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Gateway ends "stupid" policies

The PC maker says new customer-satisfaction surveys show the effect of eliminating 15 policies that are now referred to internally as "stupid."

Gateway is hoping that the abolishment of what it calls 15 "stupid" policies will bolster sagging customer satisfaction and revenue.

Ted Waitt banished the technical-support policies on his return as chief executive in late January. The San Diego company credits the changes as having spiked customer satisfaction, which hit a two-year low at the end of 2000.

A Gateway survey showed customer satisfaction up 9 percentage points in the first month the new policies were in place, according to the company.

Roger Kay, an IDC analyst, noted that Gateway must keep working on customer satisfaction because it is an increasingly important factor driving sales among repeat buyers in the United States.

"Brand loyalty is pretty poor in the PC industry in general," he said. "But within that, Gateway had been at the top of that pile of brand recognition, repeat buying and so on. They need to keep satisfaction high, so people won't buy someplace else."

Possibly topping the list of stupid policies that Gateway nixed was one related to its warranty. Until the change, Gateway would invalidate the warranty if customers installed any third-party software on their machines. Gateway also decided to do away with the policy of rewarding technical-support representatives based on how quickly they handled calls.

Ironically, some customer service people had trouble keeping calls short because of the amount of time needed to explain why installing software had invalidated customers' warranties, according to the company.

Gateway has internally been referring to the one-time policies as misguided or "stupid," said Mike Ritter, director of Gateway consumer product marketing.

Ritter acknowledged that the warranty policy probably outraged customers more than anything else. "That's where I heard the most feedback," he said. Since the changes, Ritter noted, "through customer e-mails I hear things like, 'I feel like I'm getting support again like you used to do.'"

ARS analyst Toni Duboise learned about the warranty policy when the company told analysts in late February that it had been abolished. Duboise "couldn't believe" that Gateway had the policy in the first place. "To see how bad things had become was quite shocking," she said.

But Duboise also asserts Gateway can turn around customer satisfaction--and quickly.

"I have absolutely no doubt that (by)...abolishing those policies, Gateway's satisfaction levels will come back up," she said. "They're going back to what they know, and they're good at it."

Customer surveys
Gateway, like most PC makers, randomly surveys customers 30 days after a purchase to gauge satisfaction. The company tabulates the results in what it calls the Gateway Index. The company bases satisfaction on three criteria: overall satisfaction with purchase, willingness to buy again and the likelihood of recommending Gateway to a friend.

The company saw a spike from 67 percent satisfaction on Feb. 1, to 76 percent satisfaction on March 1. Several years ago, it was in the mid-80 percent range.

Kay said the policy changes couldn't have come soon enough. "Maybe they're too late. Gateway is the friendly company with the cow spots and consumer warmth. Without policies that tend to reinforce that image, it just shatters," he said.

Besides dumping the policies, Gateway simplified its product line in the quest for improved customer satisfaction. The company also changed its parts-replacement policy in an effort to stem a growing problem of sending out bad hardware.

But months after all the changes were made, the company still faces tough challenges turning around a series of apparent missteps under former Chief Executive Jeffrey Weitzen.

Gateway last week posted its second straight quarterly loss--$6 million on revenue of $2.6 billion.

And though U.S. PC shipments declined 9.5 percent during the first quarter compared with the same period last year, Gateway lost even more ground, according to market researcher IDC. The company's PC shipments fell 11 percent year over year.

For the quarter, Gateway ranked No. 4 in the United States with 8.8 percent market share. Dell Computer led with 24.2 percent share, followed by Compaq Computer with 14.4 percent and Hewlett-Packard with 10.2 percent. IBM was No. 5 with 5.4 percent.

Corporate satisfaction drops
Technology Business Research analyst Brooks Gray said he doesn't doubt that Gateway's customer satisfaction has improved, but also noted he hasn't seen it yet in the corporate world. Technology Business Research tracks corporate satisfaction on a quarterly basis and has recorded growing dissatisfaction with Gateway.

"They've seen a continued decline of customer satisfaction with the primary negative aspect being hardware reliability," Gray said.

Gateway had ranked No. 3 in the third quarter. But by the first quarter, it was in fifth place. The PC maker's rating dropped from 82 in the fourth quarter, for example, to 79.2 in the first quarter. Technology Business Research measures satisfaction on a scale of 1 to 100. Dell has led the survey consistently with a score of 84 to 85. Both Compaq and HP rated 82.5 in the first quarter. IBM scored 80.

Ritter acknowledges that making the policy changes was tough considering Gateway's current plight and the industrywide slowdown in PC sales. But it was well worth it, he said.

"It's great to see we're back to the focus on the customer and don't worry about shaving pennies here," he explained. "It's easy to worry about cutting tech support calls when you're in a tough economic situation like we're in right now. But keeping the customers' interests at heart says a lot about our culture here."

Kay asserts that Gateway had no other choice.

"If you have policies that are designed for more narrow-minded efficiency that have a tendency to impugn upon customer satisfaction, for a company like Gateway, it's the kiss of death," he said.