Gateway: Implementing Innovative Strategies in the IT Industry|Business Strategy|Case Study|Case Studies

Gateway: Implementing Innovative Strategies in the IT Industry

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Case Details:

Case Code : BSTR067
Case Length : 16 Pages
Period : 2003
Organization : Gateway Inc.
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : PC

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

In 1985, Theodore Waitt (Waitt) founded Gateway as a mail-order computer business, in Sioux City, Iowa in the US. The thought of setting up his own business struck Waitt when he was working for a local computer store. Gateway was formally incorporated on August 15, 1986.

To begin with, Waitt had just a rented computer and a three-page business plan. His basic principle was to provide the best value for customers' money by offering them customized products and constantly improving upon them. With a constant focus on corporate customers' needs, Gateway was able to generate $100,000 sales in the very first year of its operations. In 1987, Gateway got a major business opportunity when Texas Instruments (TI) announced discontinuation of its computer production, restricting itself to the selling of only IBM-compatible PCs. Consumers had to pay around $3,500 to purchase IBM-compatible PCs in addition to exchanging their equipment. Waitt decided to offer Gateway's computers at a much economical price of $1,955.

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This huge price difference resulted in price sensitive customers buying Gateway's PCs. In the fiscal 1990-91, Gateway's sales had touched $70 million and the company was selling 225 PCs per day. In mid-1991, in an attempt to build a unique identity, Gateway started packaging its PCs in cow-spotted boxes.3 In 1993, Gateway's sales rose to around $1.7 billion and the company entered the Fortune 500 list.

In the same year, Gateway went public and got its shares listed on NASDAQ.4 In the fiscal 1995-96, Gateway was generating revenue of $5 billion. In just a decade of its existence, Gateway witnessed a phenomenal growth in sales by following a simple strategy of selling PCs directly according to the customers' orders. The company assembled PCs at its own factories as per the orders received and sent them directly to the customer. The advantages of this business model were that Gateway did not need to build up expensive inventory and the new products could be introduced at a rapid pace. Gateway was also able to maintain a direct relationship with the end customers, getting a better understanding of their needs and preferences...

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3] The boxes in which Gateway shipped its PCs were designed like the black-and-white colored cow-spots.

4] NASDAQ stands for National Association of Security Dealers and Automated Quotations. Founded in 1971, it is the world's first electronic stock market listing securities of nearly 4,100 world's leading companies.


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