Clearway to convince customers to upgrade

A Hewlett Packard scheme that offers cash for old kit has opened up an opportunity for the channel, writes Sean Williams.

There has been a lot of publicity recently about Hewlett Packard's (HP's) new scheme whereby customers upgrade old equipment to the firm's new kit and receive cash back for the old machines.

This is a great way for the channel to address customers who have chosen to stick with older kit.

Here's the customer's problem and how the scheme solves it.

Let's say a customer has bought IT equipment which has depreciated through the books over four years. In this case it means that after three years of owning IT equipment it would still be valued at a quarter of the original investment on the customer's balance sheet.

If they want to upgrade to the latest technology, the customer would have to disclose a loss on disposal of fixed assets because they had disposed of machines still valued in their accounts at a quarter of the original cost. Usually customers receive nothing for the machines that are disposed of.

By using HP's Clearway scheme, the customer would be paid cash towards the loss, therefore making the upgrade more feasible. And giving customers cash for kit that is viewed to be worthless by the market is likely to create interest.

Big manufacturers are able to put these schemes together through sacrificing margin. That is why, under this scheme backed by HP, customers have to upgrade to HP kit.

Apart from margin sacrifice, the interest rate for the new deal can also be used to cover some of the cash paid to the customer.

But are there any options if you don't want to be locked into supplying new HP equipment or if your customer doesn't fit HP's rules for the scheme?

The answer is yes. It is easy to organise your own independent cash-back deals. Just use some of your own margin to subsidise the arrangement.

Speak to your finance firm and arrange for a slightly higher rate to be charged. The customer can then have the same deal from you with no ties on what is supplied.

This means you can go to any customer and offer to buy back their old equipment, whatever its age or manufacturer, and supply your own preferred brand. The customer doesn't need to take the loss on disposal that ties them to existing equipment.

Ask potential customers if giving cash back for their installed base would help them to upgrade. Leave enough margin in your sale to cover some of the cost and work the rest of the cost into monthly rentals.

Sean Williams is chief executive of Syscap.