July 13, 2006 9:32 AM PDT
Dell to slash rebates and promotions
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The company is trying to make it easier for consumers to understand what price they will pay every time they come to Dell, said Ro Parra, senior vice president of the home and small business group. Dell often used to offer brief promotions such as extra memory or a free flat-panel display that might not have remained available if a consumer took a day or two to make a purchasing decision.
The new strategy will have the effect of lowering the list price of Dell gear. But overall, consumers will wind up paying around the same price for the complete system they put together, Parra said.
"This is about transparency over time, and making sure we continue to deliver value on our list price," Parra said.
The changes will be implemented over the next 12 to 18 months, starting with Inspiron notebooks and digital televisions in August.
"Dell's promotional strategy was too confusing to customers," said Sam Bhavnani, an analyst at Current Analysis. "You never knew if the offer that was showing up on the screen in front of you was the best offer or if there was something better out there. Making the process simpler for the customer is definitely a step in the right direction."
Dell isn't ruling out the use of promotions and mail-in rebates in the future. The goal with Thursday's announcement is to reduce the use of promotions per product line by 70 percent and to reduce promotions tied to a single product by 80 percent, Parra said.
Rebates have long been popular with electronics retailers, because they allow for higher list prices and because many customers never bother filling out the forms. But the retail industry, led by Best Buy and OfficeMax, is moving away from rebates due to an increase in complaints about the process.
"Our intent is to dramatically reduce (rebates) over time," Parra said. But he stopped short of saying the company would eliminate rebates.
One problem in moving away from targeted rebates and special short-term promotions is Dell might find it harder to keep its supply chain lean, said Stephen Baker, an analyst at NPD Techworld. Dell is famous for squeezing as much efficiency out of its manufacturing process as possible. One way it keeps inventories low is by offering short-term promotions on products that are building in inventory, like memory chips or displays. "Rebating is a very hard drug to wean yourself off of," he said.
Dell's consumer products account for only 15 percent of the company's overall business. But it's a highly visible segment, and the company has been struggling of late to maintain its leading market share position. Customer service complaints at Dell have soared over the past few years, leading the company to invest $100 million in new support staff and to retrain existing employees.
The pricing strategy is part of a multipart campaign to improve the consumer business, starting with things like improved support, a redesigned Web page and a return to one-year standard warranties, Parra said.
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