Gateway case solution

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How the change in ad agency affects the branding and relationship in business/product promotion.

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Gateway case solution

  1. 1. Prepared By: Hari Pd. AdhikariQuestion No. 1Analyze Gateway’s decisions to change advertising agencies so many times over the past sixyears. Identify and discuss specific factors that may have led to each decision to changeagencies?ANSWER “Sometimes, although the cost incur it’s required to change the ad agency for a lots of hiddenbenefits”Throughout the case of Gateway, there is a set of common reasons which forces the companyowner Ted Waitt change the ad agencies from the past six years. The company promotes itsproduct with some obvious reasons: i.e. Profit, sales volume, market share and consumerawareness/ brand image, same had been done by Gateway in its time.Profit Maximization: Profit maximizing with the increase in sales volume is one of the commongoal of any company. Gateway also tried to maximize its profit with either way of changing thetheme of the ad or enhance its sales. Turning its past, Gateway’s revenue took the highest peak in2000 reaching $9.6 billion while the company’s market share was 8.2 percent, being the third topPC maker in the U.S. behind Dell and Compaq. Gateway started running the ads showing Fox inJanuary 2001. Side by side, Gateway was also discussing about the future of such ads with manyagencies. After Jeff Weitzen’s resignation as CEO, Ted Waitt started to control the dailyoperations of the company and he showed a net loss of $94.3 in the fourth quarter of 2000indicating Gateways core PC business was not profitable. After some days of Waitt’s control,Gateway dismissed McCann-Erickson as its agency. Gateway management decided to dilute theunusual and crude aspects of its corporate image and create an identity for the company as amaker of sophisticated computer technology with the latest and advanced components. ThenGateway continued using advertising developed by Siltanen/ Keehn into the fall of 2002.However, S/K’s tenure as Gateway’s agency of record was short-lived as the company partedways with the agency after 10 months and moved its advertising to the Arnell Group, New Yorkin October 2002.Differentiation and Brand Image: The consistent reviews in the Brand image and thecommunication with customer is very important element in modern business because thecustomers are becoming so tech savvy and value conscious. As competitive and highly growingPC industry, the differentiation and brand image are very important for the competitiveadvantage. However, Gateway has struggled to find an advertising theme that resonates with
  2. 2. consumers and clearly differentiates the company from competitors such as Hewlett Packard(HP)/Compaq, Dell, Sony, and Apple.In this process of differencing, Gateway changed advertising agencies five times over the pastsix years and three times in a 14 month period from early 2002 to 2003. A week after dismissingDMB&B, the new CEO announced the hiring of McCann-Erickson worldwide, one of the largestagencies in the world. The trend of changes at Gateway continued. In April 1998, the companydropped 2000 from its name, shortening it to Gateway as it felt that the “2000” autograph wouldbecome dated in the new millennium. The company also introduced a new logo featuring a hand-drawn version of its signature cow-spot box. So it is very clear that gateway try to improve itsBrand image and built strong relationship with customer through the advertising agencies thatwhy Gateway change its advertising agencies so many time.Sales volume/ Market expansion: The Company’s first outside agency was Carmichael Lynch,Minneapolis who was hired to handle its television advertising. In addition to Carmichael Lynch,Gateway had retained the services of the London-based Finex agency to handle its European andJapanese creative as the company’s sales in these markets were increasing. As Gateway 2000grew rapidly and its international sales increased, the company decided it needed a globalagency. In March 1997 the company moved its estimated $70 million worldwide account toD’Arcy Masius Benton & Bowles, a global agency that could help the company with its growinginternational business.Apart of these reasons, there are some other general causes of changing the ad agency frequentlyby any companies. The reasons are:Barrier to change agencies are low & getting lower: The Company can change the agencieswhenever and wherever they like without breaching the contract. There are no any strict barriersto the choice of the agencies.Abundant choice/ easy to get into: To change the ad agency is very easy because, it’s the client(company) who can decide simply which firm to choose.To get the best wisdom from the crowded idea economy: Idea is a great source of productsuccess these days. To get the best out of the alternative, the company goes for searching theright options.Full range of human emotion: The personal attachments, relationships, loss of trust, fear ofchange, pride, poor chemistry, misunderstanding, and neglecting behaviors are also the causes ofchanging the ad agencies by the companies. That’s why it is said that Companies never fireagencies, people do. Selecting the ad agencies is a contract game which is highly influenced bythe personal pressures like: friends, associates etc.
  3. 3. Sometimes, the change in agencies is also made for quickly reaping a tangible return from thenew agency partners than its competitors.Question No. 2Discuss how Gateway’s frequent agency switching has affected the company’s branding andpositioning efforts. What recommendations would you make to Gateway managementregarding its agency switching and its impact on the company?ANSWER So far the Gateway is involved in changing the shift of the ad agencies from in-house to out-house for many times, it’s all for the creation of brand image and differentiation of the productthan its competitors. Until 1993, Gateway 2000 relied solely on in-house print advertising. Asthe company grew rapidly, it decided to add television ads to the media mix and simultaneouslyused the out- house and in- house advertising department. The first ads from the new agencyretained the “You’ve got a friend in the business” tagline that Gateway had been using forseveral years. A