HP-COMPAQ MERGER: Partners In Choppy Waters

The New HP is yet to come out with its channel policy. This is a harrowing

time for all partners of HP as well as Compaq because no one is sure what is in

store for them. Sudhir Budhay, a leading partner from Nagpur, presents an

analysis of the channel policies of both the companies and the expectations of partners from the New HP.

The New HP is yet to come out with its channel policy. This is a harrowing time for all partners of HP as well as Compaq

because no one is sure what is in store for them. Sudhir Budhay, a leading

partner from Nagpur presents an analysis of the channel policies of both the

companies and the expectations of partners from the New HP.

The September 2001 announcement to merge HP and Compaq was a

surprise for everyone. Channel partners of both HP and Compaq were stunned as

they were busy gunning against each other in most cases.

After going through a lot of twists and turns, the merger was

finally approved and the New HP was found. However, various uncertainties still

form a dense cloud over the channel business of the merged company.

Loyal partners of Compaq feel ditched, because each one of

them had taken a lot of efforts in their own territories to promote the brand.

In view of the uncertainties, competition, including giants

like IBM, have tried to grab the advantage of the situation by attracting the

leading HP and Compaq partners to their fold. Some partners have even shifted to

Indian brands like Zenith. Wipro is also out to grab this opportunity by hooking

major Compaq and HP partners all across the country.

Given this situation, it is very essential for the New HP

management to understand the needs of the channel and act accordingly.

HP and Compaq differ in channel management



Compaq made its presence felt in India in 1998 through heavy

brand promotion especially on the retail front. They doubled their business in

1999 and thanks to Y2K fear, the Internet boom and also the boom in the home

segment, they could triple their turnover in 2000. This was achieved by

expanding the channel reach all over the country.

The year 2001 was not so good for Compaq as the expected

growth could not be achieved. Experts say it was due to the merger uncertainty

coupled with the industry-wide recession.

But, i feel it is because, Compaq went on appointing channel

partners even though the addressable potential was reached in most of the

places. As a result there was an undue price war, reduced margins, reduced sales

and increased overheads for the retailers as newly appointed resellers were

trying to show their performance and addressing the same clients of the old

partners. Net result was feeling of insecurity amongst the old loyal partners

who slowly reduced their stake in Compaq business.

But generally speaking Compaq has been very aggressive in the

market unlike HP. Compaq´s policies were quite flexible and fast to react to

the market requirements. There was one to one contact with each of the senior

Compaq marketing team. Excellent communication and understanding resulted in an

unmatched team spirit. The trust shown by Compaq in their channel partners

motivated the latter to perform better.

As against this, HP is typically a system-driven company.

They have excellent control through systems, are more focused on reports but

without much of personal contact. The escalation chart in case of HP marketing

remained only on paper, some times acting tough or even curt behavior with

channel.

Developing bonsai



In the retail segment, freedom in sales promotion given by

Compaq is very well utilized by some of the channel partners to grow their own

business. Whereas, HP´s tight-roped policies and system controls could develop

bonsais at most of the places. The newly formed company will have to maintain

the flexibility of Compaq and fit in to HP’s system.

Advertising



HP had very little flexibility on the advertising budget. HP’s

advertisement and promotion cost sanctions were directly linked to sales

committed or rather stocks dumped even before the promotions. Whereas, Compaq

used to give a lot of free hand to channel partners to take up promotions

locally. The channel was never under pressure while taking up promotions for

Compaq.

Back-end incentives



Back-end incentives or bonus offered by Compaq for retail

sales were much better and targets were quite realistic, unlike the multiple

confusing schemes offered by HP. HP’s schemes often combined moving and

non-moving products which led to high level of uncertainty as to whether the one

will qualify the slab or not. Also, HP offered the "mystery incentive"

schemes vis-a-vis the clean-and-simple schemes offered by Compaq.

I always wondered how "a mystery" can act as an

incentive to resellers. In fact, we have seen in the past that some resellers

who managed to foresee the ‘mystery’ that they would get after achieving the

scheme, would start discounting the anticipated amount to achieve a given slab.

I wonder, how many Compaq channel partners will feel

comfortable with HP´s such ways of rewarding channel partners.

Incentive or de-motivation?



The main idea of giving back-end bonus, as per the management

books, is to motivate channel to sell more. Most of the vendors forget this

basic objective and make the system complicated by setting high and unachievable

targets, thin rewards, complex bundles and make the whole process more

procedure-prone. The result is that very few manage to get the benefits and

others get de-motivated.

Price protection



Brand cannot be promoted properly if most of the frequently

enquired models are not displayed or stocked for immediate delivery. No channel

partner can afford to take the hit of price fluctuation in this industry. If the

dealers are not relieved of the stock pressure, either they may not stock goods

that will hamper sale or they may use unfair means to liquidate their stocks,

which is also harmful for the reputation of the brand.

There is absolutely no price protection by HP to the

resellers where as Compaq retailer have been well covered for the same. The New

HP has to take a judicious decision on this issue.

Manpower



Computer dealerships in India are about 15-years-old. A time

good enough to have set personal relations in the industry. During these years,

we have seen people moving from distributors to principals, computers to

peripherals, internet to networking. But the fact remains that whenever a

regional manager of a given segment joins some other company, he approaches the

same old dealer he has worked with. Even the channel partners show more trust in

the old person they have dealt in the past and invest in the brand which he is

now asking them to promote.

Going by the same rule, staff of old HP and Compaq will have

their "favorite" dealers / channel partners in whom they will have

full confidence and trust. At some places it may so happen that there could be

personal grudges against specific partners who were formerly the main

competition. This is likely to be a big hurdle. The new management is likely to

lose few good channel partners from some territories only because they were not

comfortable reporting to the new boss who was earlier their competitor and

vice-versa.

Communication



HP is a system driven company with minimal personal contacts

with channel. Compaq has a culture that is friendly towards dealers. The channel

partners had the liberty to call Compaq managers not only in office but also on

mobiles and even at their residences, unlike in HP where one invariably landed

up talking to machines or leaving messages on answering machines.

By the time the actual consolidation of manpower at the

company level and at the channels level happen, the new company is likely to

loose few more months of business.

And by the time new products, prices, stocks, schemes, claim

process and payment systems are announced, it would be more than two or three

quarters of this year lost. It may be okay for giants, but for small channel

partners, who have just passed through an year of recession, survival is going

to be very difficult. Under this situation, most channel partners are likely to

shift their loyalties to some other brands to keep their show going.

The New HP will have to do lot of hard work to catch-up with the losses.

Sudhir Budhay is a leading partner from Nagpur and owns Business

Algorithms.