Gateway, Inc.

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Gateway, Inc.

7565 Irvine Center Drive
Irvine, California 92618
USA
Telephone: (949) 471-7000
Fax: (949) 471-7041
Web site: www.gateway.com

PEOPLE RULE CAMPAIGN

OVERVIEW

In August 2000, in the midst of a collapse of the global personal-computer market, direct marketer Gateway, Inc., launched the "People Rule" branding campaign. Developed by New York advertising agency McCann-Erickson Worldwide, the campaign was built on the premise that average consumers were not getting the most out of their computers and would welcome more support from a PC maker.

"People Rule" extended beyond television, radio, and prints advertising. It also included free help at Gateway Country stores in the form of weekly "Ask-a-Tech" sessions and clinics that taught the rudiments of computers and the Internet. The advertising portion of the campaign also included the company's first use of a celebrity spokesperson: actor Michael J. Fox.

The $150 million campaign petered out in 2001, as Gateway underwent changes in the top ranks of its management and as McCann-Erickson was dismissed as the company's ad agency. The campaign was disjointed from the start; all along McCann-Erickson was second-guessed by Gateway's founder, who, in the middle of the campaign, brought in a documentary filmmaker to create a pair of television spots that clashed with the style of the ads the agency had developed. "People Rule" did little to prevent Gateway from losing a major slice of the market, and economic conditions were such that, in all likelihood, it had been a doomed effort from the start, no matter how effective individual parts of the campaign may have been.

HISTORICAL CONTEXT

In only a handful of years, Gateway, Inc., founded in 1985, grew from a $10,000 startup in Sioux City, Iowa, into one of the leading direct retailers of personal computers in the world, with annual sales approaching $10 billion. From the time it began advertising, Gateway took a folksy approach and played off its rural roots, featuring pictures of cows and even shipping its products in white boxes adorned with black spots resembling the markings of a Holstein cow. The company developed an in-house marketing team in the early 1990s but in 1997 hired an advertising agency, D'Arcy Masius Benton & Bowles. Gateway's young founder, Ted Waitt, brought in an AT&T veteran, Jeffrey Weitzen, to run the company in January 1998, and one of Weitzen's first moves was to change ad agencies. He hired McCann-Erickson Worldwide, with whom he had worked closely while at AT&T.

Business was booming for Gateway when McCann-Erickson took over the account, but the relationship with the client soon began to sour. In 1999 McCann-Erickson won Microsoft's huge advertising account, after which Gateway officials became increasingly dissatisfied with McCann's level of service. More importantly, in 2000 the global PC industry was hit by the worst slump in its brief history. Because Gateway relied greatly on the consumer and small-business markets, the hardest-hit sectors, it began to see a serious erosion in sales. Although revenues reached a record $9.2 billion in 2000, Gateway's sales tailed off severely during the course of the year. Weitzen was under great pressure from Waitt to stop the bleeding, as was McCann-Erickson, Weitzen's hand-picked ad agency, which Waitt also criticized, considering its approach "more corny than folksy," as reported by Aaron Baar and Kathleen Sampey of Adweek. It was under these difficult circumstances that McCann-Erickson launched its "People Rule" campaign in August 2000.

TARGET MARKET

Earlier in 2000 Gateway had employed the "Gateway@work" campaign, which targeted medium-size businesses to boost sales in that market. The "People Rule" campaign focused on the other key sector, consumer sales. The company commissioned research that revealed that there was "a disconnect between people and technology," as Brad Heimdichner, one of Gateway's "technology ambassadors," told Lyn Berry of the Denver Business Journal. According to Berry, a random sampling of 750 Americans showed that "69 percent of people who own personal computers believe they are not maximizing the potential of their personal computers. Only 32 percent said they even know the full potential of their computer." The survey also revealed that 44 percent did not believe they had enough training on how to use their computers and did not have enough available technical support. Furthermore, just 15 percent believed that their computers delivered everything their manufacturers had promised. It was these dissatisfied, less technologically knowledgeable consumers that the "People Rule" campaign hoped to reach. As Heimdichner explained, "It's Gateway's promise to always put people before technology, and that's why we're focusing more than ever on helping people understand their technology."

