US economic recessions typically start when higher interest rates force businesses and consumers to cut back on purchases. The loss of consumers’ piggy bank of rising home equity has cut their spending. While economists debate if we are actually in a recession now, the credit freeze has produced unprecedented government action and stock market swings steep as the Swiss Alps.
Think twice about predicting competitive behavior based on patterns of previous recessions. Your competitors may surprise you.
For example, information technology vendors usually reacted to a downturn by bringing work in-house and attempting to sell to a broader base of customers, cutting out the distribution channels in some accounts. According to “Efficiency Experts,” in the 9/29/08 issue of CRN, vendors are sticking with traditional distribution channels so far in 2008. The distributors’ investments in logistics and services have made them more effective in servicing solution providers.
According to the article, “Cisco Systems Inc. has been a strong distribution partner for several years, but until recently it also dealt directly with many SMB resellers. The San Jose, Calif.-based vendor discovered that distributors are closer to many of those partners in question, often speaking to them daily. It simply made better sense for Cisco to support the distribution efforts versus utilizing a third-party support call center, according to D&H’s Schwab.” (Schwab is president of distributor D&H Co. Inc.).
The Global Technology Distribution Council (GTDC) studied the efficiency of distributors vs. vendors. “At the recent GTDC Summit, Curran (CEO of GTDC) presented a report to more than 50 vendors detailing how—and where—distributors can save their partners money.”
“The GTDC identified the costs of doing business in about a dozen different criteria and only two, market development funds and price protection, were higher in vendors’ relationships with distributors than if the vendors went direct to end users or solution providers. For every other criteria, including shipping, handling, warehousing, managing warranties and returns, accounts receivable and financing, vendors’ costs were lower if they utilized distributors. Overall, the study proves that distributors save vendors money, Curran said.”
This research suggests that technology vendors need to examine their channel strategy, but also consider engaging in a best practices study. Perhaps the traditional low margins of distributors have forced them to be more innovative in their operations than the vendors. With the economy so uncertain so quickly, vendors should look everywhere for cost saving ideas.