Features

Rebates, incentives, loyalty programmes, promotions: What works?

Strong sales from retail, Pascal de Boer, VP Retail Sales and Marketing, Sandisk EMEA

By any theory of channel marketing these are established instruments of “reward power”. However with shorter life cycles and new devices being launched every week, both vendors and channel players require other measures to make “rewards” deliver their power.

Channel rewards are generated at all four levels of the distribution value chain. Outwardly they may have the same form but as we move down the chain from vendors to distributors to resellers and retailers they reflect unfinished business at those levels or below them.

THE VENDOR VIEW

At the vendor level, channel motivation programmes can get initiated due to a number of reasons. During the current volatile market environment, vendor activities are being adjusted to compensate for sluggish activity across the traditional corporate segment, contrasted by higher rates of growth from others.

Protecting loyal partners, George Saliba, Sales Manager, Medmark

At Toshiba for example, sluggish corporate sales has prompted it to recharge its corporate VAR programme. In terms of value additions these include access to a VAR manager, demand generation, regular product training, rebate schemes, and other sops around discounts and volume pricing.

Combined with these tactical measures to enhance the VAR programme Toshiba is also maintaining its rebate incentive scheme called the “profit for performance” for its channel community, and “sell and win” point system for its shop floor executives.

For Lenovo the focus is to capture market share in the top end of the SME market in the region. It has pulled in its best performing corporate channel partners to start focussing on the high-end SME segment. It is also actively developing its diamond partner channel segment, a status accorded to partners who sell more than 300 units per quarter. It is doing this through the Core Channel programme with objectives of acquiring specific resellers into the Lenovo relationship.

In the case of AMD, its recent repositioning of OEM products has meant equivalent work on channel development. The product segments now include APU, CPU, chipset and embedded, server, software solutions. The new channel initiative has materialised in the form of the Fusion partner programme.

Magic-four customers are its best, Alan Pourmirza, Infrastructure Manager, FDC

This is a global partner programme that combines incentive and resource programmes and is now available for partners reselling the complete portfolio of products. The change is towards more personalised resource availability using three levels of performance differentiation named as elite, premier and select. There are also six tiers of channel segmentation named as e-tailers, retailers, commercial solution providers, consumer solution providers and commercial volume resellers.

“This programme is still going strong since its launch in 2009”, says Bernard Biolchini, VP sales AMD, META regional office.

For security software major, Kaspersky, it monitors the number of licenses sold to an enterprise. When the number of licenses sold reaches 500, it steps in for direct engagement with the customer in parallel with channel partner. “We need to be as close as possible to the customer for this”, says Tarek Kuzbari, Managing Director of Kaspersky Lab Middle East.

For memory manufacturer Twinmos, the possibility of dead stocks is operationally unlikely. “Whatever is going to be obsolete, we know it one year before”, says Mohd Mazharul Islam, Managing Director, Twinmos. However he acknowledges based on market conditions stocks can become slow moving leading to the possibility of dead stocks, because of the volatile nature of the product. Under these circumstances, Twinmos gives a rebate to its channel partners on the next stock of shipments to adjust for the lower giveaway prices used to clear the existing stock.

Using rebates for slow moving stocks, Mohd Mazharul Islam, Managing Director, Twinmos

Retail focussed promotions can be driven by the brand, or by the distributor, or by the brand and distributor. Any of these combinations is possible and all are in active use. Leading IT brands like Lenovo, Toshiba, Kaspersky, Epson and Microsoft have made direct contact with super retailers, in parallel with their distributors a key priority in 2011.

With retail segments overflowing with customers to catch the latest connected devices and application devices on the shelves, this is a key driver for retail promotions.

For Toshiba, it has brought in Jarir Book Stores and Extra in Saudi Arabia as direct channel partners. Since Saudi Arabia accounts for more than half of its regional sales, this move demonstrates the importance of the segment and the region for the vendor. It has also created a strategic retail partner programme, where it negotiates the promotion activities at the retailer’s central decision making office.

For security software major, Kaspersky, the involvement with the super retailer is part of its direct touch model.  Distributor, vendor and retail partner meet to discuss the annual engagement and possible value-add from the vendor and distributor.  “Increasing the brand awareness at retailers is critical to boost the sales of renewal,” says Kaspersky’s Kuzbari. For the vendor there is a direct link with license renewals from the SME and small office-home office segment, and the visibility of the brand across the super retail segment.

A product category like flash memory, where Sandisk operates is also growing rapidly. Almost every electronic device uses either an embedded flash or has a slot for an add-on flash card. “That makes our category attractive for distributors, resellers and retailers,” says Pascal de Boer, VP Retail Sales and Marketing, Sandisk EMEA.

