Dell to Cut PC Rebates, not PricesBy John G. Spooner | Posted 2006-07-13 Email Print
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The PC maker, in a bid to win greater confidence from its customers, will phase out rebates over about the next 18 months in favor of bottom-line pricing.
Dell has decided do away with rebates in an effort to get to the bottom line on its PC prices.
As expected, the PC maker will begin phasing out rebates and other special offers in August in favor of presenting lower prices upfront to SMBs (small and midsize businesses) and consumers in the United States, the company said on July 13.
Dell's net pricing, however, will remain the same. A machine that's now offered for $999 with a $100 rebate will instead simply be offered for $899 in the future.
The move, which will not change the way Dell deals with its large business accounts, comes as the PC maker attempts to recover from a series of missteps that curbed its growth during the first quarter of 2006.
Dell believes that simplifying the way it presents prices to its customers will help it regain their confidence and thus boost sales, said Ro Parra, senior vice president of Dell's Home and Small Business Group in Round Rock, Texas.
"I would not call it no-haggle pricing," Parra said during a conference call with reporters. "I think it's really more about simplifying the way that we price [PCs] and making it simpler for our customers ... and trying to provide transparency and simplify our list prices."
Dell began mail-in rebates in 2000, he said. Since then its pricing strategy has evolved so that some computer products have as many as 50 promotions associated with them.
Dell projects that over time it will cut the number of promotions per product line by 70 percent and reduce the number of promotions tied to a single product by 80 percent.
The strategy will roll out over the next 12 months to 18 months, starting with its notebooks, the company said in a statement.
"I believe that, over time, we'll be more affective at marketing and selling our products," Parra said.
With this simplified approach, upfront prices are likely to remove uncertainties from the minds of Dell customers, said Richard Shim, an analyst with IDC in San Mateo, Calif.
Many Dell customers had taken to sifting through its different Web storesit sells the same basic products in its home and small business storesas well as its numerous special offers for the best deal.
"They're making it more efficient by saying, 'You don't have to go looking for the deal anymore. The first one you find is the one you're going to get,'" Shim said.
Next Page: An evolving PC market.
But the move also reflects changes in the market itself, another analysts said, indicating that the main methods PC makers like Dell have used to entice customerssuch as rebates and waived shipping feeshave lost some of their allure in recent years as the PC market has matured and growth has begun to slow in 2006 following a wave of upgrades in prior years.
"The way you make money in a build to order experience is you trade people up [on components] and you manage the process so that the more that they upgrade the more profitable it is," said Steve Baker, an analyst with The NPD Group in Port Washington, N.Y.
But, he added, "one of the problems with an upgrade model is that if people don't upgrade, I don't make any money."
Yet technological improvements, including faster processors and bigger hard drives, have made many of the special upgrade offers touted by Dell and others less alluring, now, than in the past, Baker said.
Items such as large flat panel displays have become more desirable instead, given that even basic PCs now offer enough performance to do everyday tasks.
Done right, revising its model lines to include PC configurations and pricing that are more straightforward will allow Dell to tout a better customer experience, yet still allow it to build profit into each machine, Baker said.
That way, "When people trade up they trade up more against platforms than against specific components," he said.
Dell doesn't plan major changes in the way it offers its PC models. It won't offer fewer models, for example, a company spokesman said.
But it is more likely to begin bundling PCs with components to target customers who aim to do specific tasks, such as play games or edit photos, Parra indicated.
Dell isn't the only PC maker that's looking to simplify the way it sells its products.
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.
Meanwhile, Hewlett-Packard, which recently launched a new line of consumer PCs to target the back-to-school market, said it is working to keep its PC pricing approach simple as well.
The company offers various rebates and no-charge component upgrades as well as a discount for teachers and students.
"We are constantly communicating with our customers about how they want to buy HP products and ways to make it as easy and compelling as possible," a company spokesperson said in a statement e-mailed to eWEEK.
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