MARKETING – II
Case Analysis
HP CONSUMER PRODUCTS BUSINESS ORGANIZATION: DISTRIBUTING PRINTERS VIA INTERNET
Submitted by Section D, Group 3
ANUBHA GOYAL ASHOK KOTHIYAL
2014PGP047 2014PGP068
BINIT KIRAN
2013PGP107
M VISHVANATH RAJAT KUMAR
2014PGP187 2014PGP287
SARAGADE PRIYANKA DILIP SOMA BANIK
2014PGP329 2014PGP370
Table of Contents 1. Problem Statement............................................................................................................ 2 2. Current Scenario of HP .................................................................................................... 2 2.1. Types of Printers sold by HP ................................................................................. 3 2.2. Consumer Buying Patterns ..................................................................................... 3 2.3. HP current printer distribution network ......................................................... 4 3. Sources of HP’s operating expenses........................................................................... 4
4. Responsibilities of Retailer ............................................................................................ 4 5. Types of e-channels ........................................................................................................... 5 6. HP’s evaluation of strategic options for going online ......................................... 5 7 .
Other industry examples................................................................................................. 6
8 .
Suggestions ........................................................................................................................... 9
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HP CONSUMER PRODUCTS BUSINESS ORGANIZATION: DISTRIBUTING PRINTERS VIA THE INTERNET (1998)
1. Problem Statement Due to the growing e-commerce industry in 1990s (46 million in 1997, expected 150 million 2000), there was a slowed growth rate of HP by less than 20%, in 1997 (first time since 1992) due to HP’s inability to control operating expenses, lower demand and strength of the dollar compared to other currencies. Being a 3.1 billion dollar company in terms of PAT, HP had to take a call on how to bring its printer industry online. The major challenge they faced was selection of the type of printers and supplies, their prices, which needed to be sold online. At the same time, they wanted to maintain cordial relations with their channel distributers and ensure that going online did not offend their channel partners in any form. Their long-term vision included maximizing their revenues through the most profitable distribution channels.
2. Current Scenario of HP In 1998 – HP grouped its products into 5 categories as shown below: -
As of 1997, HP sold its refurbished printers online. This way it could study the consumer buying patterns online and also find a way to re-sell these printers, which the distribution channels refused to accept.
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2.1. Types of Printers sold by HP Printer type/specifications Utility
INKJET PRINTERS
LASER PRINTERS
Home/office
Specifications
Versatile, cheap,
High volume business Superior quality and speed, costly
HP market share Selling price Core technology
55% $299 Cartridge
Lifecycle #SKUs
1-2 years 84
85% $999 Cartridge, toner, photoreceptor, handling, optics, scanners 2-3 years 52
MULTIFUNCTION PRINTERS (MFP) Home office
Print, copy, fax, scan but slow, costly, occupied more office space, easy install, not network friendly Data not available Data not available Data not available
Data not available Data not available
2.2. Consumer Buying Patterns
Market type % First time printer buyers in 1997 Shopping duration Main focus
Phase 1 behavior
Product availability physical store Purchase pattern
Repeat purchase reasons Printer preference
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At-home market
Home office market
91%
~21% (11M/52M)
1 month Less than 1 month Quality, speed, after-sales Make office life easier at service, support, availability, home, multi-tasking brand and price Visiting websites, peer Ordering online directly for advice, physical shops trials repeaters, same as at-home for first time buyers 65% -70% Data not avail Bundles of PC, monitor and printer for first timers (20% printers sold) and only printer for repeat purchasers Need for more printers, technological shifts Inkjet (70% users)
Specific about choices and price points
Printer life cycle MFP
3
2.3. HP current printer distribution network Printer
7 Channel distributers
Refurbished printers (online)
Corporate account dealers, indirect-mail order companies, mass merchants and department stores
10% sales
Computer superstores, Eg:- CompUSA
Office product superstores
90% sales
Consumer electronics superstores
Manufacturer, small retailers Retailer
Customer
3. Sources of HP’s operating expenses
Reimbursing resellers for cooperative ads at prices fixed by HP
Payment to detailers for understanding market trends to help retailers- category management
Logistics and inventory management
Inventory price protection for retailers
4. Responsibilities of Retailer
Breaking bulk orders and shipping merchandise to individual retail stores
Sales assistance
Advertising
After-sales customer service and support
Credit collections from customers
Returns processing
Helped shoppers try the product
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On an average, HP printers accounted for 5-10% of retailer sales volume and 8-14% retail margins (less than that of competitors due to rigorous advertising), net margins in single digits for HP. Reasons for this were retailer services provided, cost of inventory holding and 30 days manufacturer repayment policies. The printer business was profitable with the pricing of supplies at $22-$30 for inkjet cartridges and $60 for laser cartridges. This was a $7 billion revenue market as of 1997.
