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Channels: Lapping it All Up

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DQI Bureau
New Update

Principals regularly announce schemes and incentives to push

product sales. Nothing wrong with that. The problem arises when there are too

many schemes running simultaneously and the manufacturers are not able to meet

their commitments. This is especially the case during quarter and year endings.

Agreed that manufacturers are under immense pressure to meet their quarterly or

annual sales targets and despite their misgivings, the channels generally lap up

these schemes.

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The issue gets complex when the manufacturer has multiple

schemes running for each of their myriad SKUs. When thousands of claims pour in

from all corners of the country on a daily basis, and each claim has to be

verified and processed, one can get an inkling of the humungous task faced by

the manufacturers. If claims are not settled at the appointed times, channel

partners accuse principals of making empty promises. While this may not be

entirely true, the channel community is justified in its criticism.

Vendor Call



So, does the crux of the problem lie in the fact that incentive schemes are
far too many and far too frequent? Yes and no, say vendors. According to some,

the schemes are never too frequent. The problem arises when the principals are

unable to honor their commitments. Whenever incentive schemes are controlled and

honored, there is no issue.

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Says S Rajendran, GM, Sales and Marketing, Mobility and Display

Products Group, Acer India, "In an industry where margins are under

constant pressure and RoI is sometimes an issue, channel partners look at the

principal organizations to ease their pain. Channel schemes are structured to

either incentivize partners to 'push' up sales or to make it easier for them

to sell, by giving customers an additional incentive to buy."

Agreeing with him is Sandeep Arora, Channel Sales Manager, Intel

South Asia, who said that the need for, or frequency of incentive schemes is

dependant on the short, medium and long-term goals of the vendor organization to

move its products in the market. "Incentive schemes are a means to

popularize vendor products in the channel, liquidate inventory and push products

for initial impact," he added.

But there are vendors who feel that keeping too many schemes and

incentives creates confusion and inconvenience not only for the channel partners

but everyone involved. According to them, it is better to announce loyalty

programs with fixed parameters at the beginning of the quarter, clearly

indicating the 'reward schemes' for all the efforts put in by channel

partners. It is also important to keep the communication lines open and collect

feedback on schemes so as to reduce problems. "Schemes and incentives play

a critical role in a company's channel strategy. With a crowded market place

and a variety of products available, it is essential for companies to engage

with their partners on a continuous basis. Not only do these programs boost

sales they are also an excellent motivational tool for channel partners. In

addition, such programs suffice as key differentiators for vendors in the

market," opined Dhiren Singh, Assistant Director of Marketing and Consumer

Imaging, Canon India.

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"Incentive schemes are

a means to popularize vendor products in the channel, liquidate inventory

and push products for initial impact"



-Sandeep Arora, channel sales manager, Intel South Asia

"It is best to document

the details of the schemes. Avoiding any hidden clauses and making things

clear earlier on helps avoid any undue heartburns"



-SM Ramprasad, manager, Consumer Products, Epson India

Incentive schemes also create a pull for the product and

excitement at the customer level. The need of the hour, vendors feel, is enough

people to sell the products and make them available to the customers. Stressing

that 'push' should not be always seen from a negative perspective,

principals are of the opinion that incentives are the additional 'motivation'

that channel partners need to concentrate on a vendor's offering.

Well-designed schemes help to strengthen the bond between the vendor and the

channel organization, according to them.

Given that many products and services are truly unique,

high-end, and are competing with new introductions in the market, companies need

to create a strong recall and brand loyalty for their products in their partner

minds. Like R Manikandan, GM, Sales and Marketing, LG Electronics Ltd put it,

"The ultimate goal of any scheme is the profitability of the company and

its partners, liquidation of goods and satisfaction of the end consumer."

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Vendors are also clear in their verdict that channel partners do

not unnecessarily raise an issue of claim settlement. According to them, if the

fulfillment process is well documented, there would be no cause for complaint.

However, if there is an inordinate delay even when all terms and conditions of a

scheme have been met, then the channel feels let down. So it is critical for the

vendors/principals to keep the communication lines open at all times, work

closely with partners and ensure that there is no room for complaints.

"Claim settlement is a very sensitive issue for all

companies and any delay definitely causes friction. All companies have faced

this during some point. However, as processes have evolved, this area has been

streamlined to ensure complete channel satisfaction. Most effective solution to

solve this issue would be to have simpler schemes, unambiguous procedures for

settling claims, proper supporting documents and using IT systems to streamline

the same," says Singh of Canon.

Vendors also feel that multiple schemes causeproblems if their

backend infrastructure is not robust enough to handle them. With many vendors

adopting the online way, and claim processing being outsourced to professional

organizations, these problems can be resolved faster. Multiple schemes running

parallel can cause confusion in claim settlement if communication and

documentation is not explained to the partner and the claim processing person

clearly.

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Incentive schemes are devised based on feedback as well as

market imperatives since it is not possible for companies to work alone and

capitalize on all the opportunities that are available today. It is essential

therefore that companies work with a strong network of partners to leverage

their complementary strengths. Principals need to keep in tune with their

channel requirements and market developments by designing and developing schemes

and incentives that are reflective of the market scenario in question.

Channel partners also need to provide their feedback on the

products and schemes as they are a part of the market and understand the pulse

and needs of the consumers, vendors say. Since most of the schemes are based on

vendors' interaction with the channel partners and their feedback on previous

schemes and market requirements, the general belief is that the cycle of channel

partner and vendor interactions, which solicit feedback and understanding, help

strengthen the vendor channel partnership.

