LETTER OF TRANSMITTAL

27th December, 2017

To

Farzana Akter

Lecturer-Faculty

Department of Business Study

Southeast University

Subject: Submission of the assignment on Case study “Gateway and Apple: Two Different
Journeys into Retailing”

Dear mam,

It is our great pleasure to submit the assignment on “Gateway and Apple: Two Different
Journeys into Retailing” that you have assigned.

It has been a great experience for is to prepare the assignment. We have tried our level best to put
meticulous efforts for the preparation of this assignment. Any shortcoming or flaw may arise as
we are novice in this aspect.

We have tried to make each and every element relevant to our topic and discussed under the
context of whatever we have learned from the course. We hope this assignment can serve its
purposes

Sincerely Yours,

Md. Nadir Shah (ID=2014110000105)

In performing our assignment, we had to take the help and guideline of some respected Persons,
who deserve our greatest gratitude. The completion of this assignment gives us much Pleasure.
We would like to show our gratitude “Farzana Akter” Lecturer-Faculty Department of Business
Study for giving us the topic, “Gateway and Apple: Two Different Journeys into Retailing”. We
would also like to expand our deepest gratitude to all those who have directly and indirectly
guided us in writing this assignment. Many people, especially our classmates and team members
itself, have made valuable comment suggestions on this proposal which gave us an inspiration to
improve our assignment.
 EXECUTIVE SUMMARY
Apple Computers started the movement into the personal computing arena in 1977 but through
changes in management and differences of opinion together with missed opportunities it lost its
competitive advantage to companies like Microsoft, Dell, and Gateway. Apple operates in
various lines of the computer and music industry today and its operations include not only the
designing but also the manufacturing of its computers and software. Apple continues to pursue
the personal computer market but not as intently as in the years before. It has opted to change
directions a little by venturing into the music world through the marketing of ipod, a digital
music player, and itunes. The opening of 65 new retail outlets, including one in Japan, has
precipitated its move into this new world. Gateway was founded in 1985 in an Iowa farmhouse
by Ted Wait, the son of a fourth-generation Iowa cattleman. Armed with a rented computer, a
three page business plan, and a $10,000 loan guaranteed by his grandmother, Waitt dropped out
of the University of Iowa to pursue his dream. It was the first company in the industry to sell
computers online, the first to bundle its own branded internet service with a PC, and among the
first direct retailers to sell its own branded consumer electronic products.
 TABLE OF CONTENT

Serial no Content Page No

1 Executive summary 1

2 Introduction 2

3 Question and answer 2

4 Pros of in-house 3
manufacturing

5 Cons of in-house 4
manufacturing

6 Pros of outsourcing 5
manufacturing

7 Cons of outsourcing 6
manufacturing

8 Conclusion 7
 INTRODUCTION
Gateway, analysts believe the problems are associated with the company and not the larger retail
market. Through its branding efforts, store locations and unique products, analysts feel Apple is
well positioned in the retail market. Apple, its stores are as much about expanding brand
awareness, offering a good Mac buying experience and building a stronger Mac community as
they are about making money. For a number of reasons, including the locations chosen, Gateway
wasn't seeing the same benefits."The importance of store location is not something that has been
underestimated by Apple. Apple had a different strategy then Gateway in the retail space. "We're
only interested in profitable stores" -- Apple's goal is not to saturate the market, Apple wants
each retail location to be profitable within the first year of operation. Apple, being different helps
to easily differentiate the computer-maker's products from anything else on the market -- a
problem that many Windows-based manufacturers have a hard time doing. Despite the fact that
Gateway and Apple may have had similar in-store retail strategies, Gateway may not have been
able to sufficiently differentiate itself from the competition to make a difference. Gateway
acknowledged that the concerns of its channel partners were a factor in its decision. It's
indicative of where we're heading -- we'll be putting a greater reliance on the retail channel and
working to reduce our operating costs, Apple seems to have found the magic touch with respect
to retailing. The experience shopping at an Apple Store is remarkably different than all other
computer stores and many operations selling other wares. Store design, employee training and
experiential selling -- meaning let people try the stuff out as long as they need to mill about the
store -- are all major differentiators. Apple's long-term challenge will be gauging the appropriate
level of expansion. In some ways, Gateway over expanded and ended up more in the real estate
business than retailing."
 GATEWAY COMPANY BACKGROUND

