Expert Speak

Why Control is Important

Control is Important

You cannot remain profitable without exercising control. Every interaction with the vendor and channel community last week strengthened my confidence in this belief.

For the vendor, control of the inventory that the channel partner buys in and sells out; for the distributor and tier II channel, control of the new partners and new territories you enter into, of the vendors and products you represent, of the credit and discounts you gives away, of the constant conflict of interests with government agencies…

Every time I hear of a member of the community disappearing owing lakhs to his fellow-traders, or of laments of disappearing margins, I am reminded of a phrase spoken by Alan Greenspan, the chairman of the United States Federal Reserve Board, in 1996: Irrational Exuberance. Used then for the way the financial community behaved, it meant a high level of speculation leading to unduly overvalued assets, which then was subject to prolonged periods of reduced value.

In our distibution context, this comment on the effects of losing control has some very important lessons:

Carefully select which vendor and which products you want to sign up for. Don’t be misled by pride to stick to a vendor if the relationship isn’t a winner for both. It’s always a good idea to let go of a relationship where you have to bear losses, and move on.

Don’t follow the crowd. A particular market identified as high-growth may attract many of your peers, invariably leading many to overvalue it and then suffer when products get overdistributed. Instead, find a niche for yourself, follow your own disciplined process of identifying and targetting the customer segment.

Your business may run because of the customer, but does that mean you give up your business for him? Don’t rush into deals driven just by the value of the deal. Find means of attracting valued customers other than credit.

Control the urge to sell at a discount. The greater fool theory says why. According to this theory, you will always find someone to buy a product even if it seems to be overvalued.

Control your inventory. An uncertain future may force you to square off inventory and lose money, most common in monthly or seasonal dumping.

Conciliatory actions may be far more to your advantage than a conflict when addressing issues with vendors, distributors or government agencies.

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