Dell said Thursday it would change the way it prices its personal computers, drastically reducing the number of rebate offers.
The move does not represent a pure price cut, according to Dell, but instead comes in response to complaints from small businesses and residential customers about confusing mail-in rebate offers.
Easier to Understand
Rebates will be phased out and new pricing structures phased in over the next 12 to 18 months, starting with the company pulling back rebate offers now being dangled on its Inspiron line of notebook computers and its line of television sets.
Some rebates will remain in place and be moved to a paperless online-redemption process instead, and Dell said prices would not go up as a result of the changes, with discounts available through rebates built into PC prices.
“This is not about lowering prices,” Ro Parra, senior vice president of Dell’s home and small business group, said in a conference call to discuss the changes. “This is more about taking the complexity out of our pricing. This is entirely in reaction to customer feedback.”
Dell will also move to “reduce the frequency and complexity of promotions” on its Dimension desktop line and other products and services, such as home Internet access and networking services. Over time, Dell said it expects a 70 percent reduction in the number of promotions per product line and about an 80 percent reduction in the number of promotions tied to a single product.
“It became increasingly clear that a simple pricing and sales structure would make it easier for customers,” Parra said. “They told us what they wanted and we’re delivering what they asked for.”
Part of a Package
The move could be a risky one for Dell, with many of its customers likely conditioned to time purchases so that they coincide with deep discounts or rebate offers. However, the move could pave the way for price cuts, which Dell could use to help it solidify its market share amid a resurgence from competitors such as Hewlett-Packard.
For its part, Dell positioned the move as part of a larger investment being made in shoring up its customer service experience, with the company pledging to spend US$100 million to hire and train new sales and support staff, expand its call center network, create more automated self-service support tools and upgrade its Web site.
The PC maker said it has already seen a 50 percent reduction in telephone hold times since it began the effort.
The rebate reduction plan did little to encourage investors, with Dell shares down about 11 US cents in midday trading Friday to $21.59, which would represent a new 52-week low. Dell stock had soared as high as $42 within the past 12 months.
Room to Cut?
The residential PC business may not have much room for additional price cuts from Dell. The business line is believed to make up about 15 percent of Dell’s total revenue but less than 5 percent of its profit.
After years on top of the PC business, Dell has experienced several disappointing quarters over the past year. This year it began to lose market share, with number two PC maker HP picking up ground. The change has occurred as Dell’s advantage on the cost side has shrunk while HP and others have copied its streamlined business model.
Speculation is that Dell will still move to reduce pricing on certain products, risking squeezing margins even further as it tries to retain its position as the PC market, which has shown surprising resilience, begins to slow. Dell is also putting out feelers about trying retail outlets again, using a similar model to the Apple store, which has boosted sales of that company’s computers and gadgets.
Changing its discount and rebate program will represent a major shift for Dell, which has relied on the programs not only to boost sales directly but to generate excitement and word of mouth, said Gartner analyst Charles Smulders.
“Their promotions generate buzz and draw in customers because they are often the focus of their advertising,” he said. “Some of them may still be looking for those offers.”