Many VARs attached to Hewlett-Packard products have recently stated that CDW has started using vendor rebates and market development funds in order to sell products below cost.  CDW is well-known for being very competitive about HP pricing, but VARs are stating that at the end of the first quarter, CDW was pricing items such as HP Proliant servers and Imaging and Printing Group (IPG) products well below the cost of what they are paying distributors.  

An anonymous solution provider stated that one of his longest-standing HP accounts was relocating and needed to purchase new servers; CDW went below cost and stole the deal.  Many VARs are accusing CDW of padding margins, though so far spokespeople refused to discuss details about business relationships.  However, in written response to questions by CRN, Harry J. Harczak, Jr., executive vice president of CDW denied strongly that CDW has been passing along market development funds to customers.   

Recent 10-K filing with the Securities and Exchange Commission in Illinois announced that the ability to offer competitive prices by CDW was the result of low cost structure, distribution efficiency, diversification of product purchasing and other cost-reducing items.

VARs and solution providers have been charging CDW, with high HP volumes of getting more HP MDF and rebate money than others in order to price HP products and make a profit.  CDW reported selling $1.76 billion in HP products in 2006.  

While VARs have no issue with aggressive pricing, they claim that CDW’s HP pricing below their costs hurts customer relationships and will eventually affect HP’s own profits.  

Big Deal authorization lets HP VARs and solution providers offer products at reduced prices in order to win deals.  But it was not created in order to shift share from one HP solution provider to another HP VAR.  VARs claim that HP has lost margins on accounts already won as a result of these practices.

For more information on this story about VARs and solution providers, visit the attached link.

Blogged By:  Joshua Feinberg