November 1, 2005 12:55 PM PST

Dell's dilemma--it's about pricing

Somehow, the Dell name just isn't resonating with consumers like it once did.

The Round Rock, Texas-based PC manufacturer announced that revenue for the current quarter would be lower than expected. The problem was blamed on costs associated with replacing faulty capacitors with some business PCs as well as lower-than-expected sales to consumers in the U.S. and U.K.

But the hiccup in the consumer market, in part, can be attributed to price. Although often tagged as a low-cost PC manufacturer, Dell has managed for the past several years to largely keep out of the bargain segments of the PC market in Europe and the U.S., allowing it to garner more revenue and profits than its competitors.

Related story
Will luxury PCs boost Dell profits?
With its new XPS line of PCs, Dell is taking a shot at the high end.

Bargain PCs, however, have become quite sophisticated, and competitors such as Hewlett-Packard and Acer have gained market share by touting low-priced desktops and notebooks. Gateway also has come back to life, emerging as one of the fastest-growing brands, thanks to discount PCs.

A look at the average selling prices for consumer PCs in the U.S. underscores the phenomenon. In 2002, the average selling price for a consumer PC from Dell was $1,084, according to research firm IDC. HP's average selling price for the same year was $1,009, or $75 lower. The average for all manufacturers was $1,030, $54 less than Dell.

In three years, that gap hasn't shrunk. Instead, it has widened. Dell's average selling price for U.S. consumer PCs for the first three quarters of this year was $854, more than $200 above HP's $651 average. The average selling price for the market as a whole was $744, or $110 less than Dell.

Now with the price gap so large, Dell's sway with the upscale PC buyers it usually courts has weakened slightly.

"In the past, the attitude of consumers was, 'Of course you buy a Dell," said Richard Shim, an analyst at IDC.

For Dell, snaring customers who were willing to buy higher-priced PCs was doubly hurtful to competitors. Not only did it mean more revenue for Dell, the company's direct selling model gives it lower operating costs.

The current problems, though, may not spread. When business PCs are added to the mix, Dell's average prices are lower than HP's, making HP the party vulnerable to higher pricing.

Dell edged under HP in 2004. Then, Dell's overall average selling price for the U.S. was $1,016, while HP's was $1,037, a $21 gap. So far in 2005, Dell's overall average for the U.S. has been $963 compared with HP's $986, a gap of $23. While it ships many consumer PCs, most of Dell's sales are to businesses.

ASP

Additionally, Dell has already taken action to try to segment its high-end consumers from average ones. In October, the company said it would offer more models in its upscale XPS line of computers. If branding segmentation succeeds, Dell can cater to its traditional consumer base with XPS and fight on price with Acer and the rest with standard Dimension desktops and Inspiron notebooks.

However, Dell also has been dogged by complaints about service. Back in February 2004, Consumer Reports and Technology Business Research reported that customer satisfaction among Dell customers dropped. Although the company ranked higher than most competitors, it was a stinging criticism for a company that can be obsessive when it comes to customer service. Founder Michael Dell himself occasionally dons a headset and fields customer service calls, according to sources close to the company.

Dell took immediate action and improved customer service by December, according to the TBR surveys. But consumers this year have become more vocal about complaints. Dell customer service stories are now a staple of many blog sites.

Although Dell made its earnings warning on Monday, signs of a slowdown were already out there. Earlier in the month, Gartner pointed out that in the third quarter, Dell's PC shipments grew at 17.6 percent, about as fast as the market on the whole. It marked the first time that Dell had grown only as fast as the market in seven years.

16 comments

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it's about pricing
Somewhat because, Dell still uses Intel ONLY chips in all their computers. And Dell's competition began using ADM chips in many of their products as AMD gained marketshare. And we all know that AMD chips are less expansive on average then Intel.
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<a class="jive-link-external" href="http://www.Remove-All-Spyware.com/" target="_newWindow">http://www.Remove-All-Spyware.com/</a>
Posted by Roman12 (214 comments )
Reply Link Flag
It's all about the Pentiums Baby!!!
Dell will continue to have higher selling prices until the start using AMD Athlon XP and 64 processors. Intel is falling farther behind and is still more costly than its AMD competitors.
I remember back in the late 80's early 90's when Dell only made top of the line custom PC's only comparable today to Alienware's. Hey need to get a better deal from Intel on there Intel only market if they want to continue on this same road.
Instead Dell uses the sub-class Celeron and Centreno Pentium processors to compete with the XP and 64. These might compete with the Durons, but how often do you seen systems with Duron processors?
Dont get me wrong Intel makes a good processor, but I prefer more bang for my buck.
Posted by Ucidalin (5 comments )
Reply Link Flag
amd's you mean
I agree with everything you said, except I dont care a lick for Intel...their company has become old, stale and way overpriced...they have too much of the retailers whipped (hence the monopoly charges currently being investigated against Intel) and a few too many zombie buyers..."I dont know what the difference is between intel and amd, but I saw some guys in blue on tv for an intel ad, so that must be the one to buy" type of mentality. Price/performance for price/performance and segment level for segment level, at this time there is not an intel that can touch an amd.
Posted by (1 comment )
Link Flag
AMD vs Intel
I build and sell computers, and the whole AMD vs Intel issue is actually very complex. However, in a competitive market I think it is quite wrong for Dell not to offer their customers the choice - I would never dare to do that - and one would hope that their poorly thought out strategy backfires on them... (which may well turn out to be the case it seems).
Posted by Jerry Dawson (125 comments )
Reply Link Flag
It's about service!
I have two Dells in my home, and our small business is all Dell. Their customer service has gone into the tank. They have problems with their Inspiron notebooks overheating and burning up. They won't service damaged components or fix the problems out of warrantee.

