Offering Customers More

By John G. Spooner  |  Posted 2006-06-29 Print this article Print

By changing the way it approaches consumers, Gateway hopes to offer customers more of what they want, while eliminating any potential for its direct business to interfere with its retail channel.

But most Gateway direct-sales customers arent looking for low-price machines, Brown said. Instead, the companys average price for a PC sold direct, which is about $1,500, shows that most are buying fairly high-end machines.
"We dont think were going to scare anyone away. Were just going to take them to where theyre going to end up anyway in a more orchestrated fashion," he said.
Still, the move up market—and Gateway is catching up to well-known PC enthusiast-focused companies such as Alienware and Falcon Northwest—is something the company has tried in the past. During late 2001, for example, it bundled flat panels with some PC models in an effort to differentiate from competitors. Although it eked out a profit for the fourth quarter of that year, revenue was substantially lower in part because fewer customers purchased its more expensive machines. The companys latest effort is more likely to succeed however, executives said. The company can still point customers interested in its low-cost machines to retailers that stock eMachines desktops for less than $400 after rebates. It will also offer somewhat lower-priced models, including a $699 notebook and a $599 desktop, via its telephone sales channel. Callers will have to ask for those models, however. They will not be available through Gateways Web site. "Whats different now is we have this huge retail channel where you can still buy aggressively priced machines" from Gateway, Brown said. "I dont think well lose that customer. I think if we have channels that complement each other… its a winning model." Still, even though it has engineered a successfully entry into retail, Gateway must carefully execute its new plan, analysts said. "The strategy—getting back to your roots—makes sense," said Richard Shim, analyst at IDC in San Mateo, Calif. Gateway targets services at the midmarket. Click here to read more. However, "The landscape is also a lot more competitive [now]. Prices are more competitive. I think its a step in the right direction, because clearly the other way wasnt working to their satisfaction. But its got to be more than we are going to refocus on our enthusiast audience." But the pricing strategy is only the first part of its latest plan. During a second phase, Gateway intends to introduce new designs and bump quality, introducing products that gain more attention from enthusiasts. Although it intends to stick with Intel processor PCs at the moment, Brown said. Gaining more attention means Gateway will roll out new PC models. It will also launch new digital flat panel displays, releasing a 24-inch model and a 30-inch model before the end of 2006, Brown said. "In the end game, we fancy ourselves competing with Falcon Northwest and Alienware," he said. "If you think about where we need to be to do that, we need to make significant investments in our products…and in our marketing to that [enthusiast] audience. Its going to take us the better part of this year to get there." Check out eWEEK.coms for the latest news in desktop and notebook computing.

John G. Spooner John G. Spooner, a senior writer for eWeek, chronicles the PC industry, in addition to covering semiconductors and, on occasion, automotive technology. Prior to joining eWeek in 2005, Mr. Spooner spent more than four years as a staff writer for CNET, where he covered computer hardware. He has also worked as a staff writer for ZDNET News.

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