Quick Response

Giving solution providers growing confidence in their long battle against Dell are efforts by Hewlett-Packard, IBM and Lenovo to offer aggressively priced, in-stock SKUs that match or beat Dell prices while undercutting Dell delivery times. The theory behind the programs is that these off-the-shelf systems—offering a limited suite of standard server, desktop and notebook configurations—can match the needs of most SMB customers while eliminating the time, costs and pricing issues associated with custom builds. And the theory seems to work. Some 40 percent of HP&'s total Personal Systems Group channel sales are now through its SmartBuy quick response program, said Chris Combs, manager of business PC programs and promotions at HP, Palo Alto, Calif. Pete Busam, vice president and COO of Decisive Business Systems, a solution provider in Pennsauken, N.J., said he buys about 75 percent of his desktops, 40 percent of his servers and close to 80 percent of his notebooks through HP&'s SmartBuy program. “They are good configurations, they are priced right, and they are available,” he said. “To be cost-competitive before, you had to do a custom build, and custom builds can take anywhere from four to six weeks. [SmartBuy] is very competitive against the Dell model.”

IBM&'s corresponding program, SystemSeller, has seen its U.S. volumes double since the beginning of the year and now accounts for 12 percent of its total U.S. product sales, on its way to a goal of 20 percent, said Frank Vitagliano, IBM&'s vice president of worldwide distribution channels, Global Business Partners.

IBM, Armonk, N.Y., hopes to expand the concept beyond high-volume Intel servers to other products and brands. “The concept of this started in the PC business,” said Vitagliano. “But there are a lot of products we can get to market this way.” Vitagliano said IBM would add financing, software and Global Services offerings to its SystemSeller portfolio in the third quarter.

Donn Atkins, IBM&'s general manager, Global Business Partners, agreed that the SystemSeller concept was one that could spread through more of the IBM portfolio. “Even though the initial execution of SystemSeller is with the server and storage products, it is our intention to use this single consistent approach with all high-volume products into the channel,” he said. “We see all of our partner types being able to take advantage of that. At the same time, we will continue to support a special bid pricing model for the more complex systems and configurations. It will give us a balance between what needs to be handled in a special bid type of way and what can be handled in a more autonomous way.”

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That&'s welcome news to IBM Business Partners. “We are absolutely in favor of more packaged solutions coming out from IBM, especially in the IGS [IBM Global Services] area,” said Joe Mertens, executive vice president of Sirius Computer Solutions, San Antonio, one of IBM&'s largest solution providers. “This will help partners, regardless of size, package more [services] with their solutions.”

Beyond just matching or beating Dell on price and delivery, these quick-response strategies shatter the pricing gambit forced upon them by vendor logistical inefficiencies, solution providers say. With one everyday low price for all solution providers, no longer are there conflicts created from different prices for different channels for the same SKU.

HP said SmartBuy was conceived in part to take special bid pricing out of the mix in SMB accounts.

“Often the same SKU goes to big corporate customers, SMB customers or a government entity and, depending on who you were, you bought at a different price,” said HP&'s Combs.

But Combs said when SmartBuy SKUs come into play, the days of disparate pricing are gone. “We will not undercut our partners,” he vowed. “We will not give any special pricing on SmartBuys either to partners or to direct.”

Added IBM&'s Vitagliano: “We will not provide any special bids [for SystemSeller products].”

Solution providers agree that one of the programs&' advantages is that they drastically lessen the need for special bid prices, a cumbersome process that allows them to seek dispensations to sell below their costs in order to win specific deals.

For their part, distributors say the programs solve many of their administrative and logistical woes. Distributor executives say that as their single-priced SKU volumes go up, their need for special bid pricing goes down.

“It streamlines the back-end processes and it makes the process much more efficient rather than doing price deviations for every transaction,” said Paul Bay, vice president of product management at Ingram Micro, Santa Ana, Calif. Bay noted that Acer gained a toehold at Ingram Micro more than a year ago in part by pioneering the one-price, no-special-bid-concept. Since then, HP, IBM and Lenovo have joined the fray with new or expanded programs.

Brian Wiser, Ingram Micro&'s senior vice president of sales, North America, added that the programs are especially attractive for smaller solution providers that don&'t have the resources to apply for and shepherd special bid prices through the administrative process. “For smaller VARs who are resource-constrained, this has allowed them to stay in the product business, whereas before, they wondered if they really should. It helps them bring product to market faster and compete against Dell.”

Decisive Business Systems&' Busam said, too, that SmartBuy mitigates disparate pricing across various channels that gave unfair advantage to HP direct or large resellers. He said some large solution providers could bring all their rebates to bear on a single deal to undercut other solution providers. And, he said, it dissuades customers from buying direct simply to get a lower price.

