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Toshiba's Premium Challenge

The channel isn't a forgiving place, especially to vendors who fail to properly manage their channel programs and support their partners.

The channel isn't a forgiving place, especially to vendors who fail to properly manage their channel programs and support their partners.

Take Toshiba, for instance. The once-vaunted notebook manufacturer--the inventor of the tablet PC--had a falling from grace awhile back, losing its leadership position in B2B notebook sales as it dined on surging commercial sales. A large part of the blame, Toshiba channel executives admit, was a bungled channel strategy. Pricing was inconsistent across the channel, and its own direct-sales Web site often undercut partners.

Additionally, Toshiba built "premium" notebooks, which sold at a higher price than certain rivals. Toshiba allies found the channel conflict and inconsistent pricing a tough proposition, especially when competing against the low-cost models, such as those from Dell, Hewlett-Packard and IBM (now Lenovo).

The mistakes were costly, as partners stopped pushing or, in some cases, selling Toshiba products. Toshiba's revenue stream is now inverted from its B2B heyday; it earns most of its money from the commercial market, which now accounts for more than 60 percent of sales.

Like its counterparts, the Japanese company has resolved itself to fixing its supply-chain, manufacturing, distribution and reseller problems. It has centralized manufacturing in China to help bring costs down. It recently hired distribution veteran Jerry Lumpkin to run its channel program. And it's cleaning up its programs, defining clear demarcations between the Tecra commercial and Satellite consumer product lines, and diligently working to eliminate channel conflict. And, most welcoming to channel partners, the company has promised that no one in the channel will find a lower priced notebook on Toshiba's Web site.

"If you can fix the conflict, you can get the attention of resellers and win their loyalty to grow business," says Richard Vaughn, director of reseller sales at Toshiba.

And growing business is paramount in the once-commoditized notebooks and PCs--particularly in the midmarket. The Lenovo/IBM ThinkPad combination is targeting midtier businesses, Hewlett-Packard has a robust midmarket program, and there's growing interests in whitebooks. And, off in the wings, is Acer, which is hungrily eyeing more of the U.S. market.

Like Lenovo, Toshiba is playing the innovation card. It's already talking about the new, cool operating and design features of its notebooks that make them worth the extra few schillings. The Libretto notebooks are perfectly designed for business travelers who want a machine that is light and small enough to work in cramped airplanes, without sacrificing power and performance (in fact, the Libretto won this year's VARBusiness Tech Innovator award for mobile computing). And most of its line now sports shock resistant hard drives, added security features and reinforced bodies.

Toshiba knows it needs the channel to increase its existing 12 percent share of the notebook midmarket. The company is adjusting prices to be more competitive, and creating new volume discounts and rebate programs for channel partners. But even those measures won't reduce most Toshiba products to the sub-$1,000 level, making Toshiba's reputation for a high performance and highly reliable notebook with an equally high price tag a tough sell against discount competitors. As one Toshiba executive said, "If you want to sell $700 notebooks, you're not going to do it with Toshiba." I'd put it this way: "If you want to drive a Mercedes, you have to pay for a Mercedes. Otherwise, Dodge has some nice models in your price range right down the street."

Toshiba believes premium value, innovation and performance can win the day. It strategy includes a heavy emphasis on educating partners on the Toshiba value proposition and how its products stack up against competitors. But it acknowledges that growing market share will require demonstrating that partners can make a respectable margin on its products.

"Do we have the horses to run this race? We do, but we may not have all the right horses, and we need to go out and recruit the ones we need," Vaughn says.

It all sounds good, but is not easily done. Toshiba is trying to win back the channel at the same time the notebook market is becoming more commoditized. Aggressive rivals, including Dell and Ace,r are driving down prices, while there are some indications that whitebooks are finding a niche. At the very least, competition among Toshiba and its ilk may make notebooks interesting again.

LAWRENCE M. WALSH (lwalsh@cmp.com) is editor of VARBusiness and GovernmentVAR magazines.

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