IBM: How Low Can You Go?

Pat Judge, president of Choice Computer Center, a Raleigh, N.C.-based solution provider, was upset when he discovered earlier this month that IBM was giving pricing on PCs of up to 12 percent less than what he pays through distribution to employees of one of his clients, a small real-estate firm.

"We're used to IBM running specials at IBM.com that are below our normal costs, but this is the first time I'd ever seen something strategically set up for a specific company--a small company--and its employees with prices that are that low," Judge said. "The pricing blew me away. The customer asked if I could do that for them. Nope."

The discrepancy occurred because while Judge sees a small local firm, IBM views the customer as part of the National Board of Realtors, a nationwide organization with which IBM set contract pricing through an affinity program to offer steep discounts on PCs purchased via credit card. It is not a well-publicized program, but IBM has similar Web sites for dozens of other companies, ranging from a roofing supplier to large consultancies.

"When IBM or any vendor sets up a direct relationship with a price discrepancy--on a one-off basis--of that magnitude, it takes away from our credibility. We are dependent on these deep relationships and cannot be second-guessed or underbid on every transaction we are involved with," Judge said.

IBM maintains that the affinity program discounts have been in place for several years and have never caused any channel conflict.

"There is absolutely no change to our go-to-market strategy or our commitment to the channel," said Frank Vitagliano, vice president of worldwide distribution channels at IBM. The vendor views the transactions between itself and the real-estate agents as separate from what the solution provider sells to the local agency, Vitagliano said.

"This is not a business transaction, it's an individual transaction," he said.

Affinity pricing is predicated on the size of the opportunity, Vitagliano said. "We have to have the ability, when customers ask to do business with IBM for quantity one individually owned systems, to look at those kind of programs," he said.

Choice Computer will continue to sell IBM products but maintains a philosophical difference with IBM over the affinity programs, Judge said. He feels there could be business opportunity in selling to the agents. "To say that resellers don't touch this business is inappropriate because resellers in this industry are forever adapting."