Sun To Channel: Sorry About The Direct Promotion

Sun on Monday started a two-week 25th Anniversary Sale promotion under which certain popular server, storage, software and services products were made available to customers with discounts ranging up to 60 percent, but only for products purchased direct from the vendor.

That promotion infuriated Sun's solution providers, who were concerned that Sun was reaching directly to their current and potential customers with pricing they couldn't possibly match, setting the stage for customers to cancel orders to get the special prices direct from Sun. They were also concerned that the new prices would be taken as street prices going forward, hurting both Sun and its channel partners.

Sun on Thursday afternoon held an hour-long conference with all of its solution providers, the first 15 minutes of which were filled with apologies.

Mike Shook, co-president of Sun's national solution provider council and CEO and president of Strategic Technologies, a Cary, N.C.-based VAR, said the Sun channel execs were truly humble about the problems the promotion caused the channel.

The problem was not on the channel side of Sun, but on other parts of the company that got careless, Shook said. "They are really channel-centric," he said. "But Sun is a big company. This was careless. We told them several years ago, 'Marketing department, anything you do, check if it's channel-friendly.' But this time, they moved too fast."

Rob Wolfe, president and CEO of AvcomEast, a Silver Spring, Md.-based Sun solution provider, said it is positive to see how Sun is cleaning issues related to the sales promotion.

"There's no doubt that once they saw the impact of this program, they took prompt and appropriate action," Wolfe said. "The fact that they saw the repercussions of this channel-unfriendly program and took immediate action is very encouraging."

Wolfe said he never saw any vendor move so quickly to correct an action that hurt its channel. "It's pretty impressive," he said. "It's good to see them admit a mistake and do all the right things to correct their own actions."

Another solution provider said he was amazed to see how quickly Sun reacted to channel concerns.

"Sun corporate is generally very slow to change," the solution provider said. "I've never seen them react so quickly."

What Sun has done is make three changes to the direct sale promotion aimed at ensuring that partners can participate and get rewarded for their participation, said Tom Wagner, vice president of Americas region partner sales and CRN channel chief.

• First, Wagner said, when a customer orders a product over the Web, he can specify which partner he worked with to ensure Sun recognizes the value that that partner brought to the vendor.
• Second, partners that want to do deals with the products in the promotion can get special pricing to match Sun's prices, and are eligible for rebates and margins on the sales.
• Finally, Wagner said, partners can also go through Sun's deal registration process to register deals with the promotional pricing.

"We believe that these three approaches capture all the incentives we have in play here," Wagner said.

Sun has done a nice job of fixing the problem, said Hope Hayes, president of Alliance Technology Group, a Hanover, Md.-based solution provider.

"I hope it works," Hayes said. "It will be a lot of work on our end. Now we have to go back to our clients and fix it. But at least Sun didn't turn a blind eye to it. They didn't have to respond. But they did."

Sun still stands by the comments in its Monday e-mail blast that the promotion was not a move to hurt the channel, but was instead a move to generate more channel business.

Bill Cate, senior director of global channel planning and programs, said the intention of the program from the company's corporate marketing group was to create opportunities for Sun and its channel partners.

"The primary intention was to drive new leads generated by the program through the channel," Cate said. "A couple of weeks ago, we told partners we were doing a two-week promotion. But at the time, no one mentioned pricing. So we are apologizing to our partner community. And in Sun classic style, when we make a mistake, and we do occasionally, we react quickly."

Wagner said that Sun underestimated the magnitude of potential issues the promotion might cause. "We just flat-out missed it," he said. "The vision, spirit and intent were sound. But we underestimated the impact. We have spun up the company to rectify this."

That rectification needs to involve looking at when it is appropriate to use deep price cuts to generate new business, especially when the cuts are for products that are already selling very well, Wolfe said.

This week's promotion takes a $200,000 deal and turns it into a $100,000 deal, which, while good for customers, does not result in net new business for customers, Wolfe said. Instead, it halves the revenue of Sun and its partners, and results in a lower margin for those partners, he said.

"These sort of things make great business sense for unique configurations or new products as a way to create excitement," Wolfe said. "But when you do it for products that are deep in the channel sales cycle, all it does is cuts everybody's revenue."