Branding Has Done Little For Gateway

Many marketing gurus and specialists would have the world of business believe that building a brand is everything when it comes to product and company success. However, Gateway's (GTW) results in its recent quarterly conference call may provide an argument to the contrary.

In Wednesday's call, company management pointed to the Gateway brand as one of the company's key strengths.

According to Gateway SVP and CFO John Goldsberry, "Since joining Gateway, it's been clear to me that one of our biggest strengths is the brand itself, with 96% aided awareness among consumers according to the most recent data."

Hmm. Did this strong brand awareness among consumers translate into solid sales results and strong margins? Nope.

John Goldsberry discusses its sales and margin growth:

"However, despite sequential margin improvements in our Retail and Professional segments, the business continued to generate unacceptably low margins overall. The net result is we had an operating loss of $6.7 million versus a loss of 4.1 in Q4 and a loss of $15.7 million a year ago. We reported a net loss of $8.6 million, or $0.02 a share."

He also added that Q1 revenue came in at just over $1 billion. This was down 1% from Q4 due to a 14% sequential decrease in Professional revenue. Finally, gross margins came in at $49.7 million in Q1, which was down 6% from $52.7 million in Q4, and down 37% from last year. The overall gross margin decreased to 4.9% from 5.2 % in Q4, and from 7.3 % last year.

These are not bad numbers for a company that has a 96% aided awareness of its brand among consumers. I wonder if 100% aided awareness would make a difference.

It's doubtful.

GTW 1-yr chart

Comments

[Malkiel]

Gateway and Dell and HP have all allowed their personal computer product to commoditize, which is the road to bare margins. So long as the personal computer industry has effectively one chip maker and one graphics card maker and one storage maker and one operating system, innovation is discouraged because you can't make your monopoly parts suppliers unhappy. Antitrust regulations are the friend of the free market and the enemy of capitalism, for those unaccustomed to noticing the distinction...

[jbs]

"...building a brand is everything ... Gateway's (GTW) results ... provide an argument to the contrary."

Brand awareness is the FIRST step. And your observation in NO WAY proves that "branding" as a whole lacks value. It only proves that brand AWARENESS is insufficient to generate sales. Any marketing guru would know this.

They would also tell you that effective targeting, positioning, and brand satisfaction are pieces of the equation. Without all of these pieces the marketing strategy will not generate the desired results -- this is Gateway.

[Gil]

Gateway has not always produced computers that produced Brand satisfaction. Their computers can have problems, moreso than the other companies, in my opinion. I expect they have a fairly low number of repeat business.