By Published on .

Micron electronics began a brand campaign this month, but it's not giving up the store, for accompanying the magazine brand ads will be those time-honored pages of computer specs and prices -- what Micron calls the "store."

Such "stores" and tandem branding efforts are driving the boom in the direct PC market by putting Dell Computer Corp., Gateway, Micron and smaller direct sellers in front of prospects.

Direct PC sales this year are expected to account for at least one-third of the 37.1 million PCs sold in the U.S., says Matt Sargent, analyst at ZD Market Intelligence. That's up from an estimated 27% last year.

The direct market is split literally among hundreds of players, although three companies control two-thirds of the direct market: Dell, Gateway and Micron.

Standout performer Dell eased past Compaq Computer Corp. in the second quarter '98, 12.7% to 12.3%, to become the No. 1 U.S. PC seller, according to ZD Market Intelligence. Gateway rose from fifth to third at 7.2%. Micron rounded out direct's Big 3 at 1.7%.


Direct sellers are winning market share from "indirect" sellers -- those that sell through retail stores and business-oriented "resellers" -- for three reasons: Price, value, service.

The direct model is highly efficient, turning inventory quickly and offering the latest technology at aggressive prices while eliminating the middle man. PC direct sellers have proven adept at giving after-sale service and support, harnessing customer databases, and providing phone and Web support, and overnight delivery.

All of this translates to a growing base of loyal direct buyers. "The people that buy direct are more likely to stay with their PC brand than the people who buy Compaq or IBM," Mr. Sargent says.

Loyal customers tend to steer more business. "Our No. 1 driver of sales calls is still customer referrals despite that extensive advertising we do," says Anil Arora, who joined Gateway this year as senior VP-chief marketing officer.

Amidst this direct boom, Dell, Gateway and Micron each hired and fired an ad agency over the course of a year. Also, pages in Ziff-Davis' Computer Shopper, the bible of the direct market, tumbled 20.8% in the first half of 1998, according to Adscope, an ad tracking service.

What gives? Al DiGuido, exec VP of Ziff-Davis E-Commerce Group, which runs Computer Shopper, its Web site and TV program, says Computer Shopper lost significant pages in the first half from some smaller PC makers that failed to adjust to the mass-market shift to below-$1,000 PCs and the midyear release of Microsoft Corp.'s Windows 98. "There's less and less margin for error if you're a smaller guy," he says.

Mr. DiGuido says his magazine pages also fell as PC sellers shifted money to the Web and other media.

Direct sellers have little choice but to constantly adjust ad programs. "Effective and efficient advertising is needed" because direct marketers have little fallback, says Nick Pappas, senior media planner at Gateway.


Direct's Big 3 have expanded beyond their traditional product-and-price promotion into more image-focused brand advertising. Each had a false start.

In September 1997, Gateway and Micron broke their first national TV campaigns; both were short-lived. Jeffrey Weitzen, hired in early 1998 as Gateway president, replaced its agency with McCann-Erickson Worldwide, New York. Micron this year hired Bam!, Austin, Texas.

Dell hired J. Walter Thompson USA, Chicago and New York, to create a $110 million incremental global brand campaign. Ads themed "Be direct" broke in June. But Dell in September replaced JWT with BBDO Worldwide, New York, which had worked with Dell VP-Corporate Branding Scott Helbing at Tricon Global Restaurants.

PC direct marketers appear committed to brand building. "There can be no doubt branding and everything that drives it -- service, product, marketing -- is key to long term success," says Mr. Arora.

The direct market is poised to get hotter -- and maybe more crowded. Mr. DiGuido bets "a couple" of indirect marketers will make an "aggressive" push into direct in the next 12 months. He expects Compaq to become a big factor in direct. Already in the past year, it has boosted efforts to sell home and business machines directly. Then there are continual rumors that Compaq or IBM will buy Gateway or Micron.

Most Popular
In this article: