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To: Chuzzlewit who wrote (38323)	4/18/1998 10:52:00 PM
From: rudedog	Read Replies (1) \| Respond to of 176387

I assume the post you refer to is Message 4066176 I got info from three different CPQ people. One is a director in the product planning organization. The second is a manager in north american marketing. The third is a long-timer (three digit employee number) who has done about every job in CPQ and now works in the contracts group. I spoke to them at different times and the stories were very consistent. Consumer products are a very different story from the rest of CPQ products. They are not produced in the same factories (in fact most are built in the far east under contract and are not built by CPQ at all). Likewise they are not sold through the same channels and are not controlled by the CPQ sales and marketing organization, but are managed directly by the consumer group. So consumer products are really a completely separate 'company within a company' in CPQ, from manufacture all the way to the customer. This was done to eliminate one layer of middleman and give the consumer group the ability to compete on price in a very tough environment. In most cases the products, with between 7 and 12 points available markup (between CPQ price and US1 'suggested retail'), go directly to the retailer with price protection. For commercial and enterprise products, there are myriad pricing structures based on volume, promotions, etc. but for each CPQ product there is a base set of target numbers, the target 'sales in' price (what CPQ charges the channel) and what the end customer sees ('US1 price'). There are a lot of different ways product can get to the customer. The big partners, Ingram, vanstar, microage, etc. sell both to end customers directly, and to smaller VARs. They have about 22 points to play with between what they pay CPQ and the US1 price. Almost nobody pays US1. Big corporate customers who buy directly from one of these big resellers may see a routine discount of 10%, which will still leave the reseller with 12%. VARs get about the same deal. So the VAR or smaller reseller who buys from say Vanstar has at best 10% to play with and may have to give half of that away. There are also some resellers who are in between the vanstars and the little guys. They buy direct from CPQ but get a higher price (volume based) which leaves between 15 and 20 points between their cost and US1. If they are too small for the 15% level they have to buy from one of the big resellers. For a big sale the channel partner may go back to CPQ and get an additional discount, paid as a rebate, for a specific heavily discounted deal. There is wide discretion in this program but the reseller matches a portion of the additional discount so the limit is usually around 20% additional (a total of 30% discount). Also they get 'price protection' which varied in duration depending on promotion but could be as long as 6 months. This basically compensated the channel partner for any change in the US1 price by rebating the equivalent discounted price difference. This mechanism can also be used to provide special discounting, as was done to move the older inventory out of the channel in 1Q98. The US1 price gets adjusted, and the price protection automatically compensates the reseller. It is this price protection which has been eating the commercial product margins, since it is passed back as contra-revenue and thus subtracts directly from margin. Sorry for the long post but I wanted to give you a core dump of what I know on the subject. I don't think this completely answers your question, but it does set maximum parameters for how large the margins can possibly be for the CPQ channel partners. I have not talked to anyone in the channel, and I doubt if they would tell me their numbers anyway. Any further insights would certainly be appreciated.