Since Sandisk products are used in fast selling electronic goods like cameras, smartphones, tablets, media players, there is considerable opportunity to offer the add-on Sandisk product along with the actual device as “bundle promotions” across retailers.

Other upcoming retail opportunities from Sandisk across the region include embedded and encrypted content on its devices, like movies and songs that are user-accessible on payment. As well as custom label OEM products and merchandise for super retailers.

While this market segment is booming for de Boer, he emphasises, “We are not yet at a point where we are done with developing this category.”

For Microsoft, it has created the consumer channel group to revamp its consumer product portfolio and visibility in the retail segment. The new approach is to create more touch points for the consumer, to raise excitement levels in the segment and to strengthen brand attributes to a “cool level”.

THE CHANNEL VIEW

From a channel partner point of view, “reward power” takes on a different meaning. Distributor and resellers can also have their own set of objectives and associated activities. If a certain product has been impacted due to a parallel activity run, or if there is a volume shortfall either at the distributor or reseller end, then a more focussed activity is usually planned.

The scale of this activity will depend on shortfall in volume and availability of marketing support. “Such limited time period offers are successful and resellers know that an investment today yields higher returns tomorrow,” says Sachin Gehani, Director Accent Office Supplies, a printing reseller.

“Incentives and rebates are an important of the channel strategy and build a strong relationship,” says Harprit Singh, Managing Director, VIP Computers. However there are two sides of such exchanges. On the one side are the additional volumes generated and the related exchanges of “Dollar and cents, how much do you get?” On the other side is the partnership effort that goes into the effort, the transfer of knowledge and the vendor know-how.

For a specialised component distributor like VIP Computers, the most important factor may not be the successful exchange of volume and rebate. It has also to do with the channel partners’ long term acceptance of the margins offered, the commitment to the product range, and the vision of growing the product in a certain region or operational space.

“This tells us the long term sustainability of the relationship. Many customers come in for short term, one-two deals. These are not our best customers”, says Singh. Across the region VIP Computers has chosen to pre-select its partners and has a hundred on its list.

Rebates and marketing support are more likely to flow when a channel partner has worked their way towards a distributor’s top rungs, usually a loyalty club. FDC International, an extended component distributor managing storage drives, memory, mother and display boards, and laptops rates its customers on the basis of “magic-four” parameters. These include on-time payments within the credit period; trading with at least four FDC product categories; predictable sales cycles and showcasing of the product range.

Out of a total base of 650 partners, only fifty partners are included in its “magic-four” club. FDC extends preferential channel support for them including longer term sales contracts.

However incentives are not the primary strategy that FDC wants to follow with its partners. Close to 100% of its goods are sold at the time of arrival in its Dubai warehouse. Anything that the partner wants should be forecast and included in its sales orders. “Normally we don’t have anything to sell without a forecast,” explains Alan Pourmirza, FDC’s Infrastructure Manager, for whom forecast and order have the same meaning.

If partners don’t plan their inventory in a satisfactory manner, the issue of unsold stocks can arise. This can lead to dumping of stocks in other markets and development of a grey market. FDC uses its product serial number to track outward product sales. “It is important to know who our customer is selling to,” says Pourmirza.

Asbis Enterprises, leading distributor for Intel and AMD and operating across Europe, Russia, CIS, Africa and the Gulf also has a loyalty club based on sales performance of its partners. It is called “Fusion Club” and recognises top sales customers around a selected vendor. At present “Fusion Club” is being supported by AMD and hence the quarterly getaways are for regional partners who have topped AMD sales in the country or region.

The last three quarterly getaways have been to Slovakia, UAE and France. The main highlight is networking with key AMD and Asbis managers and team building in a relaxing environment.

Says Heshan Tantawi, VP for META region, explaining his vision of Asbis’ customers, “A partner is a customer who focuses with you to develop his market, and you help him to develop and achieve this, then its partnership.”

Managing customers doesn’t always need a loyalty programme on the scale of Asbis’. Modest inventory control, credit extensions and channel protection by the distributors can also help retain customers. For Medmark one of Lexmark’s three distributors in the region, protecting its market share of 85% and its partner loyalty some of them extending back eight years, is the most important.

Medmark doesn’t keep back-to-back stocks for fast moving goods. It believes in making goods available for its partners. It receives two incoming shipments every week and holds an average inventory of 60 days. Out of this only 35-40% of the stock is sold before arrival in the warehouse. Rest are kept as ex-stock. “At any moment the partners don’t need to buy a lot and block their capital,” says George Saliba, Sales Manager, Medmark.

Medmark also extends preferential credit terms of 60 days to its partners and says that profit margins are much higher on Lexmark products in comparison to its competitors. Existing channel partners are also protected when prospective customers make a bid to enter the network. “We don’t keep an open market and keep adding channel players”, says Saliba. It also runs an incentive loyalty programme for its partners.

