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Life without distributors.

"Developers have this naive notion that all they need is a distributor and their product will be successful," says concentric Data Systems president John Henderson. "what they really need is demand. if you create demand, there's very little a distributor can add."

In fact, Henderson insists that most small software companies are probably better off not dealing with distributors at all. His own company, which develops report writers for dBase and 1-2-3 (R&R Report Writer, R&R Worksheet Report Writer, TrendBetter Expert), flatly refuses to sign distribution contracts and instead sells directly to retailers and end users. This hard-nosed approach apparently hasn't hurt sales: Last year, in a generally depressed market for dBase add-ons, Concentric generated $2.75 million in revenues, grew 35%, and turned a "healthy" profit. "We couldn't have done much better," says Henderson.

Moreover, Concentric's no-distributors policy clearly hasn't limited the company's ability to sign up dealers. Concentric currently has 300-400 active resellers (dealers who bought "at least a few units" in the last three months), and Henderson says the company has met little resistance among even its largest retail accounts--including Egghead, which last year did $400,000 worth of direct business with Concentric.

How has Concentric prospered without distributors? Henderson says his company has evolved a few key policies:

Treat everyone the same. Concentric works with a single reseller price list and adamantly refuses to cut special deals, no matter how attractive the opportunity seems to be. Dealers who buy a single copy get 20% off list price; multiple copy discounts range from 40% for two copies to a maximum of 50% for a $10,000 order (about 70 copies). Henderson says he's probably the only developer who ever turned down an order from Lotus Selects, Lotus's aftermarket catalog. ("They wanted 60 points off, consignment terms, and an initial order quantity of just 25-50 units. That's ridiculous.") And he has refused to give ComputerLand extra margin, despite "phone calls every two days" and heavy pressure from buyers. "I finally said to them, 'Give me any possible reason you should be treated better than Egghead when you're only buying one-eighth as much product.' They had no answer."

Don't extend credit. As a general rule, says Henderson, Concentric insists on getting cash up front when resellers place orders. (The company occasionally bends this rule for dealers who generate a steady volume of sales, but credit "is still based purely on payment history.') A similar policy applies to direct sales to end users, who account for about 15% of Concentric's revenues. "We've even gotten checks from people in the federal government, where you're never supposed to see money without a purchase order first."

Stay on top of shipping. Resellers who buy direct from Concentric usually get delivery as quickly as they would from a distributor; Henderson says his usual turnaround is less than 24 hours. That performance turns out to be fairly easy to achieve, he adds: Concentric sells several thousand units a month, but Henderson says shipping "only takes one part-time person working four hours a day."

Support dealers who add value. Because concentric doesn't give away margin or coop funds to distributors, Henderson says he's better able to invest promotional dollars in those dealers who "actually do something to sell our products." Half of Concentric's sales volume comes from a small group of "about 60" resellers, he adds, and most of these are software-only outlets. "Hardware resellers are not interested in the software business. That's loud and clear."
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Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:relationship between developers and distributors
Author:Henderson, John
Date:May 15, 1989
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