Gateway never knowingly undersold

Depending on the kindness of rivals?

Gateway yesterday launched a print and TV advertising campaign in the US in which it promised to beat the prices of any comparable PC or server sold by its rival.

It is not usually wise for - what, the fifth biggest (US) player? - to take the lead in a price war. But in the US PC market, IBM, Compaq, and HP don't really have the interest to turn Gateway's marketing hype into real dollars.

Which leaves Dell. Dell, now the world's biggest PC maker, declared this year that it will go as skinny as is required to protect sales and win market share. It can afford to sacrifice more profits than its rivals, because it operates at a lower cost structure (overheads were 9.2 per cent of sales for Dell in Q1, compared with 18.9 per cent for Gateway).

However, Dell doesn't need to force out Gateway just yet - there's plenty of second and third-tier players (for both companies) to attack. Gateway is relatively weak, but only in the sense that Dell is relatively strong.

The company went a little loony early last year when it cast off its cheap and cheerful roots to tout more expensive PCs and services. Better margins, but sales turned crap, when it failed to respond quickly enough to deteriorating market conditions with price cuts.

After a poor second half of the year, enough was enough. CEO Jeffrey Weitzen "retired" at the astonishingly early age of 44 and founder Ted Waitt came back to run the show.

This new advertising campaign will reinforce Gateway's new/historic image as a top-brand maker of cheap PCs. This will cost more in advertising than in real price cuts. ®

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