10 Rules For Dealing With Dell

Some resellers are eager for the opportunity to work with the Round Rock, Texas-based PC maker. Others still look at Dell as the enemy. No matter which camp you're in, if you're a value-added reseller, you have an opportunity to grow your business and position yourself well as Dell changes the market. The key is to understand the new channel dynamics and rules. Here are a few:

1. COMPETITION

With another big player for channel market and mind share, Dell's rivals are up against competition they've not had to face before for the channel's business. Hewlett-Packard, Acer, Lenovo, Toshiba and others now have Dell as a competitor for those accounts. That means VARs can either lead with Dell products, or use Dell as leverage to win better margin and benefits from its rivals. According to Channel Group research, conducted last month in interviews with almost 150 solution providers, 20 percent of HP VARs not already selling Dell would de-emphasize HP's brands to increase Dell sales; 18 percent would de-emphasize Toshiba; 13 percent would de-emphasize Acer and 12 percent would de-emphasize Lenovo notebooks. In a market that's already brutal on vendors, those numbers can only work in the channel's favor in winning leverage from other vendors.

2. PRICING

Don't expect price cuts right away. Dell has been a pricing leader and is fighting to regain market share. But there are strong signals the company won't sacrifice margin in the channel to win that market share back. In its most recent quarter, Dell reported an increase in product margins specifically because it opted to decrease sales of lower- margin products. Even though Dell now is selling low-priced desktops at Wal-Mart, the commercial segment is a different part of Dell's strategy. A price war is unlikely.

3. LOGISTICS

Dell won't, at least initially, use distributors such as Tech Data or Ingram Micro. The company is committed to shipping directly either to the end user or the reseller. When new products such as processors from Intel or AMD launch, a reseller's ability to be first to their customer with new PCs or servers may very well depend on Dell's ability to get their products out the door quickly. Dell also carries about three days of inventory, which is orders of magnitude less than anyone else in the industry. That also means less margin for error if, say, a shipment of hard drives goes bad or there is a sudden shortage of memory.

4. FINANCING

If you haven't encountered Dell Financial Services in bidding for a customer's business, chances are you will soon. Dell Financial Services is one of the biggest players in IT financing and helps Dell close $6 billion annually in product sales. Dell executives want to open its opportunities up to the channel, but resellers should be careful. While Dell is poised to enact channel-friendly engagement rules to avoid channel conflict, Dell Financial Services is a separate legal entity from Dell (it's a joint venture with CIT Group). Every month in its billing statement to customers, it makes a direct pitch in marketing literature for them to buy more Dell products. If a reseller's customers are loyal and won't buy directly from the vendor, this isn't a problem. But it's worth watching.

Next: 5. Product Quality