In today’s climate where hardware is a commodity and winning new business is reliant on leading with a solutions-centric approach, does the traditional OEM rebate model based on unit sales need to change?
This topic came up over lunch with Toni Gibiino, Marketing Director at ABC Managed Business Solutions. His opinion is that the model is broken and it’s time to change. “The industry has changed dramatically, hardware is now a commodity, the revenue opportunity lies within software, solutions and service. The overriding message from the OEMs is that partners should be selling solutions and providing IT services – but yet they continue to reward partners with rebates based on unit sales.”
Gibiino argues that there is a disparity in what vendors are asking their partners to do and how they reward them. “With most of the brands, the offer is centred on the hardware with the exception of HP to a lesser extent, as their portfolio is more diverse, which makes it easier to have a conversation with a customer around IT if you’ve got the internal mechanisms to capitalise on their portfolio,” he said, adding: “Very few vendors are rewarding solutions sales on the back of hardware sales – unless it’s their own solution, when there is something in it for them, even though the market has moved on and their partners are stuck with shrinking print volume with the only real way to grow is through MIF acquisition.”
He continued: “Print is in decline, the DX economy has disrupted the traditional print industry and whilst vendors are providing training to help partners upskill, the reality is that many don’t do enough business outside of their core business, to be real experts in new areas and taking chances can be expensive and risky.”
I posed the same question during a call with Mark Ash, who recently joined Altodigital as Chief Sales and Marketing Officer from HP. He agreed that the rebate structure does need to change, but as to how it should change he thinks that both the OEM and the channel partner need to be ﬂexible.
“The notion of a partnership programme is that the programme should be simple, easy to implement, easy to claim for both parties. Otherwise you tie yourself up in knots. But the mechanics of it should actually deliver what both the manufacturer and the partner need,” he said, adding: “If you look at what we did in Samsung for example, we were looking to grow our A3 business and so we didn’t focus on volume alone, instead we focused on rewarding people for driving A3 sales.”
Ash also noted that across the supply chain, distribution partners, manufacturers and vendors have the ﬂexibility to change behaviours that have been ingrained on the channel. “For example, the majority of business is conducted at the end of the month or the end of the quarter. One way would be to change the rebate model to drive it to the first few weeks of the month or the beginning of the month – a move that would relieve pressure on manufacturer or distribution logistics,” he suggested. “It’s an interesting debate,” he added.
Nigel Allen, Marketing Director at Automated Systems Group has over 20 years’ experience on the OEM side having worked for both Ricoh and Kyocera. “Having now ‘changed sides’, the rebates I have been involved with have always been revenue driven,” he said.
“Most manufacturers are targeted with turnover growth, particularly in Japanese companies where you are one of many sales divisions of the parent company and expected to grow the market, invest locally and return a very modest profit on your sales,” Allen explained, adding: “Most OEMs are now diversifying as the margins and revenue from hardware are decreasing, this begs the question of how happy will the parent company be if the turnover from local services products overtake the revenue received from traditional unit sales? That may be an interesting debate in many boardrooms!”
He added: “At ASL, dealing with most of the major OEMs, we are targeted on revenue growth and as we have shown double digit-growth consistently, we have been keeping our suppliers very happy indeed!”
Wrap around solutions sales
Clive Hamilton, CEO, Pinnacle Document Solutions concurs with the notion it’s time for change: “With the consolidation in the sector of various dealers/OEMs the question of does ‘rebate’ need to change is a definite yes!” he said.
He continued: “However, to compete and grow a business, it is more of a benefit to get better pricing from OEMs in the first instance so we can be more competitive, more responsive and offer a more sustainable sales model to our clients. That said, to work in the changing market we are currently in, a rebate scheme would be more effective if it was wrapped around solutions sales rather than hardware.”
