The Box and Beyond
Weve got a strategy called "The Box and Beyond," where fundamentally we believe the way were going to be successful in this marketplace is to surround our products with value-add. It starts with something as simple as a warranty. It goes on from there.How do you learn how to use a Tablet? How many people know how to use a Tablet PC? For that functionality, we bring the software to bear. Over four out of five people who buy that tablet buy that software. And theres high margin there. We have other programs, like "Keep Your Hard Drive." When people have a problem with their PC, they dont want to give up their hard drive. They want to hold on to their hard drive while they change PCs. Battery service plans. The biggest issue from an institutional perspective is, "Im going to buy 100 laptops today, and Im going to buy 100 batteries for them. But I know four, five, six, eight months from now, Im going to need more batteries." So weve built up into a situation where every six months or every four months, based on what the customer wants, we send them battery refreshes. Things like this are critical to our success, and we track every month how we are doing with what we call attach rates. What percent of the boxes that go out, the units that go out, do we attach some service [or] some software peripheral. Thats where the profit pool is. How is your attach rate? Our attach rate is improved by 100 percent over the past year. I think we have an industry-leading attach rate on services, and we continue to put more and more emphasis on the software peripherals. Were doing better there as well. Are there any services that you dont offer now that you plan to in the future? No. I think frankly there is enough here in terms of doing more of the same, but doing it more efficiently and more effectively, that will keep Gateway very engaged for the next 12 to 18 months. There is significant upside potential for us in terms of how we can better serve our long-term customers. One of the things were really focusing on is not only attach at the point of sale, but attach three months, six months later. What else does this customer want? What else can we sell them? Now were having follow-up call campaigns and things like that that have been pretty successful with customers. Earlier you mentioned SMBs [small and midsize businesses], and an initiative targeting them. Can you elaborate on the importance of the SMB customer to Gateway and the details of this initiative? Its really a reset for our direct business. Gateway was founded primarily by selling configure-to-order products for the consumer. Over the last 10 years, retailers are becoming a more significant part of the consumer business. In fact, you could argue that in terms of units, they sell the most units in the consumer sector. Theres also been a lot of price compression thats happened over the past 10 years, and its become increasingly more difficult for the direct players like Gateway or Dell to compete with the retailers. It also places additional margin pressures on us. Next Page: An underserved market.
For customers who buy our tablet PCs, we now have an add-on for learning software.