Riskier business

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HP Australia's personal systems group (PSG) will absorb more credit risk as it attempts to rev up its channel operations now that the merger dust has settled.

Under its new channel program structure, the company is pushing a hybrid “sales agent” model, which it claimed assists its channel to reduce the cost of doing business with HP.

HP expects to have “several hundred” resellers signed under its "agent" model by the end of this year.

“We think we'll be able to pull on the majority of the business partners and a good percentage of the direct source [partners to the agent model],” said PSG general manager Tony Bill.

Under this model, orders are placed directly on HP and the customer quotes an “agent number.” Once HP receives payment from the customer, it allocates a service fee to the reseller or agent,” he said.

HP may act purely as a fulfilment arm, “Each time they [resellers] add more value there's an agent fee provided to them,” he said.

Last month, Bill said that around 30 percent of HP's business would be transacted under the agent model, a critical part of its post merger strategy. “It means we are alleviating some of the credit risk in the channel because we are taking the credit risk of the end user customer. “In the traditional model you have multiple points of inventory - there's inventory in HP, there's inventory in the distributor, there's inventory in the final tier reseller,” he said. HP takes on the risk of obsolete products and the cost of stock sitting in a warehouse, he said.

HP has grouped its post-merger partners as HP Business Partners and HP Registered Resellers. Business Partners - of which there are around 100 - have a direct relationship with HP and an account manager regardless of whether they buy direct from HP or through one of its eight distributors.

“They have direct account management but not necessarily direct source [of product] from HP. The partner relationship is not determined by where the partner buys the product.

“We're moving some partners to direct source from HP and some to distribution but we still maintain the account management relationship with these guys [resellers].” Around 32 partners have the right to buy direct from HP, with the remaining “thousands” of partners buying through distribution. Bill declined to provide any firm details in relation to rebates that partners would be entitled to under the new structure. However, resellers that “specialise” in a market segment are entitled to an additional sales rebate, Bill said.

HP will continue to review its channel structure over the coming months. “We will continue to make sure we're not falling over ourselves in the market and creating a price war that doesn't need to be there,” Bill said.

“If there's HP business to be had we want to make sure partners are getting as much margin as possible and not having to compete with another HP reseller for the same piece of business,” he said.

Bill said that when HP selected direct partners, they had to be doing around 40 percent of their total business in HP products and services. “It was not the sole indicator, however, if there was a reseller that three years ago HP [sales were] 50 percent of their hardware business and [were] now 15 percent we need to look at the value of continuing that direct relationship.

Other indicators included geographic coverage, ability to drive HP product growth and a focus on new markets such as wireless mobility, digital content in imaging and printing, enterprise storage and Tablet PC technologies.

“We're in a maturing market which means the margins are coming out of technology products. So from a product go to market standpoint we need to focus on those partners that have the best opportunity for themselves and us to drive greater margins,” said Bill.

“If the partner hasn't evolved their business model around expanding beyond the product, then the value being contributed to the customer is diminished.

“We are going to continue to review the partner base and that's not a statement that we're going to reduce it anymore but we will continue to evolve it change it and add and delete,” he said.

In the meantime, Bill Said HP's direct sales ratio will be less than 20 percent of PSG's total business in Australia. More than 50 percent of those “direct” customers are buying from Dell or IBM and are being targeted by HP, Bill said.

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