HP Policy Puts Distributors In Tough Spot
Distributors and resellers earn HP rebates for hitting and exceeding quarterly goals. On Nov. 1, HP changed the terms and conditions that cover how distributors sell to its approximately 20 prime partners, including CDW Computer Centers, PC Connection, Insight Enterprises and Pomeroy Computer Resources, sources said.
HP prime partners can buy products directly from HP and receive lower prices than if they bought from distributors, channel executives said. Prime partners can still count product purchased from distributors toward their quarterly sales goals even though distributors cannot count those purchases toward their own quotas, the executives said.
WHO'S PAYING THE PRICE?
>> Direct marketers expect distributors to increase HP prices as a result of Nov. 1 change in terms and conditions.
>> Distributors say any cost increases to them will be passed on to customers.
>> Affected solution providers are concerned over lack of visibility into HP's inventory.
>> Distributors expect to retain large solution providers as customers, despite the changes.
"We've been buying the majority of our HP product from HP Direct, and we haven't seen a significant change in pricing or mix in terms of what we buy direct or indirect," said Bob Gregerson, president of PC Connection Sales, a subsidiary of PC Connection. "But we have heard feedback from our distributors about their ability to maintain pricing on an ongoing basis."
Any price increases will likely come sooner rather than later, said Mike Grainger, president and COO of Ingram Micro. "If the net result is that we have higher costs to direct marketers or any customers, then that's what we'll have to do," he said.
Aside from the pricing dilemma, prime partners are concerned that they don't have access to realtime inventory information with HP. Currently, they have access to this data through electronic links into distributors' information systems.
But HP said it would do everything possible to correct any service-level problems. "We have [service-level agreements with our prime partners, and if we trigger any of those SLAs, we have contingency plans in place so their service levels won't drop," said Kevin Gilroy, vice president and general manager of North America commercial channels at HP. "We are also working with our distribution partners to see if it makes sense for them to be an alternative source [for prime partners."
Tech Data Chairman and CEO Steve Raymund said he plans on counting direct marketers as large customers in the future.
"We've earned their business over the years. If other people think they can deliver SLAs, by all means, have a shot at taking business from us," Raymund said.