Adding value is a grey area - a lot of people claim to do it but onlyy these days. But when distributors tag it onto their names, how can resellers be sure that the service on offer lives up to the claims? a small number actually do. In an industry bursting at the seams with standards and acronyms, terms such as value-added have tended to be applied with little thought to their veracity. In the case of the term value-added distributor, there is almost no consensus as to what it means, yet many distributors apply it to themselves liberally.
If someone gave you a tenner every time you heard the phrase value-add, chances are you would not need to bother about being in business any longer - you could just while away the hours counting your money. The term caught the attention of some marketing guru several years ago and before long it was everywhere. Value-add - you either had it or were it.
First, there were value-added resellers, then we started hearing about value-added distributors. Some took it all a bit too far and terms such as value-added systems integrator started springing up. VASI? What on earth that was meant to conjure up in the mind of the prospective customer is anyone's guess. 'I'm just popping out to the VASI.' 'Well, you will remember to flush, won't you?' For the remainder of this article, we shall not be needing the services of the VASI.
More often than not, value-add means absolutely nothing - it's just a couple of words businesses use to try to kid customers that they're doing something special. Once value-add becomes the standard, it could be argued that it no longer represents a value worth adding.
The concept of value is not as clear-cut as might first appear - it needs to be viewed from the customer's perspective. A company might genuinely believe it adds value to the service it provides for its customers, but they may disagree. They might be aware of shortcomings that the company takes for granted in business. Everyone wants to do a bit better than the competition - if nothing else, it improves the chances of success, which is why firms turn to adding value as a way to do just that.
The term is most often associated with resellers and is used to denote a reseller that offers a degree of service beyond that of the straightforward, no-nonsense, tin-shifting dealer. This isn't someone to buy from if all a customer wants is best price and fastest delivery - although those things are universally important.
The Var is the specialist that has more to offer customers by way of advice and support than just off-the-shelf products. This is by no means a dictionary definition of the term value-add, but it works well enough.
Applied to the next tier up in the channel, therefore, the term value-added distributor must indicate a distributor that has neither the broadest selection of products nor the lowest prices. They won't be the quickest to get stuff out, either. So that flies pretty much in the accepted face of distribution.
Most distributors, if not all, will claim to be value-added distributors, which tend to have different ideas of what it is they do to add value.
This is a notion that has to be viewed through the eyes of the customer to make any real sense of it.
According to research carried out by ByLine, there is a list of criteria that a distributor must meet to be classified as value-added - at least in the eyes of the reseller. One hundred resellers were quizzed over the phone. They were chosen at random and there were no sticks or carrots used to encourage them to participate. Due its random nature, the survey pool does not reflect any particular sector of the channel.
The survey posed a number of questions about the nature of value-added distribution and respondents were asked to rate the importance of particular services offered by distributors. Not surprisingly, factors such as product range were deemed to be important by the those surveyed. Keen pricing was also a must, while criteria such as 'does the distributor offer sales training?' were not so important.
According to ByLine: 'The idea that resellers always choose their distributor is fanciful. Choice may be non-existent or limited by various factors.
What products does the reseller want to carry? How much buying power does the reseller wield? Is the reseller product or service-oriented?'
The starting point for the research was to set out an assumption of what constitutes a value-added distributor. 'A value-added distributor is one which offers above-average range, depth and quality of service. Unlike the broadline distributor, the value-added distributor's business doesn't depend on volume of sales or price-competitiveness. Most distributors would describe themselves as value-added distributors. Far fewer would be able to justify the claim.'
This touches on a real point of controversy in the channel. The working definition as framed by ByLine excludes broadliners from the picture, yet they would consider that they add value.
Bryn Sage, sales director of Leeds distributor Storm, believes there is a distinction between the two types of distributor. 'Many of the broadliners have set up high-end divisions selling value products, but it could be argued that's not the same thing at all. As markets mature, the opportunity to add value becomes limited. There are always markets emerging for the channel - that's where successful firms differentiate themselves.'
Emerging markets usually herald a rush of enthusiasm as resellers and distributors try to make as much of the opportunities as they can. But not everyone is best placed to do this, Sage argues. 'Storm has gone from being a hardware company to one that deals in software and consultancy.
