Changes aimed at rewards based on profitability
Hewlett-Packard is working on a new channel pricing model focused on Big Deal enterprise accounts.
The Big Deal changes being considered by HP are aimed at rewarding solution providers based on profitability rather than a fixed percentage of a product&'s list price, according to channel executives familiar with the plan.
Sources said the new Big Deal pricing strategy, which is in the process of being formulated by HP, could be implemented as early as Nov. 1, the beginning of HP&'s fiscal year.
HP is considering making a percentage of the fees it pays the channel based on the actual Big Deal selling price rather than the product set list price. “If they do it that way, both HP and the channel will be saying ‘Let&'s sell it for as much as we can so we can both make more money on the deal,&'” said the solution provider.
Big Deal enterprise pricing comes about when a solution provider registers an opportunity and applies for substantial discounts off list price in order to win the highly competitive business. Partners say Big Deal pricing involves most enterprise deals.
As it stands now, according to HP enterprise solution providers, HP pays the channel a base 8 percent of list price to be shared between the enterprise distributors and the solution providers, rather than a percentage of the selling price.“What that does is it tells everybody to let&'s go beat up HP and get the biggest discount possible in order to cut the sales cycle because it doesn&'t affect our margin,” said one HP enterprise solution provider who requested anonymity.
Solution providers say HP, Palo Alto, Calif., recognizes the problem and has taken what some partners call shortsighted measures including, in some cases, forcing partners to give up some of their margin on aggressively priced Big Deals to win the business. “They have put all of these incentives in place to go after these really tough deals that take time to get, but if you start to see that they are much less profitable, you start to wonder if it&'s worth all of your time and effort to get them,” said another enterprise HP solution provider.
Another enterprise partner, who has been briefed and did not want to be identified, said the plan “sounds interesting, but until they incent their own sales force [by compensating them on profitability] the genie is out of the bottle.”
John Thompson, vice president and general manager of HP&'s Americas Solution Partners Organization, wouldn&'t comment specifically on pricing issues, but said that HP&'s Americas channel business had grown more than 9 percent in the first half of HP&'s fiscal year ended April 30.
He added, “At the same time we&'ve come up with new ways to make business profitable for partners as well as HP.” He cited HP&'s new margin portfolio tool, which gives partners more rebates for selling a broad range of HP products in a single solution.