VOLUME DUMPING

"Schemes like free holidays and other back-end incentives are spoiling the channel business and have imposed stiff competition among partners" Sanath Babu, MD, Shree Durga Enterprises

Volumes are forced on distribution channel...

Everyone wants to be the market leader and volumes are being pushed on to
the distribution channel to meet this objective. On the other hand, downfall of
hardware sales and wafer-thin margins have resulted in several regional
distributors offering unlimited credits to resellers in the market today.

Distributors and channel partners are also eyeing at stock clearance to meet
the volume targets set by vendors. But factors like the recurring overhead
costs, lack of capital back-up and delay in payments have led to many channel
partners closing shop.

Back-end incentives spoil the business...

Schemes like free holidays and other back-end incentives are spoiling the
channel business and have imposed stiff competition among partners. Several
channel partners who qualify for free holidays opt for cash rewards in exchange.
This forces us to go in for a neck-to-neck competition because of price
advantages that another partner may get because of liquidating his incentives.
This has also resulted in partners resorting to unethical dealings and
undercutting of product-price. By and large, these schemes are not attractive
any more.

Incentives reach us late...

We have been recognized as top performers to sell the highest units of
particular brands of motherboards, hard disks and sound cards. But the
incentives reach us six months after the closing date, which discourages several
resellers. Vendors should take steps towards dispatching incentives immediately
after the scheme is withdrawn from the market. This will certainly encourage
resellers to look forward to such schemes.

We have cut down 40% business..

It´s a known fact that volume dumping leads to resellers pushing products
or clearing stocks on credit. We have been forced to reduce nearly 40% of our
reseller business due to payment issues. This can largely be attributed to the
immaturity of the value chain.

Currently our reseller business contributes nearly 70% of the overall
business. However, judging the market scenario we will reduce its contribution
to 50 percent and will focus more on corporate (end-user) sales.

Withdrawal of back-end support...

All said and done, by the end of the day, the performance of a channel
partner is measured by the volume sales. Although vendors claim commitment to
offer support to resellers, the question is will the company retain the elite
status of channel partners? Non-performers are either removed from the
company´s channel network or they are demoted to a lower level. So what is the
point in tall claims made by vendors if volume is what ultimately matters?

“There is no physical compulsion on channel partners to do volume business and they have to take a call on what makes business sense to them” Sunil Sharma, MD, Kobian India

Volume targets are not unrealistic...

Volume targets which are set by vendors are rarely unrealistic. But offering
unlimited credit and extending the credit period is something that channels have
to seriously ponder over.

It is true that vendors are pushing volumes. This can be attributed to the
unending appetite to garner a bigger pie of the market. With several new players
entering the IT hardware space, it has become the need of the hour for every
vendor to show volumes in their registers.

They would like to eat into the marketshares of their competitors. This
results in vendors luring channels with back-end incentives to do volume
business. However, all our schemes on volumes have been well-accepted by
channels today and in fact, they look forward to such schemes on an ongoing
basis.

Channels have to take a call...

There is no physical compulsion on channel partners to do volume business.
Ultimately the channels have to take a call on what makes business sense to
them. Nevertheless, it is observed that channels tend to go overboard to achieve
that number.

This trend is also noticed among channel partners who deal with Mercury range
of products.

Due to the market slowdown and the vendor pressure, channels today undertake
unethical measures like undercutting and discounting across the table. For
instance, few months back there was a shortage of hard disk drives and channels
made money by pumping up the price. At the same time, when they have huge stock
they tend to clear it off by offering discounts across the table. This severely
affects the capital rotation in the channel business.

At Kobian, we organize monthly meetings with all our distributors and
resellers. Through these meetings we urge partners to make money along with
volume sales. Although these meetings are scheduled at equal intervals, I must
admit that we have not been 100 percent successful in our mission.

Incentives do take time...

There could be two reasons behind incentives getting delayed. Either the
vendor himself would have delayed in closing the scheme or channels would have
demanded to extend the period to submit their claims. These issues do result in
incentives not reaching the partners in time.

At the same time, I would advice channels to update their purchase and sales
details online. But since a majority of channel lack automation in their
businesses, we are missing out this advantage.

Top performers should be rewarded...

It could happen that vendors withdraw elite status and back-end incentives.
But ultimately it should be the call of the channel partner to retain his status
in business. Vendors will continue to launch several schemes to reward top
performers. However, it is for a partner to decide and endeavor to make it to
the top.