Big Blue's gamble for a piece of the direct-to-consumer market may actually pay off.
Okay, so IBM built a computer that can play chess. So could that computer in War Games, and the damn thing almost blew up the planet.
Whenever anyone talks about brand value scores, IBM always rates high in the name recognition and trust departments. But this doesn't necessarily mean an invitation into people's homes nowadays. IBM's problem, in the techno-churning, Internetworked, hyperlinked, consumer PC market, is that it still smacks of that megalithic supercomputer in War Games - some incomprehensible construct of the military-industrial complex, not a nice, sleek appliance that sits on your desk at home, or travels with you, and offers you access to the world.
The company hopes to change that, through a quirky new campaign that goes head-to-head with industry pacesetters Gateway and Dell. IBM's new ads herald a fundamental shift in the way it interfaces with consumers. After a much-publicized withdrawal from the retail quarter, it now champions a direct-to-consumer sales model. In doing so, IBM has undertaken a monumental mission - not just to adjust its retail modus operandi to shifting consumer purchase patterns, but also to speak to the new type of big-ticket-item buyers who don't necessarily perceive a giant corporation as the nimblest agent to accessorize their lives.
The varied TV spots mark a departure for the company. The scene opens on a warehouse loft buzzer for IBM.com and focuses on two slacker-ish guys who appear to comprise the nerve center of this sort of IBM workplace. A series of vignettes, framed in the letterbox style of IBM's successful "e@business" campaign, has them discussing the new PCs' features amid some amusing deadpan. In one spot, as if to emphasize the spiritual distance of IBM.com from Big Blue, one of the guys even contends with a besuited lawyer from "corporate," who audits their claims about a new, high-speed laptop. In another spot, hyping a tech-support package on a new model, the lead actor tells how the computer features a button that automatically hooks you up with a tech-support guy "like Leon." Cut to Leon, in the guise of "Walrus Man," as two pencils jut out of his mouth, telling his wife he'll be home soon. "Maybe not Leon," the first guy says.
Don't be thrown by the youthful, easygoing demeanor of the brand's new spokesmen. IBM is squarely eyeing a more sophisticated consumer, for whom guys like these aren't necessarily "hip," but represent the technology industry's developmental rank-and-file. There is, in other words, a sort of authority in these "spokesdudes," especially as used to woo a segment far removed from the company's longtime consumer brand - Aptiva - and the traditional sales floor. Though neither the company, nor its ad agency returned phone calls for this story, it is clear IBM is looking to intersect with the buying habits of a more specific segment of PC purchaser, moving away from the big-box retail stores such as Best Buy or Comp USA, in favor of more one-to-one communications, via telephone or the Internet.
It's a no-brainer that more people are making purchasing decisions via the Internet. According to Greenfield Online, 85 percent of Internet users are now shopping online, with the 35 to 54 age group constituting 48 percent of online purchases, and those aged 18 to 34 ringing up 35 percent. And, where Greenfield's most recent Shopping Index (April 2000) found they're still buying mostly small-ticket items such as books (26 percent did, making it the No. 1 category), CDs (24 percent), and computer software (18 percent); computer hardware was the only "considered purchase" category in the top 10 (at 12 percent).
But some industry experts question IBM's abandonment of retail outlets that have come to guarantee impressive consumer foot-traffic. To be sure, the company has lost money in the retail channel, selling its Aptiva desktops as low as $600. But as PC buyers go, some industry watchers propound that you need to be where shoppers can put their hands on you. "You can't go anywhere for more visibility, more traffic, more notice, than being on store shelves," says Stephen Baker director of hardware analysis at PC Data. "Direct buyers tend to be a different breed, especially on the consumer end. They tend to be higher-end buyers, a little more savvy, and interested in higher-end products. They don't necessarily need the comfort of the IBM brand name, which is a powerful thing on the shelf."
Yet IBM is gambling on that "different breed" to make its lagging consumer business profitable. Its direct move, at its crux, involves a trade-off of demographics, tracking a high road of what Forrester Research analyst Patrick Callinan calls a "bifurcation" in the consumer PC market. While Forrester says new buyers will account for about 40 percent of overall PC sales this year, the high end of the market lies with trade-ups - consumers who want more sophisticated machines like those being hawked at IBM.com. A look at how consumers use their computers yields an idea of the more rapid pace of business on this high road. According to a Forrester study completed in January of this year, 70 percent of North American PC households - around 100,000 consumers - use their computers to connect to the Internet and send e-mail. That registered at just two points higher than word processing or game playing, and yet for the former categories, it represents a 30-point jump over two years ago.
"At the low end, you've got the mother-in-law buying a machine so she can send e-mail to you from Florida," says Callinan. "If that's all she needs to do, then her machine will last her for five years and she won't be going for a lot of upgrades. But if you look at the typical `fast forward,' who wants the latest and greatest because faster means better, they will continue to go back to their direct connection - Dell, Gateway, and now IBM, which wants a piece of this - and upgrade every two years. A repeat purchaser is more likely to walk away from the retail channel because they don't need the handholding of the salesman anymore."
Though we should qualify that data changes rapidly in the tech biz, cutting across a broad age range, a 1999 Forrester study of consumers aged 16 to 22 provides telling indicators of this trend's market impact. Asked where they would buy their next computers, the No. 1 answer was "direct from the manufacturer" (23 percent), and another 7 percent said they would buy from an Internet retailer such as Outpost.com, versus 17 and 14 percent from computer stores and electronics stores, respectively. Even more telling, when asked if they would go back to the last place they bought their PCs, "manufacturer-direct" scored tops at 74 percent of repeat intent, "Internet retailer" 69 percent, "computer store" 61 percent, and "electronics store" just 52 percent. What's more, those who planned to repeat their purchase directly from the manufacturer said they would pay a maximum of $1,768 - 20 percent more than the average respondent.
IBM's campaign does more to establish a consumer brand person-ality than anything in recent memory - no small feat. On the operational end, although it might be slow-going at first, it may be taking IBM where it needs to be: Into a brave new info-world, where a friendly voice or a regular e-mail support guy - like Leon - on the other end of the line, can do wonders to assuage fears of looming techno-monsters.