BACKLASH OF BACK-ENDS

Discounting of back-ends is rampant...

There is widespread discounting of back-end incentives among the channel
community. If vendors offer an incentive of Rs 250 per product, then partners
will sell the product for Rs 250 less its cost price. The reason this takes
place is because partners want to sell more volumes and think that this lowered
pricing will give them an edge over competition. Also, if they sell more, they
can collect more turnover incentive too.

Discounting leads to price-cutting...

If one partner discounts the price of a product and sells it, another
partner has no option but to lower his pricing too or lose business. He in turn,
might lower his prices even further down to sell more than other dealers. And
this goes on and on. This is a vicious cycle as it leads to undercutting.

Channels are to blame...

The channel is entirely to blame for discounting of back-end incentives.
They have to take a firm stand and desist from playing the price game. If they
want to be in business, they have to think about their topline and their
bottomline. Sacrificing one for the other is suicidal.

Mystery back-ends are best...

Most vendors are now offering mystery back-ends at the moment, keeping in
mind the widespread discounting. But partners often take a guess of the
incentive amount and discount the product price accordingly. And then when they
realize that they have reduced more than the incentive, they blame vendors. This
is unfair on the vendors as well as their fellow traders.

Automate incentive disbursement process...

Vendors need to take the entire incentive process online. This will
introduce transparency and will also ensure that no mistakes occur. Also reward
points can be updated every week on the site itself. This will make the entire
process simple, easy and quick.

Cash incentives are the best...

Lots of times vendors give incentives in kind, in the form of gift vouchers,
gold coins or some other gifts. Even this is often discounted in the product
price. Giving cash instead would be the best idea, as partners can actually use
it. What will one do with umpteen numbers of clocks, watches or bags, which are
some of the gifts offered?

Partners can’t be forced stocks...

Though some partners say that vendors use incentive schemes to dump material
on the channel, I disagree. How can vendors force you to buy something you
don´t want? They can tempt you with gifts, but if you are unable to sell the
product, then you can refuse to take the product. Also, most vendors offer
different slabs of products for incentive schemes. The channel has to decide
what kind of products it can best sell.

Vendors cannot control back-end discounting...

It is true that dealers discount back-end incentives. Vendors cannot control
this phenomenon to a great extent. The best way to curb this is to give gifts in
kind, rather than cash. Also, vendors should take care to select gifts that a
partner would like to possess and thereby won’t discount it. Gifts should be
such that it gives partners some tangible benefit.

Discounting damages branding...

Besides price-cutting, discounting is also bad for the product’s branding.
Absence of consistency in price gives customers a negative impression about the
brand. Instead of positioning the brand only on its price, partners should
concentrate on offering services along with it to boost their bottomlines.

Channel and vendors equally to be blamed...

Though the onus of discounting lies largely with partners, vendors are also
guilty at times. In the past, vendors have used such schemes to create a
tug-of-war between two partners, to make them sell more. Ultimately only one
dealer wins the final prize, and in the bargain, vendor gets more revenue. But
dealers have smartened up now and can decide which scheme is ideally suited for
their selling capabilities.

Keep back-ends a mystery for all...

While mystery back-ends are the best incentive, vendors should ensure that
these gifts are kept mysterious. Sometimes, distys or even vendor’s personnel
reveal the prizes to dealers, to boost their sales. This again leads to
under-cutting. Such practice should be avoided. Also if a dealer is selling way
below the suggested MRP, then vendors can direct the disty not to sell to him.
But this is a very bold step and not many vendors are likely to take this route.

Quicker disbursement helps...

An online incentive-tracking program helps partner post his sales on a Web
site. But other than posting his sales, it will not help him in any other ways.
Vendors should instead speed up the disbursement process. They can collect the
invoices directly from distys, instead of involving channels and lengthening the
process.

Cash incentives are dangerous...

I understand it when dealers say that gifts in kind might not always be
useful to them. But giving cash incentives is dangerous too. If even one channel
partner starts discounting this incentive, then other dealers will be forced to
follow suit. With payment in kind, like non-transferable gift vouchers, this is
minimized.

Vendors don´t dump stocks...

The very purpose of devising a scheme is to push sales. But vendors can’t
force dealers to buy products. Partners have to use their business acumen to
decide which scheme they want to participate in and what products they can sell
to avail of the scheme benefits.