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To: Chuzzlewit who wrote (32564)	3/7/1998 8:43:00 AM
From: Geoff Nunn	Read Replies (2) \| Respond to of 176387

Hi Paul, thank you for the points you made about "stuffing" the channel. I suspect you probably know CPQ does in fact sell to retailers on a consignment basis. It is not unusual, and may be a regular practice, for CPQ to enter into agreements with retailers to buy back units of particular models which remain unsold beyond certain dates. Why does CPQ do this? Although stuffing the channel is certainly a possibility, I think there is another explanation. I believe CPQ does it to support its aggressive strategy of retail price maintenance (RPM). Under RPM the retailer is compelled to charge the public the price set by the manufacturer. This strategy, BTW, deserves more attention than it has received as a possible explanation for CPQ's current inventory build up. How does a manufacturer induce a retailer to agree to RPT? If the product is one in which technology changes slowly -- say, refrigerators -- maintaining a set price on the product may pose little risk to the retailer. But since the product is computers, CPQ has evidently found that the consignment approach is the only way to induce its retailers to support its RPM policies. Because of RTM CPQ's prices are relatively "sticky," at least in the home computer market. Rather than making frequent price adjustments as conditions warrant --like Dell does, CPQ allows some models in retail stores to become extremely over priced. This, of course, is inefficient because these units usually don't sell, and eventually must be shipped off to a mail-order vender before the price is reduced. I have noticed that there are occasional windows of opportunity in which some CPQ models are very aggressively priced - right after the price has been reduced by 25 or 30%! - and may be the best buy on the market. More often though they seem overpriced. With sticky pricing on a product that undergoes rapid obsolescence, is there any wonder that CPQ experiences inventory management difficulties? RPM seems utterly incompatible with JIT inventory management. BTO involves very complex coordination of production and customer demand. Surely, a key requirement here is flexible pricing. Given the CPQ mentality which emphasizes RPM, is there any wonder CPQ is experiencing an inventory bulge -- and difficulty making BTO work? Regards, Geoff