Competitive Analysis of Dell and Gateway

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By : Rawd Alach

Executive Summary

This comprehensive analysis will be comparing Dell, a company that is thriving right now in sales and customer satisfaction and Gateway, another company that is doing well, but could make some definite improvements to their company.

We will be going through different parts of the marketing process to compare and contrast things such as marketing issues, products, pricing strategies, advertising, sales promotion, etc to compare and contrast the two companies. The main focus of this analysis is to show the different issues that each company faces and then to suggest ways that they can make themselves a better company.

Industry Description and Outlook

The computer industry has revolutionized the way of life for Americans.

It has changed our culture in ways that can never be undone. Socially, we communicate more through instant messengers and e-mail, but the industry is almost single-handedly blamed for creating the lack of face-to-face communication rampant in our country.

Computers have made the workplace more efficient, but some feel they have actually created more work. The computer has revolutionized our way of life. It has made it possible for me to type this paper with little or no misspellings or grammatical errors thanks to “spell check”; while I am simultaneously talking to my aunt, fiancé, and best friend on AIM; while also listening to “Love Shack” by the B-52’s on iTunes.

They have created chaos in our lives by the allowing us to over multi-task. But, they have also made our lives easier by giving us an amazing tool for our everyday lives. Life on your computer is endless: you can do anything but make yourself a pizza, but you can certainly find the recipe for any kind of pizza on the internet. The total impact of computers on our culture may never be realized. Our reliance on computers is a phenomenon not foreseen by the creators.


Although computers were only marketed towards government agencies and educational institutions when they were first created, they are now an everyday household item. The industry saw a major shift from selling specifically to the government and schools to selling to the everyday consumer. Companies had to create all new marketing strategies and products for their new found target market. This industry truly has become an industry for everyone in our society and around the world to enjoy.

The computer industry may have changed our lives and culture as we knew it, but it was the internet that completely changed the computer industry. New technologies had to be created to handle this new found way of communication.

Computers needed upgrades, and the people who did not have computers needed a computer to be on the internet. The computer business was booming. Soon everyone needed to be on the internet to do research papers, write an e-mail to grandma, or buy a new computer.

Computer companies started capitalizing on this new found channel for sales. Instead of selling computers out of magazines and other forms of print advertisement, companies moved to selling computer “direct from the manufacturer” through the internet.

This new phenomenon of the internet lowered the prices of personal computers by eliminating the middle man, and allowed customers more direct access to the manufacturer. Dell, Inc was the first major company to really seize the opportunity of selling via internet. More traditional channels are still used by the computer industry as a whole. (Lower 1)
Retail stores such as Best Buy and Circuit City have been built solely around the technology industry.

These retailers are still a main distribution channel for most computer companies. Telephone orders have been almost completely replaced by the onset of the internet, but are still a viable distribution channel for some manufacturers. Another recently discovered distribution channel is through the sell of Built-to-Order (BTO) or Configure-to-Order (CTO) computers. A customer simply “builds” their computer online or over the telephone, and it is shipped to their house. Dell was also the leader in this new concept. “Dell’s built-to-order boxes allow for lower inventories, lower costs, and higher profit margins-elements that leave it well armed for PC price wars and IT spending recessions” (Lower 1).

Due to the recent popularization of the idea of “global warming” or “climate change,” many companies are finding ways to reduce harmful emissions and dispose of their waste better, including recycling.

This is also known as “going green.” This resolve to be more environmentally friendly has not been lost on computer industry. Recently, Dell, Hewlett-Packard, AMD, IBM, and Sun Microsystems became what is known as the Green Grid. This pact was formed as a reaction to concerns about the industry’s high waste and power consumption.

Although at first the Green Grid was a surprise to the government, they are now working closely with the Department of Energy and the Environmental Protection Agency. (Merritt 1) The Environmental Protection Agency is currently creating the standards for a computer company to become part of the Energy Star Program. This is creating competition between the companies.

