It’s What’s on the Outside That Counts
As the PC industry converges on Las Vegas this week for the annual Comdex extravaganza, one thing is clear: Never has brand been more important in selling computers.
A near-saturated consumer market and delays in new, must-have multimedia technology have dampened sales of home PCs just as two formidable contenders--Sony and Toshiba--are entering the already crowded field.
Faster processors and new operating systems have kept demand for desktop and notebook computers brisk among corporate customers, causing new players to jump into the latter arena as well, including Japanese electronics heavyweights Fujitsu and Hitachi.
It’s no wonder computer makers are paying as much attention to what’s on the outside of the box as the technology inside, launching massive marketing and advertising campaigns to bolster brand awareness in hopes of winning the hearts, minds and pocketbooks of computer buyers.
Already, Packard Bell, Apple, AST and other players who’ve slipped up on one or another of the fundamentals have seen sales and market share slither away. Even Hewlett-Packard, after a strong debut in the consumer segment last year, has stumbled of late.
“There’s not room for all the notebook players. There’s not room on store shelves for all the home PC brands. That’s a formula for disaster,” said Brad Johnson, who tracks the PC business for Advertising Age magazine.
Competitors are clawing after a domestic PC market that’s come down to earth after growing nearly 25% during 1995, when consumers rushed to upgrade for Windows 95 and log onto the Internet. By contrast, analysts expect shipments to grow only 13% to 16% this year.
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The slowdown is mainly due to home PC sales, which were flat in the third quarter, the first no-growth period in at least two years, according to analyst James Staten of Dataquest. By contrast, corporate PC sales are growing at a healthier 18% rate, with expectations of an even better 1997.
Analysts are bearish on the Christmas shopping season, which drives what is traditionally the computer industry’s biggest quarter. The number of first-time buyers is tapering off, and innovations such as digital videodisc and Intel’s MMX multimedia chip that were expected to be out by the holiday shopping season have been delayed until early next year, causing early adopters to hold off on buying new, more expensive machines.
In fact, analysts aren’t expecting to see much that’s new and different at this year’s Comdex, which runs through Friday and is expected to draw more than 210,000.
“There’s simply nothing compelling right now,” said Bill Zinsmeister, senior analyst with International Data Corp., the technology researcher. “PCs are still about $1,500 and they really aren’t doing much more than they did last year. They’re doing it faster, but not doing new things.”
Consumer electronics retailers such as Circuit City and Best Buy could be hit the hardest by yuletide blahs, while mail-order companies such as Dell and Gateway 2000 should continue to see the healthy demand from bargain-seeking second- and third-time buyers that has fueled their recent stellar financial performance.
Against this backdrop, hardware manufacturers are doing everything they can to wow would-be buyers: holding prices, tweaking PCs to include common-sense features such as better speakers and built-in modems in notebooks, and expanding customer service operations.
But PC makers’ major focus is in building brand names through national ad campaigns and other marketing strategies. Together, hardware and software makers spent a record $1 billion on advertising in 1995 and are on track to exceed that this year, according to Advertising Age.
Fujitsu and Hitachi, both of which established U.S. subsidiaries earlier this year to enter the notebook market, are spending upward of $20 million each--the bulk of it during the fourth quarter--on TV, newspaper and magazine ads to get their names in front of consumers.
“We want to be a tier-one player within five years,” said Mark Yahiro, marketing vice president for Hitachi PC Corp.
Gimmicks are in too. In a series of publicity stunts last month, Hitachi employees parachuted out of airplanes carrying the company’s E series notebooks to prove that the machines aren’t as delicate as some people believe. At Comdex, a good chunk of Fujitsu’s booth will be occupied by a bright-red 18-wheeler outfitted as a showcase for the company’s new Lifebook notebooks.
“Fujitsu owns 23 affiliates in North America. We’re huge and we’ve been selling things like mainframes here for years. There’s brand equity in the name,” said Greg Chambers, Fujitsu PC marketing vice president.
But analysts aren’t expecting success to come quickly.