Damien Evans, ZenOffice MPS Key Accounts Director also argues that the rebate model shouldn’t just be based on hardware spend. “The rebate model should take into consideration the hardware spend, number of units placed, consumables bought and service revenue generated; all of these factors will enable a successful organisation to remunerate for the hard work and success it achieves,” he explained.
Re-write the rebate rule book
“Let’s face it, the rebate model has been around for many years and few vendors have come up with different ways to offer resellers added margin based on spend and unit sales,” said Mark Smyth, Chief Operating Officer, Vision. “In such a fiercely competitive market, it’s dangerous to over stock to hit targets for those extra points. Whilst we all carry some stock, it’s not the reseller business model of today.
“The stark reality is, vendors need to keep production lines ﬂowing and only when specific output levels are achieved, does it become efficient and cost-effective,” he said, adding: “This absolutely has a connection to the price point and rebate model that drives unit sales and there’s also a connection to consumables sales based on units placed. Until this changes, and it seems unlikely, I believe it will be a brave vendor to re write the rebate rule book!”
Still a way to go
In contrast, Mark Bamford, General Manager, Hollis Office Solutions says that whilst there has been talk about disappearing margins on hardware for many years, there is still a way to go before print hardware becomes fully commoditised.
“It has often been said that if your business model depends on the profit from hardware sales, then your organisation will not survive the next few years. With minimal margins and end-users not showing the same levels of brand loyalty, rebates may be the only thing that OEMs have to tempt resellers to utilise their hardware,” he argued.
“Either way, sales of hardware (without support services) has become almost irrelevant. In our experience, you have to use everything in your arsenal to distinguish yourselves from the competition, and that means better hardware as well as better support,” he added.
The OEM perspective
Commoditisation and shrinking margins are not a new challenge, according to James Pittick, Director of B2B Indirect Sales at Canon UK. “By working closely with our partners to deliver solutions and consultation, we seek to build value and differentiation in customer relationships. That said, we are always thinking about how we reward our partners and are continuing to evaluate our rebate model.”
Dave Weston, Head of Channel for OKI UK & Ireland also believes that the traditional rebate model does need to change, as this will maintain price integrity of products in the market place amidst perpetual product promotions across the print industry.
Weston argues that a commercial agreement should work for both parties pushing the right products and services that a) the market demands and b) generates maximum profit for all. “It’s about increasing margins for the reseller to deliver the right solution for the end-user not just selling boxes on promotion but putting the right solution for the right application that fits the requirements for the end-user,” he said.
Responding to the question whether rewards should still be based on unit sales,
Moya Kelleher, Head of Channel Sales at Kyocera Document Solutions UK answered: “Yes and no.”
She said: “We do get feedback from our partners that they still like the traditional rebate model as revenue based rebates still help drive business behaviour. However, I think there does need to be some change. With multiple vendors running similar programmes, there is little to distinguish them and therefore no real customer loyalty gained by them.
“Partner programmes should deliver on more than just unit sales or revenue targets. They need to drive a true partnership – rewarding other activities such as sales out reporting, trading accounts and participation in sales and service training,” she commented.
Volume vs. value
Phil Jones, MBE, Managing Director Brother UK says that without doubt the balance of rebate model of volume vs. value has shifted in the past few years as vendors have made the shift from box moving to solutions. “Attention goes where the money ﬂows and the focus from vendors is definitely at the higher end of their product portfolios with greater rewards for resellers aligned to their strategic plans,” he said.
“The print industry is facing increasing pressures and margins are constantly being challenged,” commented Russell Long, UK, Ireland and Nordics Channel Business Manager at RISO UK. “For some, this is a negative and many businesses do struggle. However, it has also presented opportunities for new technologies to thrive, particularly when businesses remain agile in approach.”
Long added: “It is worth noting that RISO products are truly unique in the market, with genuine USPs. This means that RISO partners can and do benefit from higher margins through RISO solutions, particularly when customers realise the total cost of ownership and low running costs.”
