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Analyzing HP’s Consumer PC Strategy
By Dhaval Valia
 The last 30 days have seen a few channel associations and many channel partners voice their dissatisfaction against HP’s new consumer PC strategy. The channel association in Kerala has even banned members from billing all HP products and has asked distributors to do the same.
This reaction was expected. HP is making changes to its channel strategy which disturbs the status quo. Sunil Dutt, the new PSG head, plans to change three things—reduce and streamline distribution credit, ensure consistent MOP, and widen market coverage.
The move to reduce the credit period from 21 days to seven is a step in the right direction. The culture of 21-day credit for consumer products is not viable. IT is the only segment which provides 21-day credit—most consumer electronics companies provide zero or a maximum of seven days credit to distributors. HP’s related move to align partners to a specific distributor will curtail the practice of sub-distributors and retailers using multiple credit lines from different distributors. The availability of multiple credit lines creates imbalances in the market resulting in over-distribution and distortion of MOP.
HP’s attempt to have a fixed selling price (and hence fixed channel margin) without an element of back-end rebate will help in moderating the wide variance in the MOP. However, I don’t think controlling the MOP is possible in a market like India. It’s not happened in the mobile handset market or the consumer electronics market.
But while I endorse the above two initiatives, Dutt’s step to enroll telecom RDs is what I think could undo his entire plan. The question many are asking is why HP couldn’t have continued with all its IT sub-distribution partners and still brought about changes in credit policies and MOP. After all, companies such as LG have done well with a RD model with credit terms that are similar to what HP is proposing.
In my view, HP should have gradually introduced telecom RDs. Signed up a few initially and analyzed the market impact and whether they were capable of distributing PCs. Ideally, telecom RDs should have been appointed in upcountry locations where they have a wide partner base.
The resolve with which Dutt is making changes at PSG suggests that he has the backing of the top management, and it goes without saying that that HP would have thoroughly analyzed the impact of the new strategy before rollout.
Knowing HP’s dependence on the channel, it is hard to believe that it would launch a strategy which would alienate them. This only suggests that while the new strategy is well intended, its execution isn’t as well conceived. HP must review the new strategy and retune the execution plan if it wants it to succeed. |