The story of gateway is an inspiring one. The company, originally called gateway 2000, was
founded in 1985 by ted waitt, the son of a fourth-generation iowa cattleman. Armed with a rented
computer, a three page business plan, and a $10,000 loan guaranteed by his grandmother.
Gateway’s early value proposition was similar to what it is today: offer products directly to the
customer, build them to their specifications, provide them with the best value for the money, and
offer unparalleled service and support.
Over the past 18 years gateway has been a technology and direct-marketing pioneer. It was the
first company in the industry to sell computers online, the first to bundle its own branded internet
service with a pc, and among the first direct retailers to sell its own branded consumer electronic
products. In 1996 the company became one of the first “brick and click” retailers when it
introduced a nationwide network of gateway country stores. Today, the company has nearly 200
stores where customers can try out gateway products, get advice from technical experts, and
learn more about technology in classes offered in high-tech classrooms. Underlying gateway's
growth has been ted waitt’s vision that technology should be fun, easy to use and should enhance
and improve the user's quality of life. Gateway uses all of its sales and distribution channels
including its call centers, gateway.com web site, and its nationwide network of retail stores to
sell its products to consumers, businesses, government, and educational institutions.

As its customers’ desire for innovative computer technology and other electronic products has
grown, gateway has been searching for the best way to communicate its product offerings and
value proposition to an increasingly tech savvy and demanding marketplace. In a business as
competitive and fast evolving as the pc industry, gateway recognizes that differentiation and
brand image are very important in developing and sustaining a competitive advantage. However,
in recent years gateway has struggled to find an advertising theme that resonates with consumers
and clearly differentiates the company from competitors such as dell, hp, sony, and apple.
 APPLE COMPANY BACKGROUND

Apple Inc. (Apple) has managed to create substantial value in the highly competitive
personal computer industry, by innovating and forging a path considerably different from
those of the largest competitors in the industry, successfully differentiating its products
from those of the competition by choosing to focus on quality, design elegance, and
superior customer service, while outsourcing actual manufacturing to trusted original
equipment manufacturers. Yet, despite the advantages Apple has created for itself, the stiff
competition within the industry and other external factors present formidable challenges to the
firm. The personal computer or notebook market is becoming increasingly commoditized,
leading to intense rivalry among competitors within the industry, driving prices down and
creating potentially destructive price wars. Apple has successfully innovated its way to a
comfortable market position commanding premium prices. Unfortunately, Apple cannot rest on
its laurels. The position is not permanent and Apple must continually find new ways to maintain
profits and create value for customers and shareholders. The maturing personal computer market
is becoming saturated, leaving fewer new buyers and more replacement buyers. To continue to
grow, Apple must also look to new and expanding markets as sources of revenue. After
considering Apple's strategic war chest; the firm's core competencies, key resources, and
capabilities and given its current situation within the industry and the compounding factors in the
form of trends from the general environment, it is clear Apple stands to create considerable value
through continued related diversification Iphone provide sufficient evidence that it is well-
equipped to continue its path of innovation, by creating a digital lifestyle convergence device that
bridges users on-the-go digital lives and their at-home digitals lives. The proposed device will be
powerful and feature packed, while leveraging the Apple system of seamless integration to create
a compelling user experience, presented in an elegant package showcasing the firm's industry-
leading industrial design capabilities, to create the next must- have consumer electronics product.
 CASE STUDY
ON
GATEWAY AND APPLE: TWO DIFFERENT
JOURNEYS INTO RETAILING
 CASE STUDY

