Even Dell finds out low prices don't always work
Tags: Dell, Marketing, Apple
We commented earlier that low prices only rarely work as marketing strategies, the exceptions being companies like Wal-Mart and Dell that have enough market power to force the pain of those strategies onto suppliers. Yesterday, PC bellweather Dell missed analyst estimates for revenue growth because it sold too many low-priced machines. CEO Kevin Rollins laid the blame on Dell's failure to upsell from the low-priced machines:
Sound familiar? This is sort of like the car dealers who advertise the stripped-down models and then try to upsell when you get in the dealership to the fully-loaded cars with the clear-coat finishes and extra warrantees. This isn't marketing; it's basic sales strategy, and typically can't be used too aggressively or the attorney general of some state or another comes calling.
Dell faces a fundamental problem though. Because its value add for its commodity PCs is so low, and it largely leaves R&D to its suppliers, there isn't a lot to market other than low prices. That's why Dell has lately been introducing more luxury laptops and gaming desktops to its lineup. These higher-end systems raise the sticker price to better cover ordering costs and provide differentiation from commodity products. Said another way, they provide the marketers something to market. Expect more of that to improve business results in the next year.
One other thing in today's news coverage: I saw at least one news account that said that Dell is the only major profitable PC maker in the market today. That bit of lore has been around for years and just isn't true. To paraphrase Yoda, "There is another profitable PC maker.", and they do some of the best marketing in the business. That PC maker, of course, is Apple. I hope once the Intel-based Apple machines are in the market and people recognize that 95% of the parts are exactly the same as the ones Dell uses, journalists will lay that old PC market myth to rest.
One final note: Wall Street traders may be doing better at figuring out Apple's profit story than business journalists. Dell stock is down 7% today and has dragged most other technology issues with it, but Apple is up 4%.
We commented earlier that low prices only rarely work as marketing strategies, the exceptions being companies like Wal-Mart and Dell that have enough market power to force the pain of those strategies onto suppliers. Yesterday, PC bellweather Dell missed analyst estimates for revenue growth because it sold too many low-priced machines. CEO Kevin Rollins laid the blame on Dell's failure to upsell from the low-priced machines:
Typically, Dell lures consumers to its Web site and to its toll-free phone numbers by advertising cut-rate prices. Once consumers take the bait, the company is usually successful in selling them extra memory, a faster chip or some other upgrades that increase the final selling price, sometimes by hundreds of dollars.
Dell did not do that as well in the quarter, Mr. Rollins said. He said the problem was being addressed.
Sound familiar? This is sort of like the car dealers who advertise the stripped-down models and then try to upsell when you get in the dealership to the fully-loaded cars with the clear-coat finishes and extra warrantees. This isn't marketing; it's basic sales strategy, and typically can't be used too aggressively or the attorney general of some state or another comes calling.
Dell faces a fundamental problem though. Because its value add for its commodity PCs is so low, and it largely leaves R&D to its suppliers, there isn't a lot to market other than low prices. That's why Dell has lately been introducing more luxury laptops and gaming desktops to its lineup. These higher-end systems raise the sticker price to better cover ordering costs and provide differentiation from commodity products. Said another way, they provide the marketers something to market. Expect more of that to improve business results in the next year.
One other thing in today's news coverage: I saw at least one news account that said that Dell is the only major profitable PC maker in the market today. That bit of lore has been around for years and just isn't true. To paraphrase Yoda, "There is another profitable PC maker.", and they do some of the best marketing in the business. That PC maker, of course, is Apple. I hope once the Intel-based Apple machines are in the market and people recognize that 95% of the parts are exactly the same as the ones Dell uses, journalists will lay that old PC market myth to rest.
One final note: Wall Street traders may be doing better at figuring out Apple's profit story than business journalists. Dell stock is down 7% today and has dragged most other technology issues with it, but Apple is up 4%.
posted by Carl Howe at
12:18 PM
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