Packard Bell Demystifies Computer Buying : Marketing: The Chatsworth firm was a pioneer in placing low-priced products with mass merchants such as Sears. Its sales-rate growth is five times the industry average.

The personal computer industry has been battered recently by flattening demand, intense competition and fierce price wars, resulting in huge losses even at industry stalwarts IBM Corp. and Compaq Computer Corp.

But while many other computer makers have been restructuring and retrenching, Packard Bell Electronics in Chatsworth has been quietly gaining ground. Industry analysts estimate that Packard Bell’s sales rate has been growing at about five times the industry average. In the six years since it launched into personal computers, Packard Bell has captured 4% of the U. S. market and, by 1990, ranked fifth among domestic PC makers as measured by the number of units shipped, behind IBM, Apple Computer Inc., Tandy Corp. and Compaq.

The privately held company is only related to the old Packard Bell that made radios and televisions by name, which the present owners acquired in late 1985. The company doesn’t make public its revenue or profit figures, but industry analysts estimate that shipments of Packard Bell’s computers--which retail for as little as $800 on up to $5,000, depending on the amount of power desired--topped $700 million in 1991.

The rapid rise of Packard Bell has been attributed to its strategy of selling its low-priced IBM-compatible machines through mass merchants such as Sears, electronics centers such as Circuit City, and such warehouse discounters as Price Club, which was Packard Bell’s first big sales outlet. These retail channels were previously ignored by computer makers.

Packard Bell is also one of a breed of young, aggressive companies that helped demystify computers by treating PCs as commodities, completely packaged with disk drives, software and modem, and ready to operate right out of the box. It then follows up with a high degree of customer service.

Packard Bell created “a blueprint for retail success,” said Roger Lanctot, research director at Personal Technology Research in Waltham, Mass.

But Packard Bell now faces a bigger challenge. Mass merchants and discounters, not content to rely on just one supplier, have begun selling many types of computers, including brand names such as Epson American, Leading Technology and AST Research. And more and more computer makers are following the trend toward lower-priced, easy-to-use products.

“Everybody is after them,” said a Price Club spokesperson who declined to be identified.

Even giant IBM has infiltrated the mass merchants and also last year introduced a new, simplified desktop computer.

“What we expect to continue in the ‘90s is an explosion of retail channels to meet buyers’ needs,” said Winnie Briney, an IBM vice president of product marketing. In keeping with that, she said, IBM’s strategy is to make its PCs “easier to buy, easier to understand and easier to get serviced.”

In addition to the growing competition, Packard Bell is also up against what analysts predict will be another bruising year for computer makers, culminating in an industrywide consolidation.

How does Packard Bell hope to stay a step ahead?

Beny Alagem, 39, Packard Bell chief executive, said he plans to stick with his strategy of making a PC purchase as simple as possible for consumers who are increasingly confronted with a bewildering array of choices. And he hopes to capture more business by extending that concept to new products.

“If you keep looking back to see where the next competitor is, your speed and pace will slow,” Alagem said. “But if there’s a shift in the consumer, then we want to shift.”

In October, Packard Bell introduced its first local area network--a group of computers that share information--which differs from other such networks because it is essentially ready to hook up and use right out of the box. An entry-level system with one file server, three workstations, a printer and software sells for less than $15,000. The company hopes that the new system will appeal to small businesses that don’t need customized networks.

“Packard Bell is saying networks are commodities,” said John Dunkle, president of WorkGroup Technologies, a computer market research and consulting firm in Hampton, N. H. “Nobody else has really done it in this way before.”

Richard Zwetchkenbaum, an analyst at International Data Corp., a market research firm in Framingham, Mass., said Packard Bell’s new network is a good idea, but whether it will be accepted in the marketplace remains to be seen. “I can’t say they’ve got a bingo,” he said. “But it’s worth a shot.”

Also in October, Packard Bell unveiled a new version of its top-of-the-line PC that can be upgraded by simply plugging in a new central processing unit--a computer’s “brains” that control its various functions. That means an owner can get the equivalent of a new computer for as little as $300.

“Basically, we made a non-obsolete computer,” Alagem said.

This idea is not new. Many other computer makers have been marketing lower-priced PCs that are easily upgradeable. But Zwetchkenbaum said Packard Bell is keying in on a trend that’s fast gaining momentum--and one that could also lower its operating costs by reducing inventory and marketing expenses.

Another strength of Packard Bell, analyst Dunkle said, is that it assembles its computers at its Chatsworth plant from parts made in Japan, Korea and Taiwan. That means when designs change, the company “can move very quickly and be very flexible,” he said.

That’s an important edge in the discount business, where inventories turn rapidly.

“We change on a dime,” the Price Club spokesperson said. “They have learned how to deal with that very well.”

According to a couple of recent surveys, Packard Bell’s customers also give the computer maker high marks. Verity Group, a market research firm in Diamond Bar, found in a nationwide survey of more than 5,000 desktop computer owners conducted from November, 1990, to November, 1991, that Packard Bell ranked the highest in customer satisfaction.

The common theme among those responding, Verity President Bill Matthies said, was that a Packard Bell computer “doesn’t break and it’s easy to use.”

Another survey, released last year by J. D. Power & Associates in Agoura Hills, found that Packard Bell ranked second among home-business computer users in terms of overall customer satisfaction.

There’s another edge Packard Bell has and that is its name. Although Packard Bell was known for decades for its radios and television sets, by the mid-1980s, it was virtually a shell company owned by Teledyne Inc. In 1985, Alagem resigned as head of Cal-Abco Co., a $600-million semiconductor distributor, and teamed up with partners Alex Sandel and Jason Barzilay to purchase the Packard Bell name for an undisclosed price.

It was a shrewd ploy that gave Alagem and his partners, who aren’t part of Packard Bell management, a household name for their new company. Alagem, however, said he’ll continue to get mileage out of the name only if he keeps in touch with where the market is going.

“We keep our ear to the ground and measure demand,” he said. “Wherever the consumer will buy, that’s where we will make our product available.”