HP hardens attitude to selling below cost
Co-operative funds will be withdrawn from distributors that persist in selling the vendor?s products at an excessive discount
Hewlett Packard is threatening to strip distributors of marketing funds if they continue to sell its products at a loss in a move to prevent partners giving away margin to win business.
In a letter issued to distributors last week, HP warned that anyone caught giving discounts above 30 per cent on kit would lose their co-operative funds.The problem of selling below cost has dogged channel partners for nearly five years.
HP lawyers have been working for months to find a way of preventing the channel?s price wars, after attempts by several distributors, such as CHS Electronics and Frontline, to raise their prices, failed (PC Dealer, 4 December 1996).
Ian Miles, general manager of HP?s commercial business, said: ?We are saying that enough is enough. If anyone is selling our products at a loss we want to take steps. It is damaging the channel and our brand.?
Miles denied that it was a bid to fix prices, saying the move was backed by the 1976 Resales Prices Act which refers to products being sold as loss-leaders.
Peter Rigby, networking divisional manager at HP distributor CHS, said: ?We have received the letter and are taking it very seriously because it?s such a key franchise. But we will also be observing the channel to make sure it?s supporting the scheme as well.?
Robert Mountain, chairman of Metrologie, said: ?It is enforcing the proper use of soft dollars, which we are in favour of.?
Other channel sources were sceptical. One source said: ?HP doesn?t want to lose any of the volume so it?s not prepared to cut the number of distributors ? it?s laying the blame on the channel instead.?
Another said: ?It is a bit hopeless really because distributors can still find a way round this. Distributors would love prices to be higher, but if they need to hit HP?s figures then they need their volumes. You can still stay within HP rules by finding another way to encourage a deal but the net effect is you?ve sold HP cheaper.?