LURING THEM BACK TO THE MAC AISLEAre Apple's competitive prices enough to regain share?
John Magnusson, a Northwest Airlines pilot, decided last spring to replace his aging Apple Macintosh. But given the Mac's high price and skimpy selection of software, he began looking at Windows PCs--until a few weeks ago. That's when he spotted a new Performa 6360 for $1,499, cheaper than similarly configured Compaq and IBM PCs. Now, Magnusson is having second thoughts. ''I still think the Mac is easier to use,'' he says. ''At this price, I just might go with it.''
That's just what Apple Computer Inc. is banking on. The No.1 seller of home computers just three years ago, Apple is now trying to hold on to third place. Thanks to a series of foul-ups last Christmas and a lack of new models early this year, Apple's share of the U.S. home-PC market plunged from 14% at the end of 1995 to 8.5% in mid-1996. Reversing that slide this Christmas season is critical to CEO Gilbert F. Amelio's fledgling comeback plan. Not only does Apple get roughly 40% of fourth-quarter revenues from the home market, the company desperately needs to retake market share--or risk slow death as software developers abandon the Mac. ''This is when they've got to do it,'' says analyst Eugene G. Glazer of Dean Witter Reynolds Inc. ''They've got no choice.''
What are the odds? In interviews with shoppers and store owners around the U.S. over the past two weeks, it appears that Apple still has an uphill climb. Price cuts and Apple's improving financial picture--the company eked out a surprise $25 million profit in the September quarter--have brought shoppers back to the Mac aisle. ComputerWare, a 10-store, Mac-only retailer based in Sunnyvale, Calif., reports a 20% uptick since Apple slashed Mac prices up to 30% on its Performa home-PC line on Oct. 18. And Mac mail-order house Multiple Zones International says Performa sales have tripled since the price cuts.
But most computer buyers interviewed at stores that sell both PCs and Macs aren't even considering a Mac. At a Circuit City in Chicago, no one went near the Macs for 90 minutes on a recent Saturday afternoon. Even Armando Morales, a 15-year-old who uses Macs at his Chicago school and whose parents are shopping for a home computer for him, was only looking at PCs. ''Apple isn't really a consideration,'' he says.
The biggest hangup is software. Apple execs point out that there are Mac titles for every conceivable use, but few titles make it onto computer-store shelves: They're too crammed with programs for Wintel PCs (computers that run Microsoft Corp.'s Windows and use Intel Corp.'s chips). Linda Shaink of Hinsdale, N.H., never even considered the Mac during a recent outing to a Staples store in West Springfield, Mass., with her 14-year-old son Chris. ''I don't like 'em,'' Chris says of Macs. ''A lot of the software I want is hard to find.''
''WORK LIKE MAD.'' With all the bad news about the company, Apple is also fighting to restore its brand image. ''I'm sure they're fine computers, but the Mac has picked up the image of the Betamax,'' says William Rosson, who recently bought a Wintel PC at a Lechmere's in Holyoke, Mass.
Even some Mac loyalists have lost faith. M.J. McKean-Reich, who publishes Victory!, a magazine for gay and lesbian entrepreneurs in Oakland, Calif., has been using Macs for years to create the publication but is now leaning toward a Wintel PC. ''I grew up on Apple,'' he says. ''But more and more people I know are switching.'' And, he says, he needs to stay compatible with the growing number of artists and writers who use Wintel machines.
Such sentiments make it unlikely that Apple will do more than halt its slide this quarter. Dataquest Inc. says Apple actually gained a point of home-PC share in the second quarter, the last quarter for which it has data. But most analysts look for fourth-quarter market share to remain roughly 20% below a year ago and flat from the third quarter. ''They're going to have to work like mad just to hold share,'' says Susan Bailey, a senior vice-president with distributor Intelligent Electronics Inc.
At least Apple's back in the race. Before the price cuts and a new rebate program, the company had all but abandoned the home market, with no machine priced below $2,100. Now, it has competitive products, aggressive prices, and new management of its home-PC operations. At the same time, Apple has cut prices on older Performas and added two new models, including the 6360 for $1,499. The new Performas are a far cry from last year's underperformers. Even the 6360 has a speedy 160-megahertz PowerPC processor. A new 6400 offers technology for editing videotape. ''Apple's products are more competitive than they've been in a long time,'' says Michael T. Ryan, vice-president for merchandising at Circuit City Stores Inc.
