Dell Takes On Pricing in Image Makeover

By John G. Spooner  |  Posted 2006-07-12 Print this article Print

As part of its efforts to get back on track, Dell is expected to announce a simplified PC pricing scheme for small businesses and consumers.

PC makers are going back to the basics on pricing in an attempt to entice buyers.

Dell, which has scheduled a news announcement for July 13, is expected to reveal a revised PC pricing strategy that will present SMBs (small and midsize businesses) and consumers with a more straightforward menu of price options.

The move, which doesn't appear to affect large business accounts, comes as Dell attempts to recover from a series of missteps that curbed its growth during the first quarter of 2006.

But the change also shows that some of the main methods PC makers like Dell have used to entice customers—offers that range from rebates to no-charge component upgrades and waiving shipping fees—have lost some of their allure as the PC market has matured and growth has begun to slow in 2006 following a wave of upgrades in prior years.

To read more about Dell's plan to repair its customer service problems with consumers, click here.

Simplifying the buying experience is one of the ways Dell hopes to regain customers' confidence, a spokesperson indicated

"We'll be announcing several things that together will make the purchase experience simpler for customers," the spokesperson said, but declined to provide additional details on the plan.

Dell isn't the only PC maker that's had another look at its pricing.

"It's now the third quarter. Demand isn't as strong as it was two or three years ago. Everyone is looking at ways to keep shipping those boxes," said David Doaud, an analyst with IDC in Framingham, Mass.

PC unit shipment growth in 2006 is expected by IDC to reach 10.8 percent and 11.7 percent in 2007, with unit shipments reaching about 230 million in 2006 and about 257 million in 2007.

Notebook PC shipments, which have helped drive the PC market over the past few years, continued to grow.

But even their growth rates have slipped from the 40 percent to 50 percent rates seen in years past, Daoud said. "That's probably making the industry nervous about this year's prospects," he said.

Given that competition among manufacturers isn't likely to abate, PC makers are looking at new ways to woo customers—many of which are repeat buyers in the United States—to buy, while fending off competitors.

Dell puts most of its efforts into corporate sales, which are typically about 85 percent of its revenue. Yet it still must defend against Hewlett-Packard and Lenovo, who both have their eyes on Dell customers.

A host of other equally well known, yet smaller brands, including Apple, Gateway, Sony and Toshiba, are also looking for a piece of the pie as well.

Pricing is one of the main levers PC makers have used in the past to motivate both consumers and business buyers to upgrade.

Average PC prices have fallen between 8 percent and 11 percent—depending on whether consumer or corporate or desktops or notebooks are being measured—between the first quarter of 2003 and the first quarter of 2006, Daoud said, citing data from IDC's tracker service.

But now, companies like Gateway—and now Dell, it's expected—are changing the way they present their prices to consumers and small business customers.

Dell typically offers a bundle of discounts and special offers with each machine. They almost always include a rebate and a free component upgrade, such as extra memory.

Next Page: Avoiding customer confusion.

John G. Spooner John G. Spooner, a senior writer for eWeek, chronicles the PC industry, in addition to covering semiconductors and, on occasion, automotive technology. Prior to joining eWeek in 2005, Mr. Spooner spent more than four years as a staff writer for CNET News.com, where he covered computer hardware. He has also worked as a staff writer for ZDNET News.

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