Gateway was founded in 1985 as a direct sales manufacturer of pcs with no retail footprint. In
1996, Gateway was one of the first PC manufacturers to start selling pcs online. After many
years of selling its pcs without a retail infrastructure, Gateway introduced an aggressive strategy
of opening Gateway retail stores throughout the United States in the late 1990s. Its stores carried
no finished-goods inventory and were primarily focused on helping customers select the right
configuration to purchase. All pcs were manufactured to order and shipped to the customer from
one of the assembly plants.
Initially, investors rewarded Gateway for this strategy and raised the stock price to more than
$80 per share in late 1999. However, this success did not last. By November 2002, Gateway
shares had dropped to less than $4, and Gateway was losing a significant amount of money. By
April 2004, Gateway had closed all its retail outlets and reduced the number of configurations
offered to customers. In August 2007, Gateway was purchased by Taiwan’s Acer for a price of
$710 million. By 2010, Gateway computers were sold through more than 20 different retail
outlets including Best Buy and Costco. As you can imagine, this was quite a transition for the
company to experience.
In contrast, Apple has enjoyed tremendous success since it opened its first retail store in 2001.
By 2010, Apple had more than 300 stores worldwide, and retail sales represented about 15
percent of the company’s total net sales. Unlike Gateway, Apple has always carried product
inventory at its stores. Given its product designs, Apple has relatively little variety that it carries
in its stores. Each of its stores has a relatively high level of sales with its Regent Street store in
London reaching sales of 2,000 pounds per square foot in 2009. In the 2010 annual report, Apple
listed retail sales totaling almost $10 billion, a growth of 47 percent relative to the previous year.
 QUESTION AND ANSWER

1) Why did Gateway choose not to carry any finished-product inventory at its
retail stores? Why did Apple choose to carry inventory at its stores?

Gateway had a strategy to avoid carrying finished goods inventory in retail stores. This way
customers had the opportunity to customize the configurations they needed by working with the
sales reps as well as having the opportunity to try out any sample product within the store. The
company’s strategy aimed to design a supply chain that would match supply and demand. The
decision not to carry any finished-product inventory at its retail stores was based on two factors:
Allow for maximum flexibility in product configuration and no need to keep inventory at the
retail outlets. This flexibility in product configurations would allow the company to manage
shifts in customer demand, since the final product would only be configured after the customer
places the order. It would also allow the company to implement a Customer Relationship
Management strategy, since the company would know the specifics of the customer’s needs and
would be able to target a customer for future products. Apple on the other hand aimed to satisfy
the customer’s need for immediate purchase, plus provide him/her with the experience of a
finished product. Gateway strategy is easier to customize that means potentially offer wide
variety of products and higher delivery time it means since the product has to be configured and
produced. Gateway inventory costs is lower I think that’s the reason Gateway choose not to carry
any finished-product inventory at its retail stores. Apple strategy is Better customer service since
the customer has the experience of trying out the finished product, and can walk out of the store
with a product in hand. Apple shipment costs is Lower, since the products can be bundled and
shipped to the retail store, from where they are picked up by the customer and Limited product
variety. In the reason apple has always carried inventory at its store.
2) Should a firm with an investment in retail stores carry any finished-goods
inventory? What are the characteristics of products that are most suitable to be
carried in finished-goods inventory? What characterizes products that are best
manufactured to order?

The decision should be based on customer preferences and on delivery times and costs. If a
region’s customers prefer online shopping, then a retail store does not need to carry finished
goods. Otherwise, it should. Similarly, if the delivery time with respect to the customer’s needs
is deemed to be high then there is a need to have finished goods inventory. On the other hand, if
the delivery time is reasonable or acceptable then the company could do without having finished
goods inventory.

Characteristics of products are most suitable to be carried in finished-goods inventory

There are several characteristics of product that are most suitable to be carried in finished goods
inventory such as nonperishable goods that have least possible storage cost, goods that have
fluctuating or seasonal demand, retailers goods that have stable demand in the local market,
products that doesn’t need a producer assistance or manufacturer, inventory that easily loses
value upon storage or further configuration, when there is a chance of the product price to
increase, and products that are fast moving and are of high value and there deficiency can make a
big loss to the firm.

Characteristics of best manufactured to order are products

There are four factors to consider in making a product manufactured to order.

1) When there is a demand from a customer for a product customization or direct- customer
assistance.
2) If it’s manufactured according to what the customer demand, it should be cost effective.
3) Products that are highly perishable upon storage and have high storage costs.
4) products that are very high valuable and riskier to store.
3) How does product variety affect the level of inventory a retail store must carry?

Issues were perceived as to how product variety affects the level of the inventory that retail
stores carry. First, the increase of product variety also decreases the inventory level for every
product. Basically, if you have lots of product to sell, the level of its inventory will also decrease.
The owner or the store caretaker will have to inventory each of the products carefully and it will
also waste the substantial number of time. And second, product variety can compromise on
quality since there is a big possibility that it increases the likelihood of misplaced products. If a
store sells various numbers of products in the same location, the products will usually be placed
from one product to the other that would lead to greater misplacement and mixture of products.
Misplaced products, other that it affects the level of inventory, it is also analogous to defects in
quality management that will also lead to decrease in sales.

