Incentives fail to charm the channel

The recent IDC India survey commissi-oned by DQ Channels, brought to light
that in the IT industry, it is the channel who play a pivotal role in making or
breaking the market of a brand. Vendors have been aware of this facet for a long
time now. This is why one sees them weaving their strategies in a way that it
generates maximum interest among dealers to drive their business.

Rolling out incentive schemes is one strategy that vendors have been adopting
to enthuse the channel and draw the attention of buyers. These incentives are
typically in the form of free gifts, all expense paid trips, festival centric
schemes or seasonal rebates. As the offers become more lucrative, it generates
higher recall among customers for the brand.

Free for all

Gifts or incentive schemes are a strategy that never fails to lure
customers, and vendors do not miss the opportunity to churn out a profit
leveraging on

this mind set. Whenever schemes are rolled out in the market, the channel sees
an incline in the sale graph and they often observe a sudden upsurge in demand
among customers for a particular brand or the product.

"Recently HP rolled out a scheme that included a Reebok kit on the purchase
of a Pavilion laptop. Customers were very excited about it. Such schemes are
very helpful in raising the interest level of buyers and we did observe a rise
in the sales figures," commented Siddharth Sharma of Allahabad-based Konarka
Computers.

Even Manoj Gupta of New Delhi-based Challen­ger Computers voiced a similar
opinion. He shared that rolling out schemes is one of the best ways for drawing
customers and it also helps in increasing the sales figure of partners.

"Dealers do get excited when a vendor announces a scheme and they look
forward to promoting them among customers. Some­times customers get caught up in
this frenzy and postpone or pre-pone their buying decisions to benefit from the
schemes," Gupta added.

Schemes can broadly be classified in to two types-seasonal schemes and
business schemes. Seasonal schemes need to be designed keeping in mind the
excitement level of customers and have to be attractive enough to promote the
consumer market. Business schemes on the other hand are rolled out to get a
strong hold on the market at different time frames, for instance, during the
launch of a new product or technology or to liquidate the inventory.

Impact on sales figure

Rise in sales figures during the running period of a scheme ensure that
partners are zealous in selling that brand persuasively to the custo­mers, a
situation that keeps everyone happy. When a scheme is rolled out, approximately
business for that product or brand see an increase of 10 to 25 percent,
depending on the nature of the scheme and market behavior.

Rajesh Gupta, Director-Sales and Marketing, Intel Technology India shared
that the rise in the sales figure depends on the nature of the scheme and the
period of its launch. The success rate also depends on various para­me­­ters
operating in the market.

"One cannot generalize the hike in the sales figure. It could be rise in
units or revenue and vary from season to season. Vendors normally fix the target
and then aim to achieve that figure. The hike could be anywhere around five to
20 percent," he added.

However, there are all types of customers in the market. Channel have
experienced that a serious buyer is among those who will not wait for a scheme
to be rolled out. If this customer has decided to buy a product, he will simply
go and buy it and would not need the lure of an additional gift to make his
purchase decision. Therefore, it is not necessary that all the schemes will
create hike in business.

Building blocks

Vendors need to design their incentive schemes in such a way that it
generates excitement among partners to drive the product and customers are also
satisfied with it. Incentive schemes should be formatted keeping in mind the
market performance and product demand.

At times, the demand for a particular product goes down and vendors rollout a
program so that the business picks up again. This also pumps up the dealer's
enthusiasm to promote a particular product in the market. There are other
reasons as well that are necessary to launch a scheme in the market and it
includes building a loyal and trustworthy relationship with dealers as well as
the end customers.

A scheme needs to have some elements so that it is able to bring the right
proposition in to the market, which includes generating product demand and
meeting the require­ments of specific verticals.

