Issue #0530/2 - There are inevitable repercussions and aftershocks when a company as large as Hewlett-Packard undergoes a major overhaul. It is suggested that Hewlett-Packard’s may push some end user prices up.
Since Mark Hurd took over the helm at Hewlett-Packard early in the year, the company has been going through a major overhaul. While decisions made by previous CEO, Carly Fiorina, been overturned and the company set on a track that staff believe will position Hewlett-Packard for greater success, reports are emerging that new strategies are being put in place that have the potential to push prices to customers up.
One of the changes is that Hewlett-Packard is reducing rebates paid to the majority of resellers. It seems that the company is targeting higher investment in fewer resellers at the top end.
These rebates are designed to help resellers in their marketing activities and to encourage reseller loyalty, rewarding resellers for the scale of Hewlett-Packard sales achieved. But, the company expects that the changes will result in as much as 90% of sales could end up being sold by just 10% of the reseller base. In return for achieving the highest levels of sales, high performing resellers will receive funding that can be used for such elements as joint marketing programs, training and will have access to a variety of sales tools including project-based pricing tools and automated quotation service.
If this is the case, then 90% of resellers could be cut out of the rebate scheme altogether or suffer major loss of income.
One possible result is that customers who buy from smaller resellers will be forced to pay more for hardware because all the incentives are being directed at the biggest resellers that focus on the largest corporate customers where project-based selling already reduces unit prices.
What does this say about Hewlett-Packard’s support levels for the mass of small businesses, who rely on smaller resellers, and who have been the target of increased support activity over the past two years?
One problem that has been identified by Hewlett-Packard is that resellers are selling hardware they are not accredited, and therefore not entitled, to sell. The company is due to take a much stricter line on these activities. While also having the potential to push end-user prices up, this move does have the potential to benefit the user by reducing unsupported box-shifting.
Distributors are also likely to be hit hard by the changes in strategy. It is reported that they will be given three months notice to hit minimum sales targets, with the threat of losing product lines if minimum levels are not achieved. Hewlett-Packard is reported as saying that it is looking to reduce the number of distributors handling each product line.
Suggestions have been made that customers are unlikely to be happy with the outcome of the changes and increased prices and may ‘vote with their feet’ and head off in Dell’s direction.
Another area where there is potential for Hewlett-Packard to fall foul of the overhaul is must be the management restructuring and reductions in employee numbers. Not only are numbers being reduced by around 14,500, announced three months ago, but whole management levels are being redefined.
One hopes that the rolling around of entire management levels at one time will not result in diluted specialisms, loss of continuity and extended ramp-up times for new products and initiatives. A portion of the restructuring is specifically marketing based, a move that will hopefully provide a more even focus on product marketing across the range of products.
As an American giant, Hewlett-Packard is locked into the short-term, stock exchange driven mentality that tends to drive US business decisions. Certainly with an accountant, Mark Hurd, in the hot seat, there is little prospect of any reduction in that focus.
But the question remains, can Hewlett-Packard afford to lose so many loyal and skilled staff, probably to the competition, just to massage the inflated egos of Wall Street financial analysts and attempt to match expectations set by the stock markets?
And, another question raises its head, could the changes in channel strategy, if they do result in end-user prices rising, prompt a reaction in the customer base that pushes them into the arms of Dell?
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