“The reality is Toshiba and IBM are the two strong guys in the [notebook] market,” said Edward Lee, an analyst with the Robertson Stephens investment bank. “It’s a tough market to crack.”
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The same holds true for the desktop market, where Compaq has done a near-perfect job of establishing itself as the best-known, most respected brand in the business, and IBM has staged a strong comeback.
Established players are using advertising to lock in their customer base. Acer, looking to rekindle sales of its year-old Aspire brand, hired hip San Francisco agency Hal Riney & Partners to jazz up its image in a series of retro-looking ads that emphasize how simple computers can be. Financially strapped AST, now 49%-owned by Samsung, has its $15-million ad account up for review.
On the heels of a merger with NEC’s consumer PC business earlier this year and ensuing product delays, Packard Bell recently launched its first national advertising campaign. The company, whose low-priced machines are ubiquitous in consumer electronics stores, will have spent $15 million to $20 million in the last three months of the year on controversial TV spots that juxtapose gritty, black-and-white images of worldly horrors with the relative safe haven of home under the slogan “Wouldn’t you rather be at home?”
“Now’s the time to promulgate their brand because if they don’t, names like Sony and Toshiba will drown them out,” said Zinsmeister, the IDC analyst.
Indeed, everyone is watching Sony and Toshiba, whose well-known brands add muscle to their entry into the home market.
Toshiba, which has sold portable computers in the United States for close to a decade and ranks as the leader in notebook sales, rolled out its Infinia desktop machines in August. The company, which is selling the machines in CompUSA, Best Buy and Circuit City outlets, quickly picked up 6% of the home market, said Matt Sargent, analyst with Computer Intelligence in La Jolla. Toshiba expects to roll out its first business PCs in the first quarter of 1997.
“We’re using brand recognition to become more than a notebook company,” said Ron Smith, vice president of Toshiba America Information Systems’ computer systems division.
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Also in August, Sony began selling its first line of home computers, high-end multimedia machines priced at about $3,000 that include upgraded monitors and audio and graphics capabilities that company executives claim are superior to similarly priced machines.
Sony executives say their PC strategy is really designed to strengthen the company’s overall position as an electronic entertainment and information powerhouse, and they indicated they won’t be fighting in the trenches for market share.
“If we beat somebody, we’ll be happy, but that’s not the objective,” said Tac Sukiyama, Sony’s PC products marketing manager. Unlike Hitachi, Fujitsu and Toshiba, Sony has not set up a separate U.S. PC company--another sign of what some analysts consider a dangerously tentative approach to the business.
The outcomes of these battles of the brands remain to be seen, although observers are quick to point out that a strong brand backed by a high-priced ad campaign doesn’t mean anything if a company fails in such essentials as product quality, availability and price.
And brand talk is lost on one large segment of the market: savvy computer users who care more about price and service than the name on the box. These technophiles are most apt to buy no-name equipment from clone makers or independent dealers who build custom PCs, and advertising probably won’t make them switch, analysts believe.
In fact, second-tier brands and no-name clones and custom machines account for about 29% of the computer market, almost three times the market share of Compaq, the industry’s biggest player. And despite the emergence of new players, the no-names’ cut of the market hasn’t varied much over the last decade.
Michelle V. Rafter can be reached via e-mail at mvrafter@deltanet.com
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Just What Is Comdex Fall ‘96?
An estimated 210,000 people will descend upon Las Vegas this week for the Comdex Fall ’96 computer trade show, which runs today through Friday at the Las Vegas Convention Center and other venues around town. It’ll be hard to get a hotel room, hard to get around town and frightfully expensive for exhibitors--but Comdex is still a must for everyone from the computer dealers it was initially supposed to serve to the newest purveyors of Internet products.
Participants say little has changed since Softbank Holdings Inc. purchased Comdex from the Interface Group last year, except it’s getting bigger. There will be more than 2,100 exhibits over 1.35 million square feet of floor space in two convention halls, as well as miniature display areas in a handful of hotels.
