MARKETING - Channel hopping
Crude marketing is no longer enough and campaigns that jump over distributors and appeal directly to resellers are becoming central to manufacturers' battle plans.
In the battle for the hearts and minds of resellers, it used to beistributors and appeal directly to resellers are becoming central to manufacturers' battle plans. the case that manufacturers would simply send in their shock troops, the distributors, and sit back until the dust settled. These days,the role of general on the hill is simply not enough and direct combat - with a variety of new weapons - is a key part of the modern manufacturer's strategy. Expensive marketing campaigns and promises of a partnership now offer resellers the prospect of a competitive edge.
Ten years ago, distributors were the sole means of contact with resellers.
Distributors' marketing programmes could be crude, often only encouraging reseller sales teams to push the product with a battery of cheap competitions and other sweeteners. But recently, another trend has emerged and huge slices of product marketing budgets are aimed directly at resellers rather than distributors and users.
Venetia Rowland, business development manager at Cisco, spends about 40 per cent of the company's marketing budget on targeting products at the channel, with the rest directed at users.
She says other companies target even more at the channel, but because Cisco deals with more corporate clients, it is vital that it educates users about the merits of its product.
Rowland attributes the manufacturer's change of heart to tight competition.
'In every area there is tough competition. But in this environment each manufacturer is attempting to increase its market share,' she says.
While most big companies have been fighting over corporate business, many are now looking to the lucrative SME market as uncharted seas. Rowland says it was the SME business that Cisco was trying to attract and resellers are the people it believes can get it.
'SMEs are a major business opportunity and resellers who work closer with them are able to direct programmes to sell to them,' Rowland adds.
Cisco develops its marketing programmes to target SMEs and leaflets its resellers in the hope they will carry the message to users. The company relies on its distributors to run the traditional incentive marketing to reseller sales teams.
The vendor also makes sure resellers receive the same message. This is achieved by having an elite club of authorised resellers that are invited to work with Cisco. 'We meet regularly to make sure they have enough information to help themselves,' Rowland says.
These discussions, including such hot topics as the advantages of internet use, enable resellers to pass information on to clients.
'Training is the key. We provide a lot of resellers with starter courses and CD training. When they become Cisco-authorised resellers, they get a special kit with training programmes. We are trying to create a momentum among resellers,' she continues.
Rowland knows what makes resellers tick. She has been working with the channel for 12 years and has decided the only way to move forward is to set up a much wider base of resellers and get into two-way communications. This could even lead to Cisco coming up with the cash for intelligent marketing programmes from resellers, a role which is usually performed by distributors.
'We want to see programmes from resellers that can generate a return.
We would look at them with distributors and it would depend on the market, but there are opportunities for resellers to work with us,' Rowland says.
Cisco's approach is echoed by Rob Keywood, indirect channel manager at Bull Information Systems who says marketing is increasingly being targeted at resellers to get them on-side and partnerships are used as a way of involving them in company strategy. 'Bull has always had a partnership approach to resellers, although it is becoming more relevant for other manufacturers too,' he explains.
Keywood believes manufacturers are aware that they need to have a total view of what is going on in the IT industry to present their products properly to users. 'Manufacturers are looking to draw in skill sets that they don't have, filling gaps in knowledge for a total presentation to users. For example, we draw heavily on our resellers' application expertise,' he says.
Distributors, however, have been slow to switch their marketing tactics to resellers. According to Catherine Slater, software analyst at Romtec, the main technique is to target resellers' sales teams or management with competitions. 'Symantec recently held a scratch card competition where a trip to Switzerland was awarded to the person who sold the most Norton products. Apple has done something similar where the first prize was a car,' Slater explains.
Distributors use such sweeteners to get salesforces to peddle more product at a rival's expense. 'A reseller's sales team is much more likely to put effort into selling Norton software at Network Associates' expense if they think they are more likely to get a holiday out of it,' Slater says.
She cites other incentives high in the distributor's armoury of marketing tools, including training courses and product briefings in nice hotels.
While many of these are legitimate training and information events, the impact on the company, or a leading member of its salesforce, means that it carries a marketing punch, Slater says.
But one dealer, Mark Roberts, managing director of Mosaic Computers, says dealers should be wary of getting too close to manufacturers' marketing schemes. He remembers when Apple tried marketing partnerships with dealers in the early 1990s. 'We are an Apple dealer. We became an authorised Apple dealer in 1990, it was a very involved process and seemed to work very well for us. But we found that when the recession bit, we were well and truly shafted by Apple,' Roberts says.
Part of the reason for the lack of success of partnerships is that dealers and manufacturers work along different lines towards different goals.
A manufacturer may have variable policies or personnel, while dealerships keep the same owners and policies for a long time, Roberts says. 'With a big company, the person who you build a relationship with can be out of the company in a week and the policy changed overnight.'