COMPETITION

As the "People Rule" campaign broke in 2000, Gateway faced competition in the commercial market—in which Gateway ranked fifth at the time—from another direct marketer, Dell, as well as from IBM, Hewlett-Packard, and Compaq Computer Corp. About 70 percent of Dell's sales came from large corporations and government organizations, but it had begun to commit greater resources to competing in the home-PC market, Gateway's strength.

Gateway ranked third in the global consumer-PC area with a 13.9 percent market share, trailing top-ranked Compaq and the number two company, Hewlett-Packard. But it was Dell that emerged as Gateway's greatest threat in this market. Dell had perfected a build-to-order model that kept down costs by not keeping hardware stockpiled, and with its size came buying power that allowed it to offer PCs at low prices that Gateway and the others were unable to match. Moreover, a seemingly unlimited marketing budget allowed Dell to promote its affordable PCs around the clock on television and through other media. Ironically, it was a similar strategy of building affordable computers that had made Gateway an overnight success in the late 1980s, when Waitt found a way to assemble off-the-shelf components to make a computer that offered customers a better value than the competition. Gateway might have been able to undercut some of its other rivals in price, but it could not come close to matching Dell, which, at the time the "People Rule" campaign began, was starting a price war that crippled the competition. Dell quickly assumed the top spot in global PC sales, while Hewlett-Packard and Compaq joined forces through a merger and Gateway struggled to hang onto market share.

HAVING A COW

The association of Gateway, Inc., with cows—they appeared in its advertisements and were evoked by the black Holstein spots on its white shipping boxes—was a reflection of the company's roots. Founder Ted Waitt learned the computer business while working for nine months at a computer store in Des Moines, Iowa. Confident that he knew enough to start his own business selling computers, he borrowed $10,000 from his grandmother in 1985 and set up a mail-order operation in a farmhouse at his father's sagging cattle brokerage in Sioux City, Iowa. After the business outgrew the farmhouse, Waitt moved it to Sioux City's Livestock Exchange building. Gateway started advertising in computer magazines in 1988. Given the company's connection to livestock, it was not surprising that the first full-page ad featured a picture of his father's cattle herd. Thus, a motif was born.

MARKETING STRATEGY

Gateway's "People Rule" campaign was part advertising campaign, part educational program. The company leveraged its chain of 290 Gateway Country stores to offer a range of programs, a number of them free, to demystify technology for both consumers and businesses and to help them get the most out of their computers. Full-time computer experts, called "technology ambassadors," were hired for the stores, which hosted weekly "Ask-a-Tech" sessions at which consumers could get free advice and have their computer problems analyzed. The ambassadors also held free mobile clinics and conducted outreach programs with local community groups. Free weekly clinics at the stores taught PC users—whether or not they were Gateway customers—a wide range of subjects, including PC and Internet basics, online investing, and the elements of digital photography and digital music. Gateway also increased the number of classroom and online training sessions it offered. The company's Web presence was beefed up with the introduction of a "supportal," a website intended to augment the technical support Gateway made available to its customers over the phone.

The $150 million "People Rule" campaign included television, print, and radio elements. Because it was in essence part of a long-term positioning of the Gateway brand, the advertising portion of "People Rule" focused on the brand more than on specific products. In the words of a press release announcing the launch of the campaign, the goal was to expand "the definition of 'Gateway Country' from the name of its revolutionary retail concept to a more human way to approach technology."

The first of four television spots McCann-Erickson developed showed a typical living room with a PC sitting unused, ignored by family members; two girls played while a father opened bills. A voice-over described the many uses of a computer but stated that none of them mattered if a person was not shown how to use it. Viewers were then urged to call or visit a Gateway Country store for help in unlocking the power of their PCs. In another of the early television spots a boy traded in his computer for a new one and then tried to trade in his little sister for a scanner. An ad called "Apartment," which debuted later in 2000, was especially well received. It featured a young woman entering her date's apartment and being surprised to see a series of framed pictures in which he posed with an odd assortment of celebrities: boxer Evander Holyfield, rock singer David Lee Roth, actress Marilyn Monroe, and Lassie, the canine star of TV and film. A voice-over posed the rhetorical question, "Wish you could add a little something to your photographs?" Viewers were then told that Gateway would help teach them all about digital photography. The television spots appeared on network television and national cable channels as well as on local television on a spot-market basis (as time slots opened up at attractive prices at the last minute).

