By Julian Pletts
It’s a well-known fact that IT accessories and peripherals, such as memory sticks, headphones, mice and power adaptors, are a major revenue source for the region’s retail contingent, but what are vendors doing to ensure the channel is able to meet its volumes? Channel Middle East grills some of the region’s leading accessories vendors on their channel engagement strategies.
It's a well-known fact that IT accessories and peripherals, such as memory sticks, headphones, mice and power adaptors, are a major revenue source for the region's retail contingent, but what are vendors doing to ensure the channel is able to meet its volumes? Channel Middle East grills some of the region's leading accessories vendors on their channel engagement strategies.
Channel Middle East quizzed a number of accessories experts, including: Patrick Hayati (PH), regional director at Belkin; Riyaz Abdulla (RA), regional manager at Imation; Jihad Youssef (JY), general manager at Genius (left); Sanat Kulkarni (SK), director at Graphic International Centre (Altec Lansing); and Noor Al Tabbaa (NA), brand manager at Genx.
What is your channel strategy for the region and how do you plan to develop it over the next 12 months?
A challenge we see is that the market is growing exponentially, but there is a kind of 'credit crunch'. This is a limiting factor and the ability to finance the market is not always there.
PH:At the moment most of our activities are led from Dubai and it is from there that we are servicing the rest of the countries in the MEA region. We are going to be developing local partners and a channel network in every country and making sure that we get closer to our customers geographically and from an understanding perspective as well. Across the region we have about 11 partners, which include ITE, Modern Homes and Ashley.
SK:Since we launched Altec Lansing in the region our strategy has been to have one in-country distribution partner per market and that has reaped great results for us. Altec is a lifestyle brand and our channel mainly consists of power retailers. We work very hard with the in-country distributor to establish our presence and offer unmatched bundles for consumers.
In addition to this, we offer training, pre-sales support, demo units and rebate programmes for our partners. We plan to build on these principles in the future and there are still some smaller countries where we are not represented, but where we plan to implement the same strategy.
RA:In the b-to-b sector we will be maintaining our big business through reseller partners and our reseller engagement will continue as it is today because that is the segment that will last for a good few years. We will also start accelerating more into the consumer channel and business. We are investing in terms of people and have recently hired someone in Egypt, so that will give us extra mileage into the channel.
The team used to be very small and we have invested in people in the Dubai organisation. We are now in the process of hiring more people outside, in the bigger markets, to make sure that we have more channel resources.
Over the next six months to a year we will be consolidating our channel, recruiting partners, reassessing our partnerships and creating programmes.
The IT accessories market is known for being volume-driven. How does this impact your regional channel strategy?
JY:When any of our channel partners or new customers want to work with us they should take into consideration the volume because accessories are not like a single PC.This means that the distributor really has to have the base and the set-up to be able to do the wholesale distribution for that. We believe you get as much market share as you sell volume and that branding can go hand in hand with a large market share. When you dominate the market everybody will be talking about your products. We believe in the volume, but we believe in service as well.
SK:Altec is a legacy brand, one which basically created the PC audio category. Since it is a lifestyle product, the end-user looking at the product tends to be very quality-conscious and does not mind paying a small premium to buy a brand like Altec.
PH:For us it is slightly different. Belkin is known as a value brand and not a volume brand, which means that we are slightly more expensive because of the quality of our product. We also see the introduction of a lot of non-branded products from places like the Far East.
The power retail market has changed the business concept of distributors in the Middle East, so sometimes they buy the product that suits power retailers rather than the smaller trader.
That has not really impacted us though because our customers are discerning and usually go for branded products, which are easy to use. Belkin products are not as fast moving as some of the other products in the market, but margins for our partners are very good. We need to find like-minded partners and we are focusing on profitability and quality rather than just on turnover.
NA:It used to be the case that a single in-country distributor answered all of the market's needs. However, now the vendor needs at least two or three distributors. This leads to the issue of regulating the quantity of product that is heading through the channel. It may be going up in numbers, but at the same time the purchasing power of the channel may be going down.
What incentives do you offer the channel to carry your products?
PH:We offer a whole range of incentives, but obviously this is a competitive element of our business. We do not disclose it because one of our strategies in the region is to make it more easy and profitable to work with us. Most importantly, we try to offer the channel joint sales pushes and activities during the year.
NA:Incentives that are levied towards the channel are repaid based on targets that are met by our partners. Also, we sometimes offer partners exclusivity for specific models if they can ensure us of a big quantity.
RA:We have loyalty programmes with our distributors and with our second-tier resellers as well. We are also constantly engaging retailers with programmes and promotions. The level of engagement is very high. This keeps the channel very loyal and that is why we are investing in people in our organisation, to give them more confidence and contact.
JY:It is not just a matter of incentives. We believe that the product is very profitable and a strong portfolio for the distributors who work with us to deliver. The price is stable. Nowadays price increases so much because of oil costs and shipping costs, but we have managed to secure a stable price for the channel so they can keep their margins intact.
At the end of the day the distributor should not have slow-moving stock so we manage their stock and their warehousing. We are facing some strong challenges though as we move all of the stocks here in our warehouse in Jebel Ali.Our channel can place orders immediately and within 24 hours we can ship to any part of the world from here. Maybe some of the other vendors in the UAE are not keeping any additional stock in the region and instead they are doing back to back orders.
How well does the channel position and market IT accessory products? Are there any lessons they can learn?
