Computer-makers forced to be aggressive


June 03, 1991|By PETER H. LEWIS

Computer companies are cutting prices once again, partly in response to the recession and decreased demand and partly because regular price reductions are a byproduct of progress in the industry.

BTC But there is a more profound reason for the recent price reductions by the Compaq Computer Corp. and the International Business Machines Corp., among others. There appears to have been a fundamental shift in the buying attitudes of consumers.

"Buyers are no longer willing to pay premium brand prices" for computers that differ only in the nameplate on the cover of the box, said Bruce A. Stephen, director of PC hardware research for the International Data Corp. of Framingham, Mass.

"Brand name loyalties that were firm are now more tenuous," he said.

As a result, "premium brand" computer companies are discovering that they must become as aggressive about pricing as they are about bringing new technologies to market.

IBM has reduced the suggested retail prices on its PS/2 series of personal computers twice in the last two months, cutting them by as much as 38 percent on selected models. Compaq cut prices by as much as 34 percent last month.

The Dell Computer Corp., whose already-low prices may have been at least partly responsible for the cuts by IBM and Compaq, cut prices again.

Even Apple Computer Inc., which has no direct competition for its Macintosh but which must still compete against industry-standard PCs, has shifted its emphasis to lower-cost machines.

It is also increasingly difficult for a computer company to stand apart from the crowd on technology. Compaq had nearly a year's jump on IBM when it introduced the first desktop PCs built around the Intel Corp.'s i386 microprocessor.

But earlier this year, when Intel rolled out its new i486SX chip, nearly a dozen PC makers announced systems on the first day.

The net effect is that PCs are becoming commodities even at the high end of the PC market, just as they have become at the low end.

"All this has resulted in a feverish, price-competitive environment where prices are cut more often," Stephen said.

The trend is good news for consumers, both for those who are looking for an entry-level system and for those who are moving up to high-performance PCs.

Compaq, of Houston, has long had a reputation for building high-quality, high-performance computers, with commensurately high prices.

In the last six months, however, Compaq has borne the brunt of a withering barrage of competitive advertising and declining market share.

AST Research Inc., once thought of as a second-tier clone maker, earlier this year began shipping an Intel i386SX-based notebook computer that matched the features of Compaq's popular LTE 386s/20 notebook for $3,100 less, before Compaq's recent price cuts.

The most damaging assault on the industry's pricing strategies, however, may have come from Dell, of Austin, Texas. Dell sells its computers directly to customers, unlike Compaq and IBM, which sell their machines through a network of dealers.

Dell has run a series of advertisements comparing Dell and Compaq machines head to head.

Many people (including Compaq's lawyers) believe the Dell ads are misleading, in that they compare Dell's discounted prices to the full list price of Compaq's machines, which nobody pays.

Others feel that the strident tone of the ads is needlessly offensive.

However, whether because of the ads or the decline in Compaq's share of the business computer market, Compaq last month reduced prices on its entire product line by 8 percent to 34 percent.

Customers may not see the full extent of those price cuts, since dealer prices and list prices do not necessarily move in tandem.

Even so, Compaq sent an unmistakable signal that it would no longer allow Dell, AST or other rivals the luxury of overwhelming price advantages.

With "clones" reporting such good results, it has been difficult for IBM, Compaq and others to justify high price premiums.

For consumers, the recent shift in computer industry strategy has dual benefits. People who are shopping for their first computers will pay substantially less than they would have a few months ago.

Perhaps more significant, people who are upgrading their computers are discovering that they can buy high-performance systems for what they would have paid for a ho-hum computer just a few months ago.


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