Gateway Pc In Its Store example essay topic

Gateway Inc. Issues: . The US personal computer market continued to struggle and Dell had just lowered its prices about 20%. As a result, its stock price rose 13% and it gained more market share... How should Gateway respond to Dell and its recent price cuts? o Lowering Gateway prices could jeopardize gross profit margins o Conversely, unit sales were already down so there was the threat of additional sales loss.

Resource Allocation: o Should Gateway focus on US consumer sales more or US business sales? SS Keeping in mind that Gateway planned to discontinue company-owned operations outside North America at the end of 2001 o How should Gateway run its sales and advertising operations? (Keeping in mind, the 2001 advertising budget is about $20 million less than in 1999 at $239.6 million) SS How much emphasis should be placed on PC's and PC-related units vs. "beyond-the-box" products and services? SS Where should Gateway's marketing efforts be directing customers: telephone and its website or to its Country Stores? Operating issues in regards to selling, general and administrative (s, g, a) expenses: o Overall company's, g, a expenses would decline due to: SS Closing of North America manufacturing, sales and service operations Reduction in the number of Country Stores SS Less advertising fees and expenditures SS End of alliance with OfficeMaxo However, decisions about continued's, g, a expenses still needed to be made: SS Does the Gateway store concept need more thought pertaining to Gateway's business model of operating as built-to-order? Gateway's gross margin and operating costs needed attention in order to once again be profitable o The influential aspects among its customer sales mix, its product sales mix and its sales mix across its 3 distribution channels needed to be monitored and viewed as crucial elements to Gateway success Strengths: .

2000, Gateway claims over 20% market share as one of the top 2 PC manufacturers in the US. o 2001, deemed most admired US computer and office equipment firm by Fortune. 2000, operating income of $511 million on net sales of $9.6 billion. Through 2000, Gateway has shipped over 21.6 million PC's. 1999-2000, international sales were 14% to total sales. Gateway Country Stores act as a "showroom" where potential customers can test products and have their questions answered by knowledgeable representatives. o Here, Gateways emphasizes information transference, product demonstrations, servicing, the creation of customer relationships and training...

2001, small / medium -sized business sales increased 13%Weaknesses: . 2000, 14% decline in year-end annual operating income and a $25 million operating loss in 4th quarter. Customers don't have the option of buying a Gateway PC in its store so However, they can have them custom made and shipped home or to their businesses within 5 days. 2000, Telephone and Internet sales dropped to 65% of total revenue. 2000-2001, PC unit shipments severely decline across overall industry. The average price of PC's continues to decrease overtime with largest decline in desktops...

2001, Gateway sales down-operating loss of $576 million Gateway Europe and Asia Pacific saw decreases of 38% and 32% in revenue o Restructuring decisions regarding special charges were responsible for $533 million of loss and sold its outstanding loan portfolio Opportunities: . 1993, European expansion began in Ireland with a sales, service and production facility and by 2000, Gateway had expanded into most of Western Europe... 1995, Gateway introduced its line to Asia Pacific and by 2000, had begun manufacturing in Malaysia, Australia, New Zealand and Japan... 1996, Gateway became the 1st to offer customers the option of custom ordering and paying for a PC via the Internet. o This opened up an entire new market that spanned across the world...

1999, entered Canadian market. Gateway's products are "custom-configured" to match the needs to its customers and come ready to use with various software applications already installed. o Gateway also offers a line of "beyond-the-box" products i.e. monitors, printers, 3rd-party software titles, Internet access services and financial / training /support programs. SS 2000, "beyond-the-box" product sales increased to 20%. 2000, alliance with AOL helped expand Internet-related income including "beyond-the-box" products.

Gateway offers its products through 3 different complementary distribution channels: telephone sales, its web site and its Gateway Country Stores. o In 1996, Gateway had only 2 stores operating, but by 2000, it had 327. The majority of its US stores (85%) were located within a 30-minute drive These channels are thought to provide a competitive advantage in 3 ways: SS Competitive pricing by avoiding costs from distributors, dealers and retail stores. SS Avoid inventory costs because only products that are ordered are manufactured Increase levels of brand loyalty / awareness due to exceptional customer service. Gateway Business Solution centers were created to cater to the needs of small businesses and customers who work from home. Gateway expands its retail presence by teaming up with OfficeMaxo OfficeMax stores would have small Gateway stores inside OfficeMax agreed to "phase out" its own computer department and Gateway would invest $50 million convertible preferred stock and pay for store renovations / rent. ..

2001, Gateway had a new senior management team intact that had developed its 3 core objectives. Threats: . 2001, Apple Computer had plans to open its own retail stores. The 4 other US major PC manufactures (Compaq, Dell, HP and IBM) compete with each other globally and differentiate their market positioning i.e. as built-to-order / direct selling (Gateway, Dell) or build-to-stock / reseller (Compaq, HP, IBM)...

Lower prices of Dell Recommendation: I recommend that Gateway shouldn't lower its prices to that of Dell and instead focus on its goals and objectives of 2001 which promote simplicity, reducing operational costs and growth towards long-term sustainability. Gateway should place more emphasis on aggressively targeting and securing business sales, while not abandoning its efforts and success with consumer sales. I believe Gateway should also stay "PC oriented" but continue to push beyond-the-box sales, perhaps by marketing them together as necessary complementary products and services. Its advertising efforts should concentrate especially on its remaining stores as well as the capabilities of its website.

