Gateway Pares PC Configurations, Stresses Service
SAN DIEGO -- Stung by what company officials describe as declining customer satisfaction and lower traffic at its network of stores,
The company will simplify its product line, improve service, and refocus its efforts on PC sales after more than a year of emphasizing "beyond-the-box" services and novel devices such as Internet appliances.
Gateway also plans to reduce prices on its products in the increasingly competitive PC market.
"Gateway has become just average at customer service, and that's not good enough," Ted Waitt, the company's energetic, ponytailed founder told a meeting of investment analysts here. "The company out there with the highest customer satisfaction level basically wins. Period."
Waitt, 38, returned as chief executive officer of the 20,000-employee firm in January after spending a year away from direct operational control as chair. He has immediately named a new management team to help implement the strategy, and has ensured their focus by tying 50 percent of their annual bonuses to customer satisfaction.
While Waitt and his team emphasize that Gateway has not lost market share during the past year (it accounts for about 15 percent of annual PC sales in the United States), they depict a company that has strayed from its roots. For example, Gateway used to derive more than 50 percent of its business from repeat customers and word-of-mouth referrals. Last year that percentage was down to the mid-30s, they say.
The announcements came as Gateway restated its financials for last year, taking an additional charge of $80 million to fourth-quarter earnings.
The company says its new moves will result in an additional charge of $150 million to $275 million in the first quarter of 2001, including a previously announced $50 million charge for eliminating jobs. Not counting the one-time charge, Waitt says, the company expects to break even for the first half of this year and return to profitability only in the second half.
Gateway and other PC makers saw
As another measure, Gateway will sharpen and simplify its product line. As recently as a few months ago, the company offered some 23 million different variations of its products, if you count all the different possible combinations, says Bart Brown, who returns as head of consumer products. Now the company will limit itself to a few hundred basic permutations, grouped so as to make them easier to understand.
For example, visitors to the Gateway.com Web site will find the company's Performance 1000 computer with a 1-GHz Pentium III processor at a price of $1199. But they will soon find options in various enhanced packages offering extras like a CD-RW drive, an IEEE 1394 port, or upgrades to memory, the hard drive, or the audio card. The approach resembles the way new cars are sold with enhanced options packages.
"People used to call us up and ask for such-and-such a motherboard, such-and-such a hard drive, and so forth," says Brad Williams, Gateway spokesperson. "Now they just say, 'I want to do digital photography' or "I want to make music CDs.' Simplifying our product line helps us steer them to the product that will really meet their needs."
Other new measures:
Officials stress that the new initiatives are intended to complement, not undo, the "beyond-the-box" strategy, which Waitt himself helped launch in the mid-1990s. For example, Gateway will continue to push the concept of the Connected Home, marketing wireless and wired networking gear for homes and small offices.
Several officials say they believe that wireless networking, in particular, is likely to take off later this year, since it offers the capability to connect PCs without the expense and hassle of retrofitting a building's wiring.
Waitt showed previews of a new series of commercials the company will debut in March, which feature testimonials from company employees over a background of Joe Cocker singing "With a Little Help From My Friends." The ads are reminiscent of early Gateway commercials that often included Waitt himself as well as the Holstein cows that serve as a company mascot and whose distinctive spots still cover every Gateway box.
But Waitt downplayed advertising's importance.
"A lot of people think you can build a brand by advertising," he said, "but a brand really gets built in hundreds of thousands of interactions every day. You can spend all the money in the world on advertising saying 'Trust us,' but it will never work unless you demonstrate it through those daily interactions and everything you do in your business."