PH:The Middle East is well-developed in terms of retail and this is a region where retailers have to be constantly innovative in terms of the special deals they offer customers. This then translates to a need for the distribution channel and vendors to be constantly innovative as well. It is extremely competitive at the store shelf level, not necessarily just in terms of price.
This is slightly different to what you find in Europe or the US where most of the competition comes on price and not special deals. It is a different dynamic here, but it suits us quite well because, being a premium brand, we don't do price deals.
We're more than happy to do bundles. We all need to adapt though because the market is changing and we have to be vigilant to ensure we are not left behind.
JY:All of our partners are specialised. At the end of the day we are not giving lessons here, we are sharing our experience. We believe that one hand can't clap; if our channel is strong, we are strong.
There is great trust between us and our channel and we do not go and investigate any issues that they have because we trust them. At the same time, whenever the channel highlights any issues they act quickly because they are aware and want to protect their investment.
RA:The market is quite dynamic and very fast- paced and the early adopters have a fair chance of being leaders in the market. One of the key criteria we have seen in the last few years is that the channel needs to be visible and consistent.
We are here to support and have built local infrastructure. It is important for the channel to work with distributors rather than trying to carry out fly-by-night operations and opportunistic business.
One of the biggest challenges that we see today is that the market is growing exponentially, but there is a kind of ‘credit crunch'. This is a limiting factor and the ability to finance the market is not always there.
What products from your portfolio do you expect to be a hit in the Middle East over the next year and why?
PH:We have a very interesting new product that is going to be launched within a few months called FlyWire, which is a special development in HD-TV. This is something that we are looking forward to launching in this part of the world where HD-TV is going to be very important.We are going to be the first company with such a product out here, which means we can really corner that particular segment of the market.
RA:Solid state drives are going to be important, but it is more of a long-term investment. Next year the external hard drive will be big business - we have just launched the 2.5-inch external hard drive.
Optical is our core business and that is something we will continue to look at as the business is stable, perhaps even on a downward trend over the next year, but the market growth will be in flash and hard drive.
Also, we will be introducing accessories such as mice and headphones within the Imation brand. We are hitting the mainstream market and with the Memorex brand we are looking to extend into the consumer accessories arena.
SK:Any product revolving around mobility is going to be key in the future. This is because of the MP3 players and specifically the mobile phones, which are all now coming out with MP3 capabilities.
We see potential around the mobility speaker market. As far as PCs and notebooks go, I would say speakers with built-in VoIP capabilities will also gain in popularity.
JY:We now believe that everybody is using their laptops, not only for a business purpose, but a host of different reasons such as entertainment, gaming and staying connected. We decided to go to the market with very fancy and stylish Touch-series products.
It is a whole series that includes everything from the mice to the speakers to the headset, and all of the products come with very high-spec and stylish designs. The simplicity in the products is also important.
NA:MP3s and USBs will continue to play an important part in the Genx range because price is very low these days so these products are within everyone's means to purchase, even for those with limited income.
Vendors are always encouraging the channel to differentiate. Is there room for this in the IT accessories market?
PH:The IT accessories market is divided into two markets. One is the low-brand, low-cost market in which the only possible differentiator is price.
Then you move into the branded market where most of the differentiators are not really in price but in product design. The differentiator at the partner level is the ability to put the message across about the new design and innovation.
SK:We encourage partners to differentiate and do this by ensuring distributors and retailers have better training and margins on a particular product line.
One of our partners might say, ‘I want to concentrate on iPod speakers', so we would work very closely with them to give the right type of training, targeted material, pricing and promotions to help them specialise. There is room to differentiate and in fact I think that this is the future of the market.
JY:Yes, definitely. With any product that you pay for, there should be a reason why it costs what it does or why that product is better than a competing one. We have been leading in IT peripherals for a very long time now and have the experience to be able to come to channel partners and show them clearly why they should sell or offer Genius products.
The history can talk for itself. When you do business with the distribution channel they also have to demonstrate to you that they are really able to support sales, marketing and the roadmap of the product.
RA:There is room in terms of quality - and the accessories market is huge of course. We have A-class players and B-class players in the market so there is definitely room for differentiation when it comes to quality, packaging, positioning and engagement. That will be one of the key criteria to be successful in the market in the future.
The channel has access to more IT accessory brands than ever before. How is this affecting your channel investment?
PH:There's a lot of competition, but very few premium brands in terms of positioning. Being one such brand, we are sought after by the partners. It is easy to sign 23 brands from China, but it is a different proposition to find a premium brand positioned at the top of the market where the margins are higher.
So, from our perspective, although we recognise that our partners have access to other brands and the competition is there, we have built such a relationship with them that we are one of the preferred brands in this region.
RA:The product portfolio that we offer, combined with being one of the leading brands, is what gives us the edge. We are here with local investment, infrastructure and expertise. We are close to the market, just a phone call away, and we are a close drive from anybody in the channel, be it a distributor or a reseller.
JY:Power retail has changed the business concept of the distributors, so sometimes they buy the product that suits power retail customers rather than the smaller trader. From our experience we know that power retailers carefully test products and check that they only buy goods that really move in the market.
Peripherals promote a lot of traffic because people always want to see what is new. You need a very high-quality product and if you have that quality assurance you will not face comeback from the consumer.
The availability of the product at the retail store is very important. If you don't supply your product within a very short period of time to the stores they will de-list your items and to list it again will cost you a lot in fees.