MARKET TRENDS: Not computing – Computer mailers cool to consumers

Dec 01, 1999 10:30 PM  By

More than 60% of U.S. consumers will own personal computers by the end of 2000, compared to 53% this year, according to Ziff-Davis’s annual Technology User Profile research report. That would mean nearly 10% of consumers will buy their first PC next year. Add to this the consumer rush to upgrade existing PCs for Internet applications, and the conditions present one fat opportunity for computer marketers.

But instead of battling for their share of this burgeoning market, many computer catalogers have cooled toward the consumer market, instead targeting a business clientele.

The reasons for favoring business buyers over consumers are simple enough. For one thing, businesses typically have higher average orders or order more frequently than consumers. “The b-to-b customer has an insatiable need for upgrades and new work stations whenever it adds employees,” says Harry Harczak, chief financial officer of $1.8 billion-plus Computer Discount Warehouse (CDW). What’s more, the Vernon Hills, IL-based cataloger sees in the business sector a boom far more dramatic than consumers will drive. “It was Intel CEO Craig Barnett who recently said, `Ninety-six percent of the servers needed are yet to be installed,’” Harczak notes.

Sales to consumers accounted for nearly 20% of CDW’s 1996 sales of $928 million; this year they’re responsible for less than 10% of revenue.

Then, too, consumers tend to be more cost-driven than businesses. “It’s becoming more difficult to sell to consumers,” says Brian Burch, senior vice president of $1.1 billion-plus computer cataloger Insight Enterprises. “Price points are going down; margins are shrinking.”

Three years ago, those conditions led the Tempe, AZ-based company to focus “relentlessly” on small and midsize business clients, he adds. Now, when courting businesses, Insight can compete less on price and more on overall value, which takes into account “special” services. For instance, Insight, like other computer catalogers, offers its business customers technical assistance, customizes their systems, and provides them with a dedicated account representative who knows their purchase history and technical demands.

“The b-to-b customer is anxious that he’s getting a good value, but five dollars either way is not going to make the difference,” says Lorne Rubis, chief operating officer with Renton, WA-based Multiple Zones, publisher of computer catalogs Mac Zone and PC Zone. “You’d better get the product there when you promise it, though.” Sales to businesses now make up 60% of the company’s total sales, up from 50% last year.

Looking for a bargain

Many computer catalogers note that price-conscious consumers are fickle shoppers. “It’s been tough to make money on the consumer side. You don’t have much recurring revenue, so it’s hard to establish relationships that will stick,” says analyst Dean A. Ramos of Minneapolis-based brokerage George K. Baum. Unlike businesses, which typically reward good service with loyalty, Rubis says, consumers “are just a click away from the competition,” referring to the burgeoning number of Web-only computer marketers. Many of these firms, he believes, sell computers at margins far lower than traditional resellers can afford in order to build a customer base. “The dot-com companies have taken away a lot of profitability. They have a different model, based on an acquisition philosophy.”

But while many print computer catalogers have cooled toward consumers, they haven’t all iced them out entirely. Some are now hoping to move their print customers to the Web to reduce costs. Multiple Zones, for instance, still mails its catalogs to consumers because it is “the most efficient vehicle for driving traffic online,” Rubis says. “I’d like to blanket the entire country with catalogs, and I’d like `Zones.com’ on every one.” The company’s online sales to consumers for the third quarter were $19.1 million – a 41% leap from last year, and nearly 20% of Multiple Zones’ total net sales.

In a more extreme example, Dallas-based computer marketer CompUSA stopped producing print catalogs earlier this year, but is not anticipating an end to its consumer business. The retailer/direct marketer, whose sales to consumers have traditionally accounted for 60% of its revenue, expects its CoZone.com Website to sell to consumers more profitably, according to spokeswoman Suzanne Shelton. CoZone.com has identified two groups of consumer shoppers, she notes: those who buy online principally for the convenience, and those who buy online to get the lowest price.

It’s well and good for a computer cataloger to say that it is going to target businesses rather than consumers. But how, exactly, do the catalogers reach the business audience?

Most major computer marketers have invested heavily in outbound sales teams that work primarily within the b-to-b sector. Multiple Zones, PC Connection, Micro Warehouse, and Creative Computers all point to increases in outbound sales and staff in their latest quarterly filings. In its filings, Insight Enterprises claims that it will add 150-250 outbound sales reps per quarter. As senior vice president Brian Burch says, “Three years ago we were more of a traditional cataloger, but we saw that the model for the future was an outbound, proactive model. We hired and trained a sales force to prospect and manage accounts.”

Insight has also used the Internet to expand its outbound sales by creating a permission-based e-mail marketing program, with e-mail newsletters whose content is targeted to different market segments. “We have nearly 1 million customers who choose what they want us to mail them on a regular basis,” Burch says. “Now we transmit 2 million-3 million graphical e-mails every week.”

Computer Discount Warehouse (CDW) is harnessing the power of the Web as well. The cataloger has created more than 18,000 extranet sites for b-to-b customers. Chief financial officer Harry Harczak estimates that the sites generated sales of $316 million as of the second quarter of 1999. “Our extranet customers have their own purchase order [PO] procedures, and they can generate POs online,” he says.