A Case Study on Channel Conflict, Lifetime Value Analysis

A Case Study on Channel Conflict, Lifetime Value Analysis,

and Business Model Transition

1. EXECUTIVE SUMMARY  

The purpose of this case study was to analyze and evaluate the business developing process of Gateway Inc. in 1990s. Research for this case study identified three questions: distribution channel conflict, lifetime value analysis, and business model transition. Gateway provided instances for this case study.

The major findings from analyzing Gateway Inc. indicate that coordination different distribution channels is the best way to avoid the conflict. Besides, lifetime value analysis measures the company’s profitability, which is a necessary component of company development. Lastly, business model transition is the inevitable innovation of marketing development. Service based business model is the long-range interest for most industries.

This case study recommends company operation managers some strategies through those three analysis questions. Each channel focuses on their own target consumers group and keeps a well cooperative relationship with other two channels are the best method to avoid the conflict. Moreover, Gateway had created the successful company lifetime value analysis model. Lifetime value analysis could help a company to measure their profitability. Finally, product based industries have to transit to service based business model. Simplex-product industries are hard to survive in a changing marketplace. Otherwise, they will be eliminated by the rapid development of marketing. Services and solutions based business model will become the main business structure in the future.

2. INTRODUCTION

Gateway Inc. is a successful computer hardware supply industry in the world. It was founded by Ted Waitt in the back room of a retail computer store in 1985. In the beginning, Gateway was a telephone-based computer retail store. Owing to telephone-based business model, Ted had saved lots of expenditure. Gateway sold built-to-order computers at prices at least 10 percent below those of the competition. In 1987, Gateway earned revenues of $ 1.5 million. Three years later, Gateway was an fastest-growing private company, within $626 million in annual sales and 1,300 employees. By now, Gateway is one of the five largest computer supply industries in the world.

In 1999, Gateway had other two distribution channels except direct channels: Internet channel and retail store (Bricks & Mortar) channel. Those two channels had grown very fast than direct channel. The Internet channel accounted for roughly 10 percent of company’s sale in the first year; retail store channel did more than 50 percent of consumers business. However, conflict had occurred between those channels.

From Gateway was founded to 1999, Gateway had created a successful and valuable company lifetime value through a series business strategies. Gateway had decided to position itself as a trustworthy computer supply industry with high reputation. In addition, Gateway offered built-to-order computers with high-end quality for low-end price at a bargain. Those strategies brought Gateway to a successful company and obtained the huge margin. Gateway’s lifetime value rapid increased during a few years.