

KRISHNA MURTHY (V): There are four major events to consider: DSF, Gitex Saudi in April, Gitex Dubai and DSS. Then we have short spells such as back-to-school and Ramadan campaigns. In order of importance I would rank them Gitex Dubai, DSF, Gitex Saudi, DSS, back-to-school and Ramadan.

AHMED KHALIL (V): In the fourth quarter, we also see large enterprise purchasing build as these companies approach the end of their budget period. This mainly affects government, education and large private sector companies.
||**||Shopper impact|~|Saraf,-Vijay-----EMITAC--DI.gif|~|Vijay Saraf, director of sales and marketing at Emitac|~|Cme: What impact does seasonality have on business planning?

VIJAY SARAF (D): It definitely calls for more planning in advance as well as throughout the year in terms of inventory management, cash flow requirements, resource planning and budgeting.

KRISHNA MURTHY (V): What we do is to plan alongside the channel based on the market demand expectation. We ensure that the pipeline stock is flushed out completely and that we have the correct new products coming in for every season. This means that there is a new SKU in place to cater for specific market demand. It is all about having the right product at the right time at the right price point.

AHMED KHALIL (V): Our forecasting is very much based on seasonality, but we do not believe it is right to only focus on marketing and sell in during the peak sales periods. We try to maintain momentum in the market and help the channel during the lower sales seasons as well. This is what we do during DSS and also summer promotions with retailers like Jumbo. Our back-to-school campaign with Jarir in Saudi Arabia sold almost 2,500 notebooks.

ASHISH PANJABI (R): We have to plan ahead. For an event like Gitex we spend four months in advance planning, negotiating and talking to suppliers and vendors and working out what the hot products will be. DSF is the same and we have already started planning for that event as well.

Cme: How much sales variation is there between the busiest and quietest months?

MANISH BAKSHI (V): The busiest months are December and January plus the Gitex month, which can fall in either September or October in terms of sell in to the channel. This year the Gitex sell in was split evenly between September and October so neither month really hit a high peak. The gap between the busiest month and the quietest month — normally July or August — is 30% in terms of sales.

VIJAY SARAF (D): The busiest months are January due to DSF and the Gitex Dubai sell-in months while the quietest months are June, July and August due to the summer and many people going on vacation. The variation is different by product, but across all products sales can rise between 15% and 30% during the busy months and drop by the same percentage during quiet months.

ASHISH PANJABI (R): In the past, IT sales could be three to four times higher during the busiest month compared to the quietest. Now it is double because we have dedicated a lot more floorspace to IT products and digital products. The buying behaviour has changed and many IT products are now almost fashion accessories. This has helped sales even out to a greater extent than before.

Cme: How important are events such as Gitex Shopper and Ramadan?

VIJAY SARAF (D): Shopper is the one event that every vendor and channel partner looks forward to. For the vendors this is the best time not only to launch new products or implement branding exercises, but also to announce product promotions and incentives for the channel. This is also the time when most of the volume deals are cut between the distribution channel and vendors for consumers and SMB customers by offering special volume discounts and rebate schemes.

MANISH BAKSHI (V): What we have seen in the last two years is Ramadan starting immediately after Gitex so there is a filter effect into the first ten days. Demand then slows down a little bit before picking up once again as Eid approaches.
||**||Vendor assistance|~|Panjabi.gif|~|Ashish Panjabi, chief operating officer at Jacky's Electronics|~|Cme: Does seasonality really impact the level of promotions and incentives that vendors have in place in the market?

KRISHNA MURTHY (V): The incentives are run on a quarterly basis with an annual incentive target in place as well. So, even if there is flatness in one quarter, partners can look to compensate for it in the next quarter. We do not run special incentive programmes for the campaigns but there are extra marketing funds available where necessary.

VIJAY SARAF (D): During the peak months and events such as DSF, DSS and Gitex, demand is higher because of the special prices and incentive and rebate programmes announced by the vendors. It is during this time that distributors are asked to take on much more stock and incentive and bonus schemes are put in place to make this possible.

MANISH BAKSHI (V): We look at the sales revenue in each quarter and match the same percentage of our marketing budget to that period. This means that 60% of the marketing budget is spent in the first and second quarter, with 25% spent in the second quarter and 15% in the third quarter. We keep the sales and marketing effort synchronised with one another

Cme: How can vendors help the channel deal with seasonality?

ASHISH PANJABI (R): When we work out the quarterly targets with vendors, this is done with seasonality in mind. They do understand this and look closely at the previous year’s figures and the direction the market is taking. Vendors are always looking for an increase in sales but it is always a reasonable and achievable jump to make.

VIJAY SARAF (D): Most of the vendors look at increasing sales in a given quarter or season compared to the previous year. In order to keep the business growing quarter-over-quarter and year-over-year, vendors should definitely incentivise the channel more during the quiet months to ensure sales out. There is also a need for vendors to ensure overall channel profitability allowing partners not only to sustain the business but also to grow it.

MANISH BAKSHI (V): The channel is very organised. There is always a gap between when we sell in to the channel and when they sell out. This year many of the Gitex shipments were sold in during the third quarter but sold out by distributors during the fourth quarter. We make sure that we understand their business and that the sell out is really there.
||**||Channel inventory|~|Bak.gif|~|Manish Bakshi, regional manager at BenQ|~|Cme: How does seasonal demand impact channel inventory levels?

MANISH BAKSHI (V): There is a need for demand change management that has to be looked at carefully. As a vendor, we are much more concerned about the sell through as opposed to the pure channel sell in. During the last year we have changed our strategy to reflect this. We request that the channel places orders based on their ability to sell out and take care to ensure that inventory levels do not rise above 30 days.

KRISHNA MURTHY (V): During Gitex, we expect demand to be a certain quantity and talk to the channel about this. Their role is to take the product, sell them and move them out. If there is any blockage that comes up anywhere along the line we are there to support them. It is all about giving the channel the confidence to stock enough product to meet demand as it arises. We do not want a situation where the channel does not stock sufficient product and availability suffers.

ASHISH PANJABI (R): One factor that impacts channel inventory is the export business. This sector has ups and downs and can result in stock piling up in the channel. Just before Gitex, everyone was stuffed with product in anticipation of extra demand. For retail, it was quite manageable, but there is always pressure from vendors looking to boost their sell in quantity.

Cme: How do you see seasonality evolving as the market matures?

KRISHNA MURTHY (V): It is here to stay. The more we incorporate seasonality into our business planning the better it is for everyone in terms of avoiding understocking or overstocking. These situations are costly and unnecessary and cause the business to suffer. Sharing information between the channel and the vendor helps to avoid this. We constantly monitor channel inventory levels and deal with any issues that come up on a daily basis.

Cme: Does the level of seasonality vary country-by-country??

VIJAY SARAF (D): It definitely differs on a country-by-country basis and also by market segment. By and large it is dependent on the vendor plans and the strategies that are employed in a specific region or country.

MANISH BAKSHI (V): It occurs in every country but the seasonality is slightly different. In Iran, during March you have the New Year playing a role. In Egypt, summer promotions can actually work very well targeting holidaymakers — the opposite to the UAE. If summer in the UAE is hurting our sales, we can put more focus on Egypt. South Africa can slow down in December and January because people are on vacation. During these months we can focus our efforts on the UAE.

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