DIRECT OR INDIRECT 1

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You are the national sales manager of a large MNC operating in India with an annual turnover of Rs.250
crores. Your company manufactures and markets the following range of products in India

Avg. selling Selling skills After sales

Product Type Competition
price/unit required support required
Laptop PC 0.40 lakhs Moderate High Low
Desktop PC 0.30 lakhs Low Low High
PC server 1.50 lakhs Moderate Moderate High
RISC server 6.00 lakhs High High Moderate
Prices do not include taxes and levies.

Your company also supplies peripherals such as printers, networking products and software with your
computers to your customers. These items are bought from local manufacturers/suppliers and sold with your
equipment. The margins on these traded products are not very attractive but the customer demands of buying
everything from one source compels you to offer these products with your own. Your major strength products
are PC servers & RISC servers where you have a good market share and earn good profits (15%). The margin
percentage on PCs is in low single digits as it is a very competitive market. The margin on Laptops is equal to
that of PC servers. Your major customers are institutional customers where you have a good base in banking,
ITES (Information Technology Enabled Services) and automobile segments. These are your flagship segments
where competition is trying hard to make a breakthrough. There are 4 types of channels through which you sell
as below -

a) Direct Sales :

Your company maintains a direct sales force of about 30 people operating out of your own offices in Delhi,
Mumbai, Chennai, Kolkota, Bangaluru, Ahmedabad, Pune and Hyderabad. Most of the sales persons are
engineers with an average work experience of 7 years. Some of them are MBAs too. Your sales force sells
direct to large, strategic accounts and also handle channel partners in their respective locations. The
salesforce sells all products offered by your company. You believe you have the best sales force in the
game. Your sales persons are on salary + commission (only on manufactured products) and they earn quite
well.

b) Distributors :

These are large national players. Each distributor gives you a business of not less than Rs.12 crore of per
year. They deal mostly in Desktop PCs and Laptop Computers. Of late, PC server business is showing an
increase through these distributors. You have 4 such distributors in India. They all have their own dealer
network of 150 to 250 dealers, spread across the country in all major cities and towns. The distributors sell
through their dealers and their own sales force. You give only parts support to the distributors and their
dealers are trained to give repair service. These distributors are contractually bound to sell your computer
products. However, they are free to source printers and other peripherals on their own. Some of them are
also authorized distributors for printers of reputed companies. Distributors get 20% discount on your
manufactured products on the average selling price and a 7.5% discount on your traded products.
1Case written by Prof. Gururaj Kidiyoor, T A Pai Management Institute Manipal. The case is written for classroom exercise
purpose and it does not illustrate correct or incorrect handling of an administrative situation. All the rights exist with the author.

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c) Value Added Resellers (VAR) :

These are relatively small organizations and each one gives you about Rs. 2-3 crore of business per year.
They sell all your products and they give parts & repair service to customers. They do not carry any
competitor brands. You have 23 such VARs under your fold and they are all located in state capitals. They
maintain their own sales force and sell direct to customers. These VAR organizations are small and are
headed by a single person (owner manager) who is a technocrat. They possess good technical expertise and
provide good after sales service in locations(cities) they operate. However their financial capability is much
less than distributors and System Integrators. They normally source all the products from you though they
are contractually not bound to procure computer peripherals from you. VARS get about 15 % discount on
your manufactured products on the average selling price and a 7.5% discount on your traded products.

d) Systems Integrators (SI) :

These are large national or regional level organizations who give total computer solutions like networking,
communication and ERP to their customers. These organizations do not have any contractual binding with
your company. They SI's mostly buy only Computers from you and they are adept at selling RISC based
machines. They take parts support from you for warranty and post warranty. They have good technical
competence in sales and servicing of products. They sell your competitor products also. SI’s get about 17 %
discount on your manufactured products on the average selling price and a 7.5% discount on your traded
products.

In terms of control, you have the least control over the SI's and the most over VARs as both the distributors and
the VAs have a contractual relationship with your company. As for after sales support, products sold directly by
your own sales force are supported directly by company service personnel or by your VARs depending on the
locational convenience. On the other hand, the distributors and systems integrators provide after sales service
to your products sold by them. You only give spare parts support to them.

