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Europe: "Prices have totally crashed." (distribution consultant Global Touch Pres Denise Sangster on the European software and peripherals markets) (Interview)

Denise Sangster, president of Global Touch, is a distribution consultant for U.S. software and peripherals firms that are building overseas markets. She has spent most of this year in Europe, talking with publishers, developers, and resellers; we asked her to summarize the trends she discovered:

We keep hearing reports about "softness" in the European market. True?

"The market is very soft, and one reason is that buyers are finally reacting to high price levels that were set in 1985, when the dollar was extremely strong. Since last November, hardware prices have totally crashed in Europe, from 30%-40% above U.S. retail levels to about 5% higher. Now that hardware prices have come down, all of a sudden buyers are saying, 'We're not going to pay these exorbitant software prices any more. '"

Has price sensitivity affected the whole European market?

"Yes--there's been a fundamental change in buying patterns. People are buying much more through direct channels, and they're willing to travel further to get more variety and better prices. In addition, distributors and multinationals are putting pressure on vendors to come up with one price that applies across the board in Europe. Right now, there's not a lot of price parity from country to country. Microsoft in particular is trying to bring all its various European prices--except for those in the U.K.--to within 15% of each other within a year. That's going to be a very distinct competitive advantage."

Has price competition affected European resellers, who were supposed to be delivering extra support in return for high margins?

"The European channel is working with extremely anemic margins. Merisel says that 18% of dealers in France went bankrupt in 1991, and that means somebody--primarily local distributors--got left holding bad invoices. The situation is made worse by the record high interest rates in Europe these days, which put a terrible financial burden on the channel. Analysts are saying that 80%-90% of distributor gross margins are tied up in providing financing to dealers. So there's really no money left to provide local support."

Do you expect that U.S. companies will begin to play a larger role in local support?

"The truth is, there's been very little reinvestment of revenues in the European market--as little as 1% for companies outside the top ten. Today, when U.S. software companies are generating almost half of their sales from overseas markets, that's not reasonable. The key to being successful in the future will be to work more in partnership with local resellers to provide a higher level of support."

Denise Sangster, president, Global Touch, 398 51st St., Oakland, Calif. 94609; 510/601-7573.
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Article Type:Interview
Date:Jul 31, 1992
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