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Dell Sparking a Price War

by on May 22nd, 2006

Inevitably, every two-three years I get a call from my dad explaining that he’s buying a new computer. Usually, he’s leaning toward Dell because of the price but I got him to buy an HP this year. Usually, he calls me because he’s just not sure what he’s looking at. Consumers relate more often to prices, not specs. Specs are numbers and mean little to the non-technical consumer.

The reality is is that my dad is not alone. Most consumers are exactly like this. Which is why Dell stayed at the helm of the consumer PC market for years. Something about “Dude, you’re getting a Dell” resonates to the common person a little more soundly than “You get a Centrino processor with built in 802.11g wireless capability”.

And until HP reinvented themselves with a new CEO that made sense and a business model that paid off, Dell kept winning. But the Dell days are over. When I recommend laptops, I recommend HPs, and usually for a number of reasons that will be left to a different entry.

The point is that HP and other competitors of Dell have, out of the need for survival, reinvented their marketing pitch. If we want to have Survivor: Computer Price Island, Dell has the capital to “outwit, outlast and outplay”. However, HP has managed to open up the consumer dialogue to the question of “Why?” Consumers now want to know what they are buying and why it benefits them? HP has managed to demonstrate the benefit to the consumer while Dell still sits in the background and says, “Yeah well that $500 workstation we can give you for $400″.

And enough consumers have bought Dells in the past 10 years that the uncertainty of technical support and/or warrwanty coverage is something that pushes people away. It was bound to happen. Cheap Parts + Cheap Labor = Cheap Computers.

An article in eWeek questions whether Dell is about to spark another price war, this time with the added beenfit (to them) of supply chain management changes and QA enhancements:

But, given that Hewlett-Packard and other PC makers have become more aggressive in recent times, lower PC prices in many respects no longer offer the same pull that they did in the past, analysts said.

“If [Dell executives] nuke the price, they’re also going to nuke their own margins and they can’t afford to do that right now,” said Roger Kay, president of Endpoint Technologies Associates in Wayland, Mass. “It’ll have to be a combination of price and supply chain management.”

Unless it wants to fight a price war all the way to the bottom, Kay said, Dell must also take a new approach

“Up until now, it’s been, ‘We’ll give you everything that everyone else has at a much better price,’” he said. Now, “What Dell needs to do is market differently—it needs to take a page out of HP’s marketing playbook and emphasize the benefits of the features [its PCs] offer rather than the fact that they have a great price. It needs to tell customers why they should care.”

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