Written by David Tebbutt, Computer Buyer 08/92 - scanned
WHAT'S IN A NAME? (column) - Leaders abandon premium pricing
Who made the last PC you bought? I'd hazard a guess that it wasn't Apple, IBM or Compaq. Not so long ago these companies were the only serious players in the market, then companies like Dell, AST, Elonex and many others waded in with perfectly functional machines and have since taken a huge slice of the market. I guess it was only a matter of time before the establishment giants fought back.
Apple made the first move by cutting its prices and creating entry level products aimed at drawing thousands of new users into its net. More recently, IBM and, almost immediately afterwards, Compaq made public their revenge on the clones that had invaded the market they once thought they owned. IBM created a subsidiary company to brand Far Eastern clones with the Ambra name. The prices were fixed slightly above the main box-shifting competition. IBM figured that if it could make the Ambra brand desirable enough, people wouldn't mind paying a few extra percentage points. Compaq was under no such illusion. It has created some new products of its own but pitched their prices somewhere above Elonex but below Dell.
Although each company has adopted a different approach, IBM's is most obviously different. They have decided to try and attract brand new users, people who hadn't thought of using computers before. Have you seen the Ambra advertisement? It's a riot. You have no idea for most of its duration whether it is advertising deodorant, running shoes or fizzy drinks. You see a lot lithe young bodies (both sexes) working out in a gymnasium. It's not until the closing seconds that the advertisement shows a computer and suggests you take your mind for a run.
IBM's subsidiary, called ICPI, is going to sell its machines in all sorts of ways. You'll be able to buy them through mail order, from shops and from ICPI itself. ICPI publishes its own mail order price list and it's up to the other vendors to undercut, should they feel so inclined.
By making ICPI a separate company, IBM appears to be distancing itself from the operation. Yet at the same time, a key element of getting the Ambra brandname accepted is the fact that it is an IBM company. ICPI has £8million to spend on advertising in Europe. If this doesn't work, ICPI will either die trying to sell overpriced and unwanted products, or it will be forced to join the price bloodbath at the bottom of the market.
By contrast, Compaq seems to have taken a far more sensible approach. It is not trying to create a new market. It is simply tackling the clones head-on. If there's a market out there for good quality clones, why not go for it? Why not take a pop at Dell, the company that brought Compaq to its knees with pricing challenges? Compaq believes that loads of knowledgeable clone buyers would jump at the chance of owning a Compaq. After all, it does provide undeniably good machines. By keeping the one brandname throughout the range, it bestows far more credibility on the new machines, and at far less cost, than IBM has with Ambra. Compaq does, however, need a rapid ramp up in demand or the plan could come mightily unstuck.
Apple's approach lies somewhere between the other two. It is making no secret of the fact that its entire product range is its own. It is, however, prepared to use other top-ranking companies to manufacture them. Where Compaq has a two-tier organisation and IBM has two separate companies, Apple has decided to split itself into four divisions large business, small business, education and consumer. This enables each to focus on its own market and draw on appropriate Apple resources. Each division can sell some, or all, of Apple's products depending on the skills of their resellers and the needs of their customers. Like Compaq and unlike Ambra, Apple does not believe in selling direct.
All three companies have recognised that the days of premium prices for their products are over. Most users, especially at the consumer end of the market, don't see why they should pay over the odds for a particular brand-name. IBM continues to hang on to the belief that people will pay a bit extra for the Ambra (IBM) name, regardless of where the machines are sourced. I suspect they are wrong.
Compaq has decided that not only should it design and build its machines, it should also brand them clearly as an extension of its existing range. At the launch of the new machines, they admitted that some of their older models were over-engineered for certain types of user. They claim to have engineered the low end machines to a lower specification, more suited to the needs of the budget conscious buyer who has less demanding application needs.
Apple is unusual because it offers a uniquely satisfying computing experience for which people are prepared to pay extra. Its problem was that software developers were deserting the Macintosh because the volume simply wasn't there. Hence its very successful price cuts. It was a painful, but essential, transition for the company.
Once Compaq has gone through the same process, I believe that it, like Apple, will emerge with a new credibility at all price points in the market.