Head of the Austin Research Lab for IBM, Lorraine Herger, says “I don’t think anybody else can do energy conservation with the kind of depth and breadth that we can. Over the next few years, we are going to leave our competition in the dust” (Ladendorf 2). The competition is not to be outdone, though. Dell has already started researching a new line of energy-efficient servers (Ladendorf 3).

Recently, the computer industry has gotten a lesson in economics. While oil prices are rising and making shipping and manufacturing costs rise, companies have realized that outsourcing their products can be much more cost efficient.

In his article about the computer industry, Josh Lower has a lot to say about this subject, “Hardware sellers are increasingly turning to contract manufacturers, finding the outsourcing of the actual construction of the components cost-effective” (2).

While some companies are outsourcing to other American companies, some have found that the Asian manufacturers can made the product for even cheaper. Outsourcing to companies outside of the United States has caused much controversy within the American people and our government. When companies outsource to other countries, American jobs are lost. So, a industry that created a lot of jobs for the American economy is now also forcing people out of a job. (Abe 1)

Computers made in other countries are being sold for less than American made computers, and are undercutting the U.S. market. Acer, manufactured in Taiwan, is among the top three computer companies in the world, because it offers the same reliability and specifications at a cheaper price.

Because these companies can offer the same computer for a fraction of the cost of American made computers, the American computer market is seeing a drop in sales as people are discovering these other Asian companies. (Abe 1,2)

Another factor contributing to the recent slow in computer sales is the seemingly companion to the computer, the cell phone. People are using their cell phones for internet and other communication, and have essentially turned their cell phones into very tiny portable computers. Although the launch of Microsoft’s Windows Vista did boost sales temporarily, it did not help too much.

The United States is seeing a slow in economy overall, so a high priced item such as a computer will see their sales slow as well, since consumers are increasingly unable to buy such items.(RP News Wire)

The computer business has many competitors within itself, but there are two companies that are currently excelling in the computer industry, HP and Dell. They are frequently fighting for the top spot when it comes to market share. Currently, Dell tops HP’s market share with a 33.5%. Gateway has a 6.1% market share with Toshiba and Apple trailing with a 3.2% and 3.3% market share (Kanellos 1).

Overall, the computer industry has soared when it comes to units sold. The growth rate of the industry has only increased. From 1981-1985 there were 3.8 million units sold in the U.S. market. By 1995, a mere ten years later, that number had grown seventeen times to 64.3 million units sold. As of 2006, the industry had sold 580 million units (Anniversary Statistics). Although so many units have been sold, some consider the computer industry to still be in the growth stage of its life cycle. “The computer industry today is an example of an industry with a long growth stage due to upgrades in hardware, services, and add-on products and features” (Hillstrom).

Objectives

Dell’s overall mission takes a customer focused approach defined by four initiatives: “driving global growth, achieving product leadership, enhancing customer experience, and developing winning culture.” Dell gives attention to their product, their customer, their company culture, and their global markets. The company implements the vision of a direct business model.

They are based on the concept that “by selling computer systems directly to customers, Dell [can] best understand [the customer’s] needs and efficiently provide the most effective computing solutions to meet those needs” (Dell.com). Dell views their perspective to selling directly to the customer as an advantage by allowing them to build every system to order and offer customers richly-configured systems at competitive prices. Also, their direct business model eliminates retailers that add unnecessary time and cost, or can diminish Dell’s understanding of customer expectations.

Gateway, like Dell, holds customer satisfaction as one of their top goals. The company’s original objective is to help people improve their lives through technology. They focus on treating customers with respect and while maintaining great service, quality, and value. Gateway ranks among the industry’s top companies in customer loyalty; an accomplishment which the company and its employees prize highly.

In regards to technology, Dell produces a large variety of computer systems that are targeted and customized to customer requirements. In addition to their PCs they provide network servers, workstations, printers, and projectors. Its technology is designed to gather volumes of customer feedback allowing for teams of professional to deliver to the needs of customers. Their products are marketed and sold directly to customers. Dell’s market share holds both individual as well as business consumers.

