Direct model makes sense for monitors, says supplier
By Staff -- Purchasing, 2/10/2000
Cornerstone, a manufacturer of large-screen monitors based in Fremont, Calif., has introduced a new purchasing strategy for its customers. In addition to providing its peripheral line to corporate buyers through the reseller channel, the company also now is selling monitors directly to customers via the Internet.According to Cornerstone, corporate buyers who purchase monitors through MonitorsDirect.com can expect savings of 10% to 25% on their IT budget, depending on margins taken by the channel. Monitor purchases typically make up 30% of a company's desktop PC budget.
As corporate buyers well know, selling computer equipment direct is not new. Dell created this model in 1984 as a way to establish direct relationships with customers. Dell's direct model also eliminated unneeded time and costs added by retailers and resellers. To date, a handful of system manufacturers have successfully imitated this model, including Gateway and Micron.
Many companies claim to have an e-commerce strategy that includes a "direct model," says John Noellert, Cornerstone CEO. "But, in actuality these manufacturers use a limited price strategy that offends no one and typically results in the buyer receiving little or no savings or paying a higher price than all other channels."
Founded in 1986, Cornerstone offers a broad selection of monitors, graphic cards and service options. (Dell does sell monitors directly to customers, but only as part of a system purchase.)
There are a number of reasons why this model makes sense for monitors, says Noellert. "First, the technology is stable and typically doesn't require evaluation, integration or configuration. And, yet, monitor expense and the potential for savings are high."
Monitors are both bulky and expensive, and a company that specializes in monitors can optimize its distribution and inventory management systems to reduce cost, says Noellert. By separating the monitor purchase from the system as a whole, corporate buyers eliminate manufacturers' ability to "hide" margin in different parts of the deal. "Thus, the best pricing always comes when a purchase can be disaggregated. Finally, many companies may find value in purchasing core technology through value-added resellers, but moving commodity purchases such as monitors outside the channel."
Real opportunity for corporate buyers is to use the Internet to secure factory-direct pricing. A price is truly factory-direct if the manufacturer offers a price that's lower than an Internet reseller's price.
Historically, manufacturers that rely on the distribution and reseller channel have been reluctant to sell their products directly to customers. While Dell is the top computer supplier in the U.S., it represents only about 19% of the computer market. Resellers can add a significant level of expertise and services that most businesses will continue to value.
Cornerstone claims to be the first to sell direct to customers at below wholesale prices. Monitors are a $10-billion annual market.
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