Perfect Harmony

Rebate and incentive schemes continue to play a pivotal role in the creation of win-win Middle East channel programmes.

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By  Stuart Wilson Published  September 19, 2005

Partner power|~|compstreetri200.jpg|~|Rebate and incentive schemes remain a vital part of the profits pie for traders on Dubai's Computer Street|~|Rebate and incentive programmes are the fuel that keeps the partner profitability fire burning brightly. Devising and running an effective scheme takes time and patience, not to mention trial and error.

Channel Middle East lined up a panel to talk us through the tactics needed to make a scheme that benefits everyone and builds market share. Representing the vendors (V) are KV Narayanan, sales manager digital information technology division at Samsung Gulf Electronics, Sumit Kumar, regional sales manager Middle East and North Africa at US Robotics and Tarek Ghoul, regional channel manager at Cisco Systems Middle East.

Representing the distributors (D) is Pavan Gupta, general manager at eSys Technologies Dubai and Vijendra Singh, manager 3C group graphics and display division at Almasa Distribution

CME: How important are rebate and incentive (R&I) schemes to the channel partners you work with?

SUMIT KUMAR (V): Partner schemes are very important within the channel, as our partners are the point of contact between the end user and us. It is very important that our resellers can see the advantages they gain by associating with us and committing to a brand.

K.V. NARAYANAN (V): R&I schemes are important because they keep the vendor and the channel together, build up the trust for a long lasting relationship and there is a continuous engagement between us. They also give resellers a lot of other points other than just financial incentives, such as product information and training. It gives a communications channel between the vendor and the reseller.

PAVAN GUPTA (D): R&I schemes help to build long-term relationships with our channel partners, enhancing the resellers’ commitment to the brand. They also serve as a strong sales motivator, encouraging resellers to make extra efforts and purchase from a single source.

TAREK GHOUL (V): In a fast growing region such as this one, we are addressing new markets and looking at the SMB sector. For me they are the perfect tool to align our strategy with our channel and incentivise them.

VIJENDRA SINGH (D): Schemes offering rebates help channel motivation and help partners to realise the value of investing in a brand.
||**||Working together|~|kvn200.jpg|~|K.V. Narayanan, sales manager digital information technology division at Samsung Gulf Electronics|~|CME: Can you describe how your R&I scheme actually operates?

PAVAN GUPTA (D): Our latest scheme is called ePaL (eSys Partner Loyalty). The ePaL programme matches business targets to points achieved, which can then be redeemed at the end of each quarter. For every US$10,000 worth of business with eSys, the ePaL’s account will be credited with one reward point. Even after redemption, the ePaL will be awarded 10 per cent of their accumulated reward points earned in the quarter as loyalty bonus for the next quarter. There is a minimum qualifying criteria for each quarter, which differs depending upon on-ground realities in the various markets of the region; it can be as low as US$50,000 or go up to US$1.5m.

SUMIT KUMAR (V): We have three categories of channel partner in our programme: Platinum, Gold and Silver. We give backend rebates based on the committed revenue that all of these partners have in order to avail the rebates.

TAREK GHOUL (V): We have three main categories: the value incentive programme (VIP) for advanced technologies, which gives rebates on three certain products and is reviewed every six months. The second is for SMBs, the opportunity incentive programme (OIP). The third is our Solutions Incentive Programme (SIP) designed to develop a solutions practice in our partner organisation.

K.V. NARAYANAN (V): Earlier this year we have released our partner relationship management (PRM) scheme. The motive for this is to open a direct communication forum for us to interact with the channel. Through this we have seen communication improve between the distributor, vendor and the channel.

CME: Who is responsible for implementing R&I schemes?

SUMIT KUMAR (V): Vendors have the most responsibility when it comes to the implementation of schemes, but it is shared out between the vendors and the distributors.

K.V. NARAYANAN (V): I have spent a good number of years in distribution before I joined a vendor and I have always seen ownership of the scheme lying with the vendor. The logistics and operations lie with the distributors, but it comes down to the value-adds that the distributor can apply to the brand.

