A major challenge in channel management is continuously keeping the channel partners motivated to support the principal, especially when markets are facing tough times. Obviously, profitability is a major driver for any channel partner, but it is not the only factor affecting channel member satisfaction and motivation. Along with maintaining healthy RoI for partners, OEMs should also utilise other financial and non-financial incentives to keep motivating their channel partners.
Distribution channels are like the corridor along which products travel from manufacturers to ultimate consumers. They are just like pathways along which products, information, and finance flow, where are few manufacturers deal directly with their customers; most manufacturers use an effective distribution channel to take products to consumers. Undoubtedly, considerable thought, effort, and investment are required to create and maintain a distribution channel. Channel design and channel management are the two utmost significant elements in a company’s competitiveness. Distribution is a crucial function in marketing. An effective distribution channel can be a source of strategic advantage for companies.
We are already aware of the big initiatives by the government like Digital India, Make in India etc. which will rely on huge investment in IT infrastructure. These investments will mean greater demand for IT related products that in turn will benefit distribution business moving forward. Investments of about Rs. 4.5 lakh crore have been committed for Digital India by various industrialists. It is estimated that the various projects and initiatives unveiled by the government and the private sector companies would offer employment to over 18 lakh people this will create a huge vacuum of opportunities for distribution houses to fill. IT Distributions success is to some extent proportionate to the success of these business. Partners are core of this business and in India looking at geography and variance of culture it is partner moral commitment over and above his financial strength which plays very important role in managing the relationship between him and the distributor. “Distributors are extended arms of brand. Distributor play equal role in establishing the brand in the market. Apart from the focus of ensuring reach and coverage distributors need to be bring in efficiency in credit management and inventory management”, says V.K.Bhandari, CM& D Supertron Electronics Pvt Ltd.
Distribution channel structure in India
The distribution channel structure in India is largely traditional and quite unique. The major channel components are the retail network, wholesale network, and the logistics infrastructure. It is observed that the average retail outlet in India is very small in terms of area, number of employees, and number of stock keeping units (SKUs) stocked. The continued existence of traditional retail in India has been based on factors such as lower rentals, lower labour costs, credit from suppliers, low or no liability on taxes, and a legal framework which prevented foreign direct investment (FDI) in retailing until quite recently.
The Biggest Challenge
To maintain a customer base, a retail company needs to face the challenges associated with various channels of distribution. One of the biggest challenges is that vendors don’t understand true value of distribution especially in market like India. Even managing a transaction is a complex process which involves managing taxation, delivery, imports in some cases, collection etc. In order to even handle a simple transaction there is an investment of resources for Sales co-ordination, order processing, accounting, collection etc. In many cases finance cost is involved if transaction involves financing. Typically most OEMs think this is a basic process and isn’t a great value addition as they are only driven by Sales. The challenge distributor face is that if OEM doesn’t allow them to make adequate margin their quest for value addition would never get fulfilled as it becomes affordability issue for the distributor. As a distributor, Comguard is willing to reinvest profits for the OEM to help them develop a bigger market share. If this understanding is not clear then it leads to chicken and egg situation in the relationship. Great organizations are built on cash flow from profitability and good management. These factors go hand in hand to ensure success of distribution companies.
Partners should understand IT distributors are almost in business from past 25 yrs, so cost of operation is very high and bottom line has always been under pressure. In some cases instead of good credit control, there are bad debts as Tier II distributors no longer find IT distribution lucrative & have exited the market.
Rashi Peripherals has never seen the IT distribution Business with a focal of being first or second in the market, that isn’t the driving principle of the organisation. But to grow sustainably year over, so in short Rashi is always competing with itself in outdoing itself. Discussing other challenges, Rajesh Goenka, Vice President- Sales and Marketing, Rashi Peripherals opines, “Demand Gen activity and awareness against purchase of refurbished products out of ignorance, vendors aspiration to push for goods than what can be digested is making the ecosystem gradually more challenging.”
The shifting market, technology priorities, changing regulatory practices and compliance challenges, fight against counterfeit products and crisis preparedness and management are some other major challenges that IT distributors face today.
Practices the distributors need to adopt
While partner’s profitability and return on investment (ROI) are the two basic ingredients, execution is the key for building sustainable competitive advantage. Observing the current scenario in India, it is found that most of the distribution companies struggle with implementations and repeatedly try adopting variations of the same practice. To avoid this, distributors need to avoid follow a very clear deal registration program form vendors and not fight over existing market share. If that happens then it erodes margins and dilutes the vision of bringing more and more value addition. Elaborating more on this, Harish Rai, Country Manager, Comguard explains, “We need to adopt a strategy as we are creating a bigger market share for our vendors that in turn will bring more and more opportunities to partners. Educating partners & customers on new emerging technology and market trends will go a long way in preparing ourselves to capitalize on opportunities at an early stage. Distributors need to have a proactive approach to develop the market.”
The modern distributor will have to appoint unicommerce model, supplying to brick motar, online together, will have to simplify business process by allowing partners to trade to place order and transact business on e- portal shelf. They will have to value add in terms of market penetrations and growth of brand and not just box pushers. Sharing his thoughts, Ketan Patel, CEO, Creative Peripherals adds, “Channel partners have to think that it easy to do business with brands. They should avoid just transactional partnership and adopt newer methods of market development route on taking the business to long term and adding value to it.” As far as the vendors are concerned, they have lot to do in terms of creating demand, educating market, invest in right man power & work closely with distributors. They should avoid shortcuts, changing distributors & channel partners frequently.
Some global players are on the expansion mode and are looking to acquire set businesses which would help them run the show from the day one with minimal operational issues. This trend is likely to continue and even the much established VADs in India may come under this fold. Putting forward his point of view on OEMs role, Ashok Kumar, CEO RAH Infotech says, “OEMs are driving the business directly which is leading to lesser operating margins while on the other hand, manpower is getting expensive day by day. This is leading to little or no profitability which is ultimately forcing certain distributors to fold-up. Customers have become more demanding & bad credit calls & delayed payments eat away the margins which are becoming thinner & thinner now days.”
At the end…
Relationship of distributor & partner is B2B. In B2B, it is about both parties winning. So if partners can work with commitment on payment, forecasting & market development, it will be win- win situation for both. In addition, distributors have to realize the big opportunity that newer technologies like Cloud Computing, Big Data, Mobility
