Avoiding Customer Confusion

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.

But figuring out the value of the upgrade and its after-rebate price can be confusing to some customers. Others shop both Dell's home and small business sites looking for the best deal.

The company appears poised to introduce a simpler scheme that will dispense with the array of offers and instead present a more straightforward, bottom line price for Dell PCs.

The changes aren't likely to amount to major price cuts, however. Corporate PC pricing, which is often rolled into large bids, doesn't appear to be on the path toward major changes either.

For its part, Gateway stopped selling low-price PCs direct on June 29 and instead switched to offering direct-sales customers new PC bundles that start at $799.

A $799 desktop, sold via the company's Web site, includes a dual-core Intel processor and comes with Microsoft's Office and a flat panel monitor. Its notebooks now start at $999 and also include dual-core Intel chips and widescreen displays.

Customers looking for $400 PCs can still find them at retail stores—where Gateway's eMachines brand has proven popular—while those buying direct can still upgrade to faster processors and larger hard drives if they choose.

However, the company's direct business is putting far more emphasis on the bottom line price, Gateway officials said.

The bottom-line emphasis "mirrors, to a lot of extents, what people want from PC pricing today," said Steve Baker, an analyst with The NPD Group in Port Washington, N.Y.

Baker said he believes customers expect to see prices more reflective of what they intend to purchase, versus minimally-configured machines whose emphasis is on low price.

"I think the challenge for Dell to go to something that resembles more of a tiered pricing strategy is that part of the profit for Dell has been in managing the [component] trade-up," Baker said.

"The way you make money in a build to order experience is you trade people up and you manage the process so that the more that they upgrade the more profitable it is."

Technological improvements, including faster processors and bigger hard drives, are less alluring as upgrades than items such as large flat panel displays, Baker said.

At the same time many computer retailers working to phase out rebates, citing customer frustrations with the practice.

To read more about what services Dell has to offer large business customers, click here.

"Certainly the trends in the market are pushing [PC makers and retailers] toward eliminating rebates," he said. Although, "I suspect that's not the only thing that they have to do."

Dell might apply learning from its XPS line of high-end PCs, which it markets using a good-better-best approach. XPS takes a somewhat different approach than Dell's mainstream Dimension or Inspiron systems.

But "one of the problems with an upgrade model is that if people don't upgrade, I don't make any money," Baker said.

Done right, revising its model lines to include PC configurations and pricing that are more straightforward would allow Dell to tout a better customer experience—it could advertise bottom-line prices—yet still allow it to build profit into each machine, he said.

Dell could then work to convince customers to upgrade from model-to-model.

That way, "When people trade up they trade up more against platforms than against specific components," Baker said.

Check out eWEEK.com's for the latest news in desktop and notebook computing.

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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