Gibiino believes that at the core of the need to change is the fact that employee pay plans are still centred around hardware sales. “Dealerships will find it hard to attract the very best sales professionals if the package doesn’t reward for all new business wins,” he argued.
“If you look at it from a salesperson’s perspective – in reality, you aren’t going to earn much money until you’ve built up a significant MIF and in today’s climate that could take three years! If you want good people then you have to reward on service and solutions and not just the commodity product. At ABC, we want to attract and retain the very best people and that’s why we changed our employee pay model so we reward on service as well,” he said in conclusion.
RESHAPED HOW WE REWARD PARTNERS
“Working strategically with our partners is crucial to success. We recently reshaped how we reward our partners through the launch of our new partner programme. The new programme does centre on unit sales and has a tiered system that dealers can progress upon meeting relevant criteria.
“This rewards loyalty and revenues, and it comes with increasing levels of marketing, sales and technical support as opposed to a simple rebate scheme. This approach is mutually beneficial in allowing us and our partners to move forward and grow together.
“We implemented this system after looking at both how we had been operating with our partners, and on feedback. We have been delighted with the closer working strategic relationships that we have forged, and the business success that it is continuing to deliver.” Russell Long, UK, Ireland and Nordics Channel Business Manager, RISO UK
PRODUCTS ON PROMOTION A THING OF THE PAST
“Products that are perpetually on promotion to drive market share gains for vendors is becoming a thing of the past as both the channel and vendor community ultimately need to secure profit.
“At OKI we have seen the biggest increase in ASP, particularly in colour A4 and A3 devices in the UK which by proxi will drive margin into both our reseller and distribution partners as well as maintaining a sustainable and profitable business for ourselves allowing us to grow in the correct manner.
“In short, whilst providing the right rebate structure is vital to delivering KPIs for the vendor and the right rebate structure can achieve this, it’s also about trying to create a mutually beneficial environment where the products are sold profitably. The balance of these two determining factors equals sustainable growth.”
Dave Weston, Head of Channel, OKI UK & Ireland
STRUCTURED THE PROGRAMME TO BE MORE FLEXIBLE
“We still have a targeted rebate based partner programme, but we have structured the programme to be more ﬂexible, offering gated stretch rebates, additional promotions and support for larger opportunities.
“Alongside this, we’ve added a more strategised go to market product portfolio to protect value added reseller (VAR) partners from online sales and created additional opportunities to earn rebate on other activities.”
Moya Kelleher, Head of Channel Sales, Kyocera Document Solutions UK
SUPPORTING PARTNERS MEANS MORE THAN JUST FINANCIAL REWARDS
“Canon recently relaunched its partner programme. Our revamped programme was based upon both changing customer demands and extensive partner feedback. This has updated and improved how we certify our partners.
“The new programme is now focused on end-user applications, rather than products. In practice this means two things: that end-user customers will be able to easily identify the skills of our partners; and that in turn Canon can correctly recognise and reward our partners for their expertise and skills.
“We are also looking at new ways to recognise and reward their hard work. In the new partner programme, we now offer specific benefits under five key pillars:
Diversify: We broaden the service based on the breadth of applications available in the Canon portfolio;
Collaborate: We work together to design and agree business plans and achieve our shared goals;
Expand: Dedicated business generation managers work with partners to identify, scope and support demand generation activity;
Win: Sales training, with a focus on customer needs, to help build knowledge and capability;
Streamline: We find efficiencies in service deployment.
“We believe that supporting our partners means more than just financial rewards. Helping them grow and diversify their businesses and better serve their customers is a key component of a successful, open and collaborative partnership.”
James Pittick, Director of B2B Indirect Sales, Canon UK
A to B is now A to Z
“It’s not enough to shift a box from A to B anymore, that has become commoditised, it’s about A to Z. At Brother UK we continue to focus our resources to resellers that add value in the overall supply chain, particularly in the delivery of services or solutions to complex client requirements in the managed services arena.”
Phil Jones, Managing Director, Brother UK