Much of the credit, say Apple insiders, goes to H.L. Cheung, the original architect of the Performa. Given profit-and-loss responsibility for the new Performa business unit created in May, his team has reduced costs by renegotiating parts contracts and tightening links to sales units. That has led to better forecasting and a much improved mix of products.
TRIED-AND-TRUE. New distribution policies may help, too. On Nov. 8, Apple announced policies that put it in line with rivals such as Compaq Computer Corp. Instead of continuing to deal directly with scores of retailers, Apple will work with the 25 largest--chains such as CompUSA Inc. and Best Buy--that together sell the vast majority of Performas. Smaller retailers will get Macs from distributors such as Intelligent Electronics and Ingram Micro.
Apple management knows it's critical to improve relations with dealers. In a shortsighted move, the company limited the number of unsold Macs that retailers could return, even as rival PC makers eased their return policies. That didn't endear Apple to dealers. Lately, in fact, it has sometimes been hard to find Macs in some of the most important stores. At a CompUSA in Pleasanton, Calif., science teacher Steve Luntz almost left before spotting the lone Mac tucked away behind dozens of PCs. ''Last year, it seemed Apple was fairly well-represented,'' he says. ''But now, they're down at the end of one aisle and look like they're about to get pushed off altogether.''
To get shoppers headed in the right direction, Apple is working on in-store marketing. There are slick brochures and point-of-purchase materials--for Macs as well as add-ons not made by Apple. The company has budgeted $10 million for a ''software storm'' campaign, to help shoppers find Mac programs in PC stores. If a title doesn't exist in the Mac section, posters bearing the Mac OS happy-face logo and the line ''All great software wears this face'' will point shoppers to the Windows section, where there are many hybrid CDs that work on both Macs and Wintel machines.
To drag consumers into the stores in the first place, Apple's vague image advertising has been replaced by a tried-and-true pitch: Buy an Apple for your kids because that's what they use in school. In one of three new 30-second spots, a young baseball fan asks Dad to explain a curveball. The scene cuts to a baffled Dad using his Mac to track down the answer, with the tag line: ''When it's your turn to be the teacher, why not use the computer teachers use most?''
HEAVY HITTERS. Apple execs think the education angle can still deliver. Their research shows that 73% of home-PC shoppers have school-age kids and 80% of those rank education as the No.1 reason to buy a PC. It worked on Ken Ahoy, a janitor from Berkeley, Calif. He's considering a Mac for his kids, one of whom recently was placed in a computer class for gifted students where Macs are used. ''I want to start my kids off right. Apple may be having problems,'' he says, ''but the Mac is right for me.''
That's good news for Apple. Now the bad news: Compaq, Hewlett-Packard, and IBM are all out to grab more of the home-PC pie this year. Compaq will spend $60 million on advertising through March, double what it spent last year. And this season, Apple will compete with some heavy hitters from consumer electronics that are new to the home-PC game, including Sony Corp. and Toshiba Corp.
What if the Christmas push doesn't pay off? Then the company may have to consider more drastic moves. The traditional surge in consumer purchasing (overall home-PC sales accounted for 30% of Apple's $9.8 billion in revenue for the year ended on Sept. 30) is needed for the company to fund its research and development. In an effort to keep up with Microsoft and Intel, Apple spent $614 million on R&D last year vs. $65 million by Dell Computer Corp. and $270 million by Compaq. Despite that spending, Apple has all but halted plans for an all-new operating system, code-named Copland and has been in talks to acquire startup Be Inc. Further market-share losses could push Apple into that deal--to give it new technology fast.
At a minimum, the fall campaign should help Apple tread water. If it just does that, Apple execs vow, the stage is set for a big market-share push this time next year. Between now and then, however, Apple is going to have to close a lot of deals with a lot of Magnussons.
By Peter Burrows in Cupertino, Calif., with Peter Elstrom in Chicago and bureau reports
Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.