As for Gateway, its advances into the technology arena were significant ones. It was the first PC company to offer systems with color monitors as a standard and the first to offer a standard three-year warranty. Also Gateway was a pioneer in commercially exploring the convergence of the PC and television. It was highly success in its launch of the highly Gateway® plasma TV and digital display. Gateway’s main products are the desktop, portable PC, and network servers. The company offers services like training and support to keep customer satisfaction high.

Dell and Gateway seem to have a lot in common in regards to wanting their customers to be satisfied. Their company objectives overlap in that regard but are very different in terms of the technology each company has chosen to focus on. Dell’s largest concern has always been their PCs.

But through the years, Gateway’s focus has shifted from PCs to new technology like when Gateway branched out to TV and digital displays. Both companies’ always need to pay attention to their financial records to keep their company making profits.
Dell has made a net revenue of 55.9 million for the year of 2006. Compared to its 49.2 million in 2005, they have made a fourteen percent increase in revenue.

Gateway’s net revenue was much less totaling 3.98 million. However, their total net income was 9.6 million, while Dell’s was 3.6 million. But if diluted EPS net income is taken into account, Dell wins out with 1.46 million, while Gateway comes away with only 0.03 million. Dell’s gross profit was 9.95 million with a profit margin of seventeen percent. Gateway’s gross profit was 255.4 million, with a profit margin of six percent, a two percent decrease from last year’s margin.

Both companies seem to be doing well in terms of profit margins. However, Gateway’s operating income was negative 18.9million; while Dell’s was a healthy 4.3 million with a margin of about eight percent. The companies’ non-operating incomes were vastly different. Dell’s was 255 million and Gateways was only 4.1 million. These numbers show Dell’s difference of strategy in business.

Perhaps due to their direct marketing, Dell’s unit shipments grew, increasing a full nineteen percent to 37 million, including 10 million that were made in the four quarter. Revenues per unit were $1,500. Their cost of goods was 45.9 million. Gateway’s was much less at 3.7 million.

Both Dell and Gateway have marketing objectives that they try to meet each year. These objectives are set in hopes of increasing sales and profits. Dell’s sales for the year of 2006 were 55.9 million, whereas Gateway’s were 3.98 million.

Some five years ago, Dell took their market definition to a whole new level making themselves a fiercer competition by selling their products and high-end services to large businesses and PC markets around the world. This move gave Dell huge increase in market share which resulted in a twofold increase in revenues.

In the year 2006, Dell sold 33 million worth of products in the United States and 22.8 million to its customers in other countries. The majority of Dell’s sales in the US (fifty one percent) have been to businesses. And thirty-eight percent of total sales were desktops. Mobile PCs, handhelds & music players made up twenty-five percent of total sales.

Gateway mostly sells to retail and international markets. They make up sixty-nine percent of Gateway’s market share. Professional and direct sales make up the rest of its market share. Like Dell, desktops are the major purchases of their consumers. Forty-seven percent of Gateway’s sales were desktops, notebooks, servers, and other products made up the rest of the sales for the company.

Dell and Gateway’s sales channels are not vastly different. Dell goes by a direct business model, selling to their customers directly by catalogs, retail stores, and online stores. Gateway sells their products through mostly through technology retailers and electronic chains. Also, like Dell, it sells its products online.

Dell’s market capabilities are 56.97 million dollars with Gateway’s market capabilities at 839.9 million dollars. Even though Gateway has greater market capability, their sales and profits are less than Dell’s. Dell’s price to earning ratio is 17.3 and Gateways is 75.3. These big differences in numbers between the companies come from their differences in implementing their marketing business models.

Market Analysis

US: For the first quarter of 2006, Dell had control over 26.8% while Gateway claimed 7.2% according to IDC researchers (8) . The US PC market has been reported to have grown at least 10.9% in 2007 (8). The shipment count for domestic PCs is about 16.6 million units (9). Dell still holds almost 20% more market share over Gateway in personal computers.

The market for PCs will only grow for both of them, but Dell has an obvious lead.

