Has Compaq Given Birth to a Stepchild?

We’re no longer surprised when a direct marketer opens retail stores. In many cases, serendipity springs into action: The stores add cachet, plus the strange legitimacy a physical location seems to represent. Both sides benefit.

I’ve been privy to the same experience you may have witnessed: The parent company mails an offer, and recipients show up at the stores to redeem the offer. Great. That’s serendipity.

We’re also no longer surprised when a retailer starts sending out catalogs or even solo mailings. After all, smart retailers know that selling direct bypasses contentious salesclerks and shoplifting and messed-up merchandise and parking problems at the malls.

But now, ever since Dell Computer knocked over just about every other computer manufacturer and marketer by switching entirely to direct, that company’s competitors have, in sequence, a) laughed at the audacity of such an outrageous concept; b) wondered how and why Dell was constantly increasing market share; c) marveled at the ease and consistency of Dell’s growth through direct and the company actually making money on Internet marketing; e) concluded, “Hey, we’d better get in on this bonanza.”

But getting in on a bonanza should be more than a “Me, too” knee-jerk reaction. That’s especially true if a company already has an outside dealer network. Well, as the waiter said when a patron asked if it was raining outside, “Sorry, this isn’t my table.”

Not that anybody asked you or me what the ramifications of a partial switch to direct might be…or how to handle the situation to avoid mass defections and bad-mouthings. If they had we’d have suggested a bunch of toe-in-the-water approaches-concentrating on areas where the dealer network is weak; turning leads over to dealers and keeping score of resultant sales; giving dealers direct marketing materials; forming a separate “direct” company; having different model numbers.

So it was that Compaq Computer Corp. ran a two-color eight-page insert in The Wall Street Journal. Page 1 showed a box with the words “Compaq” and “Prosignia” on it. A big red “Q” (for “question,” obviously) and “How will the contents of this box change your view of Compaq forever?” were the only text on that page.

Subsequent pages announced that Compaq would be selling its Prosignia model “not only from a reseller, but direct from Compaq via the Web or the phone.” And the payoff was “Buy or lease direct from Compaq” followed by the company’s toll-free number. To compete with Dell’s already legendary online success, Compaq also suggested ordering from its Web site (directplus.compaq.com).

And just in case a potential customer still wants to deal with a reseller, the insert has a second toll-free number “to find your authorized Compaq reseller.”

We have to assume Compaq had multiple contacts and strokings with its dealer network before launching this campaign. Featured in the center spread were three computers. The top of the line advertised in this spread was “Prosignia Server 720, as low as $2,4494.”

(Note that direct price. I’ll come back to it.)

I hope you see immediately that these people aren’t of our world. We’d have dropped the comma that emphasizes thousands and projected the price at “$2449.” We’d have fought like tigers, in an ad dedicated to supposed specifics, to avoid “as low as.” And as for that superscript “4” -well, it’s the Superscript from Hell, because a search reveals some dirty laundry: “4. All prices are DirectPlus prices and are subject to change, do not include applicable state and local sales tax, or shipping charges.”

The term “DirectPlus” hadn’t appeared in any descriptions, so it’s up to the reader to figure out what it means.

An accompanying bylined news story in The Wall Street Journal noted, “Compaq’s latest move will further squeeze computer distributors and dealers, who already have been hurt by tight margins.” The article said Compaq will calm dealer fears “by maintaining separate brands for small business and corporate accounts and by paying its 44,000 dealers an estimated 6% commission for referring their small business customers.”

Major resellers reacted by saying they’ll produce their own computers. Great harmony here.

Now, back to that direct price. In the same issue was an ad from a Compaq dealer. Here’s the ProSignia (middle caps are the dealer’s) 720 Series Server. No 15-inch monitor, as the Compaq direct deal includes, and it’s a 350-MHz processor, not a 400. But it has the same amount of RAM, same hard drive, same controller and other stuff, and a faster CD-ROM, plus a modem, which the Compaq ad doesn’t mention …and it’s $1777.50. Not “as low as” $1777.50. That’s the price. And they don’t put a comma between the 1 and the 7.

The point isn’t that a 15-inch monitor and another 50 MHz of speed can’t possibly total the $671.50 difference between the dealer’s price and Compaq’s direct price. Rather, it’s the obvious (to us, at least) point that confusion damages image; and a damaged image damages sales.

The dealer’s ad says this reseller “is your #1 authorized DIRECT SOURCE for Compaq products at COMPETITIVE PRICES.” OK, we accept that, including the word “direct,” because the means of ordering is a toll-free number. Our questions are: Did the dealer know Compaq would run its own direct ad in the same issue? Did Compaq know the dealer would run its own direct ad in the same issue?

They had to. The dealer isn’t a nickel-and-dime operation; it’s a $1.4 billion Fortune 1000 company. Even Compaq wouldn’t go ahead with radical marketing surgery without tipping off its biggest resellers.

Why do we care about all this? Because, in a tightening competitive market-which is what we expect from any fast-paced business phylum-the swing to direct has to be a logical move.

The injunction we ought to issue…and one I wish we could enforce…is that integration of direct with other marketing channels shouldn’t be any more difficult on the retail level than it is on the advertising agency level.

Yeah, sure. Who’m I kidding?