Dell may be playing the wrong channel game

Dell may be trying to change the rules of the channel game by not offering rebates similar to what’s being given by most other PC and server vendors.
Instead, Dell is looking to provide pre-configuration of systems and shipments directly to customers, for a less obvious but arguably greater value to the channel by eliminating the time, effort and expense of partners who currently do this sort of work – for little or no profit.
But it is asking a lot of channel partners to accept a new deal and I’m not convinced that the approach will work. Let’s not forget how Dell’s direct selling strategy changed the rules of the PC game by eliminating a selling tier and passing savings onto the buyer. Dell’s direct selling model worked well for more than 20 years, so I don’t entirely dismiss the chances of success for the company’s unique idea. But it’s difficult to see the real dollar benefits of this program.
Resellers have come to rely upon the back-end rebates on product sales as an important source of cash flow. Rebates represent money in the bank and despite the time and effort it might take to do the paperwork, most resellers appreciate and rely on these important dollars.
By not offering any kind of substantial rebates, Dells claims to be removing the burden channel partners may have in processing rebate claims and ultimately providing a greater value. That’s a moot point, however, since invariably a channel partner still processes rebate claims from many other vendors that offer them. So Dell may not be making much of a dent in any partner’s administrative overhead for rebate processing.
Dell’s argument for eliminating back-end rebates goes something like this: by not having to process rebate claims those resources dedicated to this activity might be used for other things deemed more vital to a channel partners’ business – things such as selling, support, processing leads, or perhaps even marketing.
Dell does have great operational efficiencies so the Partner Direct program plan to pass along those operational efficiencies to channel partners may work for a few. For example, resellers whose businesses are based on volume sales may find it most appealing.
But for others, it’s a question of how much of a time savings benefit can be gained and, how much people resource is being expended? Do these benefits equal the value of a back end rebate? Can most partners calculate the cost and readily see the savings?
How many takers will there be for this new approach? It’s a hard sell because few things motivate the channel more than money. You have to believe there will be scepticism towards a game-changing direction that does not have easily seen dollars tied to it.

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