The aforeposted IBD article (used AV and free-IBD reg. to get it)
Compaq Takes High Road, Hopes Consumers Follow
Date: 12/17/98 Author: Nick Turner
If last Christmas was about price, this year's holiday selling season is about value.
At least that's how Compaq Computer Corp. sees it. The Houston-based company grabbed consumers' attention last year with a $799 personal computer. At the time, the model was the cheapest name-brand PC.
Now the No. 1 PC maker seems less concerned with offering the lowest price. Instead, Compaq plans to woo consumers with what it claims are the best deals on feature-packed machines.
''With the sub- $1,000 PC, we established ourselves as the Toyota of the PC industry,'' said Rod Schrock, general manager of Compaq's consumer products group. ''Now it's the classic strategy to go up-market and go after repeat buyers. We're becoming Toyota and Lexus combined.''
In embracing the model of Toyota Motor Corp. and its Lexus luxury-car division, Compaq has ceded price leadership to others. Among major manufacturers, IBM Corp. has taken up the low-cost mantle.
IBM's Aptiva D1N model sells for $599. IBM cut costs by using its own microprocessor in the device, rather than chips from Intel Corp. or Advanced Micro Devices Inc.
Compaq's cheapest PC now sells for $699 -and that's only after a $100 rebate for agreeing to test the company's Internet service.
Being the price leader may not be that crucial, analysts say. Low price tags generate buzz, but consumers typically buy higher-priced PCs that are a little more powerful. Industry watchers say the ''sweet spot'' of the market is about $1,000.
''Low-priced boxes really are just attention-getters,'' said Roger Kay, analyst at International Data Corp. in Framingham, Mass. ''IBM isn't planning on making all that many of its $600 boxes.''
Still, manufacturers continue to hit lower price levels. New companies also are focusing solely on that low-end segment.
Take Fremont, Calif.-based Emachines Inc. Emachines sells PCs starting at $399, with monitors costing another $100.
The company is a joint venture of two Korean firms - PC manufacturer TriGem Computer Inc. and monitor maker Korea Data Systems Corp. Emachines was formed in August to reach the 20% of U.S. consumers who are interested in PCs but can't afford the current fare, company officials say. They estimate that includes 17 million households.
What do you get for under $400? Emachines' $399 Etower 266 comes with a 266-megahertz processor from National Semiconductor Corp.'s Cyrix division, 32 megabytes of memory, a 2.1-gigabyte hard drive and a modem that runs at 56 kilobits per second.
Companies such as Emachines may have a tough time being profitable at the $399 price point, observers say. But they may make it much harder for Compaq to keep a prominent face in the low-price realm.
''Compaq can't position themselves on price, because there are people like Emachines in the channel,'' Kay said.
Compaq would rather talk about how much computer the company's customers get for their money. Compaq's higher-end machines are less expensive than those of Dell Computer Corp. and Gateway Inc., the company says.
Schrock says Compaq's Presario 5600 is one example. A ''Lexus'' model, the 5600 comes with a 450-megahertz Pentium II processor, 128 megabytes of memory, a 13.5-gigabyte hard-disk drive, a digital video disc player and a flat-panel monitor. After the $100 Internet-service rebate, it costs $2,793.
That's slightly less than a similarly configured Dell machine. The 5600 also sports a digital modem that can transmit data at 1.5 megabits per second, 27 times that of modems on most competitors' machines. Dell, however, recently began offering a high-speed digital modem as well.
Whether a speedy modem matters to consumers remains a question. Most homes can't get high-speed Internet access. Still, Schrock sees the new modem as a key selling point.
''It's an advantage, because the No. 1 thing consumers want to avoid is to have their PC become obsolete,'' he said.
By '00, Schrock expects that half of all Presario buyers can get high-speed Net access.
As it takes up this strategy, Compaq appears to be clashing less with its traditional consumer-market rivals such as Hewlett-Packard Co., IBM and Packard Bell NEC Inc. Instead, it has focused on direct sellers Dell and Gateway.
Dell, though still mainly a supplier to corporate customers, is showing more interest in the consumer market. The Round Rock, Texas-based company now has a number of payment plans geared toward home buyers. It offers a Dell credit card, Dell gift certificates and a consumer-oriented leasing program.
''On the consumer side, Dell is seen as much more of a threat this year,'' said Scott Miller, analyst at Dataquest Inc. in San Jose, Calif.
North Sioux City, S.D.-based Gateway, meantime, is looking to expand its share of the consumer market with a financing program called ''Your:)Ware.'' The plan allows consumers to customize PCs and add Internet access, and pay for it in one monthly bill. The company also has begun selling its PCs through outlets called Gateway Country Stores.
Compaq has embraced elements of the build-to-order model used by Dell and Gateway. It now sells custom PCs through its Web site.
Compaq also has installed kiosks at retailers such as CompUSA Inc. Shoppers can order a custom computer by entering data into one of these kiosks.
Still, most Christmas purchases will be made off the shelf. In that forum, where competing brands are displayed next to one another, Compaq will have to justify its prices.
Miller says companies such as Emachines are forcing Compaq to answer the consumer's eternal question: Why should I pay more?
To satisfy consumers, the company must demonstrate that its quality and service are superior, and that buyers need features such as high-speed modems, Miller says.
Michael |
