October 2, 2001, 12:00 AM

Gateway does it, Dell does it, and now even IBM does it: Selling direct to consumer

Gateway does it, Dell does, now even IBM does it. Following the lead of the upstarts and taking advantage of the technology it supports, IBM has revamped its web site to sell direct to consumers.

When the web was new, many expected manufacturers would take to the Internet to sell directly to consumers, bypassing the retail middlemen. Some did-and still are. But a highly publicized retreat by Levi Strauss & Co. 18 months ago spooked many of the manufacturers who were planning to sell on the web, and the notion of manufacturers dealing directly with consumers has had a very low profile of late.

But the experience over the past year of IBM Corp. and its revamped ibm.com may re-ignite manufacturers’ desire to bypass retailers. And the web has changed consumer behavior enough that retailers, who made their displeasure known when the Levi site went up, may have no choice but to accept that the very manufacturers who supply them with product will also be their competitors.

While the first direct-to-consumer manufacturers may be the technology companies-in fact, IBM has clearly learned a lesson from Gateway Inc. and Dell Computer Corp.-there’s little doubt, say observers, that IBM’s success will inspire other manufacturers. “The Internet has changed that dynamic and made it possible to sell directly to customers,” says Marty Gruhn, vice president and practice director for researchers/consultants Summit Strategies who has followed IBM’s progress closely and counts IBM among her clients. “Vendors did not want to do that because they did not want to upset their channels.”

But customer use of the web changes that outlook, she says. “The re-sellers of technology need to prepare for the resulting changes, not because the manufacturers want to be the bad guys, but because customers want to buy that way,” she says. The days when a manufacturer could tell a customer where to buy a product are over, Gruhn says. “Most technology companies are struggling with this issue. The see the train coming and hear the whistle blowing, and they’re afraid to get on the tracks,” she says. “But IBM has stood up and said This is how we’re going to do it. Get over it.”

Competitive advantage

And, she says, those who took a lesson from Levi’s retreat better re-think their assumptions. “Just because Levi couldn’t pull it off doesn’t mean it’s not coming,” Gruhn says. “We’ve just got to get rid of the assumption that technology doesn’t change what we do; it does.”

Until now, IBM has been a leader in providing the web infrastructure but a laggard in adopting the web for its own uses. Its web site was primarily informational and image-oriented. But within the past year, IBM has revamped ibm.com and realigned its customer service and support systems.

All to great benefit for IBM. Using the web to sell to customers and to service orders, while making sure that customers have an easy way to contact customer service and sales reps, have resulted in 61% growth in web sales, $1.5 billion in cost avoidance, more productive sales reps and fewer calls coming to the customer-contact center. “We see ibm.com as a competitive advantage for the company,” says Pat Horgan, director of sales initiatives at ibm.com

IBM started its initiative by revamping its web site. The site features 18,000 products and 4 million pages of content. Meeting with focus groups resulted in a cleaner look and easier navigation. “IBM sells a wide range of products, some of them quite complex,” Horgan says. “We have to make sure that a web-enabled product line meets the needs of customers.” He adds: “We spent a lot of time making sure we had the pieces people felt were important.”

Indeed, the revamped web site gets high marks from observers. “It’s a tremendous improvement over a year ago,” says Larry Perlstein, vice president and research area director at Gartner Inc. and an ex-IBMer. “IBM is trying to provide a single, yet comprehensive, shopping experience on the web. Considering that their product line is so huge, that’s quite an undertaking.”

The speed of the new site is one major improvement, Perlstine says. “IBM.com was always notoriously slow,” he says. “Speed is a significant issue for a shopping site. IBM.com is seriously fast now.”

He also likes that the site is easier to navigate. “The focus now is on particular types of customer,” he says. “When I go on the site, I have the choice of looking for home products, home office solutions, government or business. The old site was haphazard in its approach.”

Selling-centric

In fact, benchmarking analysis by Summit Strategies confirms that the site is much more focused on making products available for customers to buy. Summit reviews technology manufacturers’ sites quarterly and compares them on the basis of 1,000 criteria to the previous quarter. From Q4 2000 to Q1 2001, the biggest improvement at ibm.com came in marketing. “In the fourth quarter, there were features about IBM’s leadership, collaboration with other companies and other soft features,” Gruhn says. “But by the second quarter of this year their home page was encouraging people to buy servers at $800 and asking people if they were ready to buy now. It’s all now selling-centric rather than marketing-centric.”

One way the site now encourages visitors to buy is by making IBM more “approachable,” Perlstein says. “God forbid you’d ever have to call them and figure out which of their 800 800-numbers to call,” he says. “The new web site has taken the fear factor out of dealing with IBM.”

But the IBM strategy goes far beyond the look of the web site. The company also has staffed up what it is calling its “web center” with more than 6,500 customer service and sales reps. About 2,500 of them deal specifically with product lines and offerings and they support IBM’s selling efforts around the world. Another 2,000 are what IBM calls “relationship reps.” They deal with large and medium-sized businesses and each company gets the same rep every time it calls. “They understand your organization, what problems you have and what your issues are,” Horgan says. Finally, another 2,000 are general service and support reps who field questions from customers on the web or on the phone. They perform initial qualification of the customer to determine what the customer needs, they handle service inquiries and they try to fix problems on the spot. “The web reps are very steeped in what information is on the web,” Horgan says.

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