VIJENDRA SINGH (D): It is the responsibility of both the vendors and the distributors to work together to devise a channel scheme that will create the pull for the products. At Almasa, we run our own R&I schemes to complement the vendor’s own offerings, or alternatively look to run promotions that stimulate sales for vendors that don’t run their own R&I schemes.
||**||Building loyalty|~|sumitkukmar200.jpg|~|Sumit Kumar, regional sales manager Middle East and North Africa at US Robotics |~|CME: How do you communicate your schemes to your resellers?

SUMIT KUMAR (V): Probably the most important thing is that the resellers are made aware of the schemes we run and what applies to them. Our side of this is through advertising, which we put a lot of money into. The distributors complement this with their own techniques such as sending out e-mails or fax shots and putting the offer information up on their websites.

TAREK GHOUL (V): In the two-tier model you can never over-communicate. We run strategic and tactical R&I schemes. The strategic schemes require more planning, because you have to set the targets and quotas. We specify that partners need a specific certification and need to sell a certain amount of specific equipment in order to gain a certain rebate. It is very specific but the returns are very good. The tactical schemes reward partners for hunting business. Once an opportunity is closed, Cisco then pays back the business development rebate.

CME: How do these schemes enhance partner loyalty?

PAVAN GUPTA (D): ePaL has contributed in enhancing our relationship with our partners and we now share a strong bond that ensures mutual benefit. The efforts of our partners have been commendable, and we are glad that we can reward them appropriately through our programme.

SUMIT KUMAR (V): R&I schemes are a positive influence on partners, and work to boost our confidence in them, whether they are distributors or the resellers. It gives an added advantage to the distributors to push out products and bring on board new resellers. The resellers are ensured of their profitability through the US Robotics brand.

TAREK GHOUL (V): We never use R&I for loyalty purposes. We don’t want our partners to be loyal to us because of rebate schemes. Loyalty is derived from how close we are to a partner’s business and how important we are to them and to their clients. We provide a health index to all of our partners. This shows their market share in a country, their sales on a product in a quarter, and what they have the potential to earn. This goes directly to the business’ owners rather than the salespeople. One important factor is customer satisfaction. We never give money without the partner meeting a customer satisfaction level.

VIJENDRA SINGH (D): Once a partner is enrolled onto a scheme then they normally focus on that product to achieve their quota, and this is a good thing for us, but also for them as it helps them to be focused on what they want to achieve.
||**||Simple recipe|~|Pavan200.jpg|~|Pavan Gupta, general manager at eSys Technologies Dubai |~|CME: Can you use these schemes to drive channel sell out on specific items?

K.V. NARAYANAN (V): The whole reason we run these programmes is to make sure there is a distribution sell out, to make sure there is a good flow of stock going through the channel.

PAVAN GUPTA (D): The scheme can be used to sell out specific items; we can increase or decrease the point reward on a particular item or brand, however so far we haven’t felt the need to do so.

CME: How do you stop resellers discounting their prices in anticipation of receiving R&Is?

SUMIT KUMAR (V): The market is very open and word of mouth spreads very fast here. We have very clear instructions on the minimum selling prices that the distributors and the resellers can go down to. We keep on monitoring the market very closely to ensure fair play.

PAVAN GUPTA (D): For our loyalty programme, ePaL, all the rewards have to be availed. We do not offer any money value for the same and hence the resellers cannot discount at the time of making sales.

CME: What characteristics define a strong R&I model?

VIJENDRA SINGH (D): For a successful R&I scheme, rebates need to not be linked straight to cash benefit, you need to offer a combination of push and pull products in the scheme and give additional rebates for product visibility and more shelf space.

K.V. NARAYANAN (V): Communication is key and you need to have the financial incentives to make your scheme attractive. The training and information available on the products are the main factors to building a successful scheme.

SUMIT KUMAR (V): The most important factor for a successful scheme is to keep in mind the market size. For example US$20,000 in business in the UAE will entitle a reseller to enrol in our Silver Partner package, but the same amount of business in Yemen will entitle a reseller to be a US Robotics Platinum Partner.

TAREK GHOUL (V): It should be challenging, but achievable. They should align between what the vendor wants and what the partners can achieve. It should also have an advisory dimension of where the vendor is going, its route around the market.

