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Vendor, distributor, reseller: Focus on roles for optimal value creation

The classic channel model provides clear-cut roles for every player in the value chain. The blurring of lines can harm a product's chances of success in a competitive market.

Far from an environment where roles are clear-cut, the South African IT channel is beset with participants, who sometimes masquerade as one link in the value chain when they are in fact another. Optimal value creation for the different links in this value chain (ie vendor, distributor and reseller) depends on recognition of their interdependencies and a focus on core competencies.

In the classic channel model, the role of the vendor is clear-cut – its business is the development and manufacture of products as well as the creation of markets through advertising or marketing. The distributor serves as the warehousing and logistics partner, and also provides product expertise, financial services, marketing and PR services, and support to resellers only. Resellers, on the other hand, should focus on meeting the needs of the end-user, and on bringing the other participants into the end user discussion when necessary.

It is an ongoing issue. Resellers tend to feel it most, as distributors and vendors encroach on their business with the practice of so-called “named accounts”, which is in effect, cherry-picking. However, resellers are sometimes guilty of a similar sin when they become small-scale distributors by signing up some smaller vendors and holding on to their products as exclusives.

Damaging the value chain

While the problem of vendors and distributors cannibalising the business of their resellers is a well-understood (and well documented) issue, resellers attempting to enter the distribution game tend to similarly damage the value chain.

It happens – a vendor looking to enter the local market is wooed over email by a reseller, who assures the vendor that it has the resources and the will to take its product into the market. However, if this turns out not to be the case, problems can result when the product isn't taken into the market with any effect. The vendor loses the benefit of effective market penetration, and can find itself tied into an exclusivity contract that creates little value.

Alternatively, a reseller might sign up several products only to drop them and focus on one that is outperforming the rest – again, leaving the vendor unable to gain traction in the market. This trend is commonly referred to as 'managed marketing' for vendors.

Creating value

It is important to examine the position of each of these players in the value chain and understand how value is created. As a value-added distributor, this role has to include investment in new technologies when identified. Part of this investment should include training of staff and resellers to support the product, the creation of a market and channel for the product, and the capacity to invest in warehousing and spares in order to meet demand.

Distinct roles

The reseller creates value by understanding the business needs of the end-user, offering a variety of options and then integrating and supporting the solution. Graham Vorster, CTO of Westcon AME

The distributor should be an enabler of the channel. Its responsibilities should also include education, the provision of financial support and logistics, and providing bridging support to the channel – particularly when the vendor is not represented in the country.

These are not functions associated with a reseller. The reseller creates value by understanding the business needs of the end-user, offering a variety of options and then integrating and supporting the solution.

The reseller should be wary of the distributor that attempts to blur this line by bypassing the channel. Some distributors have a “soft” channel – the “reseller” is just a division of their business. This is a threat to the true reseller, and it also limits the creation of skills in the channel – and SA is well aware that high-level technical skill is in short supply. It becomes a question of growing the channel versus a selfish focus on growing accounts in a potentially non-sustainable and non-scalable manner.

Some vendors and distributors are notorious for intruding on the reseller space, which makes it difficult for the reseller to invest in skilling staff on that company's products and technologies, as the return on investment is called into question.

Money disappears out of the channel with “named accounts”. As a reseller, think again when engaging with vendors or distributors, because there are options in the market. Look out for those that dictate the margin, because they are preventing the reseller from creating or adding value to solutions.  

The fact is, in a channel where each tier plays its part properly, fair value is created from the vendor right through to the customer, more employment is created, and solutions are delivered and supported better.

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