Crossing the line?

Signs that some vendors are trying to disrupt the natural order of the food chain do not bode well for the channel

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By  Andrew Seymour Published  September 29, 2008

Although product flow in this region can be a little hazy at times, the conventional principles of the indirect sales model still largely apply in the sense that vendors and distributors sell products to resellers, and resellers sell to the end-user. But signs that some vendors are trying to disrupt the natural order of the food chain do not bode well for the channel.

Digital devices supplier Creative is one such vendor that has given its partners the cold shoulder by unveiling a web store to serve end-users in the UAE. Creative has attempted to play down concerns that the move pitches it into direct confrontation with the channel by insisting the store will feature non-competing products to those carried by resellers.

Based on the initial reaction from partners, however, I’d say Creative’s disclaimer has done little to ease the trepidation felt by the channel. They fear that even if the vendor initially sets out with the intention of marketing non-conflicting goods, there is nothing to suggest that strategy won’t change in the future. In addition, some retailers are anxious that it will simply lead to consumers requesting the same products or offers that they have seen online.

The point is, once a vendor starts trying to do the job of its channel it is entering extremely dangerous territory. They can’t expect to build a loyal partner base when resellers see them sizing up their own customers.

Clearly vendors need to judge when and where they can get away with crossing the line.

There is a theory that because multiple layers of distribution blur the lines between manufacturers, intermediaries and end-users in the Middle East anyway, vendors will perhaps feel they can get away with targeting the customer directly.

It’s a big risk to take though. You’ve only got to look at the complications that arise in the enterprise sector when vendors start dictating which customers the channel can and can’t touch. Distinguishing between named and non-named accounts leads to all manner of headaches for vendors and their business partners throughout EMEA.

The same potential for tension exists once vendors begin reaching out to consumers or SMBs independently. There is nothing wrong with them connecting with end-users or initiating demand generation activities, but the moment they start attempting to carry out the transactional function of the channel they put partner relations in jeopardy.

I fear this issue will exacerbate in the near-term, particularly as online purchasing behaviour increases and the appetite for massive sales growth among vendors persists. Given the volume of trade business conducted through e-commerce channels is still negligible in the region, some may argue that Creative’s latest venture will have no real material impact on the channel’s performance. But it is the intent that will concern partners.

Creative is not alone in dipping its toe in the water. ABM, Apple’s master distributor for the region, recently unveiled an ‘online store’ for education customers in the UAE via an announcement that made no reference to the role of local partners.

It has since come to light that at least four dealers should benefit from the store as sales will be re-routed to them, although strangely when ABM revealed its plans at least two of the companies involved claimed not to know anything about it!

Retail distributor Ashley is also plotting the launch of an online sales portal this year. It will start by reselling products from anti-virus software vendor BitDefender, but eventually expects to make other brands available. The company maintains that competition with its trade customers will be avoided by carrying products no longer offered by the retail channel, as well as the strict adoption of a price policy that doesn’t compromise retailers.

Again though, it is a brave step to take. Resellers and retailers certainly can’t be blamed for feeling unsettled when they see a distributor chasing end-users.

If vendors and distributors have ambitions to stretch the normal parameters of their sales models they would be advised to do so carefully because underestimating partner sentiment could prove very costly.

The sincerity of those that reel off the ‘channel friendly’ or ‘100% indirect’ line has never been under more scrutiny.

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