PAVAN GUPTA (D): The recipe for a successful programme is simple: establish objectives; determine and announce attainable goals and expectations; garner measurable results and sufficiently reward effort. For ePaL our goal was loyalty, and we wanted to enhance the business from our existing base by 30% and it has been very successful, achieving more then 60% within the first three months.
||**||Learning curve|~|hazbaz200.jpg|~|Hazem Bazan, director channel sales SPO, HP Middle East|~|CME: What mistakes can be made in the implementation of an R&I scheme?

PAVAN GUPTA (D): It is easy for a vendor to stumble if it has not thought a scheme through. For example a scheme can be made too complicated to implement. Vendors have very standard terms and conditions and do not take into consideration each individual market’s characteristics. Alternatively they can simply make it either too difficult or too easy to hit the target.

VIJENDRA SINGH (D): The most common mistake is offering straight to cash rebates to the channel. Channels then start discounting the prices and bring down the price point to below cost level. Once the scheme is over, customers still expect the same prices, and resellers, particularly systems integrators have trouble justifying the higher price of the same product. This can even lead as far as killing a product.

TAREK GHOUL (V): Cisco is very consistent and very strategic. Creating an R&I scheme can be troublesome. There are a lot of mistakes that you can make instantly. Our rebates are very well thought out and they run for a long time, they are not short-term programmes. We have been running VIP for three years. Short-term ‘shopping festival’ activities are run too quickly and, can kill a scheme. Cisco doesn’t sell on price, it sells on values and this doesn’t lend itself to quick discount schemes. It is more complex because we are a sophisticated company.

CME: How do you keep R&I schemes fresh and innovative?

TAREK GHOUL (V): We offer systems rather than just products. As part of our SIP scheme we pay partners for selling solutions. This means that Cisco is only one part of the wider solution, it can have a component from any vendor or manufacturer, but there must be a Cisco element and a consultancy element too. Cisco is only one of the three criteria needed for the solution, but we pay the partners simply for being a solutions provider.

K.V. NARAYANAN (V): There is a learning curve to every programme that we run, and we try to include what we have learned in the next scheme. There is a lot of experimenting involved in this channel to gauge the right number. I think this is something that all vendors have to take time and work out for themselves through trial and error.
||**||HP plays PPP card|~|vegas200.jpg|~|HP officially launched its new PPP scheme in Las Vegas|~|The delicious irony of HP’s decision to officially launch its preferred partner programme (PPP) in Las Vegas should not be lost on anyone. While the underlying principles behind the new scheme are sound, it is clearly also a gamble. Put simply, HP is betting big that the positive impact on the sales of the partners that make it to preferred partner status will outweigh the negative effect on those resellers that feel they are being excluded from benefits they previously would have received.

With margins shrinking for vendors and channel partners alike in the IT space, HP’s decision to launch PPP is a brave and necessary move and one that will ultimately be replicated by other major vendors. The big question remaining is whether or not HP is prepared to sacrifice top line revenues for the sake of better bottom line margins under the new PPP scheme?

“Very clearly, the answer is yes,” says Christoph Schell, ISE SPO manager at HP. “This is what our new CEO Mark Hurd is saying. We have to be more selective in terms of the revenue that we are generating through the channel. By selective, we mean looking much more closely at the level of profitability being generated by particular revenue streams.”

HP’s PPP represents the cutting edge of channel rebate and incentive schemes. With the launch of this scheme, the emphasis on pure sales volume has been replaced by a clear focus on commitment, loyalty and a partner’s ability to sell across the entire portfolio.

Hazem Bazan, director channel sales SPO at HP Middle East, adds: “This is a continuation of everything that we have in place for channel partners today. Looking at the market structure and the changes in channel dynamics, we saw that it was necessary to change our programmes as well. All the major vendors are now talking about the quality of partners, not just the quantity, whether it is in the volume, value or solution provider space. We will bring in new channel measurements related to loyalty.”

“We will recognise partners for their loyalty and HP’s ‘share of wallet’ and I don’t think this has been done before,” he adds. “It is also about predictable compensation for the channel — regardless of whether this is transactional margin or back-end rebate. What we want to create is a win-win situation of profitability for HP and profitability for committed HP partners as well.”

HP is leading the way in taking channel rebate and incentive programmes to the next level and there is inevitably a degree of risk associated with being a trailblazer. Profitability for IT vendors and partners alike has now become more important than the top line and PPP reflects this new reality.
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