GATEWAY: MOVING BEYOND THE BOX

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By: Chauhan (S6052) Shashank

BACKGROUND
• • In 1985 TED WAITT was able to sell a $3,000 computer in a 20 minute phone call. • Telephone based computer retail business. • Eliminated retail distribution cost, finished goods inventory & showrooms. • Fellow sales man MICHAEL HAMMOND signed to help TED WAITT. • 1987 renamed GATEWAY 2000 earned revenue $1.5 million. • 1988 revenue grows to $12 million.


“Establish GATEWAY 2000 as a trustworthy company that offered built to order company, high end quality at low end price”
TED WAITT


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• How to increase the sell as they were competiting with IBM?
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“Marketing campaign”

• • Solution works.

• 1991 Inc. magazine named Gateway 2000 the fastest growing private company in nation with $626 million annual sales & 1,300 employees.

• Core idea •

“great service & a great marketing strategy”

DIRECT & INDIRECT CHANNELS
• The Telephone Channel: • GOAL:  “How do we build the right system for you”

• 1999 Gateway automated its voice response system to save money and increase channel efficiency. • Sales representative helps customer assemble customize computer.

• Sales representative were expected to sell $150,000 to $160,000 in company 24 annual sales cycle. • Profit margin shrank due to competition they begin to sell the add-ons (peripherals, extended warranties, software)

• Gateway.com • • GOAL  “Intact customer through phone or website instead of loosing it to Dell or Compaq”

• • Employed 100 online support personnel in Kanas city to provide:  - sales processing  - follow up  - technical support &  - answer e-mail.

PROBLEMS
• • Competition had driven prices & profits down. • Trouble in attracting top executives & engineering talent to its Sioux city, Iowa headquarters. • Y2K problem. • • What to do?

“A complete makeover of just about everything of Gateway’s operations” TED WAITT

STRATEGIES
• A New Corporate Image: • 1998 Gateway dropped the “2000” from its name & trademark Holstein cow from TV. • Print adds in order to attract more customers. • • • A New Location: • 1998 shifted into new administrative headquarters in San Diego, California from Sioux City. • There they can attract engineers & executives. • •

• • New Top Management: • Company went through a complete organizational change in 1998. •
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A NEW DISTRIBUTION CHANNEL

Ø Ø Gateways Country Stores • Goal :

“To have 80% of US population within 30 min. drive of Gateway country store.”

Gateway’s second major initiatives
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Trade in two or four year old Gateway computers

Strategies for trade off
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Software and/or peripheral bundles Finance facility Internet access through gateway.net Service warranties

Reasons for failure
• Gateway ware unable to find out actual buyer who visited the site. • Uncertainty of ROI for Fixed investment approx $400 -$500 for a 2000 computer • Customers lack of knowledge for understanding the price fluctuation. • Company had no idea what it would do with the returned computers.

Strategies for beyond the box
 50% non systems income was recurring from financing, service warranties, training, and Gateway’s ISP deal.  In 1999 Gateway secured a 20% stake in NECX direct-Gateway’s stake in NECX was real in terms of revenue, but virtual in terms of inventory  Gateway alliance with AOL-For internet access  Final deal was known for joint development of internet and home

Real problems with moving ahead with service strategy
• Leveraging the Gateways distribution channels in order to market the various pieces of hexagon-Priority of channels • They should grow at which speed because competitors were-Dell, Compaq, IBM,HP,Apple and the success and failure depend upon core competencies

Gateways System product breakdown
Desktops Q1 Revenue($ $1,724 in Gross 20.6% millions) 6.6% margin Operating margin Units 987 sold(000’s $1,746 Average ) desktop price Q2 $1,437 20.0% 5.8% 883 $1,626 Q3 $ 1,586 20.4% 6.1% 1099 $1,444 Q4 1,760 20.6% 7.4% 1225 $1,437 1999 Total $6,507 20.4% 6.5% 4194 NA

Gateways System product breakdown
Portables Q1 Revenue($ $254 in Gross 20.8% millions) 6.8% margin Operating margin Units 87 sold(000’s $2,931 Average ) desktop price Q2 $277 20.9% 6.0% 110 $2,512 Q3 $300 20.9% 6.9% 123 $2,430 Q4 $317 21.2% 7.4% 123 $2,588 1999 Total $1,148 21.0% 6.8% 443 NA

Gateways System product breakdown
Servers Q1 Revenue($ $61 in Gross 24.3% millions) 10.3% margin Operating margin Units 11 sold(000’s $5,584 Average ) desktop price Q2 $64 24% 9.5% 10 $6,377 Q3 $75 23.6% 9.3% 12 $6,034 Q4 $80 23.8% 10.0% 14 $5864 1999 Total $280 23.9% 9.8% 47 NA

Gateway Non-System product Breakout
Other Q1 Hard Revenue($ 35 Ware(Peri 21.5% in Gross pherals.etc 4.5% millions) margin Operating ) margin Q2 70 21.5% 4.5% Q3 111 21.5% 4.5% Q4 147 21.5% 4.5% 1999 Total 363 21.5% 4.5%

Gateway Non-System product Breakout
Software Q1 Revenue($ 20 in Gross 45.0% millions) 28.5% margin Operating margin Q2 43 45.0% 28.5% Q3 68 45.0% 28.5% Q4 88 45.0% 28.5% 1999 Total 219 45.0% 28.5%

Gateway Non-System product Breakout
Service Q1 warranties 6 Revenue($ and in Gross 67.5% financing 44.5% millions) margin Operating margin Q2 13 67.5% 44.5% Q3 22 67.5% 44.5% Q4 29 67.5% 44.5% 1999 Total 70 67.5% 44.5%

Gateway Non-System product Breakout
Training Q1 Revenue($ 3 in millions) Gross 45.0% margin Operating 8.0% margin Number of 1,400 sales Q2 7 45.0% 8.0% 1,900 Q3 11 45.5% 8.0% 2,400 Q4 15 45.5% 8.0% 4,000 1999 Total 36 45.5% 8.4% 2,425

Gateway Non-System product Breakout
ISP/Portal/ Q1 Other Revenue($ 0 in Gross 55.0% millions) Na margin Operating margin of 200 Number subscriber s(000’s) Q2 1 55.0% 30.0% 400 Q3 7 57.0% 32.0% 600 Q4 15 60.0% 35.0% 1,000 1999 Total 23 56.8% 35.7% ----

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