Dell's Channel Pricing Problem

Partners need to know if they are quoting a customer a price on a product -- even a single unit price -- that is in line with what the vendor is offering either on its own Web site or from a direct-sales rep.

One of the eye-opening moments from our recent XChange '09 conference was a solution provider complaining that Dell Direct is, in some cases, quoting prices that are 10 percent to 15 percent below the channel price on low-quantity servers or PCs.

"Our customer relationship is undermined by Dell based on the fact that when we do a [price] quote based on what we are getting, the customer then calls to check pricing and they are oftentimes getting 10 to 15 points better pricing than we are being given," said Leo Bletnitsky, president of Desktop Valet, a Las Vegas-based solution provider, during a question-and-answer session with Dell Worldwide Channel Chief Greg Davis. "So that spread becomes gouging in the customer's eyes."

That pricing spread, in fact, is keeping this partner from even quoting the price of Dell products.

Davis, who has received high marks for his willingness to address channel issues head-on, admitted that channel pricing parity is an issue for Dell on its mainstream hardware business. He said Dell is attempting to implement the same kind of pricing model it has used to great success with its EqualLogic business.

It's no surprise that this was a business Dell bought 19 months ago for $1.4 billion. That investment has paid off handsomely because Dell has done such a good job of maintaining EqualLogic's channel momentum. Channel partners, in fact, give Dell credit for not undercutting them.

"The pricing and the way that we have our storage product line set up is working very well," said Davis. "I never have an issue or a complaint with respect to storage because of the way we set it up. We are working to get that same process into our server product line and hopefully through the rest of the product line."

What the Dell case shows is just how difficult it is for a longtime direct-sales company to transform itself into a channel company. All the processes and policies that Dell has built since its inception 25 years ago were built to support a direct-sales model. Now Dell is changing that direct-sales DNA to make way for a channel model. It is not something that can be done overnight. It's a journey.

On the plus side, give Dell credit for improving its Annual Report Card scores, Everything Channel's annual report in which solution providers rate vendors in a range of categories. If Dell wants to continue to see its ARC scores improve, though, it needs to get this channel pricing issue resolved.