Hewlett-Packard distributors may need to consider raising their prices next month to counter a reduction in rebates.
Starting with HP’s new fiscal year on 1 November, distributors are expected to lose the 0.5% Payment Efficiency Fee (PEF) they received for paying IPG and ISS invoices promptly and without dispute while other cuts will include a 1% drop in CarePaq fees.
“There are a large number of categories in HP and there have been a number of changes in how it compensates distributors,” said Duncan Forsyth, managing director at Westcoast.
But before committing to price rises he told MicroScope “we will have to see what happens in the market place”.
Andy Gass, managing director at Computer 2000, said it was “reviewing” all compensation changes for HP and other vendors.
“What is clear right now is if there is a reduction in back-end margins, one way to keep the model economically viable and sustainable might be to charge a higher price at the front end,” he said.
Blade servers appear to be one area that has seen an increase in back-end margin and John Toal, European president at Bell Microproducts praised HP for the shift.
Calculating HP’s rebate structures would appear to be something of a dark art as it slices and dices compensation to drive different behaviour among partners.
Partners generally need to crunch the numbers through the system for a quarter to determine to what extent they are worse or better off than the previous three months, and some perhaps feel it is better to cover their bases by raising prices.
However with all distributors getting weekly market sales updates, those that have decided to raise prices in the past have seen their business shrink as rivals held theirs firm, and are often forced to capitulate and return to the previous levels.
Sources believe HP is funnelling more distributor sales rebates to the second tier of the reseller channel to pay for market development activities.