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Distribution Outlook

Distribution Outlook. The Impact on Sales of Computer Products Prepared for the Global Technology Distribution Council. Computer product purchases from distributors by North American resellers grew an estimated 11 percent in 2000, compared to 9 percent overall growth

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Distribution Outlook

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  1. Distribution Outlook The Impact on Sales of Computer Products Prepared for the Global Technology Distribution Council

  2. Computer product purchases from distributors by North American resellers grew an estimated 11 percent in 2000, compared to 9 percent overall growth These purchases from distributors represent 60 percent of all computer products bought by resellers Distributors extended an estimated $32.7 billion in credit to resellers in 2000 Forecasts for 2001 show little change in product purchasing sources E-commerce services provided by distributors are in demand Key Findings and Market Summary

  3. Research Methodology • Projections based on purchase source data from phone interviews with 4,000 North American reseller organizations, July and August 2000. Data reflects +/- 1.6 percent margin of error. • Product purchasing volumes based on phone survey of 300 reseller organizations and 100 ASP and ISP organizations, August and September 2000. Combined data reflects +/- 5 percent margin of error. • Qualitative interviews conducted with indirect sales executives at major computer product manufacturers • Qualitative interviews conducted with executives at major computer product distribution firms

  4. Purchases by Resellers Made Through First-Tier Distributors • 11% Increase

  5. Credit Extended To Resellers • In this $77.3 billion market,distributors will extend$32.7 billionto second-tier resellersin credit in 2000. • This represents 42.3 % of • all purchases.

  6. Second-Tier Purchasing Sources • In the past 12 months, what percent of your company’s purchases were actually made and ordered from the following sources? • Purchasing Source Resellers ISPs/ASPs • Distributor sales rep 48.5% 22.8% • Distributor Internet site 19.8% 10.4% • EDI/XML-based distributor order 2.3% 4.8% • Direct through manufacturer rep 11.6% 26.7% • Manufacturer Internet site 4.0% 13.3% • Online retailer 3.1% 8.2% • Local reseller 10.7% 13.6% Reseller base: 300 organizations (September 2000) ISP/ASP base: 100 organizations (September 2000)

  7. Primary Source ForPre-sales Product Information • Considering the following sources, which one of these is your primary source for pre-sales product information in the purchasing process? • Information Source Resellers ISPs/ASPs • Distributor telesales rep 27.7% 13.3% • Distributor Internet site 20.7% 5.1% • Product manufacturer sales rep 16.7% 31.6% • Product manufacturer Internet site 28.3% 40.8% • Online retailer/catalog Internet site 6.7% 9.2% Reseller base: 300 organizations (September 2000) ISP/ASP base: 98 organizations (September 2000)

  8. Primary Customer BaseFor Resellers and ISPs/ASPs • Which of the following size businesses reflects your company’s primary customer base in terms of largest percentage of sales in last 12 months? • Number of Employees at Customer Resellers ISPs/ASPs • One to 20 31.4% 26.5% • 21 to 100 27.8% 25% • 101 to 500 16.1% 22.1% • More than 500 24.7% 26.5% Reseller base: 299 organizations (September 2000) ISP/ASP base: 68 organizations (September 2000)

  9. Product Type PurchasesThrough Distributor Telesales • What percent of the total amount your company spends on these products is spent specifically on purchases transacted through a distributor telesales rep? • Product Type Resellers ISPs/ASPs • Hardware systems 21.7% 22.7% • Network hardware 15.0% 16.6% • Components 13.5% 13.0% • Storage products 13.2% 13.1% • Printers and monitors 13.5% 11.7% • Application software 12.1% 9.7% • Systems software 11.1% 13.2% Reseller base: varies (September 2000) ISP/ASP base: varies (September 2000)

  10. Percent of Sales ThroughPrimary Distributor • What percent of your total computer product purchases from all distributors was made from your primary distributor . . . In other words, the distributor that accounted for the most business with your company? Reseller base: 295 organizations (September 2000) ISP/ASP base: 74 organizations (September 2000)

  11. Credit Terms UsedBy Second-Tier Organizations • What credit terms are used by your company topurchase computer products from distributors? • Type of Credit Term Resellers ISPs/ASPs • Net 30 Days 73.1% 73.6% • Credit Card 34.5% 36.1% • Cash on Delivery 29.3% 22.2% • Net 15 Days 14.1% 9.7% • Net 45 Days 10.3% 9.7% • Net 60 Days or More 10.3% 13.9% • End Customer-Based Financing 7.9% 12.5% • Escrow Account 3.1% 1.4% Reseller base: 290 organizations (September 2000) ISP/ASP base: 72 organizations (September 2000)

  12. Projected Second-TierPurchasing Sources • In the next 12 months, what percent of your company’s purchases will be made and ordered from the following sources? • Source Resellers ISPs/ASPs • Distributor sales rep 43.2% 20% • Distributor Internet site 21.7% 12.3% • EDI/XML-Based distributor order 2.8% 5.4% • Direct through manufacturer rep 12.1% 26.2% • Manufacturer Internet site 5.8% 14.9% • Online retailer 4.2% 8.8% • Local reseller 9.8% 12.5% Reseller base: 300 organizations (September 2000) ISP/ASP base: 100 organizations (September 2000)

