Technology Distributors, Channel Incentives, and Gray Markets
A recent report from a survey made jointly by Deloitte & Touche LLP and the AGMA (Alliance for Gray Market and Counterfeit Abatement) links channel incentive abuse with the high-tech gray market.
Gray marketing is the unauthorized commercialization of products that have been diverted from authorized technology distributors; for example, products bought in one country and then resold in another where profit margins are higher.
A revealing quote in the report entitled When Channel Incentives Backfire is: “Depending on the volumes involved, even price differentials of $0.50 can be sufficient to stimulate gray market product flows.”
Gray Marketing Damage to the Distribution Channel
The potential size of the problem is huge, as technology distributors and resellers can account for more than 75% of the revenue of technology companies. The gray marketing caused by incentive abuse ultimately weakens the distribution channel, with problems in customer satisfaction, warranty administration, and brand image.
A lack of adequate channel monitoring and control, and poor channel partner communications, also contribute to the overall incentive abuse problem. A complicating factor is the combination of incentives; for example, end user pricing discounts, program pricing, and channel partner accreditation level incentives.
Better Vendor and Channel Collaboration and Monitoring
Not surprisingly, the report recommends better interaction between vendors and channel partners, together with improved surveillance of compliance with the rules for applying incentives.
In general, strong management programs for channel incentives should be good for vendors, authorized technology distributors, and channel partners, with control and profits working in synergy, rather than in conflict.
Have you experienced competition from gray marketers? What do your customers think of gray marketing? Let us know what you have seen in the comments section.
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Creative Commons Image Source: flickr Dave_B_