Compaq's new program essentially retracts a ban on Web Presario sales, but imposes advertising and customer support obligations on Internet sellers, according to Leslie Adams, director of marketing for consumer PCs in North America. Similar programs will likely follow for selling Deskpro and Prosignia computers, said sources.
The restrictions are fairly light. Dealers can't offer to sell PCs below a "minimum advertised price" (MAP), but can bundle additional products and use other promotional techniques. This suggests that falling prices and the dilemma between Web and retail sales will likely remain a fact of life for Compaq, storefront retailers, and the PC industry in general.
In February, Compaq stirred up controversy when it suspended agreements with as many as 10 companies that sell its Presario systems over the Internet, amid complaints from "brick and mortar" retailers that these new dealers were undercutting them in price. (See related story.) Consumers also lodged complaints with Compaq about the service provided by some of these outfits.
"They are hopping from dis-enabling these people to sell Presarios to enabling them because they need the sales," said Roger Kay, computer analyst at International Data Corporation.
"[But] It's an all-night waltz through the 'channel'," he said, meaning Compaq is simultaneously trying to accommodate the network of PC resellers that has helped make the Houston-based company the world's leading PC manufacturer.
The new rules also place service and support obligations on dealers to ensure that customers get what they bargained for. Among the complaints: Overseas customers were buying computers from U.S. Internet resellers, and later discovering that Compaq's warranty (like the warranties given by other electronics manufacturers) only applies when the equipment gets sold into the same geographic region, said Adams.
European customers, in other words, can get warranties on European products, but not on ad-hoc exports.
"Some Internet resellers were trying to grow their business through exports," she said. "People were complaining that they thought they were buying products with warranties."
Internet resellers will have to maintain a toll-free order number so that customers can buy products over the phone or the Web, and have to hire customer support personnel to answer basic technology questions, such as "what's the difference between a 56K and DSL modem," Adams said.
Web retailers will further have to provide secure purchasing systems.
But industry observers will continue to watch for signs of Compaq's resolving the tension between its storefront and Web partners.
Established resellers have worried that low-cost Web dealers, which do not carry inventory or invest in storefront real estate, have taken other shortcuts to offer lower prices. Some of these companies claim to sell their PCs at wholesale prices, profiting only from small service fees and site advertising. Because of their prices, Web retailers have become increasingly popular.
"Certainly pricing today is a very major part of attracting customers," said Merle McIntosh, senior vice president of merchandise acquisitions at Onsale, a company whose sales authorization was earlier suspended.
"As the Internet becomes a more popular place to shop, and the inherent cost advantages of selling over the Internet kick in, minimum advertised pricing becomes less of an issue," he added.
Compaq's MAP policy isn't a ban on discounts, Adams confirmed, just a prohibition against overly aggressive advertising. Bundling free products with Presarios effectively lowers the retail price. "There is a lot of flexibility in what they can do," she admitted.
On the other hand, the new restrictions will likely add some operating overhead to the bottom line of Internet resellers. Onsale, for instance, will likely add telephone support capabilities, McIntosh said. The company doesn't provide such service now, but wants to sell Presario again.
The new program, being rolled out this week, will apply to both Internet-only resellers and traditional dealers who want to sell the PCs over the Web. The restrictions do not apply to sales of refurbished PCs or PCs sold at auction.