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November 15, 1993


By CBR Staff Writer

Inveigled by the possibility that it could fool all the people all of the time, IBM is considering the elimination of the remaining large systems price lists. The only possible rationale for this is the belief on IBM’s part that its sales force can extract more money from more customers by this scheme than by a forthright approach to pricing. Our inside sources say there has been no official decision on this matter, but add that dialog on the issue is widespread within the upper echelons of the company. We believe that IBM’s decision to reduce the amount of pricing information supplied to customers has compounded the company’s difficulties.


IBM is trying not only to sell large customers more (and newer) large systems from its current product line, it is also trying to persuade these mainframe shops that present and forthcoming large systems are the correct strategic choice. Because there are so many factors militating against massive investments in traditional mainframes, IBM must not only get its customers to buy equipment to meet their immediate needs but also to remain strategically committed to IBM’s large systems offerings. Both these efforts – particularly the long-term one – require the customer’s trust. If IBM won’t tell customers what a machine costs and what a future upgrade will cost, that trust is undermined or, in a few cases, permanently destroyed. During the past few years, IBM has eliminated mainframe price lists across Europe and more recently it ceased providing prices for whole large processors (but not enhancements or maintenance) in the United States. To the extent IBM has made each transaction a negotiated deal, it has fostered an adversarial relationship between itself and its customers. Although IBM’s propaganda suggests that it views the large systems business as a co-operative arrangement between buyer and seller, no amount of advertising can offset the stark reality of the company’s actions. By virtue of its sales posture, IBM is treating customers as if it believes they will buy mainframes only because they must. At the extreme, IBM’s posture could be interpreted by customers as predatory. Perhaps IBM is not quite so horrible, but merely a company responding to difficult conditions with a particularly aggressive sales plan. This would be the case if IBM believes that its major customers have willingly if grudgingly accepted its decision to price equipment selectively and quite arbitrarily. However, the most visible evidence suggests that IBM is wrong if it thinks customers are generally satisfied with its pricing policies. IBM has watched its large systems business wither while sales of its priced products are growing and in some cases booming. The company is at a crossroads. The forthcoming announcement of the first in a family of CMOS processors will give IBM an ideal opportunity to turn over a new leaf… or to reinforce its decision to price large systems at whatever level each customer will bear. If the company attempts to rectify the situation by returning to published prices, it can restore the quality of its relationships with key customers. On the other hand, if IBM ignores the rare opportunity to change presented by the advent of a truly new generation of large systems, it will have, for all practical purposes, made it clear it believes that its large systems business is in an irreversible decline.

Copyright (C) 1993 Technology News of America Co

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