IT channel rides the retail wave

Touch-and-feel is becoming the key in IT too. With vendors like HP, Samsung and Canon striving to give a consumerist feel to their products, IT channels are luring customers with value-added services. This brings a renewed thrust on channel training and new sales strategies. CHITRA PADMANABHAN analyses the new rules of the game

DIGITAL product vendors are on a brand-building spree. Notebooks, digicams, printers and the like are undergoing a complete image makeover and are now being positioned as consumer-friendly devices. Convenience and usability seem to be the catchwords that are giving a boost to vendor margins. Though such a brand philosophy is generally associated with consumer electronic products, this concept is now spilling over to IT products as well.

The current phase is similar to the one the Indian market experienced during the consumer electronics boom when the market was thrown open to MNC brands. However, unlike the consumer electronics space, where advertising media handles the majority of brand initiatives, the IT product space needs to depend on channels to spruce up its brand positioning.

“The IT product space is heavily dependent on channels, so training and education of channel partners is the key to successful product sales,” says G Shyam Sunder, manager for Digicam products at Canon India.

Similar sentiments are echoed by vendors like HP, Samsung, LG, and BenQ. Says R Manikandan, deputy general manager for IT products at LG Electronics India, “One of the biggest focus areas for LG through 2004 is a well-devised training schedule. To meet our targets, we are aiming to increase our sales force and channel partners in a big way. This initiative aims to facilitate performance of the channels, besides improving their product knowledge, skills and approach. The training programmes are both online and offline, covering functional, technical and soft skills.”

2004 brings cheer

Channels are bullish about the prospects for 2004 after the Indian government announced tax sops for hardware early this year. Encouraging signs from the market, and the government’s pre-election offerings, have cleared the pall of gloom that set in after last year’s disappointing Budget.

“When the economy was recovering from the slowdown, margins were hard to come by. But today vendors and channels are geared for renewed demand in 2004, fuelled by the special incentives announced by the government,” says Piyush Sheth, head, Sales & Marketing, Philips Sound Solutions.

In its pre-Budget review, the Indian government announced its decision to abolish the 4 percent Special Additional Duty (SAD), a move that seems to have gone down well with channel players. Moreover, the peak duty attracted by IT peripherals has been reduced from 25-30 percent, with 20 percent as the new upper limit.

India is also heading towards a zero-duty regime with effect from January 1, 2005. This move is likely to bring down prices of branded PCs. If a customer is able to procure a branded PC for as low as Rs 15,000-20,000, his attention will automatically shift towards branded PCs. Consequently, players will try and tap the retail market to push their products. “If the demand for branded PCs goes up, this will bring an additional thrust to a vendor’s retail initiatives,” says Dushyant Mehta, chief executive officer for Mediaman.

NO MORE Credit issues

One characteristic of the slowdown phase was the constant credit problems at the retail as well as the distributor level. For instance, if a distributor placed an order with a vendor for a 30-day credit note, he could never be sure whether he would be able to pay the vendor in the stipulated time. This was because just as the vendor was offering a credit period to the distributor, the distributor in turn was offering a credit period to the retailer or dealer. If the final channel, the retailer, failed to pay up, the distributor stood to lose in the bargain. But with the market picking up, all credit issues seem to be have been ironed out. In fact, channel players claim that 2004 will be a year when credit issues will be almost non-existent.

Vendors carry out regular price revision of their products either due to reduction in input costs at their end or due to reduction in duties levied on their products.

“Whether we look at credit returns, demand from customers, or maturity on the part of dealers to provide value-added services to the customer, we clearly see that the channel space is undergoing a positive transition,” says Rajesh Thadani, manager for marketing at Neoteric. Most vendors and distributors have laid out a clear price-and-credit policy for the coming year. “Channels are gradually getting into the demand-generation mode rather than simply catering to a particular region; this trend will increase the involvement of channels with the end-customer,” says Sandeep Mehrotra, channel account manager, Adobe India.

Thus, when one looks at the overall picture of the channel space, every aspect of the business is conducive for a better year ahead.

