The days of recommended retail pricing for PC hardware may be at a close, with vendors seeking new terminology in order to avoid suggestions of price fixing. Several vendors are now using terms such as "suggested" or "estimated" rather than "recommended" to provide a less formal guide.
This move also reflects the reduction in the difference between vendor prices and street prices, and the resultant slashing of margins for resellers. Harvey Norman Group computer controller Tony Gattari says the reduction in RRPs has largely been a flow on of Trade Practices' clamp down on jewellery vendors, who gave inflated RRPs to offer apparent "massive" reductions at retail. "So most of the manufacturers have now fallen in line, and are using estimated street prices, because that is realistic. I think the RRPs have effectively become the street prices. The 45 per cent margins are gone - they're history. The RRPs are basically the prices you would expect to buy the products at," he said.
Indeed, a straw poll of Hewlett-Packard Pavilion machines at Harvey Norman found them to come in within one or two hundred dollars of the prices quoted by HP - a far cry from the days when resellers could easily make better than twenty points on a machine.
An early converter from RRP to ESP has been IBM PC Company. Marketing manager David Bolt says his division found its RRP pricing wasn't reflecting the market. "At the end of the day we want to support the channel. Setting arbitrary prices doesn't really help them at all."
AST marketing manager Darren Besgrove says while his company still uses RRP, it is effectively a street price. "We revised ours fairly recently, where we had RRPs out there that were still showing 25 and 30 points beyond what the dealers were buying it for. Realistically in today's market no dealer is making 25 or 30 points out of a PC sale.
"We had long discussions with our dealer channel over this. The thing that really hit home is the dealers are coming under fire from people like Dell and Gateway, who are advertising with a direct price," he said. "We're saying to our dealers we can give you something to combat this, but we can't be hamstrung by sticking to this artificial RRP level. Unless you allow us to quote our press releases and put out RRP price lists for shows that give you a price point to compete, you're going to be dead in the water anyway. Once we got onto that topic they understood it."
A number of other vendors are considering the change. Compaq uses SRP including tax, Texas Instruments and NEC are considering changes, while Hewlett-Packard uses whichever label it feels is most appropriate. An NEC distributor, marketing manager David Hine of Hitech says he preferred more flexible terminology than RRP. However, he adds that the lowering of quoted prices to street prices could be detrimental. "By doing a street price, consumers are going to say that is what they expect to pay for it. There are more and more dealers that are specialists, they might supply certain niche parts of the market. And quite often they can sell a product for close to the full RRP because they're offering their own services as well.
"So as soon as the manufacturer starts quoting street pricing as their standard pricing those specialists lose out straightaway. And often they don't have any trouble selling a product at a reasonably good price, because their services and add-ons are really what makes up the whole package," he said.
Sales manager at distributor Tera Doug Harry says the trend is not necessarily bad. "If they're setting a price point that is realistic, and allows sufficient margin for the dealer to cover the cost of his overhead and his services, I think it's fair to recommend a realistic price. The RRPs for products tend to lose reality in the street. There are customers who will still pay it, but they're few and far between."
Wholesale manager Stuart Ritchie suggests that VARs sell their services at a bundle price. "If a person wants your software tell them it costs $20,000 and the computer's free."
Indeed, the notion of paying for added value has been followed by Harvey Norman, said Gattari. "There has been an enormous pressure on computer margins over the last year and a half. It is a constant battle for myself to maintain an acceptable level of margin to run our business," he said. "What we tend to do is sell services on top of that. Things like extended warrantees and on-site warrantees we do a roaring trade in, because they assist our profit model."