Editorial: Too many cooks

Editorial: Too many cooks

The days of a vendor adding as many distributors as possible in order to ramp up sales are long gone. In an environment were technology purchases are more closely tied than ever before to demonstrable business benefits, the general trend is to build more meaningful relationships with fewer partners.

That's why suggestions that LG is to significantly reduce its number of notebook distributors have been welcomed, even by some of those that are set to lose access to the products.

When you have too many disties going head-to-head on a particular product set, and anybody in the channel will tell you a dozen is too many, the most likely outcome is a bloodbath as they all cut each other's throats to close those sales. This is not a healthy situation for anybody because a channel only works effectively if there is enough room for every link in the chain to make some money along the way.

Price wars are great for end-users but a nightmare for everybody else. Nothing will alienate resellers quicker and push them towards alternative products than razor sharp margins. Why should a dealer invest time and resources trying to flog anything when the rewards are barely worth the effort?

To make matters worse, notebook margins are starting to shrink - particularly at the consumer end of the market where vendors are becoming very price aggressive. Acer, for example, broke a significant barrier back in June when it pushed a sub-$1000 model through its mass merchant channel.

And there is certainly no shortage of vendors looking for attention from distributors, resellers and end-users alike. Market leading IT brands like HP, Toshiba, Acer and Lenovo are vying for the limelight with household consumer electronic names like Sony, Panasonic, BenQ, LG and Samsung. Then there are a host of whitebox offerings and a new breed of companies trying to join the branded ranks including component manufacturers such as Asus, Gigabyte and MSI.

Appointing a long list of distributors might be a useful short-term play as a way of getting a brand name out into the market. But long-term success needs a more targeted approach with a smaller number of distributors that really understand the advantages of a particular vendor's products.

Having a small number of more knowledgeable distributors means resellers are better informed and end-users get a better service. It also take a little of the price pressure out of the equation.

While we are on the subject of distribution, one of the most difficult jobs for any company is making its services sticky enough that resellers decide to come back time and again. This is one of the reasons why Dicker Data's scheme to list on the stock exchange looks like a winner. In an industry where low margins are the norm, most resellers are understandably price-conscious and will generally shop around to make sure they are getting the best deal possible.

But what could possibly build dealer loyalty more effectively than having a large pool of resellers with a pecuniary interest in the well being of their supplier? I certainly can't think of anything more likely to do the trick.

It only remains to be seen how many Dicker resellers will take the plunge and buy shares.

Company director, David Dicker, has predicted investors will enjoy a minimum return of 10 per cent in the first year. This would be a nice return without causing too much excitement. But in an industry with an appetite for consolidation, they might just be worth holding onto in the hope of a juicy buyout.

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