Share and share alike

PC vendors love talking about their market share (especially if it is growing) and how many units they are selling into a particular market. It is easy to get sucked into a world of shipment figures and year-on-year percentage gains, especially in a fast-growing market like the Middle East. Growth is easy; making money is the hard bit.

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By  Stuart Wilson Published  October 19, 2004

PC vendors love talking about their market share (especially if it is growing) and how many units they are selling into a particular market. It is easy to get sucked into a world of shipment figures and year-on-year percentage gains, especially in a fast-growing market like the Middle East. Growth is easy; making money is the hard bit.

In this region, getting vendors to divulge how many units they are selling is tough enough. Ask them their sales figure for the region and 90% will refuse point blank while the remaining 10% will most likely provide a hugely inflated figure. Against this backdrop, getting any idea on the profitability of vendors within the Middle East is nigh on impossible.

In fact, this is an issue that extends geographically beyond the Middle East. Some vendors will break out top line sales figures for Europe, Middle East and Africa (EMEA) but only discuss overall profitability on a global level. This reluctance to discuss profits on a regional level raises the possibility that vendors are sacrificing their margin to pick up market share and build brand awareness.

Some vendors will actually use a loss leader tactic to break into emerging markets and forge a strong position. The theory being that this position can be capitalised on in years to come when the market matures and up-front losses are offset by solid profitability.

It seems like an acceptable theory but comes with an inherent risk. After all, customers — be they consumers or businesses — are a fickle bunch. There is no guarantee they will stick with a particular brand as its prices slowly start to creep up and it becomes less competitive against other vendors.

There will always be new vendors entering regions with aggressive pricing strategies designed to capture an initial slice of market share. This is why it is vital for vendors not to get embroiled in price wars that sacrifice their bottom line. Vendors need to be predictable and up-front in the way they price their products, communicate with customers and also build relationships with their channel partners.

The third quarter shipment figures for EMEA are now coming out from numbercrunchers and industry analysts across the region. Drilling down through the numbers, the trends are pretty clear. HP maintains top spot, Dell continues to grow strongly across desktops, notebooks and servers, while Acer continues to rocket up the rankings in the notebook space. These trends have been evident in the market for several quarters now.

The trick is to look beneath the top line figures and understand the business models underpinning each vendor’s strategy. Does it make sense in the context of the market they are operating in? What we are starting to see in the Middle East region is a subtle shift in emphasis that starts to question the true value of market share and promotes the importance of healthy margins. Gitex Computer Shopper was a prime example of this trend.

In years gone by, traders would flood into Shopper from across the region, check out the prices and then phone their home country to see if their was any margin to be made in buying the kit in Dubai and shipping it back. Computer Street would also be thronging with IT traders from across the region hunting for bargains and the easy margin.

Not this year. The market is growing up and so too are the regional pricing tactics. Implementing a uniform pricing strategy across the wider region and developing clear-cut authorised channels leaves the traders looking for something that no longer exists. This year vendors refrained from engaging in crazy price wars with each other at Shopper, realising that ultimately there are no long-term winners when it comes to undercutting each other. The vendors have learnt that price wars bring nothing but trouble and strife and now that message is slowly being communicated to the channel as well.

Next time someone in the IT channel — be they a vendor, distributor or reseller — trots out a fantastic growth figure, ask them if they’re making money. It is the companies that combine growth with sustained profitability that will win out. Those that concentrate on the former and ignore the latter are on the road to financial ruin.

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