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extra for, say, the IBM brand name. Operating in a highly competitive industry, IBM’s PC division desperately needs an advantage with respect to some substantial set of customers, and it is not clear who these customers will be31
Matching Dell 4- PrescriptionsWhat each company should do.?At the corporate level, things seem less clear. Does IBM need to be able to provide a complete line of IBM-produced equipment? Does the PC fill out the product line in some crucial way? What ramifications would a PC exit have for the rest of IBM?Compaq : should the company go wholly to a direct sales model? Would the company be better off split into focused pieces, or at least largely independent units?− To date, Compaq has taken half-steps toward direct distribution. In doing so, it has achieved the worst combination of outcomes: resellers are furious at it, yet it has gotten very little of the gains that would come from a true Direct Model. It must either (a) recommit itself fully to resellers, much as HP has done and cede customers who prefer to buy direct or (b) plunge fully into direct distribution regardless of any reseller backlash.32
Matching Dell 4- PrescriptionsWhat each company should do.?Gateway : How can the company fortify itself before Dell’s inevitable full arrival in the home and small office (SOHO) segment?− Dell’s strength in the direct channel, its ferocious growth rate, and the growing sophistication of the SOHO customer—all of these suggest that Dell will eventually challenge Gateway for the direct-to-SOHO portion of the market. Accordingly, Gateway must take steps to build loyalty among SOHO customers or to diversify beyond this segmentHP: Should HP remain relatively loyal to the resellers? Is “reseller’s best friend” a distinctive, successful position over the long run? Or should HP enter the direct channel after Compaq and IBM have cleared the path?− It is hard to see what HP’s source of competitive advantage would be in the direct channel. The “resellers best friend” is a distinctive position, very difficult to couple with direct distribution . 33
Matching Dell 4- PrescriptionsWhat each company should do.?The key question, however, is not whether the position is distinctive, but whether it is viable. Will enough customers be willing to pay a premium for the reseller channel—a premium sufficient to cover the extra costs incurred by that distribution approach? There will be enough customers for the foreseeable future. The fact that resellers account for 41.2% of sales in the Americas (Exhibit 4) while HP’s U.S. market share is only 7.9% (Exhibit 11) suggests that there is enough room for HP to live comfortably while relying on resellers.More generally, all of the companies, including Dell, need to find a way to escape the persistent downward pressure on industry margins, the threat of backward integration by resellers, and the grip of Intel and Microsoft. testimony to the unattractive34