4) Is a direct selling supply chain without retail stores always less expensive than a
supply chain with retail stores?

If we look at it, it would seem that supply chains without retail stores are always less expensive.
Since knowing that supply chains with retail stores go through a lot of different stages it would
mean that distributors, retailers, and agents would need to add an additional amount for them to
be able to gain profit that would lead to a more expensive product price. When opening a retail
store we should also consider the cost of rent, electricity, and other financial aspects. But, if we
look at it from a different perspective, retail stores could actually bring the company a higher
profit. This is because retail stores allow a wider range of consumers to purchase the product that
would increase the sales of a company. This is shown in the example given wherein the retail
stores of Apple represented about 15% of the company’s total net sales. With retail stores,
consumers could also have an easy access to the company’s latest products and avail their
services. However, supply chains without a retail store is somehow less expensive in the point of
view of the consumers this is because purchasing a product directly from the manufacturers
would mean that there will be no mark-up to the price of the products that they will be
purchasing. In addition, there are only few channels in dealing and assessing the consumer
expectation in the direct selling supply chain and they also work towards meeting the consumers
unlike in the indirect supply chain where the channel maybe higher. Therefore, direct selling
supply chain is not always cheaper than indirect supply chain.
5) What factors explain the success of Apple retail and the failure of Gateway
country stores?

One factor that attributed to the success of Apple is placing retail stores in major urban centers.
Location is one important aspect to the success of a retail business. Opening retail stores in a
busy area offers variety of potential customers that can improve revenue and increase marketing
exposure. Another factor is that Apple is staffing retail stores with well-trained personnel. They
have customer service that attends to customer problems and complaints. Ensuring that a client is
satisfied with every point of interaction is a process that leads to loyalty. Loyal customers are
good for one’s business because they become their best advocates. They will recommend your
business to other people which leads to increase in sales, thus ultimately results to higher profits.
Lastly, Apple has retail stores that are well stocked with ample amounts of product inventory as
well as wide selection of software products. An advantage of this is that the store is able to easily
and quickly fill all customer orders as soon as they come in, without having to worry about
waiting on the stock to come in to ship their order out. Unlike Apple, Gateway carried no
finished goods inventory. The customer experience that Apple has been providing is an
important factor of differentiation; Gateway was not providing such a level of customer service
and experience. Delivery time was another factor that helped Apple, since the customer was able
to get the product while at the store. Apple was the only retailer of their products, thus
guaranteeing excellent service across the board. Finally, Apple was able to create big brand
loyalty, an important factor in improving sales.
 CONCLUSION

Gateway was founded on the innovative idea of selling computers directly to consumers rather
than through retailers and distributors. Gateway's goal was to make a profitable business by
reducing the costs of computers to consumers through a direct sales model. Both Gateway and
Apple achieved early success, and both companies struggled as their business models failed to
keep pace with changing industrial and economic times. Soon after Apple released its first mass-
produced personal computer, the company created an army of independent resellers who sold
Apple products to consumers, small businesses and schools. Working through established
retailers and start-up resellers was the only practical way for Apple to adequately sell its
products. Computers in homes and schools were not common place at the time and the company
needed the support of sales people and knowledgeable resellers in order to successfully sell its
products. At the time Gateway was founded, computers could be found in most schools, small
businesses and a large percentage of homes. Personal computers were fast becoming part of the
American culture and the needs for and benefits of a personal computer no longer required
explanation nor the assistance of more highly paid, presumably better-trained sales people to
help consumers make a purchase decision. Apple's costly distribution system and minimum
pricing requirements for resellers began to wok against the company. Gateway capitalized on the
changing culture by providing consumers with a more cost-effective way to purchase personal
computers. Although Apple and Gateway were both innovative companies, the manner in which
the two companies brought innovation to the PC industry are distinctly different, and each reflect
changing times in culture.

REFERENCE

1) https://www.slideshare.net/Eddysydney/apple-company-external-and-internal-
environments-essay
2) https://www.slideshare.net/mahiadel94/apple-inc-strategic-case-analysis
3) https://www.slideshare.net/Sabrina2639/scm-gateway-case-study-presentation