Channel neglect to cost vendors dearly

Channel neglect to cost vendors dearly

Vendors who alienate the Australian channel by trying to go direct face a backlash from their customers and risk losing market share, according to a former Ingram Micro executive.

"Relationships are the only competitive differentiator [for vendors] and nobody understands relationships better than the reseller," David Dukes, chairman of the Global Technology Distribution Council, told attendees at the recent Tech Pacific 1998 IT CEO Forum.

"In spite of the fact Dell doesn't want resellers selling its product and resellers don't want to be a part of their business, 10 per cent of Dell's revenue has traditionally gone through the channel - and I understand that's now up to 18 per cent.

"That says that while Dell has done a great job of getting the brand preference, the customer still wants the relationship with a reseller."

Dukes, the former CEO of Ingram Micro in the US, claims the influence of the channel is exemplified by the fact that white-box products have the greatest market share worldwide.

So he is critical of moves by some of the major brand vendors toward more direct sales models.

"The number one brand in the world is not Compaq or IBM - it's white-box," Dukes said. "Therefore, the reseller is the number one brand in share in the marketplace and while Compaq, like the other major vendors, is right to try and attack that marketplace, they shouldn't do it by biting the hand that feeds them and going direct."

Instead, Dukes recommends the major vendors work to introduce channel assembly and other value-add initiatives that encourage distributors and resellers to push their products rather than the white-box stock.

"It's not enough for vendors to dictate cost reduction," Dukes said. "It's fine to get costs down, but if you do not add some form of incremental value to give the channel reason to invest in your products, they're going to look elsewhere."

If resellers become disenchanted with the major vendors, branded products face obsolescence.

"We're on the verge of a seeing a major market share shift," he argues. "Compaq will benefit in the short term from its direct strategy but they'll lose some market share from it.

"The question is whether Hewlett-Packard and IBM will be smart enough to declare strategies that embrace the channel.

"Because if they wait and see how Compaq does, the evolution of white boxes will be like a tidal wave."

Dukes also used his keynote speech to debunk some of the hype surrounding Dell, the catalyst for Compaq seeking to go direct in the US.

In addition to asserting that almost a fifth of Dell's revenues go through the channel, Dukes revealed one of the company's major suppliers is US-based distributor Tech Data. He also said it is unlikely Dell sells $US10 million a day via the Internet; rather, he claims they are likely to be processing that amount in orders daily.

Dukes also quoted International Data Corporation (IDC) figures that suggest by the end of 2001, direct sales will only comprise 12.6 per cent of all IT revenues.

"The reality is Dell has been very successful, but it represents only a small piece of the marketplace," Dukes said. "The channel should be focusing on the other 87 per cent of the market."

But Dukes praised Dell's ability to coerce customers into buying specific model configurations to minimise inventory.

"Dell will sell you what they have in stock," he said. "It is the best example of direct marketing you will see anywhere."

Dukes urged distributors and resellers to exploit their relationships with customers to help those vendors who do commit to the channel.

He highlighted two key areas where their help would be most beneficial - electronic commerce and inventory reduction.

Of electronic commerce, Dukes says: "The channel is where all the great intelligence rests so distributors and resellers working together will be able to market more effectively on the Internet that anybody ever has in the past."

Meanwhile, by the middle of next year, Dukes predicts: "The entire lead time of vendor inven-tory will disappear because channel assembly will enable products to be customised, configured and shipped on behalf of the reseller, in a timeframe comparable to what Dell does today."

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