This case examines Gateway, which is one major competitors in the personal computer industry, and its search to find the right advertising agency and positioning platform for the company. Gateway has switched advertising agencies six times from 1997 to 2003 and three times in a 14 month period from early 2002 to 2003. The case can be used with Chapter 3 as it expands on the discussion of Gateway’s search for the right agency that is presented in IMC Perspective 3-3. In Chapter 3 we also discuss reasons why agencies lose clients and ways how they gain new accounts. The case provides an excellent opportunity to discuss reasons why Gateway has changed agencies so many times and the factors that have contributed to its agency switching. It also provides an opportunity to discuss the role of in-house agencies and the value of using an outside agency versus handling advertising internally. The case can also be used with Chapter 8 where we discuss creative strategy and how some companies are constantly searching for the right advertising campaign.
The classroom discussion of this case can be enhanced by showing the series of Gateway commercials that are provided on the video provided in the instructor’s supplement package that accompanies the text. Fourteen Gateway commercials appear on tape one including eight spots from the “People Rule” campaign developed by McCann-Erickson and six developed by Siltanen/Keehn during its brief tenure as Gateway’s agency in 2001-2002. Three of the commercials develop by S/K are spots from the campaign featuring Ted Waitt and the talking cow who advises him on ways to entice customers to buy Gateway products. The other three commercials are stylish, product-focused ads including a comparative ad used to take on the highly successful Apple iMac personal computer. You should review these commercials and read the background information on them provided in the Instructor’s Video Manual before teaching the case. You might also pay attention to advertising being run by Gateway at the time the case is being taught. Gateway print ads can often be found in PC enthusiasts magazines such as PC World, PC Magazine, Wired, and Computer World. Ads targeting business customers can be found in publications such as Fortune, Forbes, and BusinessWeek.
Analyze Gateway’s decisions to change advertising agencies so many times over the past six years. Identify and discuss specific factors that may have led to each decision to change agencies.
As noted in the IMC Perspective 3-3, some companies have long-lasting relationships with their advertising agencies while others change agencies more frequently. Decisions to switch agencies can be driven by a variety of factors including increases in the client’s size, changes in the markets it serves, reorganizations that lead to changes in top management, changes in a company’s marketing and/or marketing strategy, poor performance or service by the agency, and declining sales. A detailed list of reasons why agencies lose clients, along with a discussion of how agencies gain clients, is provided in Chapter 3 (pp. 90-93). A good way to approach this question is to consider what factors may have contributed to each agency change made by Gateway over the past six years.
The first issue that should be discussed is Gateway’s initial decision to hire an outside agency. As the case notes, up until 1993 Gateway relied solely on print advertising that was produced in-house. However, as the company grew rapidly, it decided to add television ads to the media mix and retain the services of an outside agency to work with its in-house advertising department. Some discussion should focus on Gateway’s hiring of the Carmichael Lynch, Minneapolis and the company’s need for an outside agency. It is very unlikely that Gateway’s in-house advertising department had the ability to produce quality television commercials and the expertise of an outside agency was needed. As discussed on p. 76 of the text, companies may rely on an in-house advertising department initially, but often hire outside agencies as they grow and their advertising budgets and needs increase. Outside agencies usually have more highly skilled personnel such as creative talent and other marketing communication specialists and provide a broader perspective to companies than they might get from an in-house advertising department.