Global: As of the last fiscal quarter of 2006, the reported market share for Gateway Inc, is estimated to be around 6.4% (11), while Dell Inc held a market share of 32.1% (6) which was actually a decrease of 7.1% from the previous year (11). According to Gartner Inc preliminary research statistics, “the number of worldwide shipments for PCs totaled at 59.1 million units” (11).

The global trend appears to be a stable 5-7% increase of units shipped. At this rate, the total global market will increase to at least approximately 66.3 million units in just 2-3 years. This is just for PCs, not anything else such as services or servers for example. Dell accounts for almost 19 million of those PCs, as Gateway accounts for about 3.8 million units. Gateway does not have as strong of a global presence that Dell does, thus it loses in total market share severely.

The reported market for PCs grew 10.9% globally and 2.9% domestically in just the first quarter of 2007 (10). Both figures are almost 2% more than predicted by Gartner researchers.

If the market increases at this rate for the next 5 years and Dell keeps at a steady pace, not increasing drastically but no declining drastically either, it will hold on to its top 5 spot.

Gateway, we predict, will have a steady but minimal increase as Dell is not its only rival. HP and Toshiba and Apple computers are steady climbers, just to name a few.

Regarding the global target market, we estimate the market will increase steadily as it has in the next couple of years, but experience a slight decline in the next 2-3 years following. We observe that there will be a steady increase in the mobile and laptop computer markets and technology is perfected and mainstreamed even more. This is backed by the obvious increasing presence of Wi-Fi capability in many common areas even outside the consumer home.

Positioning Strategy Analysis

Dell’s unique selling proposition has always been defined by its direct business model. Its founder, Michael Dell, lead the way using the direct-sales approach for computers. Dell has a simple formula: “eliminate the middleman and sell for less” (Hoovers). Dell keeps it simple by providing customers with built-to-order boxes that help with lower inventories, lower costs, and higher profit margins.

Gateway’s positioning strategy differs from Dell’s. The company was named
“Gateway” in 2000 illustrating that they were the gateway into the 21st century.

Their USP is not in direct selling; rather it is in their technology. When the company first started, it offered fully configured PCs at a price near what other companies were charging for a non-fully configured system.

People started buying and the sales kept increasing. Gateway PCs were unique because they provided special features that customers appreciated.

Gateway distinguished itself from competitors with eye-catching ads including cows, and their cow-spotted boxes that give tribute to the company’s farm-start heritage. They are the only company that provides customers with emachines, a value-based technology that Gateway acquired in 2004. However, Gateway’s USP has been declining in perception in recent years. Dell and other competitors have been increasing their sales while Gateway’s are decreasing.

Consumers and end users like Dell’s strategy of direct selling because it keeps Dell’s product’s prices low. Lower than they would be if the “middleman” were involved. Dell’s customer focus gives them advantage with consumers. The customer feels connected to the brand, safe in their use of the product knowing that Dell support is available. Such customer satisfaction cannot be easily achieved by Dell’s competitors. Therefore, Dell’s direct selling business model gives Dell a distinct advantage over their competitors by ensuring they provide a sound, stable, quality product at low cost that consumers will want to buy.

Product/Service Strategy Analysis

The two firms, Dell and Gateway, are major players in the personal computer (PC) industry and their goal is to market both PC and related Non-PC products and services to consumers. The approach used by both companies for targeting markets is known as the differentiated approach.

It involves differentiating their products and services to be consistent which such markets as the home, and home office markets, small business, medium and large business, government, education and healthcare markets. In reference to the levels of a product, both firms market products and services with the same core benefit or service.

However, the type of actual and augmented products provided by each firm are the factors that differentiates these two companies making one more profitable than the other.

The main products offered by Dell to consumers include printers, corporate desktops, notebook and workstation systems, software and peripheral products, and consumer desktop and notebook systems.

The company carries various types of printers ranging from all-in-one printers for consumers to multi-function and color lasers for corporate workgroups (Direct, 2006). Its printer product line comes with a number of features that focuses on lowering the total cost of printing for customers (Direct, 2006).

Some of these features include the Dell Ink Management System and Dell Toner Management System, which aids in simplifying ink and toner replacement (Direct, 2006).