  13. Importance Ratings of Pre-Sales Services Provided by Distributors • Rate the importance of each factor on a scale of1 (not important at all) to 5 (most important). • Pre-Sales Function Resellers ISPs/ASPs • Ability for distributor to providesystems configuration and assembly 3.3 2.9 • Availability of marketing and/or sales toolsfrom distributor’s Internet site 3.2 3.0 • Credit extended by distributor 2.7 3.4 • Pre-sales information 2.3 3.1 • Lowest pricing available 2.1 3.1 • Relationship/trust w/distributor telesales rep 1.9 3.0 Reseller base: 300 organizations (September 2000) ISP/ASP base: 73 organizations (September 2000)

  14. Importance Ratings of Logistical Support & Services Provided by Distributors • Please rate the importance of each factor on a scale of1 (not important at all) to 5 (most important) • Logistical Support and/or Service Resellers ISPs/ASPs • Ability of distributor to provide logisticsand delivery of products on outsourced basis 2.9 2.9 • Post-sale tech support on multiple products 2.3 2.8 • One-stop shopping 2.1 3.0 • Post-purchase logistical support 2.0 2.8 • Ability to determine availability andshipment location of products 2.0 3.1 Reseller base: 300 organizations (September 2000) ISP/ASP base: 73 organizations (September 2000)

  15. Importance Ratings of E-Commerce Services Provided by Distributors • Considering the following reasons as to why your company purchases computer products from distributors, please rate the importance of each factor on a scale of 1 (not important at all) to 5 (most important). • e-Commerce Service Resellers ISPs/ASPs • Ability for Online Invoicing 3.5 2.9 • Ability for Distributor to Providean “Electronic Storefront” 3.3 2.9 Reseller base: 300 organizations (September 2000) ISP/ASP base: 73 organizations (September 2000)

  16. Satisfaction LevelsWith Pre-Sales Services • How would you rate your company’s satisfaction with your primary distributor in the following areas, where 1 is not satisfied at all and 5 is extremely satisfied? • Pre-Sales Service Resellers ISPs/ASPs • Availability of marketing and/or sales toolsfrom distributor’s internet site 3.0 2.9 • Ability for distributor to provide systemsconfiguration & assembly on outsourced basis 2.8 2.9 • Navigation, information and orderingfunctionality on internet site 2.7 3.0 • Provides access to necessary credit terms 2.3 3.0 • Provides necessary pre-sales technical info 2.3 3.0 • Provides access to informed account rep 2.2 2.9 Reseller base: 300 organizations (September 2000) ISP/ASP base: 73 organizations (September 2000)

  17. Satisfaction LevelsWith Logistics & Post-Sale Services • How would you rate your company’s satisfaction with your primary distributor in the following areas, where 1 is not satisfied at all and 5 is extremely satisfied? • Logistic or Post-Sale Service Resellers ISPs/ASPs • Ability of distributor to provide logistics anddelivery of products on an outsourced basis 2.6 3.0 • Post-sale technical support 2.4 2.9 • Provides aggregation of multiple productsand brands under single order 2.1 3.1 • Ability to handle product returns 2.0 2.9 • Provides timely information on product pricing,availability and warehouse location 1.9 2.9 • Provides timely order confirmation & tracking info 1.9 2.9 • Accurate and on-schedule shipments 1.8 2.9 Reseller base: 300 organizations (September 2000) ISP/ASP base: 73 organizations (September 2000)

  18. Value of Primary DistributorTo Overall Business • Considering such issues as access to product information, credit, and ordering and shipment of products, please rate the value of your primary distributor to your company’s overall business on a scale of 1, no value, to 5, extremely valuable. Reseller base: 300 organizations (September 2000) ISP/ASP base: 75 organizations (September 2000)

  19. Computer product manufacturers report that the core competencies of their distributors are in the following areas: Inventory management Market coverage Credit Product fulfillmentand delivery logistics Order entry Marketing Tech Support Recruitment and training Product configuration Core Competencies of Distributors

  20. Overall Supply Chain Issues Continued efforts by manufacturers to driveout costs and redundancies from indirect sales channels Unbundling ofdistributor services Time to market pressure from manufacturers Resolving legacy payment terms for manufacturers versus new payment terms Deployment ofe-commerce strategies Distributor Outlookon Market Dynamics

  21. Dynamics AffectingSecond-Tier Customers • Regarding all of their second-tier customers, distributors frequently cite the following challenges in meeting customer needs: • Tech support • Inventory support • Credit • Utilization of distributor’s outsourcing services • Adoption of e-commerce and supply chain tools

  22. Demand generation Engineering services Configuration services Manufacturingand assembly Internet site development and hosting Financial services Technical support Customer care Order managementand accounting Contract warehousing Customized data reporting Outsourced tech support Certification training Fee-Based ServiceOutlook by DistributorsTypes of fee-based services cited by distributors as revenue sources

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