Compaq: Universal Soldier

In its campaign to win over the SME, Compaq is trying hard to pursuade the channel that it can fight on more than one front without any casualties. Sean Fleming reports

The small-to-medium enterprise (SME) market remains the last great battlefield in the war for IT market supremacy.

With the home market and corporate markets pretty much sewn up, all the big name vendors ? and a whole clutch of also-rans ? are looking to cash in on the next major growth area.

The findings of a recent survey carried out by PC Dealer and market research firm Context into what the channel thinks of the SME market (PC Dealer, 26 February) show Compaq has already scored a significant victory on the perception front. Some 33 per cent of respondents said they felt Compaq was targeting smaller businesses better than any other vendor.

Compaq has made no bones about the fact that it has set its sights on being the number one player in all markets. But as things stand, Compaq?s channel is not set up to attack the smaller business user.

Compaq?s recent decision to revamp its pricing policy is a reflection of the importance it has placed on breaking into the SME market. In the past, the vendor had always published a typical buying price (TBP) list giving details of the prices of its products. The TBP was never set in stone and almost always differed from the street price, allowing the dealer to build discounts and soft dollars into the equation before agreeing on a sale price. The company has now said that the only prices it will publish will be those that represent the price the user will end up paying.

Peter Blampied, commercial marketing manager at Compaq, pinpoints this change as a key way of getting a message through to smaller businesses. ?SME users need to know that the TBP practice was not a true reflection of the price they?d end up paying. If the user sees a TBP that?s been inflated to protect a dealer, they won?t call and they won?t buy Compaq. That?s why we?ve taken these steps,? he says.

None of which has ever been much of an issue where larger corporate accounts are concerned. Here the user is more aware of the dynamics of the indirect channel.

Roy Howitt, marketing director of London-based reseller Business Systems Group, feels the challenge facing anyone wanting to break into the SME market is not simply one of slashing prices and speaking slowly and clearly in order to be understood. BSG is one reseller that won?t be chasing after the elusive SME ? its domain is the City and financial markets.

?There has been a lot of focus on this market recently, but how much real research has been done on what makes it tick? What exactly is an SME and what do SMEs want to buy? For example, does the typical SME just want a dozen PCs all networked up with some applications thrown in?? he says.

?Given the way in which hardware margins have been eroded so systematically over the course of the past few years, resellers have to be able to sell services off the back of hardware in order to stay alive. I doubt there will be much scope for this in the SME market.?

The move away from the TBP will affect many of Compaq?s resellers that are currently in the process of negotiating contracts and prices with their customers. Many feel they will be put at a significant disadvantage by the change.

Martin Clarke, sales and marketing director of Lapland UK, is one such disgruntled dealer. ?Our customers aren?t much happier with any of this than we are,? he says. ?Every quote prior to receipt of Compaq?s letter is now invalid. We have to go back to our customers and tell them that prices have changed, discounts no longer apply and that the whole contract will have to be renegotiated. We are very disappointed and we will definitely lose business as a result.?

Compaq has usually been very loyal to its channel, but in this case it has seemingly thrown caution to the wind. Some industry pundits are saying this is a symptom of the damage being done to Compaq by other vendors that have also been actively courting SMEs.

Frank O?Brien, sales director of Fujitsu, says he is more than happy to hear that Compaq?s channel is unimpressed with recent events. ?It looks like Compaq?s having to nail down dealer margins in order to maintain costs and offer reduced prices. This couldn?t have come at a better time ? Compaq is obviously finding its current growth rates difficult to maintain, now its resellers are starting to get nervous.?

One possible explanation of Compaq?s apparent U-turn could be that it sees only a limited role for its existing channel partners in the pursuit of future SME victories. Given that the retail channel is not an attractive proposition for many business buyers and the corporate channel has little to gain from the SME, Compaq clearly needs to find a different route to this new market.

First, though, it needs to raise an awareness among the small business community that Compaq is a viable option and get away from the image it has of being an expensive choice. Blampied is adamant that not only has Compaq made the right move for the SME but that this new pricing platform will be a help to the channel.

?Our last special price promotion was a runaway success,? says Blampied. ?By cutting the price of the kit and then letting people know what price they?ll end up paying, you create demand. Dealers had been using the TBP list to say to customers: this is what you should be paying but we can offer you a massive discount. This just creates a poor image for Compaq.? The challenge now facing Compaq is to make inroads into the SME market without jeopardising the support of its existing channel. The firm has already started playing a more direct role in the sale of some of its products. Its current special price promotion scheme is being handled by a team of dedicated telesales people ? the first time Compaq has acted this blatantly as an intermediary for buyers? enquiries.

There is a thin dividing line between supplying sales support direct and selling direct, and the possibility of going further down this road can surely not have been ruled out by Compaq, even if just for this one sector of the market. To do this, and keep the channel firmly on side will demand the most skilful channel management Compaq can muster.