Reseller abuse of channel incentive programmes could be costing vendors $1.4bn in lost profits each year, research has found.
The report, conducted by the Alliance for Grey Market and Counterfeit Abatement (AGMA) and Deloitte, concludes that channel incentive abuse could be a "much larger problem than previously believed" and is fuelling grey market activity.
Conducted in November, the far-reaching research included both a quantitative survey and a series of one-to-one interviews with executives at major IT vendors.
Vendors are commonly coughing up $500m in channel incentives such as end-user pricing, volume rebates and channel programme discounts each year, the research found. And most respondents estimated that 5-10 per cent of incentives are being abused.
The most common abuses are through channel promotions such as special pricing, where brokers buy into the partner's deal and purchase products for sale on the grey market, AGMA found.
Such grey market activity can hit vendors on a number of fronts, including payment of unearned incentives, profit margin erosion and disruption of the distribution channel environment.
AGMA president Ram Manchi said: "Channel incentive programmes contribute to the success of many businesses that sell products via indirect channel models.
"However, if they are not effectively managed, these same incentive programmes can create opportunities for grey market activity and other behaviour that erodes profitability. Therefore, effective planning, execution and management of channel incentive programmes is needed to ensure the success of brand owners and channel partners alike."
The research comes 18 months after AGMA teamed up with Deloitte to put a number on the cost of warranty fraud to its members, which include IBM, HP and Cisco.
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