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Commentary: zero-sum game.

Any kid who grew up playing marbles probably has a pretty clear grasp of what game theorists call "zero-sum competition." For each player who wins a marble, another player has to lose one. The total quantity of aggies and cat's eyes in play never expands; they're merely redistributed to the most skillful players.

Watching the Comdex panel that 47th Street's Bobby Orbach chaired earlier this month on "vendor-reseller relationships," we were struck by how much the reseller channel has become a giant zero-sum marble-shoot. Orbach's panelists--eight top resellers and publishing executives--were surprisingly candid about how they'd rather grab sales from each otherthan prospect for new customers. They love marketing programs that rearrange existing market shares; their eyes glaze over the instant anyone suggests the industry's real problem might be a lack of new customers.

Since the easiest way to snatch market share from a rival is by pricecutting, it's not surprising that the reseller channel has become obsessed with finding ways to shave product acquisition costs. And it's also not surprising that a good many publishers have found that end-ofquarter special price promotions are a sure-fire way to prop up sagging sales. "If I don't take advantage of a deal," one of Orbach's panelists admitted, "I know my competitors will."

In theory, pushing excess inventory into the channel is a harmless tactic that inspires resellers to hustle a little harder. But that theory works only when distributors and retailers are working in an open-ended market. If resellers are merely trying to take sales away from each other, the number of buyers doesn't increase and the whole channel eventually ends up choking on products it can't move.

In fact, there are already clouds on the horizon. Ashton-Tate is trying to figure out how to clear as much as six months of unassimilated dBase inventory from its pipeline; Egghead just took a $10 million wri:te-off to adjust its overstuffed warehouses; and in recent quarters a few of the industry's largest publishers have actually reported negative growth in domestic sales (in most cases, the declines were camouflaged by

. rising international revenues). Even Lotus, which publicly vowed to give up volume-based deals (Soft-letter, 11/15/88), reportedly couldn't resist an end-of-quarter fling in march that pumped an extra $30 million of product into the channel.

Who's going to buy all this stuff? That's a question that apparently doesn't worry most dealers and distributors. They're busy out-shooting the other marble players, and they've learned that most publishers will happily write blank checks for coop marketing programs that merely redistribute existing market share, without attracting new customers.

But the zero-sum game is a very different problem for the software publishing community. Ultimately, it doesn't matter which resellers win the most marbles; what counts is the absolute growth of the marketplace as a whole. There are techniques that work--seminar selling, vertical market and VAR programs, product repositioning, experiments with new distribution channels--but they require hard work and a fair level of

up-front investment.

In the short run, it's going to be a lot easier to keep underwriting reseller price wars and funding coop programs that merely help distributors and dealers raid each other's accounts. Resellers love this stuff, it's easy to administer, and existing customers end up getting a break from competition among suppliers. But if the industry is going to keep growing, we need new customers--not a zero-sum game.
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Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:vendor-reseller relationships have become zero-sum competition
Date:Apr 15, 1989
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