Under the corporate desktop, notebook and workstation systems, Dell provides the OptiPlex desktop computers, Latitude mobile computers, and Dell Precision workstations (Direct, 2006).

The OptiPlex desktop computers provide “highly reliable, stable, manageable, and easily serviced systems with networked environments” for businesses and institutional customers (Direct, 2006).

The Latitude notebooks are hardy and dependable equipments that provide users, particularly professionals, the ability to work everywhere and anywhere. Additionally, the Dell Precision workstations are capable of running highly complex applications such as digital content creation, and software development for growing businesses (Direct, 2006). Dell also has a long line of software and peripheral products.

Not only does the company provide competitively priced consumer electronics such as Dell plasma, and LCD TVs, Dell music players, projectors and Axim handheld computers; they also carry software, monitors, networking and wireless products, memory, digital cameras and scanners and mobile computing accessories (Direct, 2006).

For consumers that want powerful systems at affordable prices Dell provides the Inspiron mobile computers, and its Dimension desktops with UltraSharp flat panel monitors meet the various productivity and entertainment needs of both small businesses and home users (Direct, 2006). Finally, for gamers, Dell’s XPS notebooks and desktops are tailor-made to provide users with a high-end multimedia and gaming environment (Direct, 2006).

Gateway too has its own line of PCs and servers that it markets to consumers. With regards to desktop PCs, the company offers a range of standard models for both consumers and professional customers. For professional customers, Gateway offers desktop PCs under the Gateway brand, and for consumers, desktop PCs under both the eMachines and Gateway brands (Gateway, 2006).

These machines are provided with a number of recommended configurations with various levels of technology and features (Gateway, 2006). The firm also offers both consumers and professional customers with a number of high performance and quality notebook PC products. Its notebook systems are generally available with docking stations, wireless enablement and various multimedia applications (Gateway, 2006). And they range from convertible tablets to desktop replacement class notebooks (Gateway, 2006).

Furthermore, Gateway’s Gateway-branded servers and storage products for its professional and small business customers have an adaptable design and are able to be custom built with a variety of options to fit the needs of the customer (Gateway, 2006). In addition, its servers can be ordered in tower-based or rack-mounted configurations, using the Windows operating software (Gateway, 2006).

The company’s non-PC products include stand alone displays, printers, projectors, computer memory, scanners, PC accessories, CD and DVD burners, storage devices, surge protectors, and other PC accessories manufactured by other leading companies in other markets (Gateway, 2006). Gateway also offers a complete line of thin film transistor and cathode ray tube displays that are sold with desktop PCs or as stand-alone purchases (Gateway, 2006). Finally, the firm markets a broad range of third-party software offerings, from entertainment and productivity applications for its consumers (Gateway, 2006).

In terms of the product mix decisions, both companies follow strategies consistent with their individual image and market position, particularly when it comes to the number of types of product categories that they offer to the marketplace, product-mix width.

Both companies carry a number of product categories which include desktop PCs, notebook systems, servers, printers, and a number of software and peripheral products. However, both firms differ in their product line length, the number of types of brands available under each product category, and the product depth, the different variation of each brand. From a customer’s perspective Dell appears to have a superior product depth and product line length when compared to Gateway.

Dell is quite effective in using multiple different brands to not only stay competitive in the market but also go after different target markets. For business and institutional customers, they offer the OptiPlex brand of desktop computers.

The Latitude brand mobile computers are available for professionals that prefer to work anywhere and the Dell Precision brand workstations run highly complex applications that are required for a successful business. For the everyday consumer, they provide the Inspiron brand mobile computers and Dimension brand desktops with UltraSharp flat panel monitors.

Additionally, they have recently introduced notebooks and desktops tailored for gaming enthusiasts, the XPS computer systems. Gateway on the other hand does not have such a diverse list of product brands.

The two main brands offered by the firm includes the Gateway brand itself, and the eMachines computer systems. Gateway’s inability to have multiple brands has limited their competitiveness in their industry, making them seem, in a sense, archaic to their customers.

