Martin Banks, Personal Computer World 04/83 - checked

April 1983

Right. Time to think of something to write about again. What shall it be this month? IBM and Apple? Well, maybe - after all they are both worth scribbling about at some time or another. What about home computers, the business, the retailers and the numbers? Yes, that's a good area to have a look at. Even though I was never much good at sums, something seems to be not quite right here.

Now, according to all the press reports, handouts and propaganda, the home computer market has gone barmy over the last six months or so. Any company with something approaching a reputation for manufacturing the machines is selling them to retailers like there is no tomorrow. The retailers in their turn are, if the rumours and (no doubt) apocryphal stories are to be believed, fighting off the punters as they stand 15 deep at the counters, all trying to out-bid each other for the one remaining machine left in the shop.

There is one remaining machine left in the shop because, despite the fact the shop is part of a large national High Street chain, and that chain organised a national deal with manufacturer X to supply N hundred thousand systems a month, they have all been sold. Demand, as they say in the retail trade, is high.

Okay, so what happens now? It would seem logical to me that if supplies, no matter how profligate they appear to be, are in practice limited, and if demand, no matter how surprising or unplanned, is inordinately high, the retailers have only one sensible option - screw the price up as far as the market will stand.

I am obviously illogical - a fact that is well-known to my close friends but which, in this context, requires a little explanation.

While recently traversing the distance between my abode and the small intimate Italian nosherama I occasionally frequent at lunch times, I took the opportunity to conduct a market survey of an hypothesis: that hypothesis being that high demand and limited supply equals higher prices.

In the course of the stated journey I have to pass two of the high street multiples - D****s and L****s to be precise. In the window of each there were a number of different computer systems commonly sold to the general public. For convenience, I selected just one brand for the potted market survey, so that a true evaluation of my hypothesis could be made. For the record, the selection was the Commodore VIC, though I wouldn't want the company to get big-headed about the fact. Now the VIC has a recommended retail price of around £150, give or take a yard, and I quite readily assumed that, given the circumstances, many of the retailers would be taking at least the yard in their current pricing.

Nope.

L****s had lopped over £10 off the retail price, while D****s had carved more than £20 away. I was, I must admit, a trifle surprised. What could this mean? Was someone not - dare I say it - telling the truth?

Was the demand not there? Normal free-market retailing logic says that if the outlets are selling a product at a discount it is for two reasons. One is that the projected demand has not materialised and the retailer wishes to get rid of excess stocks. The second is the usually more dubious practice of 'buying a market share', the tactic of trying to shaft the opposition by selling products at a lower price than the rest so that the competition drops out of the business and leaves it all to that one company. This is normally only a valid technique if the company has the resources and long term objectives of operations like 'Japan Inc'.

So, has the demand not materialised? All the evidence would suggest that it is there, even after the Christmas rush, while, before the holiday, purchasers were laying out their money on computers almost on a sight-unseen basis. Commodore was not alone in shipping highest-ever volumes of product in the run-up to Christmas, and claims specifically to have moved 20,000 VICs out to retailers in just one week in November. Like most of the front runners in this business, it is producing systems by the container-load, and is permanently out of stock.

Therefore, the two halves of the equation in my original hypothesis match up. On one side there is high demand by purchasers, and on the other a limited supply (no matter how many machines are manufactured). Such demand-led markets normally have unit price structures that are inclined upwards, not the reverse.

When it comes to the VIC, the subject of my potted survey, a Commodore spokesman said the company was very annoyed at the major High Street multiples discounting the machine. The reasons behind it appear to be interesting.

Though some of them might pretend it is the reason, it is unlikely that any of the multiples are trying the 'buy market share' tactic - none of them have sufficient clout to sustain the level of business necessary at little or no profit for long enough to corner the market. There are also too many different suppliers, many of them new ones looking for outlets, that would be willing to help one of the retailers provide the market with alternatives.

The other reason, and it is one being given a certain credence in some corporate circles, is that the retailers took fright in the Christmas run-up. It appears they really believed that the market might not turn on as quickly as it did, and that they might not be able to sell the vast numbers of 'expensive' products they suddenly realised they were committed to buying.

In response to this fear, it is conjectured, they decided to discount the prices so as to off-load the machines. If there was to be no demand this would be sensible, for it would be cheaper for the retailers to sell the machines at no profit and save on the warehousing charges than try and sell at full price and have to cover those charges.

Given that fear, and the corporate response, the pricing patterns were set at discount. This is all well and good, except that it seems to have been impossible to reverse the pattern once set in motion. The retailers have seemed unable (or unwilling) to respond to demand in the normal way, and push the prices back up. Now this could be because the high street multiples still don't believe that the demand is there in reality, or that the industry has been telling fibs and the demand actually isn't there at all, and they've only been pretending it is.

A third, ironic, possibility is that the retailers' no doubt computer-based internal management, budgeting and accounting systems are not able to cope with a change in pricing structure once it has been entered into the program. Perhaps they should all run Visicalc?

Whatever the reason, the long-term results could be interesting. The first effect has been to please some of the more specialist system dealers, certainly in Commodore's case. They have sold VICs but never liked them too much because the margin is not so great. Now, they are selling their quotas at full price at least, and apparently loving the attention from the marketplace.

The second has been to the advantage of the purchasers - in that despite the high demand, a little bit of assiduous shopping around, plus a bit of patience, and a computer can be bought for well under list price. Only urgent need for a system should have sent a purchaser to a systems dealer to pay full price for a home computer.

Long-term, the retailers have dug something of a small hole for themselves, for they are now to some extent honour-bound to maintain the discounts they have selected. After all, to sell systems that are in high demand at a discount, with everyone knowing it is a discount, shows they are happy to do it. To suddenly change this policy might appear to the potential purchaser as something not a million miles from an attempted rip-off. They wouldn't do that, would they?

end