Alternatives: . In order to respond to Dell's drastic price cuts, Gateway could also lower its prices and hope its margins aren't at risk considering its unit sales were already down or it could keep them at their current price level... Gateway could continue to focus more on its consumer sales or encourage its business market more aggressively as Dell has... Gateway could choose to allocate the majority of its sales and advertising efforts on its PC's and PC-related units or it could allocate them towards its beyond-the-box products and services which have higher margins than PC's...

Gateway could use its marketing efforts to encourage customers to use its toll-free telephone service and its website or it could stress the use of its Country Stores instead... Although overall company's, g, a expenses will decrease because of the many operation actions Gateway took, it still had questions regarding the ones that remained. Gateway could add additional depth to its store concept and its business model or it could stay the same / do nothing / other things... Gateway could pay more attention to its customer sales mix, product mix and sales mix and work with the varying aspects of them in order to acquire better margins, lower operating costs and long-term profitability. Analysis: Analysis of Gateway vs. Dell: Gateway Dell Strategy: "Hybrid Direct" to customers Emphasis on direct to customers - Utilizes 3 distribution channels - Has no stores, lower prices - Stores provide extra benefits, - 1990-'93 Dell used retailers i.e. Staples, however not everyone agrees CompUSA but stopped due to thin gross margins - Focus on low operating costs and efficient build-to-order process- Both had less complication by using fewer channels in production / distribution model compared to build-to-stock firms - Both experiences benefits of built-to-order model Founded by: Ted Wait Michael Dell- Both saw the potential benefits in letting consumers custom build their PC's and also using the Internet to sell them. US MS 2000: Holds @ 50% less than Dell at 8.7% US Market Share leader at 19.1% Market Position.

2000: 14% rev. from International sales 33% total sales from International 56% total sales from PC consumer sales 65% total sales from businesses Weights and Scores Model: Where should Gateway's marketing efforts be directing customers? Alternatives Customer Level of loyalty Ability to test Revenue Customer Index Service and awareness products % Convenience Stores: 5 4 5 5 4 7.659 (33.3%) Website: 3 3 2 3 3 4.662 (33.3%) Toll-free #: 2 1 1 2 2 2.664 (33.3%) Goals, objectives and actions of 2001: Normalize business and operate at a level that will drive healthy shareholder returns through a sustainable long-term business model 1. Simplify business. Decreased the number of components needed to build PC's which cut product variations in half... Extreme focus on "one computer, one customer at a time" while still offering beyond-the-box Encouragement of PC's with new sales commission plan instead of previous higher commissions for beyond-the-box sales 2. Reduce cost structure.

Discontinuation of Gateway-owned manufacturing, sales and service operations outside North America which represented 18% of total workforce o These operations would now be outsourced to service provider so Terminate alliance with OfficeMax which never reached its potential success Closed 10% of US stores and the ones in Canada. Plans for 60 new stores were also delayed o Gateway also dropped its advertising agency and created its own in-house 3. Get on course for long-term sustainability. Focus on revenue growth-start to grow once again Plans to gain market with its high-quality PC and beyond-the-box products and service so Stress effective customer service and relations through all distribution channels Working along the lines of Gateway's 2001 objectives and strategy to "deliver the best value to its customers by offering quality, high-performance PC's and other products and services employing the latest technology at competitive prices and by providing outstanding service and support", the above recommendation to modify operations by simplifying its build-to-order model, reduce all costs where possible and to promote long-term growth is realistic. For many years, Gateway and Dell were very similar companies until around 1996 when Gateway launched its County Stores. Through the introduction of its stores, Gateway was able to expand its retail channel and provide its customers with the numerous opportunities and benefits of a physical store.

For one, customers were able to actually see and test out every product before they committed to a purchase. Here they were also able to benefit from Gateway's experienced representatives who could answer any questions, demonstrate each product's capabilities, gain loyalty and form long-lasting customer relationships. The concept of a company-owned store is one Dell has never tried and although some blame Country Stores for the rise in Gateway's prices, many others have appreciated and taken advantage of this channel. By highlighting the importance of its stores along with the use of its easy to navigate and detailed website and then its toll-free number, Gateway has three different complementary channels to utilize.

One area that Gateway may want to focus on is adding greater depth to its remaining stores in making them more efficient in relation to its build-to-order model and reducing as much cost associated with its stores as possible. Overall, PC prices are continually declining throughout the industry. As a result, manufacturers are relying more and more on beyond-the-box products to increase revenues especially considering they bring in higher margins than PC's. Part of Gateway's strategy of 2001 was to return its focus back to the PC. I think that through the combination of increased PC efforts along with marketing beyond-the-box products as essential PC items, Gateway could capture the best of both and combat Dell's lower prices. Ways in which this could potentially happen is by offering basic beyond-the-box products with the purchase of a PC and aggressively encourage upgrades and additional features customers can't refuse.

Another way to counter other PC manufactures is through differentiation. By Gateway focusing on operating its build-to-order method as efficiently as possible, exploiting its distinct third channel of stores and staying technologically as innovative as possible, it is able to differentiate itself apart from its competitors. Lastly, in addition to its pursuit of the consumer market, I think Gateway could benefit from more assertively targeting the business segment that has been ruled by Dell. It's a fact, that PC's sold for business-use tend to be of a higher quality and therefore, more expensive with higher margins.

In 2000, 65% of Dell's PC sales went towards the business sector whereas Gateway's main market was from consumer sales, which is often less profitable. If Gateway could go after the business market, without completely losing its consumer sales base, it would be able to better compete, especially with Dell.