Selling computers via dealers and the mass market

Question

As discussed in Origin of dealer networks, the two main ways to sell computers are, and particularly were in the old days,

1. Three digit price tag sold to individuals => mass market, department stores and suchlike.

2. Four digit price tag sold to businesses => dealers, who are specialists in computers, provide advice, support et cetera.

Looking at the history of Commodore as discussed in e.g. http://www.filfre.net/2012/04/computers-for-the-masses/ they started off selling the PET as a business computer via dealers, then introduced the Vic-20 which was obviously a home computer and needed to be sold via mass-market stores. This apparently led to many dealers feeling betrayed and abandoned and in turn abandoning Commodore, which was a problem a few years down the road when they introduced the more expensive Amiga and wanted to position it as a professional machine, but now lacked dealers.

I would have thought it should be possible to say to the dealers "look, this is our home computer, the money per unit wouldn't be enough to interest you anyway, you are still our valued partners for selling our business computers."

If that's not the case - and apparently it didn't work that way for Commodore - does that mean it was simply impossible for one company to do well in both markets (until PCs became cheap and capable enough that they merged)? Did the psychology of the market channels require that a computer company choose exactly one of the business and home markets? Or am I missing something?

Answer 1

Commodore's experiences were driven by the interactions between Commodore management and its dealer network, and should not be taken as indicative of some broader tendencies within the early personal computer industry. To support this assertion, I would point to the other early personal computer companies whose experiences were different from Commodore.

The first example I offer is Tandy Radio Shack. Tandy was early to market with moderately priced personal computers (original TRS-80 line), high-end business computers (Model II, Model 12, Model 16), and low-cost home computers (Color Computer 1/2/3). All three lines experienced marketplace successes and were sustained for years through retail sales at Radio Shack, despite the vast pricing differences. The systems available represented a mix of 3-digit and 4-digit pricing, and they were sold to all categories of home, hobbyist, professional, and business users. Tandy's approach was to own and control their dealer network, and this certainly gave them a different experience than Commodore.

Another example is the launch of the original IBM PC in 1981. This was an expensive professional, business system when introduced. Quoting from the IBM Archives: "Needing new channels to distribute these new computers, IBM turned to ComputerLand; Sears, Roebuck and Co.; and IBM Product Centers to make the IBM PC available to the broadest set of customers." It was not uncommon for Sears to carry big ticket items in their stores and catalog, and IBM's approach was to leverage its own dealers, plus dedicated computer dealers, plus department stores for their expensive new computer. When IBM followed up the successful PC with the PCjr, they also attempted to retail it through multiple channels. It did not find success in any channel because it was widely regarded by consumers as a poor product.

Another example is the Apple 8-bit line. The early model Apple II/Plus/IIe were in the 4-digit price range and sold through a network of computer dealers with great success. As prices of computers came down, and as new low-cost models like the IIc were introduced, 3-digit prices were common and so was mass market selling. Apple continued to sell Apple II through dealers despite the falling price, and also alongside more expensive products like the original Macintosh. Apple is probably the best example of an early computer company using multiple types of retail channels and selling computers on both sides of the "$1,000 barrier" with good success.

Based on these examples, Commodore's problems with securing a reliable dealer network for the Amiga were most likely self-inflicted, based on past policies that had a negative impact on Commodore dealers. During the aggressive pricing wars that saw the Commodore 64 fall from $599 to $199, some dealers were left holding inventory that they could no longer sell without taking a loss. Commodore alienated their dealers with their aggressive and rapid price reductions and with no offers to compensate them for the losses. As such, the dealers that survived developed a healthy skepticism of Commodore that would make them less likely to join forces with them for the Amiga.