While FDC and Asbis may set the turf for gaining partner loyalty, sometimes it may not be enough. Says Accent Office Supplies’ Gehani, “Distributors use many strategies to gain the loyalty of resellers, but at the end of the day, what matters most is the price point.” Gehani has his share of favourite distributors based on mundane operational matters like preferential stock allocation, priority documentation, priority delivery, higher rebate and other related reasons.

However, even if a reseller shies away from distributor loyalty they still remain committed to high volume vendors. Gehani’s favourite promotion scheme is anything to do with HP. “Given the volume of HP sales today, the rebates achieved by meeting targets turn out to be a huge number and these add considerably to the bottom line”. This is especially important since profit margins based on sales of HP products are marginal.

Similar programmes by Microsoft, Lexmark, Brother and Canon although generating less volume and reseller rebates are useful in retaining channel loyalty.

THE RETAIL VIEW

From a retailer point of view the sheer number of brands, refresh rates of new launches, limited shelf space and limited inventory capacity create significant challenges for the vendor, distributor and the retailer.

All brands and retailers follow the same annual calendar across the region. New product launches are timed with Gitex, shopping festivals, back to school, Ramadan and other special occasions. Some brands share their activity plans well in advance with the retailers. Others may arrive just a week earlier. “The brands that miss out are the ones that are slow, with wrong marketing push or sitting stocks,” says Ashish Panjabi, CEO Jacky’s group.

With multiple product segments like LCD and plasma TVs, mobile and smart phones, tablets, cameras, laptops, printers, gaming software, devices, consumables and others competing for shelf space—the most critical factor is how much space to give a particular brand in its product segment.

This is a tactical decision the retailer has to take along with the brand. The shelf space has an ROI– whether it is funded by a brand, distributor or retailer or co-funded. All parties are looking for a return on their investment. Some brands have a stronger presence than others, but if the product does not move some very urgent decisions need to be taken. “All of us are looking at what we are sacrificing in return for what we are getting,” says Panjabi.

If the product does well and stocks move the next challenge is to ensure sufficient inventory has been planned and is available. “When you have bigger events like Gitex, planning needs to start months in advance,” says Panjabi. “And the planning has to be down to the T.”

If the product comes in one week late it is of no use. At any other time of the year it can be substituted with another brand. But during Gitex if a fast moving product runs out of stock the damage is considerable. During such events, both the distributor and the retailer plan for sufficient inventory with backup stocks on both sides. Since a retailer can only hold that much stock on the shelves, they usually invest in off-site warehousing under their control.

During prime shopping periods, retailers also experience conflicting requests for stretched brand targets. Excessively selling a particular brand over another may help reach its target but will also risk the retailer losing support from the compromised brand. At this stage the trade off needs to be evaluated. “It’s like a chess game, which piece to move up and which works better for you”, says Panjabi.

With so many factors to juggle why are retailers moving up the brand complexity ladder? The reason remains the same as Gehani’s – the final bottom line.

With brands sold in UAE offering low operating margins, for a retailer like Jacky’s the rebate generated from the volumes of a special launch is what sustains the business. “In the end you need to supplement it with whatever the brands can support you with” is Panjabi’s summary of survival in the business.

While the elements of channel “reward power” still play the same roles, today’s brand dynamics require all players to adapt these elements for their survival objectives.

=======================================

Africa’s discount channel

Select IT products are entering Africa after being re-tested as “Ok”

Oversold and returned products are being consolidated by vendors across Europe and sent back to production or testing factories for re-certification. Large channel players who have access to hardware testing plants are part of the vendor “re-certification” or “re-furbishment” programmes. These products include routers, switches, internal and external hard-disk drives amongst others.

Worldwide about 35 vendors have already initiated these programmes, out of which 25 are from Europe. Channel players who are supporting the re-certification initiative point out that the testing of the products at the labs are as stringent as the original products. Their role is to consolidate unsold components from the market, move them to the labs for re-certification, repack and distribute to selected regions.

From a reliability point of view, the re-tested products are no different from their first-run counterparts.

To boost the movement of these products vendors have also launched special incentive and rebate programmes. However the singular most important factor in this programme is the discounted price offered by the distributor to its customers. These products are priced 15% less than its counterparts. The final differential price to the end customer is not known.

Channel players are not shipping these products into the Gulf. They are being shipped out to most countries in Africa, which accepts these products at a lower price point.

=======================================

Previous ArticleNext Article

Leave a Reply

GET TAHAWUL TECH IN YOUR INBOX

The free newsletter covering the top industry headlines

Send this to a friend