There has been talk among vendors in the ICT industry about adopting "direct" sales models and cutting out the distributor, and even the reseller, in the conventional vendor-distributor-reseller chain.
Graham Duxbury, managing director of specialist networking solutions distributor Duxbury Networking, looks at the composition of the "channel" and identifies opportunities for adding value to basic products as they move from factory to end user. He identifies the area in which the "real value-add" is to be found.
The notion that resellers - dealers, retail outlets, call them what you will - are the only entities empowered to "add value" to basic product sets has been around for some time.
However, it took the economic downturn and some very average financial reporting on the part of many vendors to reawaken the protagonists of the "direct" sales model.
In terms of this model, the vendor would sell directly to the reseller, who would then service the end-user - from both technical and support perspectives. In some proposed models, the vendor also obviates the reseller and deals directly with the end-user.
By cutting out a tier in the channel, the profit made by this tier is saved and cheaper prices to the end-user will result.
Nothing wrong with these models - except they are often unworkable and impractical in the South African context.
The provision of successful corporate-wide information and communications technology (ICT) solutions is dependent on a number of elements. These include:
* Needs analysis
* Impact and logistics studies
* Platform integration
* Design expertise
* Implementation knowledge
* Testing procedures
* Training
* On-going support
Are all these services available from individual organisations?
The answer is that there are only a handful of reseller organisations in SA capable of delivering these services - while maintaining a focus on a successful sales-side operation as well.
The same is true of distributors and most certainly vendors, who in most cases do not have the manpower "muscle" to sell and support directly.
The channel
Traditionally, each of the three tiers in the channel (manufacturer/ vendor; distributor; reseller) has had its own role to play.
For instance, the vendor is tasked with the obvious responsibility of sourcing products, marketing and advertising these products and shipping them to the distributor.
The distributor is tasked with identifying and cultivating appropriately skilled resellers while providing logistical support - ensuring they are adequately stocked and that staff members are trained when new models/upgrades become available.
The reseller`s function is to interface with the end-user, secure orders against opposition and install and commission the products associated with the sale. Technical expertise is a key requirement, as is a suitably staffed and skilled support team.
The problems
Cracks in this "ideal" model began to appear more than 10 years ago, as the "brain drain" began to erode SA`s skills base. The first to suffer were the resellers. Working off tight budgets and with competition rife, many organisations found it more prudent to invest in sales skills than technical skills.
The problems for these companies came thick and fast and precipitated the shake out in the industry in the mid-90s. Many big names disappeared as their sales volumes fell, closely followed by the collapse of their spindly support structures.
End-users turned to the vendors for assistance.
The answer
There were no immediate answers. Many vendors ramped up their internal skills levels and made an attempt to support their products - and those selling them - in the field.
However, because the vendors did not have the close relationships with the resellers as did the distributors, this plan was doomed to failure.
The vendors soon realised that the best option was to encourage distributors to work together with resellers in the knowledge - and sometimes hope - that this would produce the chemistry necessary for marketplace success and full order books.
In many cases this worked, although it spawned two types of distributors:
The first - the so-called "box-droppers" - went to great lengths to ensure that their logistics were first-class. Off-site bonded warehouses were set up and partnerships with courier services were cemented to ensure prompt deliveries and fully stocked dealer shelves.
For many dealers, having a distributor to turn to who understood the local market, and the challenges that are faced at end-user sites on a daily basis, this was a boon.
Unfortunately, the euphoria was short-lived. These distributors had little or no technical knowledge and as a result were unable to assist resellers when the next technology wave broke.
As the industry neared the end of the last century so the concept of technology conversion was emphasised. End-users wanted to integrate data and voice transmissions, greater focus was placed on overall data security as hackers and other malicious agents exploited gaps in the multi-faceted technology platforms that existed in many organisations.
The notion of an "end-to-end" solution became prevalent.
The expertise
Where was the expertise to come from to address these issues and the growing demands of the end-user for sophisticated, secure solutions?
The problem with expertise is that it is expensive and only organisations making adequate profit margins could offer these services. As a result, many dealers were left with no option but to up-skill their staff and bill for technical support. This encouraged third-party organisations to climb on the bandwagon and an army of expensive specialist consultants and engineers was spawned.
All the while the cost to the end-user escalated until they cried "enough". The vendors were again approached to find an alternative.
Direct model
One of the counters to rising prices was to eliminate one or more of the tiers in the distribution model. The easiest to eliminate was the distributor. The channel was in turmoil as the new century dawned.
Those distributors that were able to cement deals with vendors remained. Many were asked to offer technical support services, in tandem with the vendor, to end-users in order to maintain their viability.
Those that were suitably skilled were immediately successful. The "box movers" had to think again. They begin to look for a marketplace advantage. They only had "cheaper prices" to fall back on.
In an industry that is now very price-conscious, lower prices are always an attraction. However, in the case of a complex technical solution, the success of the project often far outweighs cost savings on individual product items.
The alliance
The answer has been found in alliances.
Increasingly, vendors, distributors and resellers are getting together to formulate sales strategies. They are looking at the available profit margins and taking a pragmatic and realistic approach to splitting them between themselves on the basis that the technical support is critical to the sale and has to be paid for.
This trend has created significant opportunities for value-added distributors - once said to be a dying breed.
Many have proliferated, particularly the niche market specialists. The organisations that are "value-add" in name only have not - and yet another industry shake out is imminent.
While all members of the channel realise that technical support can no longer be free - it must be paid for somehow - the best solutions are available from the growing number of alliances or partnerships that have been formed by like-minded industry players.
Today, close, committed and technically rich business partnerships are proving to be attractive to end-users and therefore they are successful from a revenue perspective.
It has taken a long time for the channel to realise where the true value lies.
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