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Microsoft Lays Off Sub-distributors to Save Money

12.11.2008
Microsoft has changed its channel distribution model to save money. The company has eliminated the aggregators or the sub-distributors, as they are known widely, from their distribution chain, to sell their hardware products. Earlier. the strategy involved approaching the distributor, followed by the sub-distributor, and finally by the volume partner who finally takes the goods to the shop or to the reseller sitting in the market and selling the goods to the end-consumer directly.

Now, the company has stamped out one part of the chain, the aggregator.

"The aggregators were eating away the margins. This increased the price of the hardware products. That is why we have decided to lay them off to bring down the prices of our products and give better margins to our consumers", says a source from Microsoft.

"We have already done this in places like Tamil Nadu, Karnataka and Delhi. We will see the progress and the reaction that it gets from the market for a quarter before we adapt to this around the country," adds the same source.

Ajay Kumar, CEO, Park electronics, one of the sub-distributors of Microsoft hardware in Delhi says, "Microsoft is going the same way that Logitech went. It is following Logitech's footsteps of laying off it sub-distributors. Perhaps, Microsoft is under the impression that they can succeed like Logitech did. But I don't think that they would. Yes, it will save them money like they said but this strategy would have worked for a pull product and all the products by Microsoft are push products.

A sub-distributor helps in controlling the MOP and is able to spread the product widely in the market. They also assure that a reseller take back the product back in case it doesn't sell and provide better servicing as well. The channel partners trust the sub-distributors. It will be hard for Microsoft to create this trust on its own."