In terms of services, Dell claims to provide services that are more repeatable, predictable and efficient in nature (Direct, 2006).

They have developed various suites to help consumers effectively choose the desired service needed. Dell’s seven service suites include: Assessment Design and Implementation, Deployment Services, Asset Recovery and Recycling, Training, Enterprise Support, Client Support and Managed Lifecyle services (Direct, 2006).

With such service features the company not only wants to greatly differentiate itself from its competitors, but also increase customer satisfaction. Gateway, on the other hand, offers various service programs for its consumers.

These fee-based service and support programs consist of Internet access, security, extended service plans, accidental damage programs, and learning and tutorial services (Gateway, 2006). Similar to how they differentiate their products to target different sectors of the market, the firm also differentiates its services in a same manner. With their Professional segment, the company provides five prominent types of services: technology planning, implementation, productivity, maintenance, and end of life services (Gateway, 2006).

Furthermore, the company provides financing programs and multi-channel delivery for its customers. With the financing programs, the company has arrangements with third-party financing institutions to provide assistance for customers to be able to purchase the company’s products (Gateway, 2006). And with multi-channel delivery, the firm offers customers a range of service options by delivering customer service at the customer’s location, at third-party locations, and through the Internet and telephone (Gateway, 2006).

Although both companies offer numerous services with their products, only one has effectively organized these services making it easier for consumers to identify what they need. Dell has not only successfully organized its services into seven suites, it has also made it applicable to the company’s different market segments. Similar to Dell, Gateway also offers a list of service programs for its customers. However, offering such a long list of services might overwhelm its consumers, preventing them from choosing appropriate services with their products.

Other important factors to consider when comparing these two firms include the position of their products and services on the product/service life-cycle, how advantageous these companies are to one another with respect to the products they offer, and the benefits provided by these products and services to the consumer and other parties in the decision process. An important characteristic about the PC industry is that products have short life cycles (Gateway, 2006). This characteristic results in the products and services offered by the two firms going through the life cycle stages quickly, spending the most time in the declining stage.

With the rapid growth of IT industry and the continually release of new technologies into the market these two companies will continue to regularly lower prices of PC and Non-PC products due to the competitive nature of the industry. This is the main advantage provided by the companies to one another with respect to the products they offer. Moreover, these firms are greatly benefiting their consumers by providing them with fast, reliable, and useful products and services; in addition to providing other end users, such as the manufacturers of Non-PC products, an outlet for them to market their products to the consumers.

Pricing Strategies

Gateway, in 1999, made $8.6 billion dollars in revenue with a net profit margin of 4.9%. December 2006 their revenue was down to $4 billion with a net profit margin of only .2%. Their revenue dropped more than half in less than ten years. This was the result of a slow economy and poor management decisions. (Hoovers: Gateway, Inc)
Dell made $18.2 billion in revenue with a net profit margin of 8%. In 2006 their revenue was almost tripled to $55.9 billion, but with a lower net profit margin of 6.4%. Dell’s net income has almost constantly risen throughout the years, due to their highly competitive cost structure. Their elimination of the middleman keeps their costs low and profits high. (Hoovers: Dell)

Dell has been able to keep their profit margin high, because of their unique selling strategy of eliminating the middleman. Essentially, they have few costs, and more profit per unit sold. This strategy was copied by Gateway, but they came into the market too late. Gateway’s profit margin is too low, they are barely making money. They need to find a way to lower costs, like Dell accomplished.

Distribution Strategy Analysis

As any marketer would know there are the four mains P’s which help to secure the success of products and companies. When it comes to companies like Dell and Gateway the importance of their placement strategy can gain or lose pieces of the market share. Gateway has now become the third largest PC Company in the US. While Gateway remains a solid company, Dell has continually increased its market share through effectively streamlining of its distribution channel.

Gateway and Dell are companies which both utilize the simple concept of selling computer systems directly to customers; which greatly decrease the need of other distribution channels. In other words Gateway and Dell both become its own manufacturer and retailer in simplest sense of the words. Although, both companies practice this strategy, Dell’s success in streamlining its distribution channel helped them overtake Gateway’s success as mentioned earlier.

