It's About Choice

The Santa Ana, Calif.-based distributor is rolling out a sweeping new channel model that unbundles almost all of its offerings pertaining to solution providers,including product pricing, shipping fees, tech support and pre- and post-sales support.

Under the company's new Choice Advantage program, solution providers will choose their own level of participation with the distributor,from a bare-bones relationship that offers the lowest possible product price with little support, to a high-touch model that includes higher prices but more services.

It is the distributor's most significant customer-facing change in years, said company executives. "We are not standing still," said Kevin Murai, president of Ingram Micro.

"We are taking the initiative to drive investment and positive change in the marketplace and placing a big focus on overall value in the channel."

The program is a shot across the bow of almost every distributor in the marketplace, said solution providers. On one hand, it allows Ingram Micro to compete more aggressively on price against Synnex for volume business, but it also may appeal to higher-end solution providers attracted by the more complex services resources traditionally offered by specialty distributors.

Ingram Micro rolled out Choice Advantage to an initial block of 700 North American solution providers last week. Executives will detail the program this week to VentureTech Network members in Philadelphia at the organization's semi-annual conference. The distributor hopes to complete a national implementation to all customers by the end of the year, said Pat Collins, senior group vice president of sales and marketing.

Two years in the making, Choice Advantage evolved out of the profit enhancement plan developed by former president and worldwide COO Mike Grainger that is designed to save Ingram Micro more than $160 million on an annualized basis. Grainger's departure last month will have no effect on the execution of the program, the company said. Murai and Greg Spierkel have been named company presidents, with Murai in charge of North America and Latin America and Spierkel heading up Europe and Asia-Pacific operations.

Under the new program, solution providers will choose one of three base levels: Independent Choice, Active Choice or Professional Choice, which include specific service-level criteria, and they can add one of four upgrades to better fit their specific needs, said Collins (see chart).

Ed Greenberg, president of IT Access, a Westford, Mass.-based solution provider that was one of the initial 700, said he often used to call Ingram Micro for tech support but do his purchasing from Tech Data or Synnex because Ingram Micro's prices were too high. "Now that's going to change," said Greenberg.

IT Access chose the program's Professional level and expects to gain 1 or 2 points more margin at its current volume of business with Ingram Micro, Greenberg said. "It gives the opportunity for small resellers to compete with larger resellers across the board," he said. "I'm excited about the more aggressive pricing. It will increase my sales, and I think it will have to change other distributors' models on pricing structure and quality of tech support."

On the high end, solution providers will be able to leverage Ingram Micro services resources at a lower cost, said Laurie Benson, president of Inacom Information Systems. "The work they do around a total solution reduces our costs in terms of technical expertise," Benson said. "Ingram's ability to execute in terms of delivery and tech support is unquestioned. But there's always been this 'but' about pricing. Now that's gone away."

The $60 million Madison, Wis.-based solution provider was not part of the initial rollout, but Benson served on an advisory council that Ingram Micro and its consultant, Strategic Pricing Group, used to develop Choice Advantage. She is eager to participate in the program.

"For us, there's voice-over-IP, security, wireless. We're down the path with those solutions, but they require a cost structure to support that. It's a large competitive advantage to be able to leverage Ingram Micro. Their high-end resources for go-to-market technologies is very powerful. The bottom line is, you have to get a return on your investment in a new technology and [Choice Advantage] does that."

Ingram Micro downplayed the move as a direct attack against competitor Synnex. "Distributors running around beating each other up on price is not healthy for the channel in the long term," said Collins. "When that happens, value-add services start to disappear and cost shows up somewhere else. Nothing would please me more than if competitors adopt this. We want to compete based on value, not price."

Ingram Micro plans to use reports such as the number of tech support calls and average order size to help solution providers determine their best option. And the distributor plans to be patient. "We're not kidding ourselves about the time spent with customers to make sure they make the right choices," Collins said. "And, of course, we'll be making corrections. We'll look at what works, what doesn't work, the communication process. Whether we priced this too high, too low. We expect to learn all those things."

Several solution providers among the first 700 said they were initially concerned that their costs would increase or their benefits would decrease, but that hasn't been the case so far, they said.

Akamai Computer Consultants, a Thousand Oaks, Calif.-based solution provider, expects to save money even though its product business has decreased to serving just two large customers, said Mark Chilcott, owner of the company. "I was concerned that this could cost me more money. I spoke to a rep and also looked at the Web site. Even after doing that, I thought it would cost me more money. But we ran a couple of SKUs for the price I'd pay and it was a couple of points lower," Chilcott said.

Other solution providers said they like the idea of customized relationships because it allows them to pay for what they want, and to not pay for someone else's services. "We used tech support maybe four or five times in the last year. The folks that need more help should pay a little more for it," said Mark Frisch, general manager of New England Digital Computers, Middleton, Mass. "If we use less of their resources and we can get lower freight [charges], lower prices, or whatever, it will be good."

As part of Choice Advantage, Ingram Micro hopes to standardize product pricing within each of the three categories in order to eliminate the administrative costs of special pricing situations. Said Collins: "Say you're the largest customer in the Active Choice and pricing a [Hewlett-Packard] ProLiant server, the smallest customer in Active Choice has the same markup on that product. We want a reasonably level playing field for large and small solution providers."

However, there is some room for price negotiations, Collins said, particularly if a solution provider is in a competitive situation against Dell. And although there is standard pricing for all resellers up front, Collins said there will be a back-end rebate program intended to reward volume. Collins declined to detail the rebates but said, "It is a distribution rebate. So these aren't the kinds of rebates folks make from manufacturers. It is intended to provide some reward for volume."

As to the impact the new program could have on solution providers competing with a CDW, Insight, CompuCom Systems or Sarcom, Collins pointed out Choice Advantage is targeted at solution providers rather than those larger Ingram Micro customers that have negotiated individual deals with the distributor.

Solution providers will be allowed to change their designation if they find the tier is not providing them with what they need, said Collins, but Ingram Micro won't allow solution providers to switch on a transaction-by-transaction basis.

"I love that we have the ability to scale over time. We can change if our market changed," Inacom's Benson said. "That's why I think the name is perfect: Choice Advantage,we have a choice, we have an advantage."

STEVEN BURKE contributed to this story.