Internet lets Compaq go direct - in an indirect way

Compaq claims it has found a way to achieve most of the benefits of going direct while still keeping resellers in the loop. By the end of the year buyers will be able to use the Internet and telephone to order product direct from the company's build-to-order site in Sydney via local resellers. Analysts say Compaq will have to walk a fine line.

Compaq claims it has found a way to achieve most of the benefits of going direct while still keeping resellers in the loop.

By the end of the year buyers will be able to use the Internet and telephone to order product direct from the company’s build-to-order site in Sydney via local resellers.

Analysts say Compaq will have to walk a fine line. On one hand, Compaq will be taking orders through its dealers for volume business customers, but on the other hand the company will be fulfilling those orders itself.

Compaq New Zealand general manager Robin Paterson says once Web site customers have specified their configurations they will be presented with a map of New Zealand showing nearest reseller outlets.

Orders will be forwarded via the resellers to Compaq’s Rydalmere technology centre where the systems will be built to order.

While the first phase of the build-to-order system is already well advanced in Australia, the Web implementations are still being developed in New Zealand.

Overseas, other vendors’ Web pages offering lists of resellers have caused a furor because of buyers’ tendencies to go for the first name they see — inevitably the name at the top of the list or the most well known name. Similar difficulties apply where customers are offered multiple choices over the telephone. In Australia, phone buyers must choose between a brand name and a list of resellers from which they must make their choice.

Compaq’s latest moves are not unexpected as the company rises to the challenge of increasing competition from direct distributors such as Dell. Compaq expects it will now be able to speed up delivery hugely and at the same time increase efficiency by eliminating the need for further modification to systems closer to the point of delivery. Compaq’s managing director and vice-president for Australia and New Zealand, Ian Penman, expects the new system to deliver lower costs to customers eventually.

Penman emphasises that the whole point of the new distribution model is to be more responsive to customers.

“In the past we have had to forecast our local market needs well ahead — and that’s a recipe for getting it wrong, he says. “ODM, our optimised distribution model, centres on the ability to bring components closer to customers.”

Penman says the aim is to be able to deliver products within five days of ordering, although some specifications could take longer. The five-day target beats recent turnaround times of three to four weeks from Singapore, where the factory sometimes found it difficult to break into the assembly line to meet New Zealand’s typically modest requirements.

Penman expects the new system to deliver lower costs to customers eventually. Customers would also benefit by having their “image” — their software configuration — loaded at the Rydalmere plant.

Healthy profit margins and growth in unit sales for the past quarter indicate that Compaq can afford to retain its resellers even while doing more direct order fulfill-ment.

The key is to get resellers to ship more unit volume in areas where direct-sales vendors such as Dell have nipped into Compaq’s market share.

Compaq last week reported a 25% increase in second-quarter sales, but profits were off by 19% due to a charge related to its acquisition of Microcom.

Sales rose to $US5 billion in the second quarter ended June 30 from $US4 billion in the second quarter of 1996.

Second quarter profit was $US214 million, or 75 cents a share, down from $US267 million in the second quarter of 1996.

Excluding the $US280 charge for Micro-com, Compaq’s second-quarter profit was $US422 million, or $1.48 per share, an increase of 58% over the corresponding period last year.

Paterson says server growth in New Zealand has been particularly strong, and notebook sales are coming back strongly after earlier difficulties. “The home market is particularly strong — we could have sold a lot more product.”

Modems in the New Zealand home machines had been unique to this country, which had caused some ordering problems because of the small numbers required. However, new modems would be suitable for both New Zealand and Australia, which would make ordering easier.

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