Dealer groups' value questioned following report

Westcoast's Alex Tatham brands dealer groups a 'waste of money' after report finds that only 30 per cent of dealers think they offer good value - but Synaxon hits back

A debate about whether dealer groups offer their members value for money has reared its head following a report examining the dynamics of the model.

Just 38 per cent of dealers questioned in the research, carried out by CRM provider Office Power, said they thought they would be in a dealer group in five years' time.

Among the other key findings was that only 30 per cent of those questioned felt dealer groups offer good value for money, while only 29 per cent were convinced they couldn't get better cost prices direct from suppliers.

On a positive note, the research concluded that dealer groups do a good job of building long-term meaningful relationships with their dealers. Some 50 per cent questioned felt dealer groups were extremely or very good at building community.

The report was based on a poll of 101 office supplies dealers with between £60,000 and £3m turnover.

Although the office supplies and IT sectors each support a distinct cast of dealer groups - including Integra and Nemo on the office side and Synaxon, Network Group and Brigantia on the IT side - the principles of the model are regarded as being similar across both sectors. The aim is to offer dealers better prices and services by aggregating buying power and acting as a bridge between suppliers and dealers.

Alex Tatham, UK managing director at Westcoast, was quick to seize on the research as evidence that dealer groups are a "waste of money".

In a LinkedIn post, Tatham said: "What's interesting is that dealer groups pay higher prices from suppliers such as Westcoast because we have to factor dealer group rebate into our prices. Dealers think they get better pricing - but they don't! The small fee that they pay for some marketing benefits is dwarfed by the rebates/pricing that they lose.

I would accelerate your DGexit and negotiate direct with a distributor. Don't wait five years."

However, Derek Jones, managing director of Synaxon UK, disagreed with Tatham and stressed that the Office Power report contained "massive positives" for the dealer group model.

Synaxon charges its members a monthly fee ranging from £35 at entry level to £120 for Premier-level partners. In return, they can use Synaxon's EGIS procurement platform, which hands them access to pre-negotiated prices from a range of major suppliers. They can also subscribe to a menu of other services, including its TrustATec lead generation scheme and its e-commerce platform, Jones pointed out.

"For Premier partners, we share back a percentage of the rebate from the distributor or manufacturer," Jones said. "So if the price is higher - which I don't believe it would be - they would get a rebate back.

If you are negotiating properly, you are taking cost out of the distributor's business. Synaxon has got a combined £600m to £700m turnover through distribution, and we can steer that."

Securing bargain-basement prices is less achievable in the IT space than for office supplies, Jones argued, adding that Synaxon's key role is to provide services to the channel, not to haggle over price. This includes training and conferences, where its dealers can set up one-to-ones with any number of distributors, while Synaxon also plays a role in resolving disputes between dealers and suppliers, sometimes even providing compensation to dealers from its own pocket, Jones added.

Even though Synaxon has about 600 UK members, the model is even more popular in its native Germany, where Synaxon's members boast a combined turnover of over €3bn (£2.6bn), Jones said.

Dave Stevinson, managing director of distributor Entatech, said: "[Dealer groups are] a proven and tried method - and we have witnessed some noticeable successes - yet some buying groups are better than others."

Jon Atherton, managing director of distributor Ci Distribution, said: "I've been dealing with Network Group and Synaxon for several years and they do add benefits to the channel."

Of the dealers questioned by Office Power, 30 per cent felt dealer groups offer good value for money, with 54 per cent saying the value for money they offer is just 'OK', 11 per cent 'poor' and five per cent 'very poor'.

When asked if they will be in a dealer group in five years' time, 38 per cent said 'yes', 22 per cent 'no' and 40 per cent said they weren't sure.

When it came to pricing, 24 per cent felt dealer groups' cost of goods was 'extremely competitive', with 27 per cent saying they were 'very competitive' and 17 per cent 'competitive'. Some 16 per cent felt they were just 'OK', 11 per cent uncompetitive, three per cent very uncompetitive, and two per cent extremely uncompetitive.

Some 80 per cent of those questioned said they use a dealer group.