Channel Evolution Is About Efficiency

Think about the retail evolution toward big-box stores. Now we do our holiday shopping at one superstore instead of six specialty electronics stores. Elsewhere, rising health-care costs and the information explosion have led to major changes in pharmaceuticals distribution--where old-line product distributors have become sleek information directors to the managed health-care industry.

Over the past 18 months, we've done an intensive study of IT channels and have come to recognize several important trends. One is what we call the upside-down channel, which has implications for all players.

Recently, solution providers have become significantly less loyal to their vendors and more loyal to their end-user customers. Thus, we say the channel is turning upside down.

What brought this on? We believe it's a combination of product commoditization, perceptions of vendor channel mismanagement and a breakdown in trust, which has led to high friction costs between vendors, distributors and solution providers. All of these have given solution providers reasons to decrease their dependence on vendors and look elsewhere to have their bread buttered: They've looked toward their customers.

In this new world order, instead of "pushing" a particular vendor's product, many solution providers are designing objective solutions. They are really no longer part of the vendor's channel. Almost every solution provider we've talked to wants to reduce commission-generated revenue in favor of consulting revenue. We have even met solution providers who have given up commissions completely on the grounds of potential conflicts of interest. These guys are no longer beating the streets on behalf of the vendors.

If this evolution continues, vendors will see their bargaining power erode as they lose field-sales presence. Even worse, they could lose touch with the end customer. In packaged goods channels, many vendors are hurting because retailers won't share information, leaving them a step away from understanding what customers want.

Doesn't it seem more market-efficient for the channel to evolve, where solution providers play the role of consultant/ adviser, like the automation industry, instead of the role of vendor salesperson? We think it does. It could mean, however, that vendors will eventually have to sell to solution providers instead of through them.

The trend could focus on more difficult solutions, where consultative selling is more appropriate, which means only certain technologies would turn upside down. Or, the evolution could be derailed by forward-thinking vendors that understand the need to treat solution providers as true partners, thus making them more comfortable in representing just that vendor's technologies.

Channel partnering of this sort works in many other industries, but we don't see much of it in IT. Maybe the threat of this upside-down evolution will be enough to motivate a change in this direction. Wouldn't that be nice?

DAVE GILLILAND is associate professor of marketing at Oregon State University and STEPHEN KIM is associate professor of marketing at Colorado State University. They engaged with the CMP Channel Group on a study to compare the evolution of the IT distribution channel to that of other industries. The first of two guest commentaries details some of their findings.