Article

Getting exclusive with ATM sales territories

NexTran wants to put itself on the retail ATM map by using a concept popular in other sales-oriented industries -- the exclusive territory. NexTran, a subsidiary of South Korea's Chungho ComNet, sees exclusive territories as a way to promote more loyalty among its distributors and better service to ATM owners.

June 10, 2003

NexTranwants to put itself on the retail ATM map by using a concept popular in other sales-oriented industries -- the exclusive territory.

NexTran, which was established last year as the exclusive North American reseller of ATMs manufactured by South Korea's Chungho ComNet, sees exclusive territories as one way to take on companies likeTritonandTidel, which have a head start of nearly 10 years in the industry.

"It's a way to build the brand and to create critical mass in any given market," said Bob Bucceri, a general partner inChaddsford Planning Associates, a Westchester, Pa. consulting firm that is working with NexTran. "Over time, it will be a way for NexTran to level the playing field between themselves and their more established competitors."

Not just about sales

ISOs that commit to selling ATMs in large volumes command the best prices from any manufacturer. NexTran wants to sweeten the deal by offering distributors that commit to selling 500 ATMs a year the exclusive right to sell and service machines in a particular geography.

This arrangement will encourage ISOs to use service in addition to sales to drive their business, Bucceri said.

"NexTran wants its distributors to create more value for the (merchant) customer by emphasizing after-market service," he said. "It makes more sense than chasing business like chasing your tail and establishing ad hoc service arrangements to try to take up the slack."

One distributor will generally serve each state, Bucceri said, although multiple ISOs will be signed for larger states with more highly populated metro areas. NexTran ultimately expects to end up with a network of about 40 distributors.

The company claims to have signed 33 distributors so far, with two qualified for exclusive territories.

Relationship building

John Steely, president of La Canada, Calif.-basedASAI,said that giving ISOs the right to exclusivity in specific areas could help foster loyalty to NexTran. In theory, he said, it should reduce the number of smaller ISOs that attempt to circumvent established business relationships with larger distributors by seeking direct relationships with manufacturers.

An ISO that was selling ATMs for ASAI recently began buying its machines directly from one of the major manufacturers instead, Steely said. However, the ISO returned to ASAI when it was unable to consistently pay for the number of machines it agreed to purchase from the manufacturer.

The incident -- a not uncommon scenario in the retail ATM world -- strained ASAI's relationships with both the agent ISO and the manufacturer, Steely said. "I just didn't think it was right when we were the ones that had built that business."

Although his distribution agreement with NexTran is "fairly vague" regarding exclusivity, Steely said, he believes ASAI has the rights for the Chicago area. NexTran has been "giving us lots of leads," said Steely, who has sold about 150 NexTran ATMs in the past 90 days.

Not the ATM police

The problem with exclusive territories, said Mark Levenick, Tidel's president and chief executive, is there is no real way to enforce the contracts. Tidel offered similar deals to its distributors for "less than a year" in 1994 but stopped doing so when it tired of trying to mediate territorial disputes.

"Quite frankly, it was a nightmare," Levenick said. "We got sick of trying to be the ATM police. Distributor A would sell an ATM in Distributor B's territory through a sub-ISO, and Distributor B would come to us wanting us to do something about it."

Bucceri said that NexTran's agreements require distributors that sell ATMs in another distributor's territory to pay a fee for the broach.

It's common to limit the number of distributors when entering new markets, said Brian Kett, Triton's president, because distributors and manufacturers often share the financial burden of creating a support structure.

Triton only had about a half-dozen Canadian distributors for the first 18 months after it entered that country, Kett said. As the infrastructure matured, however, the number of distributors grew, and now stands at more than 20. A similar pattern appears to be occurring in the UK, which Triton entered in 2000.

The outer limits

It's difficult to dictate exclusive agreements with distributors in mature markets like the United States, Kett said. While it might appeal to new ISOs, he believes there is little appeal for established ISOs that maintain regional or even national reaches through a network of sales agents.

"The big guys work with several manufacturers and sell throughout the country, sometimes in all 50 states. I wouldn't expect them to go for a deal where they could only sell in one or two areas," Kett said.

Larger ISOs often pursue deals with major retail chains, he added. "If you're selling to them, they're national."

Tom Mortimer, vice president of sales and marketing forKahuna Business Group, a Bloomington, Ill.-based ISO, wonders why manufacturers would want to limit themselves to arrangements that stipulate exclusive territories.

"What if you've got a deal with a distributor for a certain area, then a much larger distributor comes along and wants to work with you. Are you going to turn down the larger company to stick with your original guy?" Mortimer said.

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