Bundling products and services is changing the face of distribution.
Its been a tough couple of years at Ingram Micro. The mass distributor turned over most of its top management team, watched helplessly as its stock price got pummeled, and spent the last 12 months figuring out what can be fixed, what cant and where to go next.
Even with some of the biggest competition on the skidsInacom is gone, Pinacor is in Chapter 11, and Merisel has been trading for less than $1 for months and was forced to sell off its midrange MOCA unitIngram was slow to see much improvement in its bottom line. But the tide is starting to change.
"We spent most of last year repairing the components of our business," says Kevin Murai, Ingram U.S. president. "We saw a lot more stability in the second half, when we started to focus on how to service traditional VARs and integrators."
Translation: Listen to your customers, but make sure you know who your customers are. Ingram realized that its traditional customers were going to generate the most money and the most growth. But it wasnt taking any chances, either. The company developed a sophisticated internal data-mining system to figure out what products are selling, which products are being sold together, and when and where theyre being sold.
Ingram has been talking about developing those systems for the past three years. The job fell largely to Guy Abramo, a former KPMG consultant who joined the company first as a strategic marketing executive. He quickly moved into the CIO position, revamping the IT systems to be able to mine data and set the companys course, and currently has taken on the job of senior VP and chief strategy officer.
"In late 1999, the management team pulled together and took it upon ourselves to make this company work," says Michael Grainger, currently president and COO, and until this year, CFO. "Priority No. 1 was to increase gross margins, even if we had to sacrifice sales growth. In the first quarter of 2000, our gross margin was 4.7 percent. Last quarter it was 5.13 percent. You can expect to see gradual increases in that number."
One tool for getting there is the companys data-mining operation. Its used for everything from figuring out buying patterns of solutions providers to ensure Ingram has high customer retention, to figuring out the best way to deliver products to market. "We asked questions like, Is there any difference between Compaq, IBM and HP? " Murai says. "There are some interesting differences, and that helps us identify the best kinds of bundles and figure out attach rates."
The company also completely rebuilt its marketing department over the past year, at a time when prices fell to as low as 1 percent to 3 percent above cost, and Ingram and Tech Data both had to figure out where they could make money.
The situation became much better once the competitive field shrank down to two giants, but Ingram also launched into new areas such as wireless, voice and selling bundled ASP services. It currently has three ASP partners and is looking at another 25 to add into the program.
That is a radical shift in direction for Ingram, which until now only sold services as adjuncts to its product business, such as financing and configuration. The company two years ago considered branching out into pure services to sell DSL business connections as a service SKU, but scrapped the program before it got off the ground.
Now its aggressively linking together various midrange products and services to sell as a fixed-price offering. What a difference a year makes.