All,
FYI from the Dell thread via the Intel thread.
Badger
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Computer Prices Begin to Flatten As Buyers Decide to Go for the Frills
By EVAN RAMSTAD Staff Reporter of THE WALL STREET JOURNAL
Computer companies are still introducing cheaper and cheaper PCs, but a funny thing is happening: Consumers are paying less attention to price.
Average purchase prices for consumer desktop computers, which fell 29% between January 1997 and January 1998, have leveled off at $1,130 through September this year, according to ZD Market Intelligence of La Jolla, Calif. Home computers are now available for as little as $500, but the cheapest machines often have technology that is a year or so old. Faced with that option, a majority of buyers are choosing to pay more for more up-to-date features.
"Last year, low price was all the craze. Price point, price point was all you heard," says Brian Connors, vice president, marketing, in the consumer PC division of International Business Machines Corp. Now, he says, "we have seen many signs of [price] stability."
Rod Schrock, chief of Compaq Computer Corp.'s consumer business, agrees.
"We've gone through most of the price declines," he says. Prices for corporate PCs, which comprise a far larger market, are also more stable.
Pricey Products
More and more, customers are like Ellen Curnes, a Dallas attorney who went shopping for her first home computer last weekend. Ms. Curnes settled on a model with Intel Corp.'s speedy Pentium II chip, hefty memory, a digital videodisk drive, a big monitor, a printer and a scanner at the Gateway Country store. Total bill: just over $2,500.
She says she chose a pricier machine because she wants it to last for a while. "I really hope I don't have to buy another for three or four years," she says.
The Slatterys of Plano, Texas, didn't even consider a cheaper PC as a replacement for the family's three-year-old computer. "They're not good enough," says Martin Slattery, a marketing manager. "They don't have enough power. My son likes to use graphics programs, and we all want the fastest Internet speed we can get." The family spent $1,800 on a Gateway computer with a Pentium II chip and a large hard drive.
These attitudes contrast sharply with the consumer PC market a year ago, when major manufacturers introduced systems priced below $1,000 and buyers gobbled them up. The rapid explosion in buyers for low-priced systems forced retailers and manufacturers to trim inventories and cut costs. But the industry also became savvy at steering customers to higher-priced, more profitable systems.
One tactic: special deals that combine PCs with monitors, printers, scanners and other accessories. New kiosks in stores for custom-ordering from makers like Compaq and Hewlett-Packard Co. also emphasize more expensive PCs.
After the initial surge, retailers say, the percentage of consumers buying computers for $1,000 or less reached about 45% and then flattened out. "I don't think that the percentage [of low-price buyers] is going to change much," says Larry Mondry, merchandising chief at CompUSA Inc., the nation's largest computer retailer. "But I
do think the entry-level price will continue to move down."
A study this summer by Access Media International, a New York-based
market-research firm, found that just 10% of consumers considering a PC purchase this fall planned to spend less than $1,000. Another 26% planned to spend $1,000 to $1,500.
In response, some manufacturers are producing fewer models priced under $1,000 and adding more in the $1,200 range. And some of the lowest PC prices are available only through rebates, software bonuses or online subscription offers that not all buyers seek.
Technology Sticks Around
One reason cheaper PCs aren't more attractive is that component prices haven't fallen as quickly this year as last; that has kept older technology around longer.
Meanwhile, other factors are boosting the average price of desktop computers. One is the late July introduction of PCs using Intel's most advanced chip, the 450-MHz Pentium II. These PCs cost more than $1,800 and, following a typical pattern for new technology, were greeted with high initial demand.
In addition, companies like IBM and Sony Corp. waited until fall to release new consumer systems priced above $2,000. They had noticed that high-priced systems seemed to sell better in the second half. "We're seeing a new seasonality emerge," says IBM's Mr. Connors. "As you get into the September time frame, you see the whole range of prices on store shelves again."
Rather than work on ever-cheaper models, PC makers are starting to focus on simpler devices -- "appliances" in techie shorthand -- as the likeliest way to spread computing power to a majority of homes from about 45% today. To increase revenue and profit in the meantime, manufacturers are pushing PC maintenance and Internet access services and collecting fees from online transactions.
PC executives say steady pricing gives them breathing room to concentrate on advances in technology. After making it possible to connect to the Internet with the press of one button on this year's PCs, manufacturers are now developing faster connections for next year's models. Compaq plans to equip each of its home PCs in 2000 so that it can dial through TV cable modems or new digital phone lines.
But the drive to hit lower and lower prices hasn't let up entirely. Last week, IBM rolled out a $599 system, priced $100 below the lowest-priced Compaq model. And emachines Inc., a joint venture of the South Korean companies TriGem Corp. and KDS Corp., will ship a $399 computer with a $100 monitor later this month.
For those machines, there are buyers like Elisa Jocson, a software consultant who recently moved to Dallas from the Philippines with her husband. At a Circuit City last weekend, she bought an $899 Packard Bell with a Cyrix microprocessor and standard memory, hard drive and monitor. Though its features are modest, the price was right and "it's got enough power to do my work," she says.
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