IBM’s consumer arm needs a helping hand

Languishing at number ten in the market,

At the end of this month the IBM European Consumer Division celebrates its first birthday – but reflection rather than celebration will be the prevailing mood at its Basingstoke offices.

One year on and Big Blue’s consumer division is still struggling to find its feet. For decades IBM may have known how to sell business machines but its new consumer arm has had more misses than hits. If the IBM consumer division were a computer, critics say it would need to go in for servicing.

IBM is taking action by introducing a plan called “+10 by 2000” to boost its PC market share worldwide from eight to 18 per cent.

But on the whole, the development of the consumer side of the business has been a stop-start affair. In the past 12 months, the company has sold off its 50 per cent stake in Prodigy, the struggling US-only online service. The computer giant also investigated manufacturing personal digital organisers, pocket PCs, and has endlessly weighed up the options of making consumer versions of a whole range of its business products. However, it decided they were not viable.

The IBM Aptiva range of home PCs had strong sales and is well regarded by the industry but because the company has held back 250m investment in the PC market it has suffered by association. One industry source explains: “The Aptiva is a pretty good machine, but IBM is perceived as overpriced and a bit of a dinosaur when it comes to the home PC market.” As a result it has lost market share to rivals like Compaq and Packard Bell.

Market research firm Dataquest estimated last year that IBM’s share of PC sales to the home market in the UK was 3.1 per cent of market share. That put it tenth in a league of major players. Top of the table came Packard Bell with 17.2 per cent followed by Escom with 11.6 per cent.

Later this autumn, IBM plans an upgraded version of the Aptiva, code-named Stealth. The model will be full of the latest multimedia technology, and is expected to have a sleek, dark grey finish. The idea is it will look more like a sexy Sony hi-fi and less like an ugly sister. Its software side includes Hyperman and it launched its first voice-activated CD-Rom game, Jungle Book (pictured), last month. It plans further titles in the autumn.

“The thinking here seems to be that if we change the colours on our computers then maybe the kids will buy them,” says one analyst. “The truth of the matter is IBM does not have a marketing strategy for its consumer division.”

The total value of European retail sales of PCs stands at $5.9bn (3.88bn), according to Euromonitor figures. The UK accounts for $590m (388m) of that.

The analyst explains: “It got into the home PC market a couple of years ago because it saw there was money to be made, and it wanted a piece of the action. But IBM has failed to bring in people who can build bridges between the consumer and the company and as a result it has never been sure what the market wants. The products are good, but they are not what people want to buy.”

Dataquest analyst Charles Smulders agrees that IBM has a problem with its marketing but thinks the blockage comes in its relationship with high street retailers.

“It does not understand retailers, and the sort of price margins and marketing support they expect from a manufacturer. IBM’s history has been dealing with big business but a different way of working is needed with retailers. It has not adapted and companies like Packard Bell have cornered the market,” says Smulders.

Another industry source agrees saying that IBM’s tardy support of its products in retail outlets has cost it dearly. He relates a speech he heard Dixons chairman Stanley Kalms make which said the only thing his market-leading retail stores provide suppliers with is access to their customers.

Kalms was saying that to get prime spots in shop windows and in-store promotions, suppliers have to offer good margins and heavy marketing support for their products. And because IBM was not used to dealing in this way, rivals like Packard Bell and Compaq have become preferred suppliers to Dixons.

“That a company of IBM’s standing is not a preferred supplier to Dixons says everything about the failure of its consumer strategy,” the analyst concludes. Dixons chief executive John Clare goes further, saying the company has seen no evidence of IBM’s new consumer strategy.

Owen Roberts, IBM’s marketing manager for its European Consumer Products Division, brushes aside any notion that Big Blue’s marketing strategy is awry.

“I refute any suggestion that IBM’s commitment to its consumer division is anything other than 100 per cent.” He says there will be a range of products, software and hardware, in the shops which will be supported with heavy advertising. Additions in marketing and sales personnel will also follow in the second half of the year to handle this new activity, according to Roberts.

He stresses that any problems IBM might have had are in the past. “There was a problem with the way our people on the ground worked with retailers but we have put money into new training initiatives and this is no longer an issue.”

But IBM’s number ten spot in the market speaks louder than Roberts. Big Blue isn’t used to being number ten at anything. All eyes will be on what the division plans to do to turn the situation around in year two.

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