Bleeding to the street

The Middle East channel is awash with promotions that hand out prizes to the second tier reseller channel. Where resellers once counted on standard back-end financial rebates and incentives to make up their margin at the end of a quarter, they now work out how many TVs, notebooks, mobile phones and even cars they have won.

  • E-Mail
By  Stuart Wilson Published  April 27, 2005

The Middle East channel is awash with promotions that hand out prizes to the second tier reseller channel. Where resellers once counted on standard back-end financial rebates and incentives to make up their margin at the end of a quarter, they now work out just how many TVs, notebooks, mobile phones and even cars they have won.

Why the change? At the heart of this evolution of rebate and incentive schemes is the fear that financial rewards ‘bleed to the street’. Having spoken to several vendors about the logic behind their prize-based reseller sales promotion, this is the phrase that crops up time and time again.

Their fear is that resellers will discount in advance against any monetary rebate or incentive that they will qualify for if they hit a certain sales target. In other words, the back-end rebate, designed to enhance the margin of the best performing resellers, is actually passed straight on to the customer. This can even mean resellers selling below the distribution cost – in anticipation of the rebate – to stay ahead of the competition. When that happens a whole host of problems arise.

First off, the resellers may not sell enough to qualify for the rewards they believed they would receive. Secondly, because they are prepared to sell below the distribution cost, they end up selling to other resellers that vendors would prefer to see buying from the authorised distributor. Put simply, you can end up with a messy and confusing channel chain that is inefficient and ineffective.

Little wonder then that prize-based incentive schemes are hitting the market left, right and centre. Samsung is using its whizzy new partner relationship management (PRM) system to launch a scheme in the region and most major vendors now have promotions in place. Even distributors are starting to get in on the act. eSys recently launched its ePaL promotion designed to drive long-term loyalty from its reseller base.

With a glut of prize-based promotions in the Middle East channel, it is worth considering what this means for the customer. Is a reseller going to sell the customer the most appropriate solution or is he going to push brand ‘x’ to win a car?

These channel promotions are the ultimate in push marketing. In many cases the individual salesman is incentivised to push a particular product or brand – regardless of what the customer truly needs or wants. Don’t be surprised if a few of the powerful sub-distributors and re-export houses on Dubai’s Computer Street open up car showrooms in the coming months if the trend for giving away vehicles as prizes continues.

As more and more vendors invest in push marketing - driven in part by prize-based promotions - the vendors that are focusing their efforts on end-user demand (pull marketing) may need to reassess their position. Sure, they want the customer specifying their brand when it comes to placing an order, but resellers are adept at changing customers’ minds if it means more margin for them or a few hundred dollars worth of holiday vouchers at the end of the quarter.

The real danger now is that promotion fatigue sets in amongst the Middle East reseller community. If every vendor is running a sales incentive programme with prize giveaways, does it really matter which one you choose to work with?

These schemes undoubtedly have value, and the current ‘me too’ rush by vendors and even distributors to roll out schemes is evidence of this. However, with everyone offering similar schemes, the danger is that these schemes become the norm, meaning that resellers perceive no real value in participating.

Admittedly, the danger with monetary back end rebates and incentives is that the reward ‘bleeds to the street’ as a discount. Prize schemes do go some way to avoiding that problem but do not erode it completely. After all, giving away a car is nothing more than a monetary back-end rebate that has been spent on buying the vehicle.

Who’s to say that resellers will not discount product prices in anticipation of receiving such a valuable prize? The more prize-based reseller promotions that are launched, the less impact they have. It is that simple and vendors may need to think again about the best way to motivate the channel and build up brand loyalty.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code