Are LFRs and OLS eating out channel partners?

Partners feel and complain that vendor companies are no more eager to support channel business when it comes to laptops and desktops, or computer accessories, and are opting for large format retails and online shoppings, for the products

"HP discontinued its partnership with us last year. In Andhra Pradesh we were one of its regional distributors and we met with the same fate like others," laments Vijay Rama Rao of Info Business Services.

Rao's company sold HP consumer products until 2013 when suddenly the condition changed. "A dealer whose only concern is consumer IT products is experiencing a terrible market from the last two-years," explains Rama Rao. He adds saying that vendor companies are no more eager to support channel business when it comes to laptops and desktops, or computer accessories.

In other words consumer products have suffered a setback as the market has shrunk over the past few years. "HP doesn't have any regional distributors here anymore. They sell through direct shops and yes there are large format stores, which undoubtedly is eating up consumer IT market," complains Rao.

So why the same channel partners, who have spent two decades building brand values of vendor companies, are witnessing dark clouds in IT business? "Market is slow and it has been like this post-recession. But companies have to grow. So then what you do? Vendors have found new ways of achieving this growth. One of which is eliminating distributors at regional levels," says Dinesh Pareek of Ashirwad Computers. "And even if vendors have distributors they are not doing much to support the channel business," adds Pareek.

But Nitya Prakash Patnaik, head, consumer BU, Neoteric Informatique says, "On the contrary, in locations where there is an absence of RDs, the focus is rather shifting towards getting new RDs on board. Different vendors have different strategies. Exclusive stores are catered to differently and the focus is on all verticals. Hence, it is a multi-pronged strategy."

Slow market seems to be a definite factor in this change. Rajesh Goenka, VP, sales and marketing, Rashi Peripherals says, "With market TAM being stagnant, the vendors have started investing more and therefore we see brand stores all over the country. In fact newspaper adverts and TV commercials have also become more common."

"But doling out schemes to channel partners when it comes to consumer products is a thing of the past,", says Pareek whose Ashirwad Computers sells laptops of Dell, Lenovo, HP and ASUS. When asked about the incentives he has received since 2012, pat comes the reply, "Hardly any." He adds, " The schemes are normally offered to tier 2 and tier 3 partners. Now the scenario has changed. Earlier vendors used to put purchase and sales target before us every quarter. Now they are only interested in putting purchase target. Sales target used to carry incentives. So with sales target being terminated, incentives for us have been ruled out completely."
Achieving sales target in consumer products is no more possible and it has been like this for quite some time. So providing incentives in such products no more counts in the marketing schemes of vendor companies.

Susheel Chouhan of ACME Business Solution, RD, Samsung and Intel says, "Vendor companies have cut their budget on channel spending in commercial products. In terms of banner or sales ad they are seldom supporting channels." "Not only this, even when new products are launched, preference is given to LFRs," adds Chouhan. He points to the recent launch of Acer's tablet in India which will be available to consumers through large format stores only. "Today tablet is a lucrative business but channel partners are exempted from its share," laments Chouhan.

So are vendors preferring LFRs over to channel partners? Last year in the month of December, The DQ Week reported that following AKITDA's concern over vendor's favoritism towards LFRs, Intel pulled out its ad in Kerala.

On 18th December Intel advertised about its festive offers available through online shopping and Large Format Stores in Kerala. The offer gave online discount coupons to people buying laptops from Jabong or eBay. The ad further led readers to Intel's web page where it had festival offers again available through OLS or LFRs like Chroma, Reliance Digital and HomeShop 18. The ad also promised ‘assured gift' to people who bought an Intel processor based PC from Chroma retail store.
AKITDA urged Intel to give a fair ground to channel partners along with OLS and LFRs in promoting their business in India. Eashwari, corporate communications head, Intel, South Asia said, "Intel is a horizontal company and it has always looked after the interest of its channel partners for the last fifteen years. Through trainings, merchandising, and campaigns Intel promotes channel business and has been helping it to grow".

Talking about the particular advertisement which appeared in one of Kerala's regional news daily, Eashwari said that additional advertisements which include channel partners have been given in order to include their fraternity within the sales promotion of Intel. Eashwari further added saying, "Being a horizontal company Intel is also interested to promote the whole new ecosystem consisting LFRs and OLS in India". Rajesh Goenka of Rashi Perpherals thinks, "Whether we like it or not, LFR and online are inevitable. We have to work towards a win-win situation and lot of brain storming is happening all over the channel to come out with the winning formula."

The mode of reaching to end customers is changing and so the marketing strategies."Vendors are focusing on high-end SKUs, SKU mix and profits. Recently, Logitech rolled out movie ticket schemes for sales out from tier 2 customers. Also, they are currently focusing on mobility rather than the entry level ones, to enhance profitability. They are emphasizing on the gaming vertical along with the UE (ultimate ears) category. Definitely every vendor is striving towards reaching out to end customers and accordingly, focusing more on retail/online/LFR and increasing presence on the same", says Sunil Khetan, DGM, Neoteric Informatique.

So are LFRs gradually taking a considerable chunk out of the IT market pie when it comes to consumer products? "Till now we do not think so at Epson," says SM Ramprasad, DGM, Consumer Products, Epson India. "Channel partners are our way to reach out to a wide range of consumers in India. We engage them in our go-to-market strategy. Even as online and LFRs are becoming popular but it is only so for products like laptops and accessories. When it comes to printers channel is the option to achieve growth," says Ramprasad.

With 250 accredited partners in India, channel engagement forms an integral part of the company's marketing strategy. 

"It is laptop where lies our pain now," complains Manohar Hazare of Shri Computers. His company sells laptops of Dell, HP, Acer, and Lenovo. "Being a channel partner dealing in laptops of multiple vendors does not provide me the revenue to run my business," says Hazare. The reason is simple. With laptop sales going down by 50%, vendors see no point in offering incentives or schemes or spending moohlas in marketing or banners. "It is through LFRs they are targeting to maximize growth, and in the process are offered the best price and discounts and even EMI schemes to lure customers. While we the channels are being neglected," explains Hazare.

Is channel business in consumer products taking a whole new shape in the coming days? "It is in enterprise business that we can see the light of the day. Commercial products can fetch us some healthy revenues and there lies a wide opportunity in some sectors like banking, infrastructure, manufacturing, education," comments Rao. The same opinion is voiced by Susheel Chouhan. He says, "IT market is going through transition. A lot of changes are happening. Closing of Wipro and HCL is one such example. Laptops are finding ways in OLS and LFRs more. Channel has to move to enterprise solution to survive."

While MAIT has invited IT associations across India to voice their concern over the rising influence of LFRs and OLS, associations feel a seething anger is slowly taking shape among channel partners over the growing preference of vendors to the new ecosystem in IT consumer products.

The ongoing tension between the new emerging e-commerce and traditional channel business will take some time to die-down. As Nitya Prakash Patnaik puts it, "E-commerce is a new evolving channel and hopefully, the prevalent challenges will get stabilized in times to come. The Indian market is yet to be mature and so far, ‘price-point' has been the dominant factor determining consumer buying behavior. Eventually, this will change and along with it E-commerce will thrive".