Clear pricing is the Gateway to profit

NEWS Gateway has quietly launched a new strategy that markets its PCs at fixed prices that include shipping and often-requested peripherals such as monitors and CD burners. The plan seeks to bolster Gateway's sales and at the same time "build the best PC we can at key price points," said John Lostroscio, vice president of product management at Gateway. "The price you see is the price you pay." Gateway's new pricing plan is part of its latest effort to cut costs and stabilise itself after a nearly three-year-long slump. Since the beginning of this year alone, Gateway has closed 80 of it stores and eliminated about 1,900 jobs. As part of its new strategy, Gateway has also eliminated rebates and "free" upgrades with the aim of saving customers the trouble of navigating through rebates and special offers to find the actual price of its PCs. Simplicity doesn't necessarily mean bargain basement, however. Gateway's cheapest model now, the 300S, sells in a standard bundle for $799 (£506). The bundle includes a 2.2GHz Intel Celeron processor, 256MB of RAM, a 40GB hard drive, a combination CD burner/DVD drive and a 17-inch monitor. Gateway's 300X model adds a 2.4GHz Pentium 4 and a 60GB hard drive for $999. One of Gateway's more luxurious desktops, the 500X, comes with a 2.53GHz Pentium 4, 512MB of RAM, an 80GB hard drive, a CD burner, a DVD drive, and a 17-inch flat-panel monitor. It costs $1,499. In some cases, Gateway's new prices are higher than before. Gateway's lowest-priced 300 series desktop was $399 after a $100 rebate during the 2002 holiday season. But that did not include a monitor, CD burner or the 256MB of RAM. According to Lostroscio, the new prices simply cover the additional costs of higher-end components and shipping. PC bundles from other manufacturers such as Dell can fall below Gateway's new prices. But Gateway contends that its prices are the ones to beat. "From time to time, promotional elements may sway (customers) one way or the other,'' Lostroscio said. But "day to day, we feel our configurations are very competitive.'' Underscoring its point, Gateway recently put the 300S on sale for $599 as a limited-time promotion. Meanwhile, the company plans to re-enter the low-end PC market with new, less expensive models later this year, Lostroscio confirmed. The new prices are a gamble for Gateway, analysts say. "If Gateway is trying to do everything it can to remain viable, it has to increase profitability," said Roger Kay, analyst at IDC. But "if that takes them off the price performance curve -- the curve of how much performance you can get for the price you pay -- that's not good." Although Gateway was one of the fastest growing PC companies in 1998 and 1999, its growth began to slow in 2000. Since then, the company has seen its market share slip and quarterly losses mount. The PC maker has tried several strategies to reverse the trend, including an aggressive, low-price PC strategy that kicked off in early 2001. Although that strategy boosted its unit sales on a sequential basis, Gateway never sold enough units to reach sustainable profitability.

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