Dell’s main factory is located in Texas with its regional headquarters in Texas, Tennessee, and Brazil. Dell always tries to centralize its headquarters to where it can provide the service to its customers in timely and effective manner. Dell’s location has helped the company organize its distribution model. When Dell Americas operations were expanded, Dell chooses middle Tennessee because the transportation infrastructure allowed Dell to reach 70% of its customer base within twenty-four hours by ground. With the Internet and the phone as its biggest distribution channel, Dell is able to reach customers faster and with its distribution network streamlined it can meet each customer’s demand successfully and speedily.

Its suppliers can attribute Dell’s distribution strategy’s success to Dell’s emphasis on speed when it comes to performance.

One disadvantage of Dell’s distribution strategy is that any problem in the supply chain or with the suppliers can shut down Dell’s ability to meet customer’s satisfaction. In other words Dell might rely too much in its supplier’s ability to perform because Dell does not like to hold inventory.

Dell main strategy is to integrate the manufacturing, supply and sales in one working system. However, the risk of one component failing can deeply affect the whole system as each component is tied together. The benefit of having one working system is that productivity will increase as communication and information will pass through the channels quicker.

Dell’s strategy is simply to cut out middleman by purchasing from suppliers and delivering final product directly to customers. Dell’s eliminates retailers who add unnecessary time and cost or diminish Dell’s understanding of customer expectations. Dell’s mass customization method have helped widen its coverage area but also narrow it down to which each customer can order the exact computer under his specifications. By utilizing the internet network channel Dell’s have widen its coverage in which almost everyone have a chance in making an order and also because of its specialize; customized products (PC’s) it also has a narrow coverage of the market.

Dell has always maintained its image and market position by continually gathers information and research on how to refine their strategy. Dell’s approach in building to order greatly reduced the costs and risks associated with carrying large stocks of parts, components, and finished goods and by passing up on retailers greatly reduce the markup price of resellers. While Dell Computer sometimes struggled during its early years in trying to refine its strategy, build an adequate infrastructure, and establish market credibility against better-known rivals, its build-to-order and sell-direct approach proved appealing to growing numbers of customers in the mid-1990s as global PC sales rose to record levels. And, just as important, the strategy gave the company the advantage on saving cost compared to traditional PC manufacturers that kept inventory.

Gateway in many occasions has a similar distribution channel as Dell. Gateway tries to sell computers directly to their customers as Dell does. The difference is Dell’s streamlining their supply and distribution that Gateway never able to match it. Gateway’s manufacturing centers are located in California and South Dakota where it does not have the capabilities in providing the customer service that Dell has. Gateway’s distribution strategy does is utilize in how they effectively cut out the cost from inventory and by not relying too much on retailers.

Gateway’s distribution strategy has helped to enhance their current multi-channel distribution model as well as develop new distribution channels. Gateway has created a new, low cost distribution channel by forming an alliance with Office Max. This new channel will allow Gateway to reach a broader range of consumers within the business sector. By focusing on the business sector, Gateway believes that new customer groups will be established. Gateway’s failure in expanding their consumer market share have force them to focus in the business sector. By having partnerships from huge retailers such as Office Max, Circuit City Gateway can hold a certain footing in the consumer market through this channel which essentially is low cost.

Gateway’s success can be attributed to their focus on a direct and personalized sales approach. The direct approach allows consumers to have a personal computer built to meet their specific needs. Utilizing this method helps Gateway keep their costs down due to little or no inventory as mentioned earlier. In addition, the direct method eliminates costly intermediaries in the sales process and passes these savings on to the clients.
Although Gateway’s multi-channel distribution model has been successful in supporting their direct approach. Gateway’s past strategy for using new Country retail stores in the past have proven to be failure. Gateway should be cautious of expanding too rapidly to avoid losing the personal touch with their customers, which what their retail stores did. The Gateway retail stores did not provide the customers anything special because customers come in the stores and make a purchase order. In other words the customers did not leave with a computer but instead left with an order form, which they still have to wait for their computer.

