A new business model to make Apple resellers and customers happy?

Written by David Tebbutt, MacUser 05/91 item 01 - scanned

Are you happy with your dealer? If you are, then I'm sure you will want it to stay in business. To do that it clearly has to make a decent profit. Unfortunately, in this cut-throat, recession-hit business, many dealers are finding the going very tough.

Conventional wisdom says that when products become commodities, dealers either have to find new products with decent margins or they have to add value to existing products. Thus, we have seen a great movement into expensive, high-end systems, connectivity products and sophisticated application software. Added value is everything you pay for over and above the supply of the hardware and packaged software (support, training, and so on).

The trouble is that we users are far more interested in keeping our own spending down than we are in keeping a dealer's profits up. If we want another monitor, a box of stationery or another copy of Excel, we'll probably scour the magazine ads until we find a really cheap source. Having found it, we'll either take the risk of mail order or bludgeon our poor dealer into giving us a discount.

Another problem for the dealer is that some products are simply not worth stocking because of their low retail value and correspondingly low profit margin. Some dealers do stock such products, though, just to keep you coming through the door.

The folk at Computers Unlimited had been pondering the dilemmas that users and dealers face for almost a year before they publicly announced a plan which they hoped would keep everyone happy. The Software Club goes something like this:

CU would sell direct to end users at discounted prices and guarantee support. It would pass a percentage of the purchase price to any dealer nominated by the buyer, and it would create sales through the distribution of a high-quality catalogue. Properly describing each product to the point where a purchasing decision could be made, the catalogue would also contain details of other CU products which could only be bought from a dealer.

Needless to say, lots of people got very suspicious. "Why should Computers Unlimited reward dealers for doing nothing?" was one obvious argument. "This is the thin end of a huge wedge CU is planning to steal more and more business from its resellers," ran another. One bunch of people said: "Ah, but how will the dealers know if the commission figures are right?" Marjorie Mowry, the Software Club's general manager, said these reactions are only to be expected because it's such a "funky" idea.

The more I think about the Software Club, the better I like it. Mowry has some persuasive arguments up her sleeve. For example, Computers Unlimited currently gets 80% of its revenue from dealers, so why should it want to tread on their toes? Point taken. Most dealers are very good at selling the initial hardware, software and so on, but they're not so hot at follow-up business. Mowry's activities are directed at this after-market so, for many dealers, the extra income is a bonus.

The dealers get between 10% and 17% of the discounted price, as long as the buyer provides the name of a preferred dealer to the Software Club. The buyer gets two levels of discount, according to whether or not a name is provided. Despite the fact that it narrows the Software Club's margin substantially, the buyer's discount goes up if the user nominates a dealer.

This is a curious beast which CU has let loose on us. It is clearly not for selfless reasons - it promises to increase the company's turnover and improve its cash flow. By selling UK versions of a product at a discount and providing support, the Software Club hopes to attract business away from the flakier mail order companies. By giving credit memos, it hopes, presumably, to increase its business from dealers.

Its product catalogue provides a vehicle through which new, lower-priced goods, such as games and utility software, can be sold effectively. The catalogue can also be used to introduce new high-value CU products to buyers who are then encouraged to go to their dealers .

The catalogues will be available initially through dealers who are being encouraged to send catalogues to their users, pre-stamped with their own details. This maximises their chances of being cited as the preferred dealer. In early May, the catalogues will be sent out with magazines and, later on, they will be mailed to CU's base of registered end-users.

The Software Club is a ingenious and courageous move. Some dealers will argue about the details, claiming that some items shouldn't be in the catalogue. That may be so, but I think that for a first stab at a brand new idea, the Software Club has done a jolly good job.