5. Types of e-channels 1. Traditional re-sellers with a brick and click model like CompUSA, Wal-Mart who used their brand leverage to apply their physical presence to web presence. 2. Virtual stores that existed only on the internet like Value America. These stores established relationships with over 1000 brands and advertised them in exchange for payments. Also used non-internet advertising methods like newspapers, etc. They had a zero inventory model.
6. HP’s evaluation of strategic options for going online
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7 . Other industry examples Most companies today opt for multichannel strategy. Disney sells its DVDs through five main channels: movie rental stores such as Blockbuster, Disney stores, retail stores such as Best Buy, online retailers such as Disney’s own online stores and Amazon.com and the Disney catalog and other catalog sellers. Integrated marketing channel system reflects the strategies and tactics of selling through one or more channel. Adding more channels provide the companies additional benefits, these are as follows:
Increased market coverage Lower cost channel Customized selling
Demand Generation tasks Gather relevant information
r o d n e V
Develop communicat ions
Reach price agreements
Place orders
Acquire funds for investors
Assum e risks
Facilitate product storage
Facilita te payme nt
Over see own ershi p trans fer
Internet
o t s u C
National account
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management
Direct sales Retail store Direct mail Distributors Dealers and value added resellers
(Fig.The Hybrid Grid. Adapted from Kotler, Marketing Management)
This grid consists of major marketing channels and the major channel tasks to be completed. It also explains why one channel is not efficient. E-commerce penetration by category
2012 estimates for the United States 2012 estimates for the United States Grocery Home & DIY Personal Care Beauty (mass & luxury) Consumer healthcare
1% 3% 4% 8% 9%
Apparel & footwear
14%
Entertainment & leisure
22.00%
Electronics & Appliances
34.00%
(Source: U.S. Department of Commerce, 2012; Datamonitor)
1. Book Industry The publishing houses like Wiley.com, Taylor & Francis, Mcgraw Hill offer a range of products through multi-channel strategy. Online- Flipkart, Amazon, Company websites. Offline- Crosswords, Barnes & Nobles, Landmark. Channels: Book supply chains
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1. Offline channel
Publishers
Wholesalers
Retailers
Consumers 2. Online Channel
Publishers
Flipkart/ Amazon
Consumers
As technological innovations continue to increase, particularly in the areas of market intelligence such as customer buying patterns, publishers and distributors are now working closer with retailers to improve their forecasting and distribution channels. Many publishers have signed on with industry analyst services (such as Nielsen BookScan)which monitor retail data and provide a range of information including publisher market share, sales by genre and discount analysis. (Source: Winning business strategies for publishing and book distribution, IBS bookmaster).
The publishing industry also provides its products in e-book format, audio format through online channels. 2. Tourism industry- With the enactment of e-commerce, tourism industry is able to facilitate direct communication and sales with the customers. It put an end to the intermediaries or travel agents that was present in the distribution channel. Hotel industries are able to provide its pricing services and other facilities through own websites or travel agencies websites. Brand-directsupplier sites simply cannot compete in terms of breadth of
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serviceor depth of functionality. The mega agencies have also been investingmillions in offline and online advertising to build brand awareness andhave, to a large extent, succeeded in convincing the consumer that thebest bargains and best service can be found on their sites. (Connor, P. Distribution Channel and e-commerce, Handbook of Hospitality Marketing Management, 2007)
8. Suggestions From the above evaluation, it is clear that HP must go online directly and open up its online store. A similar industry example can be taken as that of Dell where customers first choose the product and customize it on the Dell website since Dell started its business by going online and then the Dell Company assembles the product after order is received. This way it prevents its inventory holding cost. Similarly, tech-savvy customers and customers who are not satisfied with the offline purchasecan go for a HP website for purchasing the printer. To settle the retaliation from the retailers HP can have a model where customer selects and make the payment online and collect the product from the nearest retail shop and HP can share some margin with the retailer. Secondly HP can go for exclusive distribution of some products which would be only available with the retailers. Printer’s supply like print papers and cartridges which have a high margin & home office
market purchases of multifunction printers (MFP) where buying pattern is more deliberate can be completely shifted online. Initially HP can build an online platform to provide product information to the customersie demand generation. The generated demand fulfillment can be done based on customer preferences – either walking by to the nearest retail store or purchase online. Repeat purchasers are expected to generate more traffic on the website whereas first time purchasers may prefer a brick-and-mortar model since they wish to try the product after surfing the HP website. Other alternatives that we can think of would be reducing the operating expenses for HP in terms of its inventory management. In the long run, most profitable distribution channels must be sustained and others channels which are comparatively have low profit margins can be moved out of the supply chain. Going online will help HP to get customer trends data directly from its website and can also review customer purchase feedback that would them to take future business decisions based on current and accurate trend analysis. The direct model is a competitive model (difficult to copy) and is also sustainable owing to the boom of the e-commerce industry. Most importantly, this online model maintains cordial relationships with HP’s retailers and prom ises sustained value creation and delivery.
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HP OFFICIAL WEBSITE
Product added to shopping cart
Payment gateway
Order pickup at retail
Order processed Online home delivery
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