One of your strategic marketing objectives is to steadily increase revenue share of indirect channels to ensure
higher market coverage and penetration. In the last decade or so you had built up business mainly by selling
direct and at present you have a list of 500 odd customers who are served directly by the company. Now, as
you wish to achieve a direct to indirect channel ratio to 35:65 in revenues (Currently it is 45:55), you are open
to reviewing this list. You would want your indirect channels to sell high-end products such as PC servers.
However, you wish to hold on to your business in the institutional customer base and do not let competition in
important strategic accounts. You would not want to compromise on your service deliverables either. The top
management also wants to reduce the cost of selling and related expenses as it feels the company’s marketing
overheads are high as compared to industry standards. Marketing department attributes this to longer selling
cycles due to unprofessional buying practices of some customers, especially in the government segment.

As the national sales manager you have the discretion of routing any sales enquiry either to direct business or
to channels. Currently you have 5 enquiries and you need do decide whom will you route each of these
enquiries. Brief details of the enquiries are given below -

Enquiry No 1. : Nationalized Bank

You have received an enquiry from a 60 year old nationalized bank for 300 desktop computers of identical
configuration. This is an existing customer with 10 year old relationship. Though the quality of relationship is
good, you have often felt that the procurement processes of the bank are not well organized and is not very

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professional. The current requirement of 300 desktops is for their branches across the country in all major cities
and towns totaling up to 70 locations. As for competition, there are 2 MNCs and 3 local vendors in the running.
The MNCs are likely to quote through channels and the local manufacturers will quote direct. The margins are
likely to be lower in this deal as the configuration is standard. You need to offer a competitive price and keep
your costs low.

Enquiry No.2: Software Company

The second purchase enquiry is from a software company which earns more than 90% of its revenue through
exports. They require 2 PC servers and 30 laptops of varying configuration. These are to be installed in their
head office in Chennai. This is a new customer for you and you feel there is a good future business potential
here. There is one competitor, an MNC and an existing supplier, who is fiercely competing for this order through
his biggest exclusive dealer. The local firms are not being considered by the customer. As the customer secures
90% of his business through exports, it is likely that he may ask for dollar billing. (As he earns in dollars, the
government allows him to buy through dollars. There will be no GST in such transactions)

Enquiry No.3 : A Private Stock Broking Company

The next purchase enquiry is from a private stock broking company having its offices in Mumbai, Kolkota,
Chennai, Bengaluru, Delhi and Lucknow. They need 10 PC servers with preloaded operating system on which
they will install their own stockbroking software developed by a third-party software developer. The machines
are to be linked with each other once installed through a wide area network connection. You do not know
whether any other MNC is in the fray and if yes, whether they would quote directly or through their channels.
On the other hand, local manufacturers would be quoting direct here. They may have intermittent future
business requirements which is difficult to predict.

Enquiry No. 4 : A Private Manufacturing Company :

This is an existing customer who is expanding considerably, and so far you have handled this customer directly.
Though you have a good relationship with this customer, you feel they are more transactional than relationship
oriented. They have regular requirements but their business with you is not regular as they patronize different
vendors on case to case basis depending on their requirements. This time their requirement is unusual with lot
of other, non- PC stuff. They need 1 PC server, 25 Laptops, 100 dot matrix printers worth Rs.13 lakhs to your
company, networking products worth Rs.30 lakhs and software worth 10 lakhs. This is a single location order as
all these are to be installed in their head office in Bangalore. There are two MNCs and two local manufacturers
whom you have been encountering here regularly and both have been quoting direct here.

Enquiry No.5: State Government

The Government of an Indian state seeks to procure 100 desktops with bare minimum configuration. In
addition, they need 50 nos, 80 column dot matrix printers (about Rs. 4 lakhs value). These are to be installed in
various schools across the state in about 30 district headquarters. You have not done much business with the
State Government. You have no idea about competition in this case. However, you are aware that you need to
quote a very competitive price and customer friendly payment terms to get this order.

For each of the enquiries decide whether you would like to go direct, or with a channel partner. If with a
partner, indicate which type. Give reasons for your decision. While you can suggest two possible alternatives
for one enquiry, you cannot split the order between two channels