Gateway and Dell have practiced the same distribution strategy, which both gave them huge savings in their inventory cost and savings on the markup price by either reducing or avoiding retailers that trickles down to the consumers helping both companies sell cheaper to their competitors. However, Dell’s ability to organize their distribution has given them an advantage when it comes to communication, information and supply chain management. Gateway simply cannot match the speed and effectiveness of this system. There are many things that can make a company successful each aspect is as important as the other.

Promotion Strategies Analysis

Gateway Inc.

The company sells its products to three different segments: professional and Government, retail, and direct sales (1). The largest of these three is the retail segment. Best Buy, CompUSA, Costco, Micro Center, Circuit City, and Wal-Mart are only a handful of the 7,000 stores that carry Gateway and its secondary brand, eMachines – distributed only via retail, in North America (2).

The company’s desktop computers are also available through select television shopping channels. It is reported that for the fourth quarter of 2006, Best Buy’s purchase of Gateway and eMachine products represented at least 39% of net sale shares for the year ending 2006 (2).

In the retail spectrum, the company utilizes co-advertising techniques in which the Gateway brand is advertised along side the retailer’s brand (2).

In contrast, the direct sales segment has the goal of creating customized desktop computers and marketing them individually to consumers. This provides the opportunity for the company to market along side products that complement their own such as third party printers or monitors. Gateway once operated 188 of its own specialized retail stores (3), and they were the main channel used to market the direct segment. Since their closure on April 9, 2004 the direct segment has had to market through television, conventional printing, e-mail, postal mail, and especially through the internet and its home page gateway.com (2, 4).

Lastly, Gateway provides sales and marketing towards the professional segment.

This includes small and medium sized businesses, K-12 and higher education institutions, and to government agencies. Marketing and sales conducted in the professional segment is done directly by “telephone-based and field sales teams” (2). They are in turn backed by “local, regional, and national resellers” (2). Customers of the professional segment also have the opportunity to have their desktop computers customized by using websites created especially for them by gateway (2). As for quantitative data, the total sales expenses for the year ending 2006 were estimated to be $308,738USD (1).

Gateway’s image appears to be geared more towards individual consumers and retail stores in. We don’tagree that the, “humble beginnings” image really caters towards medium to large businesses or the professional environment (government agencies). Gateway’s struggle after the “.com bust” was very apparently when they had to close out their 188 stores. So we don’t see it fit that they should be stretching to so many different target markets just yet. They are behind in the competition as they up against tech giants Dell, Apple, and HP CompaQ, all of which have products released in different industries i.e. monitors, printers, cameras etc. Gateway should get a strong hold in the individual and retail segments before it branches out to medium businesses, and especially the government. The government, federal and state, has extensive contracts with Dell computers and HP. Gateway should focus on the budget and individualized requests of mass consumers since it has adopted the eMachines line. The company appears to be selling beyond its limits because it is not as powerful or rooted as the other mega companies, but still insists in competing in those markets (professional).

Recommendations

• In an effort to attempt to increase sales, Gateway should develop new technology to outshine its competitors.

• Gateway should increase advertising to increase awareness of their products.

Although Gateway has tried to copy Dell’s business model of direct from the manufacturer selling, it came into that market too late. Dell has successfully captured the market that is willing to buy through that distribution channel. Gateway need to find its own low cost way of distribution, to a market that has not already been saturated.

Conclusion

The computer has revolutionized our way of life. From doing this project we learned that there is much more to each company than what we see when we go into their store or see the commercials on television. Each company has their own unique strategy for dealing with each aspect of their company and they do what is best for them not what is best for the other companies around them.

Yes, they are in competition for business, but they are striving to do so by making their companies unique. That way they will make a profit and a name for their company to back it up. If we were to compare another competitive analysis we would definitely just pay the money to get the information that is necessary to complete the project.

Since we did not have the funds to do that we missed out on a lot valuable information that could have been added to back up our arguments.

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