The scramble is on among PC makers to develop new channels to reach the underserved small- and medium-sized business market, and a version of the direct sales model figures into the plans of four of the top five.
Small- and medium-sized businesses (SMB), generally defined as companies with fewer than a thousand employees, accounted for 15 percent of the 90 million PC units shipped worldwide in the last year, and the segment is growing faster than the commercial market as a whole. Dell, for example, saw its small business unit grow 65 percent in the last fiscal year and expects that pace to continue.
NEC Computer Systems Division, Mountain View, CA, introduced a hybrid distribution model in August 1997 that involves computer resellers in the build-to-order process and last month formed a strategic alliance with direct marketing reseller Insight, Tempe, AZ, to offer solutions to SMBs.
Compaq Computer Corp., Houston, which also signed a deal with Insight, has enhanced its five-year-old DirectPlus fulfillment channel as part of the Compaq Welcome Center, which opened in June to provide SMB customers a single point of access to products and solutions. Gateway, North Sioux City, SD, meanwhile, formed its Gateway Business unit and Gateway Partners program in April to extend its customization capabilities to resellers. Hewlett-Packard is the only one of the top-five PC makers — based on unit sales tracked by market research firm IDC — without a direct sales channel.
“This is clearly a large untapped opportunity,” said Piper Jaffray analyst Ashok Kumar. “For vendors like Dell, who are looking for that incremental growth, this is clearly a pot of gold.”
Dell, Round Rock, TX, which established the direct sales model for commercial applications in the mid-1980s, continues to explore new ways to reach the SMB segment. The company has had a dedicated small business sales force for the last three years and a full business unit for small businesses for more than a year.
To help these customers evaluate their technology needs, Dell has started a “Breakfast with Dell” series of online educational seminars and established a Virtual Account Executive program that allows clients to conduct executive briefings with Dell sales representatives over the Internet.
For every vendor, customer demand has been the catalyst for change. The increased sophistication of SMB buyers and their desire for purchasing options has motivated companies to add capabilities or expand existing ones. In fact, the SMB market tends to buy more of its computer products by direct means — 48 percent, according to figures cited by Compaq — than the commercial business market as a whole.
“Choice is the underlying objective,” said Dave Middleton, vice president of direct marketing at Compaq. “As customers have become more confident and knowledgeable about the products and services they're buying, they tend to look at different ways to acquire them, ways that better suit their own requirements.”
Compaq is marketing the enhanced DirectPlus capability through print ads in business and trade publications, Internet buttons and banner ads, and DRTV. Last month, the company shifted its direct marketing account from Ammirati Puris Lintas to Draft Worldwide, citing the latter's “vibrancy” in the direct field. NEC launched a $40 million marketing campaign in August 1997 that included print ads and direct.
For businesses, buying direct from the manufacturer is faster and easier than going through a reseller. For PC makers, building at the time of the order reduces inventory inefficiencies and lowers shipping costs. As NEC public relations director DJ Anderson explained, manufacturing has shifted from a market forecast to an order forecast. And it's not just buyers who place orders, resellers also are becoming customer order takers.
“The demarcation between direct and indirect vendors is not black and white. It's more like shades of gray,” Kumar said. “Clearly, Compaq and other indirect vendors are trying to avail of their opportunity.”