You have to be able to adapt to survive.'
He adds: 'The next emerging market will be storage area networks. There will be a lot of talk about it this year and once the year 2000 work is out of the way, we'll see it develop. It'll be the next big value-add.
The products might all be available separately from the broadliners, but deploying is where the skill comes in.'
So, at least as far as emerging markets go, a key factor is having the right technical skills available. This is backed up by the findings of ByLine's research. Asked how important technical support was when dealing with a value-added distributor, 94 per cent of respondents said it was important. An overwhelming thumbs-up for technical support, then.
According to ByLine, this indicates very clearly the main difference between broadliner and specialist. Many resellers operating in niche markets could well possess top-line technical staff, but it is less likely that they will have enough in-house to oversee pre and post-sales customer support. This is where a value-added distributor can score Brownie points big-time.
Despite its size and growing product portfolio, Ideal Hardware - part of the InterX group - is seen by many as still being a specialist distributor.
Ronan McDonald, managing director of Ideal, believes that giving resellers access to technical expertise is a central defining factor in the work of the value-added distributor.
'Value-added distribution is all about working with resellers to maximise their opportunity and profit,' he says. 'We have enterprise storage specialists at Ideal, whose job it is to visit resellers and examine enterprise storage opportunities. They find the systems that meet the needs of the user and work with the reseller to meet those needs.'
It has long been a mantra down at Ideal that information is king. Distributing information is fast becoming as important as shifting kit, and this is something McDonald is eager to talk about. 'We try to supply the knowledge the reseller needs. The reseller needs to have access to the right information to meet customers' needs,' he says. 'Four or five years ago, adding value was about delivering on time with the right back-up services in place.
This is now the entry level - you have to do more if you really want to add value.'
According to McDonald, using specialist staff to help the reseller find opportunities is also a way of exploiting markets. With margins under pressure right across the board, it makes little sense for everyone to try to win the same business - it just slices things up even finer. 'The market is constantly evolving. The key is to open up opportunities rather than go chasing after old ones.'
He also feels that focusing on price while operating in a value-add environment is a red herring. 'With specialist products, it's not about price. You have to earn the right to be part of the conversation, never mind talking about price. It's not a price-sensitive part of the industry.'
Be that as it may, when ByLine asked how important it is for a value-added distributor to be competitively priced, its survey threw back an almost unanimous response. A massive 95 per cent of respondents said competitive pricing was important, making it one of the most important characteristics that a reseller looks for in a value-added distributor.
Without the bulk-buying power of the big broadliners, it is nigh on impossible for the specialist to offer the same level of prices, but the reseller is still after a good deal. The specialist also has to face extra costs which have an impact on its own prices - technical support, highly skilled staff, none of which comes cheap.
Everyone wants something for nothing. Value-added distributors may feel they are treated rather harshly by resellers that want a high level of service and support but are reluctant to pay a premium for it. Those same resellers are probably engaged in the same struggle with their customers.
Mike Kontowtt is chief executive of PSL, formerly part of the P&P group and the subject of a management buyout in August 1998. PSL was set up 15 years ago and specialises in the Hewlett Packard Unix and NT server market. Kontowtt firmly believes that competing on price is not an option for the value-added distributor and that the difference between the specialist and the broadliner is both clear and irrevocable.
'Thinking of the resellers we sell to, their model is not geared around the cost of the hardware. It's about providing a service and a system,' he says. 'Focus and culture are key. We target HP Unix and NT servers and have a reasonably focused customer base. We sell high-value, essential systems. Our emphasis is very much on customer service.'
As for the broadliners, Kontowtt believes there is a fatal flaw in the argument of those claiming to add as much value as a specialist. 'A lot of people would claim to add value, but when you examine their claims more carefully, do they? Some of the broadliners have set up specialist divisions, but will those divisions be given autonomy? Most of the broadliners have centralised credit control operations, so a Var with an order for a £20,000 server might struggle to get credit. We try to take a different approach. We take time to meet people and develop an understanding of what they're doing. With broadliners, there is a harder sales emphasis.'
