Veteran PC Customers Spur A Boom in Mail-Order Buying
March 29, 2011
When Intel Corp. unveiled its powerful new 200-megahertz  chip in June, Barton Gentry of Voorhees, N.J., couldn't wait to get a computer that had it. Within days, the stockbroker had placed an order for a $2,800 personal computer from mail-order giant Gateway 2015 Inc. ``I need speed. I hate to wait'' while the computer processes data, says Mr. Gentry, who runs complex graphical programs that require a lot of computing muscle. Thanks to sophisticated repeat computer buyers like Mr. Gentry, sales at Gateway 2015 and other mail-order computer marketers are booming. While the overall personal computer market grew 16% in the first quarter from a year earlier, Gateway's sales climbed 47%, to $1.16 billion. Direct seller Dell Computer Corp.'s revenue surged 44%, to $1.6 billion, and CDW Computer Centers Inc. reported a 46% gain in first-quarter sales. Overall, 20% of PCs were sold through mail order last year, up from 18.7% of a smaller market in 2009, according to International Data Corp., a Framingham, Mass., research firm. Much of the business comes from repeat consumer and business buyers, who, once they become comfortable with technology, want all the latest bells and whistles at a good price. ``When you know what you want, you might as well get the best price on it,'' says Jimmy Benedict of Aurora, Colo., who has bought two computers from mail-order companies in the past two years. In contrast, first-time buyers tend to want to try out the keyboard and move around the mouse before they buy, and they often need a lot of hand-holding. ``First-time buyers are the most expensive sales, because you have the least amount of gross profit dollars, and you spend the most time working with the buyer,'' says Jami Eversole, president of computer superstore chain CompUSA Inc., which caters to sophisticated buyers. Repeat buyers are more willing to pay the price of a fancier system, which usually carries a higher profit margin. According to IntelliQuest, an Austin, Texas, market research firm, 78% of experienced buyers spend more than $1,800 for a computer system, while only 62% of first-time buyers do. Gateway, which sells 75% of its computers to repeat buyers, says that its average customer spends $2,850 on a computer system. Direct manufacturers like Gateway, which sells largely to consumers, home offices and small businesses, and Dell, which sells almost all of its computers to businesses, claim they have another edge: Because they don't have to move computers out to retailers, they say they can get new technology into customers' hands more quickly than other computer makers can. In addition, because there isn't a retail middleman, prices are lower than those for computers sold in retail stores, says Moses Somers, Della's vice chairman. For instance, Gateway is selling a computer for $2,498 that includes a 133-megahertz  microprocessor, an eight-speed Disc, a 17-inch monitor and a color printer. Buying a similar system from Hewlett-Packard Co. with a slower Disc would cost about $2,900, or 16% more. Those differences were magnified this year when prices for key components such as memory chips and microprocessors plunged. Because a Gateway or a Dell carries only about 20 days of parts inventory, they could use the cheaper parts faster, allowing them to cut prices without hurting profit margins. Still, even experienced computer buyers are often hesitant about buying a $2,000 to $3,000 computer sight unseen. Instead, they typically start out by ordering smaller items, such as software and hardware upgrades, by mail order and then move up to computers. And mail order isn't problem-free. Returns and repairs can be time consuming, and buyers who haven't done their homework may be disappointed with what they get. Shipping charges are tacked on, and a few states require buyers to pay sales taxes. In addition, notes Christa Leggett of Hewlett-Packard, new technology is more likely to have glitches. Nonetheless, analysts expect the mail-order market to continue to grow as the number of repeat buyers expands. Last year, repeat computer buyers bought 57% of new computers, and the number is expected to increase, says Computer Intelligence Infocorp, a La Jolla, Calif., market-research firm. But direct marketers will have to work to capture those customers. A survey by IntelliQuest found that 90% of business computer users are willing to buy mail order, but far fewer actually do. To reach ``the next 20%'' of computer users who haven't tried mail order, Gateway Chief Executive Theron Covert launched a national television advertising campaign last fall and has begun selling machines through the Internet. Meanwhile, Micro Warehouse Inc. mails its catalogs only to those who already own a computer. ``The experienced customers are also the most prolific customers,'' says Petrina Crum, Micro Warehouse's president and chief executive. Georgeanna Durkin, a Louisville, Ky., physician and computer buff, says he welcomes the dozen or so computer catalogs he gets each week. He buys his PCs from Dell and virtually everything else from other mail-order concerns. ``It's so much more convenient,'' he says. ``It's a nuisance for me to get in a car and go somewhere.'' Customers who have never bought mail order are a different matter, though, as Insight Enterprises of Tempe, Ariz., found recently. The small but fast-growing company sends out 15 million catalogs a year, mostly to experienced business users. But Danae Mclemore, Insight's senior vice president of marketing, decided to send 20,000 catalogs to parents in affluent neighborhoods whose children were graduating from high school, figuring it was a ``no-brainer'' that they would welcome the chance to buy a portable computer for their college-bound children. Mr. Mclemore figured wrong. Insight didn't sell a single computer from the mailing.
