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Dell abandons rebates in PC pricing

But promises cheaper PCs and longer warranties

In a bid to simplify PC purchasing, Dell is changing the way it offers discounts to customers. Home users and small-business customers will have to fill out less paperwork when buying a computer from Dell, as the vendor announced it will phase out most of its rebates and promotions.

The change will not affect customers' wallets, since Dell plans to slowly reduce prices at the same time.

Still, at least 20 percent of Dell customers never redeem their rebates, so folding them into the original purchase price will create an effective saving.

The change will begin on 1 August, when Dell reduces the number of mail-in rebates it offers for its television sets and Inspiron notebook PCs.

Dell will extend the plan to include its desktop PCs later in 2006, and its entire product line over the next 12 to 18 months. Overall, Dell will reduce the number of promotions it offers by 70 percent and discounts by 80 percent.

"Customers don't like rebates. They want immediate savings at the time of purchase," said Ro Parra, senior vice-president for Dell's home and small business group, during a conference call with reporters yesterday.

"Over time we will reduce list prices and reduce the level of discounts. So what you'll ultimately see is that the net price that customers pay will remain the same," he said.

Extends warranties

In another step to improve customer service, Dell said it will extend its warranty for Dimension desktops and Inspiron notebooks from 90 days to one year, and add the OS (operatins system) to the existing hardware warranty.

Dell denied making the changes as a reaction to price pressure from rival HP, although second-place HP has been growing faster than Dell in recent quarters.

Dell missed its earnings target for the first quarter of 2006, and promised to spend $100m (about £54m) to improve its customer service. This initiative is part of that plan, Parra said.

The move is a smart way to create more predictable prices both for consumers and for Dell's own quarterly forecasts, said Ted Schadler, analyst at Forrester Research.

"Their model had become a real hairball; you could buy the same computer at two different hours and get two different prices," he said. "That was great for people willing to play the system, but confusing for everyone else."

By simplifying its prices, Dell moves the spotlight off frequent rebates and on to its new message of overall customer value, the company claimed.

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