It might sound crazy, but sometimes it might pay to take a few risks with a customer's credit worthiness. A niche reseller that scores a big deal is going to struggle to fund it, which is where the distributor can step in. The traditional approach to credit control won't achieve much in these circumstances, although it has to be said that strict adherence to credit control practices is one of the most effective ways of minimising exposure to bad debts. You pay your money, you take your choice.
This, Kontowtt says, is a defining difference. 'If companies really want to offer value they have to think a little further than most - it's a cultural thing. We like to think that once resellers have experienced our service, it is something they will want to come back to.'
The issue of payment terms was important, according to ByLine's research, although it was far from being the most important factor in the eyes of the resellers surveyed. Seventy four per cent of respondents said it was something they look to the value-added distributor to help with. Flexibility is seen as the key.
Pete Deane, managing director of Horizon Open Systems, also feels payment terms are important. 'There are three areas where the distributor can add real value - marketing support, technical support and financial support.
They have to be able to take a creative approach to the financial side of this business if they want to offer real value. This can take the form of extended payment terms, because some people need more help than the usual 30 days, or it can be helping to find an understanding leasing firm to aid with a deal. We work in an emerging market and a lot of the business we do is for Web-focused customers, so it's still all very new. Here, there's a real need for value to be added - it's no good not being able to think beyond the way things have always been done.'
Something else the research looked into was how important it is for a value-added distributor to turn around an order quickly. This was cited as the most important factor for added value. Forget all thoughts of resellers being more forgiving of a distributor that can offer help in many ways - 96 per cent of respondents said they want a prompt service. Again, this is quite possibly something that the reseller is experiencing from the user and is then filtering up to the distributor. Deliver or die, would seem to be the message.
Deane is right behind these findings. 'The base level function of any distributor is logistics, so resellers want to be able to take that for granted. But even at the value-added end of the spectrum, distributors have to be able to get the basics right.'
Richard Parris, chief executive of Web security products reseller Intercede, believes that prompt order fulfilment is probably even more important for value-added businesses. 'Many resellers operating in emerging markets follow a model of tentatively taking on a product and only re-ordering when they start to see demand grow. When they put that order into the distributor, they want immediate results.'
He also believes old-style distributors are under attack from the Web, to an extent that few realise. 'The internet will undermine most of the channel, or at least it has the potential to. Resellers and distributors are used to selling US products with a mark-up. Thanks to the Web, the price differential arguments are starting to fall apart.'
Parris also feels the channel has to make more of an effort to really add value, rather than just pay lip service to the concept. 'Just because a company is a SME, it shouldn't have to put up with a lower level of service than a blue chip. But the levels of technical service available to SMEs is almost always lower,' he says. 'It's up to the distributor to help bridge the gap between the reseller and the customer.
'When you have an emerging market and an emerging product set, the user will be more influenced by better service than by cheaper prices. Value is not an absolute - it's all about perception and where you sit in the market.'
The factors thrown up by the ByLine study as less important could be interpreted as pointing out the inherent weaknesses of distributors. Only 46 per cent of respondents considered offers of sales training to be important and just 44 per cent would be attracted to a value-added distributor because of sales incentives. Marketing fared better but was still not a priority.
Sixty five per cent look for access to marketing materials and 60 per cent thought marketing activity was important.
Deane thinks the reason for this is where the distributor is positioned in the market. 'From the marketing point of view, distributors aren't customer-oriented so there are limits to how much use they can be. But in terms of helping to put together a series of seminars or roadshows, they can be useful. They have resources, experience in organising events and contacts.'
Value is not an absolute, so just because a service is labelled value-add, it shouldn't be assumed that it will fit everyone's idea of added-value. This is especially true if the supposed value has been added at the expense of something else. World-class technical skills are highly desirable, but they're pretty pointless if an order is delivered weeks late.
There is certainly plenty of room in the channel for value to be added.
It is a sector still plagued by sharp practice and shoddy dealings, where customers are strong-armed into useless but expensive maintenance contracts by suppliers that care more about making a fast buck than about customer retention.
Simply setting up a specialist products division may not be offering resellers real value if distributors don't combine it with practical help and access to scarce resources. Those who use it as a marketing badge may find they eventually come unstuck as resellers become more savvy and seek out the real value-add opportunities.
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