The technology industry needs a comprehensive channels digitalisation solution, that addresses a range of legacy problems in channel models. The biggest beneficiaries of such a solution would be vendors/ brand owners, long tail final tier resellers and distributors. Digitalisation can enable strong empowerment for small resellers and deliver a capability for vendors to manage and support them.
Let us analyse the problems we have. Brand owners’ go-to-market channel models, in the IT industry and in many others, continue to follow archaic, costly & inefficient, multi-tier mode, still relying on direct touch with key players. IT vendors provide technology for transforming various industries; ironically though, technology is little used in getting their own products to market. In this age of easy connectivity with the wide acceptance of real-time sharing, transparency and collaboration culture, rules for viability and success are being rewritten in many industries. Those who do not adopt may find survival at risk in the coming years.
In the e-commerce era, buyers have a set of expectations which must be met to enable transactions. These expectations include comprehensive and real-time information, transparency, multiple relevant choices for buy decisions, 24×7 ability to transact, ease of transaction, real-time updates on order status etc. It is also an expectation that using AI and analytics, sellers should know and profile their regular buyers to present desired information upfront, even before they ask for it! Meeting these expectations, coupled with automated interactions should make buying easy for channel members, allowing them to focus on selling to end users.
Technology distributors have been slow to respond to changing expectations from thousands of small resellers.
Digital alternatives are relentlessly reinforcing customer expectations and threatening to fill the space, potentially disrupting a perceived inertia-ridden industry segment. One key reason for this situation is the legacy turf protection and agreements governing vendor/ distributor engagement. Every vendor and distributor, claims to have an established website but a very small share of business gets done through these sites. These sites do not meet the expectations as outlined above. Being single supplier websites, these do not provide multiple sourcing options to compare and decide. Hence resellers cannot serve their end customers with best sourcing. Also, many key channel processes e.g. rebates and scheme administration, special price negotiations etc are still done manually in parallel.
With the alternate digital approaches, current distribution models may get disrupted and the value chain redefined, with some layers disintermediated.
A shared digital ecosystem, providing resellers with comprehensive information from multiple brands and distributors on a single screen, is necessary and will happen. Needless to mention, any such ecosystem needs to smartly preserve competitive data confidentiality, replicate true street dynamics, and deliver the value propositions to each stakeholder to be accepted by all.
Let us briefly outline, key problems with current GTM channel models in the technology industry making participants vulnerable in near future:
- Costs: current multitier models, often 2-4 tiers, add margins (costs) at each level, create multiple handling of goods and create working capital locks and imbalances. All tiers are included; the tech industry pipes can cost between 15% to 30%. Remember, only the final tier does the selling, the rest just move the box forward with credit. Compare this to the cost of an e-commerce engine doing direct vendor fulfilment of boxes to the final tier supported by 30 days credit from just one intermediate tier, i.e. delink product movement and cashflow. This cost would be barely 6-8% including the margin for the intermediary.
- Lack of business visibility: A bigger problem than costs is opaque downstream business visibility once products move from distributors. Important data eg total pipeline inventory, end customer sales response to promotions, pricing behaviour by channels, who is the final tier reseller and end customer, product feedback etc are not available to vendors. This prevents timely corrective actions. As we know, real-time data is gold but sadly brand owners have little access to their own downstream data!!
- Leakage of funds: Due to multiple tiers, Brand Owners have low knowledge or relationship with final tier resellers who actually sell the brand to end users and influence brand choice. As a result, market development funds are not sharply targeted. Often the funds move through the same multi-tier pipe. In absence of reliable data, there is a substantial risk of leakage of funds such as schemes money, special price deals, price protections etc.
- Vulnerability and dependence on sales quotas: Vendors are forced to offer stock-in deals to distributors each quarter. Distributors are then lined up in bidding situations by sub-distributors/ territory stockists etc. Sales lump together at month/ quarter end with high effort push. Vendors then spend further money helping sell-out in the following period, or else they cannot sell afresh! Essentially, lack of visibility creates inefficiencies making the pipe a black box for vendors/ brand owners.
- Inability to innovate with emerging revenue models: Customer preferences are shifting quickly to pay-per-use models. For such annuity models, Brand Owners must have better knowledge of their end user customers and some mechanism to directly involve in transactions/interaction with them. Software vendors have entirely transitioned to cloud subscription models giving them a grip on their customer base and annuity revenues. Hardware vendors are stuck with traditional distribution which is not conducive to such innovation. This is only possible through digital, seamless and collaborative participation in outbound motion.
- Threat from digital models: In light of all the challenges above, it is apparent that vendors/ distributors will soon be under pressure from more efficient and lower cost digital models. The power will shift as paradigm has already shifted. It is hence critical that digital channel models are adopted proactively by them
On the other end of the pipe, let us look at the problems faced by the final-tier small resellers, often referred to as Long Tail. He is the most important link for vendors since he actually sells the brand to end customers. However, in the current model, he is least served by vendors/ distributors
- They have no identity with vendors and often even with distributors. They do not have easy access to product information, catalogues, sales collaterals, training ware etc.
- They are not served directly by apex distributors and hence often have to depend upon a local sub-distributor. They do not get easy access to promotional schemes, price deals etc
- They have to depend upon the supply chain efficiency of local sub-distributors. Except for fast-moving items, they endure long delivery times.
- They have no feedback/ escalation mechanisms to convey end-user views on the brand to the brand owner!
Problems listed above with legacy models are well chronicled and well understood. However, strangely, not enough structured efforts are made to address these as intuitively there might of conflict of interest with digitalisation and transparency for some key participants. The issues are too complex to be solved by a single vendor or distributor.
The solution probably lies in a technology-based platform approach co-hosting all tiers. The industry should operate collaboratively on a shared digital platform for real marketplace-like choices for all stakeholders, automated workflows and processes. the clear line of sight up/downstream with rightful data ownership for all tiers, real-time analytics etc. This will address legacy model problems and will force an optimised GTM model to remove redundancies and reduce costs and inefficiencies. Brand owners, distributors and resellers must.
This is the official website of Peer Connexions: https://www.peerconnexions.com/
Authored by: Shailendra Gupta, founder of Peer Connexions