Commenting on the factors that vendors should emphasize on while designing a
scheme, Vipin Tuteja, Executive Director-PSG, Xerox India shared, "One should
keep in mind the return of investment (RoI) for resellers. Secondly, it is the
market penetration and segmentation for Xerox and its partners. Thirdly and most
importantly, Xerox PSG and its partner need to keep the growth and marketshare
in mind for these schemes."

Hassle zones

While initially, vendors may be successful in drawing attention and boosting
the sales figures while unveiling new incentive schemes, the whole scheme
processing might not be as lucrative as it sounds. Though offers are ensured and
customers are promised free gifts, it is so simple for customers to claim their
incentives.

In many cases, the gifts take as long as five to six months for delivery. In
worst cases it never reaches them. According to channel feedback, vendors'
strategy to rollout schemes and then delay their delivery schedule is just a way
to pull a fast one on customers and make money out of it.

"At times, the method of claiming the gifts is so complicated that custo­mers
lose interest in them and the scheme loses its grip on buyers. For eg, HP had
recently come out with a scratch and win offer on its desktops. Customers who
got the reward were directed to first register themselves on the company's
website and then mention the serial number of the product. They were supposed to
get a call from the company and then wait to receive their gifts. While, going
through such a lengthy process, customers would naturally lose interest in it,"
shared Sunil Meharia of Kolkata-based Cyber Works.

According to the channel, only 18 to 20 percent of the gifts or schemes are
redeemed to the customers and the rest of the claims are only on paper.

Even channel face a similar problem when it comes to claiming their rewards.
Said Manish Mehrotra, CEO of Allahabad-based Tritech Enterprises, "In most cases
the incentives reach us very late and at times it never comes at all. For
instance, in January last year, one of the premier vendors had announced a
scheme on printers but those gifts never materialized. We never got them."

In such a situation, the channel is left with little option but to convince
and pacify their customers. Partners get excited with the launch of a scheme
only when they are assured that their customers will be content with the entire
procedure. Vendors who do not adhere to the timely redemption of schemes lose
their credibility among partners, and consumers do not get excited when a scheme
is announced in future.

Customer woes

Dealers act as the direct representatives of a vendor in front of customers
and they have to face all the queries and complaints. When its comes to delay in
incentive payments, custo­mers directly approach the channel and ask for gifts
but partners do not have any control in the matter, so they end up having to
face the discontentment of buyers. This leads to spoiling of partners'
relationship with end-users. It also creates annoyance among the customers when
they do not seek any solution to their problems.

"When customers do not get their assured gifts, they ask us for the reason
and for specific dates of delivery. But we do not have any clue in such cases
and are unable to pacify the buyers," commented a dealer from Kerala.

Dealers in upcountry and metros have different opinions about the timely
payment of schemes. Those in metros do not face much hassle in getting the
assured gifts and hence it is not a big issue for them, but in upcountry markets
various issues like slow down of market or high sales target envelop them.
Besides, delayed delivery of the gifts or not getting them even after five to
six months creates a negative impression among custo­mers. Many times vendors
disqualify winners at a later stage on grounds of some vague conditions andit
breaks the trust of the channel and customers. Once buyers are denied their
assured gifts, they simply catch the dealers' collar, which only spoils the
harmony between dealers and customers.

"All the schemes run by vendors are nothing but traps for customers to fool
them. Vendors design their schemes in such a way that their stock gets cleared
and somehow or the other they disqualify the winners on certain anonymous
conditions. Therefore, their stocks also gets cleared and it does not cost them
an extra buck," commented Meharia from Kolkata.

Sharing a similar opinion was Surinder Chugh from Chandigarh-based Astral
Computer Systems. According to Chug, MNCs design their schemes in such a way
that customers are lured to buy a product but the entire profit goes to the
pocket of the vendor.

Channel suggestions

Whenever partners are engulfed in such situations, one way through which
they can seek out a solution is by holding open dialogues with vendors on the
issue. Many times partners try to convey their woes to vendors but their issues
are not heard since they coordinate with the team at middle level who do not
have any authority with respect to quick disbursement of claims. So the
channel's problems are never conveyed to the concerned department.

