NetApp announces “shallow discount” strategy

Nov 10, 2011

RRP lowered on entry level products but margins remain protected as storage giant targets SMBs

NetApp (NASDAQ:NTAP) has announced a radical “shallow discount” scheme that it claims will help the firm dispel the notion that its entry level products are expensive. The repositioning coincides with the arrival of a new FAS2240 model and downgrading of the old model to a new entry level position.

According to Pete Rawden, partner sales director, UK & Ireland, the new strategy will help the channel better address the entry level SMB market.

This means, for example, where an old FAS2000 solution would have an RRP list price of £10,000 with a real street price of £7000, the new products will now have an RRP that will closely match street price but with no erosion of the typical percentage of margin that partners expect between distribution and typical selling price to end customers.

According to Rawden, list price of its entry level FAS2040 bundles have been reduced by approximately 50 percent compared to the last official price list. The channel boss insists that NetApp will still protect margins but admits that the standard practice of double digit discounting will effectively end for its entry level products.

NetApp partners across Europe have already been briefed and speaking to some at the recent SNW Europe in Frankfurt, the general response was positive. However one partner was unsure how customers would react, “Some [guys] always expect discounts, but on the new products, there is no room to give any... but this is not a market (SMB) that we have ever been in so we wait and see.”

The shallow discount scheme will only apply to the two SMB-focused product lines and Rawden believes that its consultative approach ahead of the announcement will help the channel accept its strategy with little fuss.

Channel Pro comment

Although it’s not a comparison that Rawden wanted to attach to the NetApp brand, when buying a top of the range Mercedes, cars dealers are often prepared to haggle over price. However, haggling over a £6000 Kia Picanto will get you short shrift. NetApp is brave to lower its RRP but there is a danger that partners will still be tempted to shave a few points of margin to win the deal with the price-sensitive SMB. The new 2240 is pretty feature-rich on paper and the add-on / upsell potential of solutions like low cost data replication could be worth more than the margin on tin – even in the SMB.

Other vendors with notoriously disparate list-to-street-price discrepancies have tried this approach before. A few have faced channel rebellion and backtracked but the NetApp exec insists the only way to break into SMB is to offer enterprise features at true SMB prices. Next year’s entry level SMB storage market share numbers, current dominated by the likes of Buffalo and Netgear might finally see the addition of one of the “big three” if that “too pricey” tag is successfully dispelled.

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