Carmichael Lynch served as Gateway’s agency for four years until Gateway decided to move its advertising to a larger global agency, D’Arcy Masius Benton & Bowles. The decision to hire DMB&B was made because Gateway wanted a larger agency with global capabilities that could help the company with its growing international business in Europe and Asia. This is an example of a situation where a client changes agencies because it feels a larger agency is needed to handle its business and, in this case, an agency that could handle its growing international business. The next agency change Gateway made the decision to drop DMB&B and take its advertising back in house, while using a small creative boutique, DiMassimo Brand Advertising, to handle its creative work for television advertising. The decision to drop DMB&B appears to have been the result of personality conflicts, a lack of rapport between agency personnel and Gateway’s in-house advertising department, and dissatisfaction with the type of ads the agency was creating. As the case notes, Gateway CEO Ted Waitt is known for his dislike of traditional advertising that uses actors and scripted approaches and favors more unscripted, folksy ads with “real people.” You might note that in addition to moving the advertising back in house and hiring DiMassimo, Waitt brought back Henry Corra to work on Gateway’s advertising. This is a very good example of the important role personal relationships often play in agency decisions. Waitt has always been very fond of Corra and his creative style and a strong trust and personal relationship has developed between the two.
The next agency change to discuss is the decision to move from DiMassimo Brand Advertising and once again hire another large outside agency, McCann Erickson Worldwide. This decision was made after Jeff Weitzen, a former AT&T executive, was brought in to run Gateway in early 1998 as Ted Waitt decided to step back from the day-to-day operations of the company. The decision to hire McCann appears to have been based on several factors including the preferences of Weitzen and other new top managers, as well as a change in Gateway’s corporate strategy. Gateway had begun implementing its “beyond the box” strategy and transforming itself from a manufacturer of personal computers into a company that would derive its revenue from a variety of sources. Weitzen and other felt that new advertising was needed to help communicate this new strategy to the market.
Many advertising and industry analysts felt that the “People Rule” campaign developed by McCann was a very good campaign and was successful in positioning Gateway as a customer friendly company. However, McCann Erickson’s tenure ended after a management shake-up that resulted in Weitzen’s resignation and Waitt resuming control of the company in January 2001. It should be noted that Gateway posted a financial loss in the fourth quarter of 2000 as its core PC business was not profitable. There are a number of factors that appear to have led to the decision to dismiss McCann Erickson including the management shake-up, the decline in profits, and Waitt’s dislike for large agencies. The case also mentions that there was speculation that Gateway was dissatisfied with the level of service it was receiving from McCann after the agency had won the Microsoft account.
After dropping McCann Erickson, Waitt decided to move Gateway’s advertising back in house and once again rely on Henry Corra to direct its commercials as the company returned to the “You’ve got a friend in the business” tagline. However, during this period, the Siltanen/Keehn agency was working with Gateway on a project basis. The founders of S/K had worked on the Apple Computer account when they were with the TBWA/Chiat/Day agency in Los Angeles which meant that they had very good insight into the personal computer industry. This is a good example of how experience in a particular industry and reputation can be important factors in gaining new business. S/K also did some very good creative work for Gateway including the campaign featuring the commercials with Ted Waitt and the talking cow.
The next agency change to discuss is the decision to drop S/K after only 10 months and hire the Arnell Group, New York. This decision appears to have been driven by the decision by Gateway to change its positioning and image from folksy to hip. The Arnell Group was known of its branding work with retail clients such as Banana Republic and was hired to help with the makeover of the Gateway Country stores as well as the advertising. Again, we see an example of how a change in strategy often results in a decision to change agencies. The final agency change made by Gateway was from the Arnell Group to Leo Burnett. A factor that may have played an important role in this decision was the fact that Gateway’s new executive vice president of consumer marketing was a former Leo Burnett executive who was very familiar with the agency and the work it has done through the years with various clients. It might also be noted that Leo Burnett is based in Chicago and thus might be perceived by Ted Waitt as better able to identify with and understand the folksy, Midwestern culture of Gateway.
Discuss how Gateway’s frequent agency switching has affected the company’s branding and positioning efforts. What recommendations would you make to Gateway management regarding its agency switching and its impact on the company?