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Channel Verdict



Like the vendors, the channel too is divided in it opinion as regards
incentive schemes. Some partners feel that schemes are announced every quarter,

so it is very rare when two schemes are launched back-to-back. Therefore, they

get enough space between each scheme. The only thing, which should be taken care

of by the principals, is to ensure that the incentives or claim reimbursements

are paid upfront.

However, there are other partners who claim too many schemes are

launched too frequently. This means that everyone involved concentrates on

sellouts rather than payouts and this causes delays in settlement of claims

besides amounting to wastage of resources.

"Well documented

procedures from the vendor side are the best way to handle incentive claim

settlements, since this provides for both clarity and transparency in the

entire procedure"



-Harish Kumar Shetty, Binary Systems, Bangalore

"Since incentive

schemes apply for both push and pull products, it would help if the

principals ensure that claims are settled in time, as the money would go

into further growth of the business"



-Vinod Mulchandani, Aarvee Computers, Mumbai

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Given today's competitive market, everyone has to fight for

his or her own space and needs to put in some extra effort. "Incentive

schemes therefore help both the manufacturer as well as the dealer to earn some

money by selling the products," said Asif Khan, Director, Technocrat

Infotech, Kolkata.

Since customer pull is always created by vendors, incentive

schemes serve as one of the few options that are available for vendors, believes

Ajaya Kumar, CEO, Park Group, Delhi. Continuing in the same vein is Ranjan

Chopra of Delhi's Team Computers who said, "Schemes and incentives are

important and play a key role in motivating the people involved in the sales

process. Most of the schemes are appropriate, segment specified and have a

defined time line. Therefore their frequency does not affect their

effectiveness."

While partners argue on the plus and minus of incentive schemes,

they quite agree with the verdict of Harish Kumar Shetty, Binary Systems,

Bangalore who says, "Well documented procedures from the vendor side are

the best way to handle incentive claim settlements, since this provides for both

clarity and transparency in the entire procedure."

Interestingly while most partners seem to settle issues directly

with their principals they feel that IT associations can always come forward to

settle the issues between the channel and the principals. They can discuss with

the representatives of the manufacturers to sort out the authentic claims in a

fast and easy way.

IT Associations and What They Say



Incentives schemes and their benefits or complexities depend on the nature
of products or vendors promoting them. Any scheme that is directly floated by

the vendor to the partner makes it viable and accountable. Complexities, they

believe, arise if too many partner tiers are involved. For some products, the

schemes are too many and too frequent and the partners lose control on both

inventory and profit management.

"If the principals do not document the schemes and take

necessary endorsements from their finance department or top management, delays

are bound to happen. More than the multiple schemes, complexity results from the

absence of documentation with due endorsements. This ultimately hampers claim

verification process," said Anand Rao, President, AIT (Association of

Information Technology-Karnataka).

All said and done, IT associations also believe that incentive

schemes help build vendor-channel relationship. Most issues relating to claim

settlement therefore seem to be subjective. While most vendors do keep their

commitments, there are delays. In the larger scheme of things, backend disasters

arise when the vendor has fund problems or cash flow issues. Whether this is due

to technical reasons or otherwise, it is important for the channel partners and

their principals to work in sync so that both stand to gain by the incentive

scheme on offer. Since incentive schemes ultimately are about offering better

prices, the vendor who sells has to work to create more awareness of the product

and establish a wider customer reach for the same.

"Too many incentive

schemes result in complications as regards settlement of dues. Many volume

products get sold at discounted rates and partners do not stand to gain

any profitable margins. So lesser number of schemes may be a better

option"



-Sanath Babu, director, Sri Durga Computech, Bangalore

Settling Claims



While most channel partners appear to settle their issue as regards

incentive dues directly with the vendor, IT associations often advise vendors

not to float schemes so often if they are internally not geared to handle the

settlements effectively and efficiently. Being a mutual issue between the vendor

and channel, most IT associations do not seem to take the onus as regards issue

pertaining to claim settlements. The general advise that they give to the

principals is to make the objective or the plan clear while devising the

schemes; discuss the same with the partners and customize the scheme that is

mutually agreeable. Also they feel it is imperative that vendors document the

scheme and spell out the conditions that both mutually have to comply with and

take necessary endorsements and approvals from within their organizations to

float the incentive schemes.

In summary therefore, there are certain issues related to the

dealer schemes and incentives set up by the principal companies, which spring up

often. The individual companies and the manufacturers have mutually settled

these issues. The matters didn't extend to the point where IT associations had

to interfere. Also there's always a concern that if the matters will be taken

to the IT association then all the pending claims would be stacked for an

uncertain time.

As KL Lalani, President, Compass (Computer Association of

Eastern India) put it, "Till date as far as Compass is concerned, we have

received no complaints from members related to incentive settlement delays.

However, if any such grievances are lodged with the association then definitely

we would address the issues and help the dealers realize the claims which are

authentic."

Manufacturers on their end need to ensure that the schemes are

kept simple in order to cut short the lengthy verification process involved. It

is important to continuously monitor and fine-tune the incentive structure to

ensure that it is in tune with market developments. Pushing the channel to sell

a product for which there is no customer-pull will only result in a blockage in

the movement of stock. Given that the current market scenario is a sign of

things to come, it is important to make sure that incentives offered do not end

up as a disincentive for the channel," he added.

Subbalakshmi BM



subbalakshmibm@cybermedia.co.in




(With inputs from Snigdha K and Nelson Johny in Mumbai, Ruth Samson and Lata
Singh in Delhi, Piyali Guha in Kolkata and S Gopikrishna in Chennai)

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