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Update: IBM tightens reseller noose

Update: IBM tightens reseller noose

Step aside Compaq, it's IBM's turn to step into the channel's direct sales glare. The company attempted to hose down reseller concerns today as its new Web-based pricing model heralds a new age of margin-tight, direct-focussed sales.

According to Philip Bullock, IBM's Personal Systems Group general manager, IBM must have solid performance in each of the corporate reseller, retail and direct sales areas to achieve success as a top-tier vendor.

As such, IBM concedes it needs to improve its standing as a competitive direct sales vendor but doesn't believe the changes will impact the channel. The fact is, there are significant changes going on in the marketplace, Bullock says.

IBM has scrapped its estimated street price (ESP) and general reseller price (GRP) models in favour of a flat Web price advertised on www.ibm.com/au. Resellers hoping for straight box dropping will now receive a flat 7 per cent margin, to which IBM says they can add their own services.

"When you put the price on the Web and allow a customer to buy over the Web, that becomes the recommended price," Bullock explained.

The ESP model was misleading anyway, he continued. "No one ever pays ESP."

But according to Bullock, 80 per cent of its enterprise channel partners -- from which it derives the majority of sales -- still use its "Special Bid" program. This model allows resellers to negotiate deal-specific pricing, which typically offers opportunities for larger margins. "Most resellers add value to the technology," he said. "Let's not argue over margin."

In addition, he claims the majority of customers use the Web for research purposes only and use IBM's Teleweb call centre to actually conduct the transaction. What's more, 70 per cent of calls to IBM are referred to resellers, he says.

While the new pricing strategy does not directly affect IBM's retail partners, it appears the company has more hard yards ahead with its corporate resellers.

Few will comment on the record, with many contacted by ARN stating the company is no longer offering healthy margin incentives.

One corporate reseller who asked not be name said the Web pricing scheme has put a halt to any proactive IBM selling on its part.

"It's not impressive from our perspective," he said. "We will just fulfil orders. There will be no proactive selling."

With discounts for Government business down to 5 per cent with an extra 2.5 per cent added for resellers, the reseller said the only good news was there are other vendors to choose from.

"In the 20 to 1500 seats [market], it takes effort to get sales," he said, adding that the Web pricing model does not reflect the cost of resourcing this segment.

According to Bullock, the primary driver for the direct model is to convince customers that IBM is a premium, yet value-for-money brand. "We need to be seen as more competitive in customers' eyes."

What's your opinion? How will IBM's Web-based pricing model impact your business? e-mail mark_jones@idg.com.au


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