HP, Partners Exchange Jabs Over Gray Market

Phyllis Massey, global manager for brand protection at HP, told a group of solution providers that they have the power to slash the volume of gray market HP products. "You can reduce the demand for gray market products by not buying them," she said. "If you don't buy them, they [gray marketers] won't sell them."

Massey said HP research showed that in 2006, 95 percent of all gray market HP products came from systems originally sold to HP authorized partners at a discount, with the remaining 5 percent traced to arbitrage. That's up from levels in 1999, when 60 percent came from partners, 20 percent came from HP (in the form of products sold to brokers) and 20 percent from arbitrage, or shipping product from one geography to another to exploit price differences.

But one solution partner asked, "You mean to tell me that in 2006, no manufacturer was a source of gray market products?"

Massey responded that HP was selling no products that she knew of to the gray market.

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Solution providers pointed out, however, that HP could easily track down the source and halt most gray market products by tracking product serial numbers. Massey said HP can only track products by serial numbers in the United States but that by the year's end the Palo Alto, Calif.-based company will be able to track serial numbers for products sold in all geographies.

VARs also faulted HP's return policies, which severely restrict returns on products purchased using special pricing discount letters. One solution provider noted, for example, that a customer will sometimes order 1,000 systems bought via special discounts but end up taking only 950 systems.

"If I have 50 boxes stuck in my warehouse and if I can't return them to HP, I'm going to do something about it. And it will be something HP won't like," said the solution provider, who asked to remain anonymous.

Massey acknowledged that HP isn't perfect but said the vendor has taken steps to reduce global pricing disparities and increased the number of SmartBuy products that come with a single low price for all partners.

She added that the Americas Partner Conference was one of the first opportunities that her seven-person global brand protection team has had to discuss gray market remediation efforts with VARs and get their ideas about solving the problem.

"We need your help," Massey said.