Vendors design their schemes in a lucrative manner but their delivery system
should also be made prompt and timely. The overstretched delivery period not
only kills the interest of the customers but it also generates mistrust among
them for that particular brand and for the dealer also. For any smooth business,
adhering to commitments should be given priority and hurting anybody's interest
affects the cycle of vendor-dealer-customer relationship.

According to Mehrotra of Tritech Enterprises, end-customers are more
comfortable with the schemes that are bundled with the product. Customers have
to go through a lot of hassles to claim their gifts and it becomes problematic
for the dealers, as they are answerable for every issue. Though they make it
clear to their buyers in advance that the delivery of gifts are not in their
control, still the customers seek a solution from them.

Tuteja of Xerox cited that as the delivery system is always under Xerox
Customer Care, which is manned by trained service staff, the company has been
able to sustain and improve customer satisfaction level across India.

"We do not need to have strategies to pay our partners on time-as these
schemes are simple to understand, drive and are systematically calculated. We
try to settle any claim that comes to us in less than 30 days. We know that
cash-to-cash cycle in value business is key to driving RoI for our valued
partners. We have an automated claim processing system which has been very
effective and much appreciated," he added.

Meharia noted that he even spoke directly to the higher authorities of HP to
workout the system of timely redemption of schemes. "I once spoke to the Country
Manager of HP and suggested that they hand over the gifts to the dealers so that
customers can get their gifts at the time of purchase. The reply I got from them
was that it is not possible as the company would go bankrupt if it started
giving assured gifts to each and every buyer." He added that the company
representa­tive told him that only 20 percent of the actual claims were actually
delivered to the customers.

Gupta from Intel added that his company intends to reduce the paper work
during the claiming process so that the channel do not have to face any hassles
and the schemes are enjoyed by them with the same spirit as it was launched.

Awareness level of the customers also plays an important role in claiming the
schemes because at times they are not even about certain schemes or they do not
get into the lengthy process of claiming the schemes.

The right ingredient

Success or failure of a scheme does not depend on a single factor. It
largely depends on various elements that are opera­tional in the market.
Primarily, there are four factors that contribute to making any scheme
successful. This includes market demand, the nature of the scheme, profitability
that channel enjoys and settlement period of the scheme. Vendors have to
consider these four factors together in order to achieve a successful rate of
their schemes.

"As far as redemption of schemes is concerned, LG makes sure that the
customers or the partners get their assured gifts within the stipulated
timeframe. We have even hired a third party that looks after ensuring timely
payment of schemes to the partners so that they do not have to face any problem
on the customers' front. We have a well designed strategy that ensures a hassle
free rotation of the cycle. Based on partners' feedback, we can boast that LG is
far ahead any of its competitors in payment of schemes," commented R Manikandan,
GM-Sales and Marketing, IT Products, LG Electronics India.

Success of a scheme also depends on the way it is executed among the
customers. Only rolling out lucrative offers is not enough to get a hold of
buyers. Besides, timely payment is very essential so that its credibility is not
lost and the customers look forward to such schemes in future also. Swiftness of
settlement is very essential to run a scheme on a successful note. If the
dealers and customers are unsatisfied, it leaves a negative impact on the
market.

The motive

Channel schemes will continue to thrive, consi­dering they strengthen
relationships and enhance channel profitability. The ultimate goal of any scheme
is to enhance profitability for the part­ners, besides faster sellout of stocks
and better channel relationships.

Vendors will be able to maintain a strong position in this sphere provided
they design their scheme structure in a smooth manner. Incentive schemes will
always get preference, as they are a means to motivate channel partners to push
the products better. Channel fraternity should ensure that incentives do not end
up as disincentives and vendor on their part should endeavor to make their
schemes transparent and the redemption faster.

AMRITA TEJASVI

amritat@cybermedia.co.in