Evolving Face Of Distribution

With vendors becoming channel-centric and market dynamics changing rapidly, different distribution models have emerged and found their own place. While national distribution still continues to be the time-tested and proven model, regional distribution too is working wonders for some. However, many look at a hybrid approach with apprehension.

The Indian IT distribution business has, for quite some time, been going
through a transformation of sorts.

Essentially, one has witnessed vendors adopting, as well as dumping,
different distribution models and strategies. Also, given the fact that India is
a vast geography where IT is yet to reach the masses, how a company goes about
structuring its channel network has come to determine its success rate.

So far majority of vendors in the country have stuck to a national
distribution model. And with time, it has proven to be a successful model as
well.

However,
over a period of time, other models have emerged. These include the regional
model, hybrid model and also to an extent, the sub-distribution model. While all
these models had their own successes and failures, what was constant is the need
for vendors to re-invent and re-position their distribution strategy.

WHY THE CHANGE?

Change in vendors’ distribution model is, to a great extent, dependant on
the kind of market focus they have. For example, HP and Samsung had a successful
national distribution model in place.

However, realizing the need to identify strong and aggressive players to
further promote their brands, they appointed sub-distributors. Incidentally,
this very model of sub-distribution was written off by critics about three-four
years ago.

DISTRIBUTION FLAVORS THAT VENDORS ENJOY
	HP, Samsung: Have a national distribution in place but also revived their sub-distribution model in the recent past
	IBM: At one point of time used to go completely direct. Now relies majorly on its national distributors
	Canon, Benq, Philips: Back to square one! Have come back to a national distribution model after unsuccessfully trying out regional distribution
	LG: One of the major news-makers on the distribution scene ever since it dumped its national distys two years ago. Currently going about with its regional model
	Acer, Toshiba: Are trying out a hybrid model with both national as well as regional distributors
	D-Link, Emerson: Have distributors on city or region-level. Distys in turn are exclusive to the company and do not deal with any other vendor

The whole idea behind evolving a sub-distribution model was to hand-pick few
channel players who could aggressively push certain products and get specially
incentivized for the same. They were also brought in the picture to reach those
tier-3 and tier-4 partners which national distys couldn’t. These sub-distys
also enjoyed privileges in terms of pricing, credit limits and back-ends.

However, going by market feedback today, very soon vendors would again have
to re-look at this model. Reason: instances of channel conflict. With national
distys also expanding their channel base, at times they end up selling to a sub-disty’s
customer. While vendors don’t appreciate such conflicts, target pressures
doesn’t leave much room for both, the national as well as sub-distributor.

REGIONALLY YOURS

Some vendors went about radically re-modeling their distribution network.
The most talked-about example is that of LG Electronics. In what came as a ‘surprise’
move, two years ago, the company dumped its then national distys and appointed
regional distys (RDs) across the country.

While LG reports of a significant sales growth ever since it switched to this
regional model, a section of the industry feels that it won’t last for long.
"Very soon, one would see the perils of such a model adopted by LG and the
company would have to re-think its strategy," remarks Sanjay Maheshwari,
Manager-Distribution, Philips.

Interestingly, Philips too had tried out a similar model before switching
over to national distribution. Among other significant vendors who switched to
national distribution from a regional model are Canon and Benq. Here again,
channel conflict was cited as the most pressing reason.

However, there are others who strongly feel that regional distribution will
ultimately prevail in the days to come. "If vendors are looking at
expanding their reach in terms of breadth and depth, regional is the way they
would need to go," opines VK Bhandari, Director, Supertron Electronics.

According to him, the flexibility that a regional model offers cannot be
emulated by a national one. "Being flexible and able to react to changing
market dynamics almost immediately is a must today. A national distribution
model can do this as quickly," adds Bhandari.

Further pointing out the inherent advantages a regional model brings on
board, Ajay Varshney, Head-Western Zone, LG Electronics, says that it has
enabled the company to penetrate deeper into the market. "And this is not
only in metros or class-A cities. The kind of reach we have achieved today in B,
C and D-class cities is something that a national distributor would not have
been able to provide," says he.