Gateway’s frequent agency switching has obviously affected the company’s branding and positioning efforts, particularly more recently, as the changes have made it difficult to establish any continuity and consistency in its advertising. Over the past six years Gateway has used a number of tagline/campaign themes including the following;
“You’ve got a friend in the business ( 1994 to 1997)
“From South Dakota to the rescue” (1997)
“Let’s talk about your Gateway” (1998)
“Gateway@Work (business-to-business) (1999)
“People rule” (2000/2001)
“You’ve got a friend in the business (2001)
“Gateway: A Better Way” (2002)
“The Comforts of Gateway” (2003)
“Humanology” (business-to-business) 2003
As can be seen from this list, Gateway has used ten different advertising campaigns over the past six years and five since early 2001. Most of these taglines have lasted less than a year which has made it difficult for the company to establish a clear identity and image. You might ask students to discuss whether they feel there is a consistent theme running through all of the different taglines. As discussed in the case, Gateway has always tried to position itself as a company that assists its customers in understanding technology and how it can help them in their daily lives. This theme is reflected in the most recent business-to-business campaign which uses the “Humanology” tagline as the goal of this campaign is to transfer Gateway’s approachable and helpful image to the business market.
It should be noted that most of the recent changes in positioning themes have come about following a change in Gateway’s overall corporate strategy. It is not surprising that the company would develop a new advertising tagline that might better represent its new strategic direction of trying to expand beyond personal computers and become more of a provider of a wide range of digital electronic products. However, it will be important for Gateway to settle on an advertising theme and stay with this tagline. Unfortunately, when companies are in Gateway’s position and experiencing declining sales and profits, it is not unusual for them to keep changing their positioning and advertising in hopes of finding an approach that will strike a responsive chord with their customers. It is likely that Gateway will always strive to be a humanistic brand, holding true to its core philosophy that, no matter how much technology evolves in the future, it is of little value unless it can do something to improve the user's life today. The challenge facing Gateway is to find a way to deliver this message and stay with it long enough.
If you were an executive at an advertising agency and Gateway’s decided to switch agencies again, would you advise your account development team to pursue the company’s business? Why or why not?
An interesting issue to discuss is why large agencies keep pitching Gateway when the company has a history of changing agencies so often. First, it should be noted that despite its recent problems, Gateway is still a very large company with sales of nearly $4 billion and is the third largest personal computer company in the U.S. Moreover, Gateway spends an estimated $150 million a year on advertising which makes it a very large account that will attract the interest of many agencies. Large Fortune 500 companies such as Gateway are very high profile accounts that are coveted by many advertising agencies. Most agencies are likely to view Gateway as a significant opportunity since the company still has a significant market share, a strong product line, and a viable business model as one of the two major direct sellers of personal computers and other electronic products. Gateway may be able to return to profitability as the economy rebounds and spending on personal computers and other electronic products by both businesses and consumers increases.
Some agencies may be reluctant to pursue an account such as Gateway for several reasons, not the least of which is the company’s track record of switching agencies so often. Agencies often invest a great deal of money to pitch a new client and become involved with them. A great deal of time, effort, and money is often spent by an agency when they take on a new client to become familiar with the company’s industry, market segments, competition, its marketing strategy, and its customers. Primary and secondary research studies are often conducted which the agency bearing some of the cost of these studies. For a large account such as Gateway, additional personnel may be hired in various areas such as account management, creative, and other areas of the agency to service the account. Agencies view all of this as an investment that they can recoup over several years. If the client drops the agency after only a year or so, this may result in the agency losing money along with the opportunity costs of not pursuing some other account.
Another issue agencies must consider is the tendency of Gateway CEO Ted Waitt to meddle with the company’s advertising. As described in the case, Waitt is not considered to be a fan of traditional advertising and has played a major role in the decision to dismiss several of Gateway’s agencies. Consideration must be given to whether Waitt’s hands-on approach might interfere with an agency’s ability to develop good advertising for Gateway. Moreover, even if the agency developed effective advertising, there is still the possibility that Gateway may still find it difficult to increase its sales and market share given the formidable competition the company faces from Dell and Hewlett Packard. This might result in a decision by Waitt and Gateway’s top management to once again change agencies.