“That&'s the nice thing about SmartBuy—it levels the playing field so that if the customer goes direct, he&'s going to find the same price that we offer,” Busam said.

What&'s more, solution providers say the new low-priced SKU strategy rescues them from the special pricing morass. Previously, when a solution provider found itself in a pricing battle against Dell or another vendor, IBM or HP would grant the solution provider special pricing. When that pricing fell below solution providers&' costs, they had to wait to get reimbursed from vendors to cover those costs, a cumbersome process that involved solution providers, distributors and the vendors.

“It saves us about a day and a half [of administrative time],” said Harry Dykeman, sales manager at JDM Infrastructure, a solution provider in Rosemont, Ill. “We had to trade a handful of e-mails, get the deal keyed into the system, make sure the database was updated, [obtain] a Big Deal number, [HP&'s term for the process], and then get the order to distribution,” he said. “We&'re definitely increasing our use of SmartBuy because it&'s easy to use.”

Bicky Singh, president and CEO of Future Computing Solutions, a Yorba Linda, Calif.-based solution provider, said between 40 percent and 50 percent of his overall HP business is through SmartBuy. Solving the pricing riddle is one reason for SmartBuy&'s growing popularity. “It&'s less of a logistical nightmare,” he said. “There is no efficiency [in special bid pricing]. There are channel costs at our end and manufacturers&' costs. If they can take away the Big Deal inefficiencies, all of that can come toward the price of the product.”

Because of this, Singh said SmartBuy is now at the vanguard of his sales strategy. “We try to position our sales around those SKUs,” he said. “That way, we&'re not finding someone on the Web who&'s selling 15 to 20 points below us.”

Bob Venero, CEO of Future Tech Enterprises, a solution provider in Holbrook, N.Y., said that about 20 percent of his overall Lenovo business is in Think Express SKUs, the vendor&'s low-price program, while up to 35 percent of his HP business is in SmartBuy products. But he said that Think Express volumes are static while SmartBuy&'s are growing.

“A year ago [SmartBuy] sales were zero,” he said. “HP is doing a better job of making sure we are aware of it and understanding it—making sure from a price point perspective, it&'s right. We are seeing a much bigger increase on the HP side.” IBM&'s sale of its PC business to Lenovo earlier this year caused the vendor to lose some momentum in the Think Express program it inherited from IBM, solution providers say.

“With the change over to Lenovo, they haven&'t done a good job [keeping inventory] in the channel,” said Dykeman. “Availability has been a little goofy.”

Added another solution provider, who asked not to be identified: “There&'s been some degradation [in market share] because some SKUs have not been in stock. They are in the middle of the handover [from IBM to Lenovo] and hopefully in two to three months they will get it right,” he said. Lenovo declined to comment.

One solution provider who did a system check found only about 20 percent of Lenovo&'s Think Express SKUs in stock, while a similar check of HP SmartBuy SKUs found upward of 70 percent in stock.

Future Tech&'s Venero said he found a similar lack of availability from Lenovo until he keyed in Lenovo instead of IBM. “The first time I went into [his distributors&' database] looking for [Think Express SKUs] there was no stock of anything,” he said. “Then I realized that the distributors had recoded under Lenovo, and boom, all the stock came up.”

If there is a downside to the one-price-fits-all strategy, larger solution providers say, is that a $1-million-a-year VAR now gets the same pricing as a $100-million-a-year player. “On the downside, the [special pricing bid certifications] were only for one or two resellers [in a single account],” said JDM Infrastructure&'s Dykeman. “Now HP has a SmartBuy SKU out there that everyone and their brother can buy at a lower price, so it sort of eliminates that exclusivity.”

Future Tech&'s Venero added, “The downside is that the programs dilute the market. Someone who does $60 million or $70 million a year now buys product at the same level as someone who does $1 million,” he said.

Other solution providers noted that the programs are more suited to the small rather than the medium business market. Sirius Computer Solutions&' Mertens said that while about 65 percent of his company&'s business is in the SMB market, most of it tends to be in the medium end of the spectrum.

“The medium-business customers want more customized solutions, and the dollar value of the transactions are such that they are more likely to go to special bid,” Mertens said.

Still, vendors say the speed and simplicity of the one-price-fits-all strategies dictate that they expand the programs as fast as they can. HP, for its part, has already made SmartBuy the centerpiece of its Personal Systems Group marketing strategy and will soon expand it to include products in its Imaging and Printing Group, Combs said. “We lead with SmartBuys in every promotion we do,” he said, adding that the concept works best for mature, high-volume products.