TESTED, PROVEN, AND HERE TO STAY

So does one assume the road ahead is not too bright for national
distribution? "Not at all. National distribution is a tested and proven
model and is here to stay," reaffirms K Jaishankar, CEO, Tech Pac. And as
the head of country’s largest distribution house, he has more than enough
reasons to believe the same.

Many in the industry would agree with him. "There is no way one can
match the resourcefulness and logistical expertise of national distributors. To
grow in a market in its initial phase, RDs can be of help. But to successfully
sustain it for long, national distributors will be required," opines
Dushyant Mehta, MD, Mediaman Group.

Realizing the need to have its presence felt in up-country markets too, many
national distributors have opened offices in most capital cities. By doing this,
they are ensuring that as the market grows in these regions, they are present to
tap it.

These distys have also spruced up their bill collection mechanism, introduced
more efficient processes for validating credit and also put in place post-sales
service infrastructure on the vendor’s behalf. Further, they are no more
labeled as a volume player.

HYBRID OR HYPE?

Hybrid or two-pronged distribution model is not a new concept to the IT
channel business. In this model a vendor has in place both national as well as
regional distributors. Compaq used to follow such a model in its pre-merger
days. However, it didn’t work too well for the company. LG too tried it for
sometime, but did not get a favorable response.

Currently, companies like Acer and Toshiba are experimenting with this model.
"We have decided to augment the strengths of our national distributor by
having RDs. While the former continues to be good for dealing with larger
partners, the latter comes handy to reach out to relatively small players,"
reasons Jyotin Verma, Country Head-Sales and Marketing, HCL Infosystems. HCL has
done this arrangement for its Toshiba range of products.

However, a hybrid distribution model has all the potential of giving rise to
channel conflict, if not managed skillfully.

And so unsurprisingly, many partners have apprehensions about the success of
a hybrid model. "It’s too difficult to say whether a hybrid can really
work out successfully in the long run. After all, both kind of distys would have
to offer distinct USPs in order to make such a model work," feels Bhandari.

While it would be wrong to write-off such a model at this juncture, it sure
would require far more efforts from vendor towards channel management.

A LEAGUE OF THEIR OWN

Finally, a look at two companies who have carved a niche for themselves in
the industry due to their unique distribution strategy. These are: D-Link and
Emerson Network Power. Both these companies have in place a much refined form of
regional distribution network.

These vendors have appointed a fixed number of distributors at a city or
regional level. But this is where the similarity with the RD model, as followed
by others, ends. These distributors, by and large, deal only in the products of
their respective vendors.

And what really sets these vendors apart is that their distys are not only
extremely loyal to them but also their numbers have remained more or less
constant for quite a long period of time. For instance, D-link would have hardly
made two to three additions to its disty list in last couple of years. Ditto
with Emerson. Of its nearly 50 business partners, the relationship with majority
of them dates back to over five years.

So at a time, where vendors are striving hard to retain channel loyalty, how
do these companies manage it so naturally? "We sell ‘through’ the
distys and not ‘to’ the distys," pat comes the explanation from Anand
Mehta, Marketing Manager, D-Link India. He says that key to retaining their
loyalty is to help them grow with the company.

And distributors fully agree with the same. "We never felt the need to
look beyond D-Link business as the company itself offered us so many products to
deal in, that our hands were always full," acknowledges Prakash Mody,
Director, Sejutronics.

Similar is the opinion of VB Desai, Director, Accutech Business Systems, a
key Emerson business partner. Finally relationship with Emerson is what really
matters, which we were extremely satisfied with," says Desai. And so much
so that even though Emerson now has appointed Ingram as its national disty for
low-end UPSs, Desai is hardly an insecure man.

The key to such a distribution model is creating a small closely-knit
family-like environment among the distribution partners. Something that both
these vendors have excellently accomplished.

More than the model its the management of the same that is critical. Vendors
do realize this well and hence go out to please their distribution partners.

Issues crop up when the former starts assuming that the latter cannot do
without it and hence begins to dictate terms. One thing that vendors should
constantly keep themselves aware of is that distributors are like their brand
ambassadors. Brand may be very strong in its own right, but it can never
generate demand at the cost of its distributor’s business interests.

GOLDIE

STRATEGIES FOR HIGH- PERFORMANCE DISTRIBUTORS

Source: Robert F Lusch, Deborah Zizzo and James M Kenderline,
Marketing Management 2, no.2