Hardware margins not a lost cause

Hardware margins not a lost cause

There might be no such thing as a free PC but for the margin- conscious reseller near enough is bad enough.

Some vendors are aware of the aggravation their resellers are going through in regards to transforming their businesses to meet the realities of the new service-oriented market.

A November road show called Margin Mania, sponsored by Tech Excel/Compucon Computers and with presentations from Epson, Sony, Logitech and Corel, will attempt to educate resellers on how to increase profits by value adding and upselling. The organisers claim some strategies have increased reseller margins by 100 per cent.

Phillip Tran, sales and marketing director of Compucon, stresses that resellers must sell their expertise in order to become valuable to the point where customers no longer consider price a differentiator.

Tran gives as an example a customer wanting to buy a cheap printer. The reseller can instead suggest that paying more for a printer initially will mean that the long-term cost is less due to high maintenance costs on the cheaper version. `One of our resellers simply gives his customer our quote and tells them up-front that he charges $500 extra for his services. It comes down to convincing the customer to pay extra to get the service,' said Tran.

Joe Bizinger, technical and sales manager at peripheral vendor Logitech, estimates resellers can start relying on 20 point margins rather than five points if they take advantage of the current popularity of brand names in particular markets. `Rather than selling a 10 or 15 dollar keyboard as part of a package, resellers need to upsell to an Internet keyboard to lift their overall margins,' said Bizinger.

It is this advice, rather than adding a service on top of a product, that the road show hosts believe to be the immediate future for the reseller in an environment characterised by large integrators and vendors' direct sales models.

`Resellers are competing against the big boys and a lot of people are touting personal service as the difference. To achieve this they have to have great product knowledge,' said Tran.

Yet great product knowledge is the result of a meaningful relationship with a vendor, an oxymoron in the era of direct selling strategies.

`Nobody has the time to teach resellers the strengths and weaknesses of what they sell anymore,' said Tran. `And the resellers don't have the time or the resources to do it all themselves.'

To counter this trend Compucon and the other sponsors are strengthening their reseller ties and educating their partners on how to operate profitably in such hostile terrain. The PC assembler is even announcing the details of a new reseller program in which resellers must attend at least one training session per quarter.

`As the vendors we will give them the product knowledge and market research so that they can act like an extension of our own sales force,' said Tran.

Logitech has built a dedicated Web site for its resellers to access information on products and marketing strategies. However, Bizinger contends that it is only the third-tier reseller, the small corner shop, that will be able to truly take advantage of the suggested selling model and concedes that in six months it might be necessary to devise and disseminate a completely different strategy. Despite this he believes resellers should take advantage of the situation now, and that means making money on brand name peripherals. `You can't sit around waiting for what's going to happen. A lot of the small guys will go down because of the recent turmoil. But resellers will always have the advantage of face-to-face interaction and they need to make more of it,' Bizinger added.

Tech Excel (02) 9417 7898

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