EXCLUSIVE: HP overhauls PFR rebate system in downturn

Hewlett-Packard has dramatically restructured Pay For Results rebates that has seen the removal of targets in favour of a flat fee based on revenues, which sources say could curtail the aggressive prices secured by e-tailers.

Hewlett-Packard has dramatically restructured Pay For Results rebates that has seen the removal of targets in favour of a flat fee based on revenues, which sources say could curtail the aggressive prices secured by e-tailers.

As exclusively revealed by MicroScope last month, HP UK had been reviewing its Pay For Results compensation scheme and was expected to reduce the entry gate to earnings for its fiscal Q2 started this month to help partners in the downturn.

This had been part of the original plan said Dave Poskett, UK director of the solutions partner organisation at HP, but the tougher market conditions has been such that "we needed to do something very significant for our partners".

"In essence we've taken away the target for partners and replaced them with a fee based scheme so that they will earn from the first dollar spent with us," he said, adding this would make quarterly rebates more predictable.

This change in PFR, Poskett added would help to steer wholesalers away from offering e-tailers' deals at quarter-end to achieve their sales rebate targets, a practise which did not benefit HP or its channel, he said.

The removal of PFR targets for distribution applies to all HP business units and resellers will see the same changes, aside from the Imaging and Printing Group where the entry level earnings gate will be reduced from 80% to 60%.

The net result is that rebates have been taken away from entry level SKUs and are more slanted towards higher-end machines, which could have consequences for etailers who predominantly sell low-end systems.

"This could hurt the consumer channel," said one source, "HP has been paying e-tailers a ton of PFR for selling entry level machines and adding no value."

One distributor agreed, "I think the impact of this is that the ultra aggressive pricing into large customers is likely to reduce. Previously distributors would pursue e-tailers to secure lumps of business at quarter end to hit PFR targets."

The action taken by HP were positive for the channel said Andy Gass, managing director of Computer 2000, one of the distributors that had been calling for realism in vendor rebate targets last year.

"This will help to make income streams more predictable in a challenging market," he said.

Those comments were echoed by Jon Bunyard, general manager at CCD: "This will help create a more level playing field in the channel, which in these tough times can only be seen as a good thing."

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