The indirect way of getting your kit off

According to Dell, the indirect channel's days are numbered - selling direct is the only way a vendor can stay profitable. This was the message that came through loud and clear when the company recently slashed the number of resellers in its Dell partner programme.

Other major manufacturers do not see things in quite the same light.

Compaq is one of the latest vendors to take a long hard look at the number of resellers its deals with on a direct basis.

Last month, Compaq set up a marketing support scheme for those resellers that source Compaq product through the distribution channel. The Competitive Edge programme offers these dealers a similar level of help and guidance as those with a direct line to Compaq, co-op marketing funds are made available as is access to help and advice on how to run marketing campaigns.

This has paved the way for Compaq to reduce the number of direct accounts it deals with and push more resellers to buy from distributors without resellers feeling they are about to lose out.

One industry source was perplexed that the vendor had bothered at all to try to smooth the way for such a transition. 'When you're Compaq, why worry about upsetting a few resellers,' the source said. 'If Compaq is already a large part of a reseller's business, they're hardly likely to turn their back on selling Compaq just because they can't buy direct.'

One dealer said the change would not ruffle as many feathers as might be expected. 'We can usually get better stock availability from distributors, anyway,' he said. 'Plus the distribution channel offers a much wider range of finance options, which can be important for some dealers.'

Some industry watchers have said Compaq is following the lead set by Big Blue last year, when it moved to push all of its product through its network of distributors.

In November 1994, the IBM PC company published its business partner charter, which stated it would no longer sell product direct to users, but would instead throw its weight behind the indirect channel. Such a statement is all well and good, but needs backing up with considerable planning and support.

Vince Smith, IBM PC company marketing and PR manager, explains that the transition was seen as a long-term investment by the vendor. 'We felt we needed a value-added reseller channel to support our product in the right manner.

'Last year we put the Ts&Cs in place to try to make it as attractive as possible for dealers to buy IBM kit from the distribution channel.

This requires a lot of second-level support flowing from us, through the distributors, on to the resellers and then down to the user. In all this investment cost us $1 billion.'

Smith said he expects other vendors may need to go down a similar path.

'Compaq has always had more direct accounts than IBM and it's been costing them money,' he said.

The distributors are keen to see Compaq implement such a change in its accounts structure. Bruce Richardson, Ingram Micro business development manager, says that while it would be a positive move, it has to handled correctly.

'The good points are that the vendor has fewer accounts to deal with and the dealer has better stock availability; vendors should stick at what they're best at after all - manufacturing - and not get involved with logistics issues. Some dealers will be worried that they will miss out on marketing funds but that's why Compaq introduced the competitive edge programme.'

The other key issue for dealers will be ensuring they can get the stock they need when they need it. Those that have enjoyed a smooth running relationship with a vendor may have concerns about this. Smith claimed this was an area that IBM paid particular attention to: 'We simplified our PC range and made sure that the distribution channel had good access to stock so that dealers could fulfil orders with the minimum of fuss.'

In the past, Compaq has raised the revenue threshold for those dealers wanting to buy direct. This has weeded out an increasing number of resellers, almost by a process of natural selection, it is likely that Compaq will do the same for the next round of reductions.

A Compaq representative said there was no plan to reduce the number of direct accounts the vendor deals with, but a number of resellers would fail to do enough business to justify their direct relationship.

He said: 'At the moment, a reseller has to do about #2 million of business with us before they can buy direct. It's worth pointing out that some of those that opt to buy from distributors do in excess that amount anyway.

Each year will see some of these dealers fail to hit the revenue limit and they will simply have to source product from the indirect channel.

'At a revenue level below #2 million, it's simply not worth having dedicated account managers looking after a dealer. Of course, if lots of them were to do in excess of #2 million per year with us, it could be argued we should maintain a greater number of direct accounts.'

Whether it makes a conscious decision to cut the number of direct resellers or whether that number falls through by a process of natural wastage, Compaq may find it wants to manage the change carefully.

If it can extend the umbrella of support and advice to indirect resellers, it should be able to win them around to buying via distribution, thus emulating IBM while watching Dell's costs rise inexorably.

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