To accompany the initial TV spot, a two-page print ad on the same subject appeared in a number of national and local newspapers. Further print ads were employed throughout the campaign. One of them incited the ire of Maryland's state comptroller, however. A Gateway ad that ran in the Baltimore Sun on September 12, 2000, read, "Buy one now and we'll pay the sales tax." But "sales tax" was crossed out, ostensibly by a Gateway lawyer who in a handwritten note commented, "Can't say this! Must say 'we'll offer a discount equal to the sales tax rate.'" It was intended to poke fun at the legal maneuvers in advertising but did not amuse the comptroller, who charged the ad was misleading and violated Maryland's tax code prohibiting "tax sales." He instructed his compliance division to force Gateway to drop the ad or change it.

The run-in with the state of Maryland was just one of a number of distractions McCann-Erickson faced as it launched the "People Rule" campaign. In late October Gateway, at the insistence of Waitt, circumvented the agency and began running a pair of commercials produced by documentary filmmaker Henry Corra, whose low-key, no-frills work included George, a film about his autistic son. Corra and Waitt had become friends in the mid-1990s, and the filmmaker had done some work for Gateway shortly before McCann-Erickson took over the account. Corra's two new commercials were at odds with McCann-Erickson's work. According to Stuart Elliott of the New York Times, Corra's spots, "which are fast-paced and mix footage of actual shoppers shot in black-and-white as well as color, contrast markedly with McCann's, which are shot conventionally and feature actors." McCann-Erickson was initially diplomatic about the situation, stating, through spokesman Stewart Alter, "The 'people rule' brand platform is a big one and it can accommodate a documentary approach." But Elliott reported that a few months later, after McCann-Erickson and Gateway had parted ways, agency heads called Corra a "behind-the scenes thorn in our sides" and accused him of trying to "undermine the agency in many ways." For his part, Corra commented, "I don't think McCann understood what I did."

The relationship between McCann-Erickson and Gateway was clearly falling apart in the final weeks of 2000. At the same time, with the severe drop-off in sales during the fourth quarter of the year, Weitzen's tenure as Gateway's head was coming to an end. Adweek reported in December 2000 that Gateway was talking with East Coast ad agencies. When Waitt dismissed Weitzen and reassumed the CEO post in January 2001, McCann-Erickson's prospects of keeping the Gateway account dimmed further. The agency made one last stab at saving the "People Rule" campaign. Actor Michael J. Fox was hired as Gateway's first celebrity spokesman. In recent months he had been diagnosed with Parkinson's disease and had established a foundation dedicated to find a cure for it. As part of the Fox advertising Gateway became the technology partner for the foundation. The premise of the new humorous television spots featuring Fox was that he was just like the target audience, overcoming technology challenges. Two weeks after the Fox portion of the campaign debuted, the McCann-Erickson ads were scrapped as Gateway dropped the agency.

OUTCOME

Early in 2001 Gateway was on the verge of hiring Minneapolis-based agency Fallon to replace McCann-Erickson, but Fallon too ran afoul of Waitt after it proposed a complete rebranding of Gateway. The company decided to handle its advertising in-house once again, trying its best to make use of Fox's celebrity. But he proved ill suited to the task. As Frank Priscaro noted in MC Technology Marketing Intelligences, "One of the most important rules of using a spokesperson is to pick someone who tied in with the product in some way. Pretending that Mr. Fox is going through the rigors of buying a new computer himself doesn't wash … Barring an obvious tie-in, a spokesperson should be famous, but not too famous, so he doesn't steal the show. It's nice that Mr. Fox would do these commercials, but he's a lot bigger than Gateway is, and so he overshadows the campaign."

Aside from the problems that cropped up during the "People Rule" campaign, the effort appeared to have been ill fated from the start. No one questioned that consumers wanted help in getting the most out of their computers, but when it came time to buy a new PC, they generally opted to get the most features for the lowest price—a lesson Gateway itself had taught the market. At the time, Gateway simply could not match Dell in terms of price, and no amount of in-store tech sessions, art-house commercials, or celebrity endorsements could stem the tide of eroding sales.