During the recession, Apple changed its rules to allow anyone to become an official reseller. It was also found that some of the big dealerships that were losing money were given advantageous credit lines by the vendor.
The dealers who had been with Apple the longest found all the ground rules changed and had to compete with a large number of dealers, some of which were subsidised.
'When it came down to it, the partnerships were not worth a lot in the minds of Apple - which was desperate to save money. A lot of good dealers were greatly chastened by experience. We moved into the software side and became more of a value-added reseller,' Roberts says.
Dealers have to be aware that it is in the interest of manufacturers to link up with them and convert them into product evangelists, and there is not necessarily that much in it for them. 'Users, particularly SMEs, want to buy from someone in their geographical area and resellers always know their own patch,' he adds.
Most dealers are cynical about manufacturers and rather than falling over themselves to join quasi-Masonic lodges of 'official certified reseller' clubs, Roberts thinks most dealers are cautious about such marketing schemes.
This caution also extends to reseller sales teams. While some may be tempted to push sales towards a manufacturer running a competition, it would be brave for them to ignore a directive from their company principal.
'A company principal may decide there is no future in selling hard drives and no amount of sales team pressure will prevent that policy being enacted,' Roberts says.
As a result, some of the more evangelistic manufacturer marketing campaigns have been pitched at converting the principals of a reseller. In such campaigns, the product is presented around the idea that it will lead to a Holy Grail of immense profits.
Another reseller, Sharon Saw, managing director of Saw IT, says resellers are 'not as stupid as some manufacturers seem to think'. She adds: 'A big manufacturer's marketing department might think it is being generous by allowing us into its reseller schemes, but the reality is that we are there for a reason,' she says. Partnership schemes enable resellers to bypass distributors and get deals from manufacturers that would not otherwise have been possible.
'It has the same effect as a lobby group. It is in the interest of the manufacturer to keep us together, so price deals become uniform and one reseller does not get the advantage,' she adds. Authorised resellers do not get a lot more information than they might have found on the manufacturer's Website, but some do get access to good product training programmes. Saw says: 'These are really useful for sales teams who often have to explain to SMEs not only the merits of a particular product, but also general things such as how networking can change their lives.'
But distributors are not that happy with the manufacturers' move towards more direct deals with resellers. Peter Rigby, marketing director at CHS Electronics, fears partnerships and other recent developments are a smoke screen allowing manufacturers to cut marketing budgets to distributors.
Rigby claims 3Com has already halved the marketing rebate that CHS used to get. 'Manufacturers are changing terms, reducing our marketing funds, which means we have much less to give to resellers for real marketing programmes,' he says.
He adds that such marketing plans were short-sighted because vendors 'lack the bandwidth' to deal directly with resellers. 'There is a huge amount of administration involved in dealing with so many resellers, so it is much better to leave it to distributors to organise for you,' he says.
According to Rigby, direct partnerships for resellers and vendors were often harmful to dealers. 'They are too slow to respond to many of the marketing deals that resellers want. Our experience has been that the resellers never get anywhere with manufacturers - they are far too small.'
Distributors can act as a much better trade union for resellers, Rigby says. But it could be that over the next year or two, the current marketing approach is rejected. As consultant Peter Scott says: 'It looks like there is too much confusion in the channel about how to market products correctly.'
He predicts it will be another year before manufacturers get bored with running reseller partnerships and return to the status quo. 'Bear in mind it was working fine before - I can't see vendors being too motivated to maintain the momentum behind its current marketing practices.'
MONITORING PROGRESS
Hansel started manufacturing monitors last June. In its first year, it has sold 150,000 units with a turnover of #15 million.
Gerry Toms, vice president of Hansel, credits that to the close relationships his company has forged with resellers. More than 80 per cent of the company's marketing budget is spent on the channel. 'We didn't have a great deal of marketing money to spend on the user. So we advertised just in trade magazines and pitched our advertisements to dealers who we wanted to sell our products to,' he says.
Interested dealers were given demo units, but Toms does not believe the 'free gift' mentality will wash with most resellers. 'I don't think resellers can be bought in that way. They prefer price cuts to increase their margin or products they can sell at a lower price than a competitor,' Toms says. Resellers were given products at a lower price so they could not only try them, but have something they could sell efficiently too.
Establishing partnerships enabled Hansel to get a commitment from them that could not be found by other methods. 'We even allowed them to draw directly down from our marketing budgets,' he says.
Other techniques involved developing partnerships with dealers and suppliers that had complementary products, such as sound cards. 'This gave our resellers a value-added package to sell,' Toms adds.
Manufacturers have to assure reseller partners that prices will remain stable and that deals available to one will be given to others. They also have to be extremely sensitive to reseller margins. Toms says that double-figure margins need to be maintained.
One of Toms' favourite marketing tools is providing a warranty scheme that means dealers do not have to be involved in after-sales service.
'It means all they have to do is sell it and forget it. This particular marketing tool has proved very popular with resellers,' he says.