They're stalling on replacing defective GX270 motherboards to corporate clients. Feel free to search on either issue.

Meanwhile, customer service surveys show that Dell's satisfaction is in a slide:
<a class="jive-link-external" href="http://www.computerworld.com/hardwaretopics/hardware/story/0,10801,103959,00.html" target="_newWindow">http://www.computerworld.com/hardwaretopics/hardware/story/0,10801,103959,00.html</a>

"Study: Dell customer rating plunges; Apple leads pack. Customer service, not products, were source of dissatisfaction for Dell"
News Story by Tom Krazit
AUGUST 16, 2005 (IDG NEWS SERVICE)
Posted by dhdoyle (1 comment )
Reply Link Flag
And Price
You're right Dave service is lousy, I know from experience.Their price is also to hi for what you get especially for those who want just an "Internet computer" where you don't need a lot of horsepower.
Although Dell has made some good deals as of late,It still needs to do MUCH better on service.
Posted by (32 comments )
Link Flag
amd or intel
that's all relative to what you plan to do. Also, the next level intel processors are looking to "spank" amd processors for lack of a better term. Like it's always been...these companies will go back and forth, at times amd being faster and cheeper, at times intel being cheeper and/or faster. For now..i'm an amd fanboy myself, but soon the tables may turn...remember not to become a mindless amd zombie because they won't be on top forever :) no one is!!
Posted by sr71000 (5 comments )
Reply Link Flag
whoops
sorry....i keep replying to story instead of post..so it comes up in the wrong spot...my bad
Posted by sr71000 (5 comments )
Link Flag
Losing reason to buy
I think Dell's biggest problem is that they're losing their game.
Other PC companies are often cheaper, and other companies --
especially Apple -- are riding innovation highs that Dell just can't
match. Dell has also gained a reputation for mediocre service and
slipping build quality.

Methinks they need to spend some time figuring out just what
"Dell" is all about.
Posted by Jared White (9 comments )
Reply Link Flag
Cheap Is As Cheap Does
I've had nothing but problems since the day I bought a cheaper HP Pavilion laptop from CompUSA which required two trips to the repair depot. It is now out of warranty so I must live with the random screen flicker and an AC adapter that sparks when plugged/unplugged. The cooling fan runs constantly, and is louder than a hairdryer -- a constant reminder that I should have bought a Dell. What do you call this laptop? A piece of ****.

A friend of mine recently bought a Gateway laptop. It wasn't exactly cheap at over $1,200. But what do you call a laptop only a few months old that has the key labels wearing off already? A piece of ****.

A customer of mine recently bought a Compaq Presario 2218RS. The laptop was only 1 day old when the power LED light stopped working. He didn't want the hassle of having to box everything up, take it back to Radio Shack, get another one, and redo all his customizations. He decided he will just live with it. What do you call this laptop? A piece of ****.

Dell should run an ad campaign with the slogan, "I should have bought a Dell." I will do the commercial for them for free.
Posted by Stating (869 comments )
Reply Link Flag
Dude, you should have bought a Dell!
That's a good come back slogan. I think their "Dude your getting a Dell" slogan really worked well, but they haven't had anything like that in a long time.

As for the warranty issues. You should have brought it back again stating how it is NOT yet fixed. If it's been returned to you within 30 days, you should be able to get them to re-repair it again for you.

I know it is a hassle, been there with an old Tandy monitor that just wouldn't work. I ended up with a brand new monitor after several months of sending it back. On the first ship out I lived without a monitor, but after that, I demanded they provide me with a temporary replacement while I waited for the repairs. It went out a total of 5 times before they stopped trying to fix it and just replaced the monitor.

For expensive purchases that you will not want to live without, use the in-store warrnty options if available. I've done this with the old PS2 and when it started to have issues was able to walk in to get a replacement unit. No long waits, no worries if it was going to break again in a couple months after a shody repair job.
Posted by zaznet (1138 comments )
Link Flag
You certainly have.....
... very unlucky friends. Yours isn't all that good either. I bought HP
and Compaq and my PC machines all work very well. The power
LED's even work and the key labels are still good.
Posted by Earl Benser (4310 comments )
Link Flag
The AMD Market shift...
AMD has been shifting to compete with Intel. For a long time they held a lower end and lower price market. Now they are competing on the top end and closer to the Intel price margin.

Filling the gap left behind now is Via. The current AMD products are faster and cheaper. The interesting thing is that the longer things stay that way, the more consumers assume it's always been that way.
Posted by zaznet (1138 comments )
Reply Link Flag
Buy a new Apple Mac?
We are seeing reports of Dell sliding and Apple picking up sales increases. Maybe some of Dell's market is going over to Apple. :)

This would be the other end of the market that was not focused on in the article. High-end, High-performance with good customer service and at a premium.
Posted by zaznet (1138 comments )
Reply Link Flag
please all if any one can help me with this Q please aswer me as soon as you can i wish if now because i really need to know ..... again please


the Q is :- The market for PCs is in the mature (or late) stage of its product lifecycle. Within the context of this industry, would you characterize Dell?s current strategy as predominantly ?offensive? or ?defensive?? Explain your characterization and provide evidence?

wait for relplay
thank you
Posted by Ahmad_Ali_84 (1 comment )
Reply Link Flag
 

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