IT’s ALL ABOUT RETAIL

In tune with the changing times, Rashi Peripherals—a distributor of IT products—has a separate division catering to reseller-retail initiatives. Though the company’s main thrust is on selling products through the distributor channel, the retail division is convenient when it comes to channelising high-end peripherals.

For instance, a product like a remote joystick (used by avid gamers) may not gain enough penetration through the distributor channel since such a product sells best when displayed in a retail store. “At present retail selling is confined to products like cordless mice, joysticks, etc, but it is likely to emerge in a big way with the changing brand strategies of vendors.

More distributors like Rashi are likely to go deeper into the retail side of the business and undertake activities to strengthen retail sales,” says Manish Aher, business manager for retail at Rashi.

Agrees Sandeep Agarwal, director of Brij Infotech, “Channels are moulding their strategies in tune with the vendor’s brand initiatives, so retail is likely to play a major role in the coming years.” This because the retailer is the one who is in direct touch with the end-consumer, and he has a clear idea about the requirements of customers.

“We are a national distribution company with offices in 28 locations in India and reaching 175 locations across the country. We tune the distribution of our clients’ products in tune with their brand philosophy and retail strategy,” adds Thadani of Neoteric.

With vendors sprucing up their reseller-retail strategy, the share of resellers in the PC assembling market is likely to fall sharply, with a consequent increase in the branded PC market.

Vendors join retail fray

Going by the current trends, vendors are likely to reap dual benefits from their strategy. Apart from giving a different colour to their brand philosophy, vendors will be able to derive better margins.

It is also observed that vendors are not only marketing their existing products in tune with a new channel strategy, but are also bringing out products that fall in line with it. For instance, Samsung recently launched its new range of Wi-Fi enabled NotePCs, and its marketing communication speaks about the device being a perfect fit for a mobile lifestyle. Adopting a futuristic approach, Samsung has launched two programmes—the Accredited Corporate Reseller Executive programme for the corporate market, and a retail programme for high-value customers.

With most lifestyle products falling into the touch-and-feel category, retail is likely to receive a big push. The retail programme at Samsung involves setting up a strong network of retail outlets, with almost 200 outlets in the initial phase. This is likely to include some existing Samsung Digital Home outlets (a part of the company’s consumer electronics business) as well as IT retail showrooms.

On the channel front, Samsung will continue with its present model, with national distributors on top, followed by star partners, VAR (value-added reseller) partners and resellers. There will be an expansion at the reseller level to cater to the expansion generated by the new product portfolio. This will be supplemented by the setting up of a regional sales team—an entirely new and very significant development at Samsung India.

When one observes the moves made by top-rung players and the trends that took place last year, it is clear that companies are likely to compete with each other not only in terms of technical features associated with their products but also on their overall look and feel.

This is precisely what HP plans to address through the renewed thrust on merging its reseller retail strategy. “A strong retail presence is an integral part of HP’s channel strategy to bring consumers our range of consumer products with the greatest convenience,” says Sanjeev Wad, country manager, Commercial Channels, HP India. According to the IDC Report on Retail (October-November-December 2002), the total value of hardware shipments through the retail channel stood at

Rs 212.1 crore in Q4 2002. Desktops accounted for 71.1 percent of the total revenue from retail shipments, of which HP commanded a 51 percent share. The company also led the inkjet printer and scanner segment, with nearly 60 percent and 47 percent share in the retail market.

All HP’s reseller retail stores carry the entire portfolio of HP’s imaging and printing products, including inkjet printers, scanners, all-in-one devices, entry-level laser printers, Compaq Presario home PCs and Presario notebooks. These stores offer a one-stop shopping experience for both SOHO (small office, home office) users and other consumers. HP aims to have such reseller retail stores in almost every major shopping centre in the country soon. Currently, the company has around 700 retail outlets spread across 226 cities. It has also introduced the Concept Store, which provides consumers consultative and hands-on experience to make an informed purchase decision about which HP digital and imaging product would best meet their needs.

