Dynamic calls for action in direct sales stoush

Brisbane-based consumables distributor Dynamic Supplies has called for action against vendors allegedly using channel marketing meant for other purposes to harvest end-user details and go direct, cutting out the reseller.
 
Kerry McKevitt, financial controller at Dynamic Supplies, said that vendors in Australia were increasingly employing usually legal but unfair competition techniques which may shrink an already beleaguered channel even further.
 
Resellers and distributors must unite to stamp out such practices, he said.
 
HP was one such vendor, he alleged.
 
'It's job is to create the environment [in which to sell] and ... it is not to go to our resellers and certainly not to their customers, because that is what they are doing,' McKevitt said. 'They'll say this is all legitimate growth. If that's the case, just lower your prices.'
 
Dynamic Supplies this month sent a letter to all its resellers - sighted by CRN -- warning them of the dangers of such vendor promotions and using HP's February announcement around an HP ink twin pack promotion as an example, he said.
 
That promotion offered a $10,000 prize to resellers - but required resellers to provide end-user data to be eligible, McKevitt pointed out, including a receipt or invoice as 'proof of purchase'.
 
'That denies all our resellers the ability to sell that same product at a better price to the same customer,' he said.
 
The details requested could enable HP to bypass resellers completely, make special offers via or to favoured resellers and cut out 'unauthorised' suppliers of its products - such as Dynamic Supplies.
 
However, McKevitt said that the stoush had nothing to do with Dynamic Supplies' $1.3 million countersuit of HP -- related to monies outstanding after the cancellation of the distributor's authorised HP distributor status last September.
 
A recent media report implied that Dynamic Supplies' most recent allegations were a spill-over from the ongoing courtroom battle with HP. But the issues were separate, he said.
 
'If you read our letter ... it's not about HP per se - although they happened to be the main antagonist - but about the potential dangers of programs that major vendors are now using,' he said. 'That's one of the main reasons we severed our relationship with HP.'
 
McKevitt said one of Dynamic Supplies' resellers had 'first hand experience' of HP using subterfuge to go direct that had lost that company $100,000 in profits in less than a year.
 
'I've had a customer ring up ... who has brought all our fears to an absolute situation, so it's not going to be difficult to support our contention on his part,' McKevitt said. 'He's very angry.'
 
The reseller was contacted by CRN and asked to comment. However, the company has requested anonymity after receiving several legal threats, from various sources, as a result of CRN's investigation.
 
'They'll squash us like a bug,' a spokesperson for the company said.
 
That reseller claims to have proof that a distributor has been 'colluding' with HP and selling direct to end-users, putting its business 'in jeopardy'.
 
The reseller has sought legal advice and is considering organising a class action or other damages claim against what it believes could be breach of contract.
 
'They know they are not meant to be dealing with [the distributor] and that [the distributor] is not meant to be selling to them,' a source within the company said.
 
'[The distributor] has signed a distribution agreement with HP, and that would state that they are only to deal with wholesalers. [The distributor] has said they have no idea that it isn't a wholesaler ... The ramifications are enormous.'
 
Using channel marketing to glean customer details and go direct, on the other hand, the reseller concedes could be done legally.
 
'It is legal, but it is just very bad for resellers,' the source said.
 
The source said the reseller had so far lost more than $100,000 in revenue from that account, an amount that could triple in a year.
 
'The account is very valuable to us. I'm an advocate of free competition - but the prices they're selling at are below our buy price,' the source said.
 
Vendors were using subterfuge to go direct more and more, the source said.
 
'We need help from Dynamic Supplies and from anyone else ... we want to take this as far as we can ... We need support from the industry,' the source said. 'It will be like the David and Goliath battle, but what people also forget is that David was the winner.'
 
The distributor allegedly involved was contacted by CRN. A spokesman for that company denied the allegations but added that 'what HP might be doing is different.'
 
Dynamic Supplies' McKevitt said most vendor promotions in the past had been 'more or less' innocent.
 
'We were trying to help our resellers,' he said. 'We need resellers healthy, that's what it is all about.'
 
McKevitt pointed out, that Dynamic Supplies, a $150 million-strong distributor, had the clout to fight such battles on behalf of resellers whereas many smaller companies could not.
 
'We're enjoying this,' he said.
 
The crusade was a matter of ethics, McKevitt said.
 
He said previous media reports -- particularly on the $6.6 million HP lawsuit settled in December -- had led to speculation about Dynamic Supplies' financial status. However, McKevitt maintained that the company was strong and had no 'massive financial problem'.
 
'We are very strong and not an ounce of money has gone out of this company - although you won't find the financial information anywhere - as a result. There was no substance to any such rumour,' he said.
 
McKevitt said Dynamic Supplies itself, as an HP authorised distributor, had co-operated with HP before it had become aware of the channel ramifications and decided to sever the relationship.
 
'We were part of that channel, we were helping them [HP] glean this information, quite innocently, until we understood the ramifications for our customers,' he said.
 
He said Dynamic Supplies had told HP a year ago that the vendor's prices were expensive in global terms. Since there was no price parity in world markets, HP was allowing grey marketers to undercut distributors' businesses, he said.
 
'Then we leave and the price comes down. At the end of the day, they were prices in the market that were inflated and we were part of that. So that's the situation,' McKevitt said.
 
He pointed out that resellers also sell re-manufactured product. One way to eliminate that competition was for a vendor to bring the price down to such an extent that there was no longer any advantage to doing the re-manufacturing, McKevitt said.
 
Such harvesting of information for competitive gain was a potential dark side to using modern CRM applications, he agreed. 'Too right,' McKevitt said. This is what we see and what we fear, although they will deny all of that.'
 
HP's Imaging and Printing Group was contacted for comment but has refused to confirm or deny any allegations that HP had used marketing campaigns in the channel to glean end-user information for the purpose of going direct.
 
Rebekah O&quo