few months later the agency introduced a campaign theme saying Gateway goes“From South Dakota to the rescue.” An agency executive explained the rationale behind thecampaign by noting that “South Dakota is a state of mind, a way of doing business, and dealingwith people.” However, Gateway and DMB& B got off to a rocky start as both sides grappledwith the precise roles of the agency and the in-house group and thought of how to collaboratewith each other.The agency’s creative approach was geared more toward traditional advertising that used actorsand scripted TV spots, such as one showing a family in a computer store where piped-in musicsegues into advice that the family can get what it really needs from Gateway. The company alsointroduced a new logo featuring a hand-drawn version of its signature cow-spot box. Gatewayalso began changing the process of transforming itself from a manufacturer of personalcomputers into a company that would derive its revenue from a variety of sources.The “beyond the box” strategy was designed to diversify Gateway’s offerings to include PCfinancing, Internet access, and various other computer-related accessories and services. Newadvertising from Leo Burnett broke in May 2003 using yet another new tagline, “The Comfortsof Gateway.” The goal of the new advertising is to underscore Gateway’s unsophisticated charmwhile positioning the company as a solutions provider for an increasingly complex technologicalworld. The first commercials from Leo Burnett depicted a small town Americana’s main streetcoming to life as people use their computers and other personal electronic items.So, with all these ups and downs in the ad agencies, promotional campaigns, mixing of in-house
  4. 4. and out-house advertisings, the branding and positioning have been affected. To get a clearfigure of brand image, the company must be concerned more on the effective concept which canmake customers feel that the product is theirs. Sometimes, there might be debate behind a goodadvertisement regarding who should be awarded: a Brand manager or an Ad agency.Switching the ad agencies can have both the negative as well as positive impact on the overallperformance of the company in terms of promotional effects. The recommendations as well asthe effects of agency switching are as follows:Perceived life span and the reality of the relationship with advertising agencies are different.The relationship between the company and ad agency is perceived to be short term but theimpact of such relationship can be clearly seen in the message of the advertisements with longterm impacts.Ad agencies actually try their best to win the business for the company. Their works andcreativity are reflected in the advertisements they prepare. If the clients keep on switching theagencies then the actual delivery of the efforts will be lower by the agencies which affect thepromotional performance of the business.Ad agencies are one of the source of innovative and transformative ideas which worksproperly when it get regular social supports which is also reflected by the terms of therelationship with company.If the company keep on changing ad agencies, the strategy of the company can be leaked-up toits competitors by the agencies because its not the agency that speaks, it’s the people workingthere. And we know that people are the social being.Regular relationship with a single agency can be more of value attachments which can also buildthe trust among each other. But if the promotional effects are less effective then the relationshipshould be separated from the business and should think wearing the glass of business, profit andsales. So, the effects of switching ad agencies is branding depends on when, why and howconditions.Question No 3If you were an executive at an advertising agency and Gateway’s decided to switch agenciesagain, would you advise your account development team to pursue the company’sbusiness? Why or why not?
  5. 5. ANSWER I would recommend my account development team to accept that offer and pursue thecompany’s business for the major reason: i.e. the OPPORTUNITY that I get. The history ofGateway shows it followed various in-house and out house advertising agencies but could not getsuccess in tracking the business in right direction which can be capitalized by our company.In the process Gateway changed advertising agencies five times over the past six years and threetimes in a 14 month period from early 2002 to 2003 but the most of the time agencies could notreverse its declining sales in the stagnant personal computer industry.The company knows that the personal computer, as well as other segments of the consumerelectronics industry, have become extremely competitive and having a strong brand image iscritical for companies who want to continue to compete in these markets.Virtually every business organization uses some form of marketing communications. Howeverthe way a company organizes for these efforts depends on several factors, including its size, thenumber of products it markets, the role of advertising and promotion in its marketing mix, theadvertising and promotion in its marketing organization structure. Many companies have allthose structures as needed to boost their promotional effects in the market. Gateway might besearch of that sort of ad agencies which can fulfill its needs of reversing its declining sales andbuild strong brands image to help its market. At an executive of advertising agency, I want totake those kinds of challenges related to advertising and promotional campaigns maintaining theimage of my agency too.Finally, I want to take this challenge of accepting Gateway’s proposal to create a long termvalue based relationship with the company by creating the attractive promotional campaigns asper its needs and the customers’ desire according to the advancement level of consumers.For creating long term relationship with the company, I would guide my account team to focusmore of Value to the client, not on profit to the agency. Because, I know the fact that thevalue to the company is ultimately converted into the profit to the agency.I would direct my team to become the Value creator/ contributor to the Gateway company ratherbecome Order taker and simply adapt their needs only.Prepared By:Hari Pd. AdhikariMBA, PHOENIX Submitted on: 26th September, 2011

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