Taking the Regional route

2002 saw a host of companies, including Canon, LG, APC, D-Link, Maxtor, Seagate, Net4India and Emerson Network Power shifting from a national distribution model (NDM) to a regional distribution model (RDM). The role of a regional distributor is to generate incremental business for the company from niches that large, national distributors cannot address.

“Whether a company adopts an regional distributor model (RDM) or a national distributor model (NDM) depends on the kind of product the vendor deals in. Products like printers, monitors and scanners can be sold best through the RDM. For a product like high-end digital cameras, the NDM seems to be the best option since such products require specialised service centres and cater to a niche audience,” says Mehta of Mediaman. Basically, an RDM has multiple distributors; each distributor has a chain of resellers operating in a particular region under him. Or it may comprise a network of distributors working in small towns who add to the vendor’s overall channel reach. This is significantly different from the NDM, which is a three-to-four layered model, wherein a vendor has signed a memorandum of understanding (MoU) with a national partner who distributes a product through his network of sub-distributors and resellers.

The shift to the RDM model has helped vendors gain better penetration into B- and C-class cities and cut down the number of tiers to reach the end-user. In the period following the slowdown, vendors were grappling with the problem of reduced margins. At that time some felt that if they concentrated on individual regions, they would be able to gain better penetration into the market with a consequent improvement in margins.

While the RDM strategy seems to have worked well with most vendors, it has also given them the opportunity to closely observe the retail scenario. In the two years between 2002 and 2004, channels have consolidated their RDM model; with this foundation in place, vendors are looking at banking heavily on retail.

BenQ, which positions itself as a company dealing in networked lifestyle devices, brought about a significant change in its channel strategy from a national distribution to a product distribution-based model last year.

The company tied up with various distributors across products, including eSys for display, Godrej for projectors & plasma, Ingram Micro for input, Jupiter for media, and Tech Pacific for storage and imaging products. Recently, the company tied up with Onida for its range of mobile phones and display products, and created a 178-service centre network across 168 cities. As a next step, the company plans to spruce up its retail initiatives in tune with market trends.

Says Ish Bawa, marketing manager for BenQ India, “After consolidating our channel strategy we look at narrowing the gap between our distribution and retail networks. We will identify key spots in public places and are planning to set up counters called BenQ spots. The idea is to increase our visibility in public places where people meet and spend time. We also plan to set up company retail outlets all over the country.” the final word

In a nutshell, the channel space can be divided into two distinct phases: the pre-slowdown and post-slowdown period. During the boom phase of the IT industry, the channel rode the growth wave. It was a period characterised by huge margins and a strong client base. The late nineties and early years of this century saw the largest growth ever in the channel. Then came the slowdown, when corporates cut spending on all kinds of peripherals and software. This is when IT channels took a big hit. As a survival strategy, channel players widened their product portfolio and vendors experimented with various distribution models to gain better penetration into the market. “During the boom days we tried to convince our resellers to look at the value-added option but they were not too keen because money was rolling in anyway, but during the slowdown the initiative to add value came from resellers themselves,” says Sandeep Karnavat, general manager for marketing at distribution company Datapro.

Looking back, we can conclude that with every phase the channel has gathered experience and maturity. Vendors and distributors will continue to invest heavily in retail initiatives till value-added services and customer service becomes a part and parcel of the IT channel spectrum.

chitra@expresscomputeronline.com

Channel trends

* Vendors and channel players expect 2004 to be one of the best years, with minimal credit issues, which is seen as a welcome change from the post-slowdown period when margins were hard to come by. * As more and more vendors are making retail a key aspect of their channel strategy, channel players are undergoing a marked shift in their interaction with the customer. Channels are adopting a demand-creation approach rather than the simple product-selling approach. * Channels will soon aid dealers in providing value-added services, and bring a change in their selling strategy in tune with the retail mode. * In the pre-Budget review announced in January, the Indian government has offered several tax sops on peripherals. This has resulted in the reduction in prices of several products and is likely to boost sales and provide better margins. * Last year several vendors switched to the regional distribution model from the national distribution model, which has given them access to B- and C-class cities. Vendors are looking to leverage this channel to further their retail initiatives.