Gitex fever

The first channel salvos are being fired in the Gitex price war as vendors put the finishing touches to the distribution deals and special offers that they hope will take the market by storm during this vital IT sales period.

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By  Stuart Wilson Published  September 7, 2005

The first channel salvos are being fired in the Gitex price war as vendors put the finishing touches to the distribution deals and special offers that they hope will take the market by storm during this vital IT sales period.

As always, the notebook segment looks set to be a pivotal battleground with major A-brand vendors poised to slug it out once again. Speaking to distributors, it has become clear that no A-brand vendor is prepared to back down in this ongoing battle to come up with the offers that can create the volume without sacrificing the entire margin.

According to one distributor, HP is pushing hard this year and the price of one of its notebook models has already dropped a staggering 20% in the month leading up to Gitex, falling from a starting price of US$1,110 to just US$900. Chuck in the soft incentives for resellers buying significant volumes and the fact that the notebook now comes bundled with a travel battery pack and it looks like a pretty tempting offer.

The word in the channel is that HP is keen to make a real impact this time around. Last year, Acer put in a strong performance during Gitex — especially in the entry-level notebook space — and this year the battle lines are being drawn early. While generating sales volume is clearly important, the channel as a whole will be hoping that this does not dilute vendors’ interest in maintaining partner profitability.

During the Gitex period (including Shopper), too many channel players — be they vendors, distributors, resellers or retailers — continue to be seduced by the lure of sales volumes and play scant regard to the impact on their margins. Sure, making a sale is a pretty good feeling, but if you’re not making any money on it, what’s the point?

As soon as one reseller sacrifices his margin and drops down to cost price, everyone is forced to follow suit to keep up. One bad decision and everybody suffers. It really is that simple. The channel will need to show a degree of restraint and understand that the greater goal of overall channel profitability may in fact be a more worthy cause than hitting their own internal sales target.

As the boss at one major Dubai-based distributor explained: “Gitex is an important week, but that should not mean that all the rules and pricing strategies that are used during the rest of the year should not be adhered to. Just because everyone else decides to drop their prices during Gitex, it does not mean that I will too — especially if it means I don’t make a margin.”

Dropping prices is easy in the heat of the moment. Pulling them back up once that lower price point has become established in the channel mindset is nigh on impossible.

In the run-up to Gitex, many resellers also engage in a policy of brinkmanship, looking to hold off purchasing until the very last minute in order to take advantage of any last minute price reductions.

Right now, the warehouses of many Dubai-based IT distributors are bulging at the seams in anticipation of the glut of purchasing that will occur both before and during the Gitex period. It is certainly an exciting time.

The facts are simple. This is the biggest IT trade show in the Middle East and Africa. This year it is happening immediately before the start of the fourth quarter — the busiest period for IT sales by far. This year Gitex is also occurring directly before Ramadan, which will start in early October. The combination of all these factors has elevated this year’s Gitex to a ‘make or break’ period for many members of the Middle East channel.

Get your sums right, stock sensibly, stick to the business and pricing principles that serve you well for the rest of the year and you can come out of Gitex in a strong position. Make rash decisions, purchase the wrong products at the wrong time for the wrong price, and you will face a tough few months.

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