Case Analysis_HP Consumer Product_Section D_Group3

8/10/2019 Case Analysis_HP Consumer Product_Section D_Group3

1/11

MARKETING II

Case Analysis

HP CONSUMER PRODUCTS BUSINESS ORGANIZATION:DISTRIBUTING PRINTERS VIA INTERNET

Submitted by Section D, Group 3

ANUBHA GOYAL 2014PGP047 ASHOK KOTHIYAL 2014PGP068

BINIT KIRAN 2013PGP107 M VISHVANATH 2014PGP187 RAJAT KUMAR 2014PGP287 SARAGADE PRIYANKA DILIP 2014PGP329 SOMA BANIK 2014PGP370


2/11


3/11

Section D, Group 3 2

HP CONSUMER PRODUCTS BUSINESS ORGANIZATION: DISTRIBUTING PRINTERS VIA THEINTERNET (1998)

1. Problem StatementDue to the growing e-commerce industry in 1990s (46 million in 1997, expected 150 million2000), there was a slowed growth rate of HP by less than 20%, in 1997 (first time since1992) due to HPs inability to control operating expenses, lower demand and strength of thedollar compared to other currencies. Being a 3.1 billion dollar company in terms of PAT, HPhad to take a call on how to bring its printer industry online. The major challenge they facedwas selection of the type of printers and supplies, their prices, which needed to be soldonline. At the same time, they wanted to maintain cordial relations with their channeldistributers 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 profitabledistribution channels.

2. Current Scenario of HPIn 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 consumerbuying patterns online and also find a way to re-sell these printers, which the distributionchannels refused to accept.


4/11


2.1. Types of Printers sold by HP

Printertype/specifications

INKJET PRINTERS LASER PRINTERS MULTIFUNCTIONPRINTERS (MFP)

Utility Home/office High volumebusiness

Home office

Specifications Versatile, cheap, Superior quality andspeed, costly

Print, copy, fax, scanbut slow, costly,occupied more officespace, easy install,not network friendly

HP market share 55% 85% Data not availableSelling price $299 $999 Data not availableCore technology Cartridge Cartridge, toner,

photoreceptor,handling, optics,scanners

Data not available

Lifecycle 1-2 years 2-3 years Data not available#SKUs 84 52 Data not available

2.2. Consumer Buying Patterns

Market type

At-home market Home office market

% First time printer buyers in1997

91% ~21% (11M/52M)

Shopping duration 1 month Less than 1 monthMain focus Quality, speed, after-sales

service, support, availability,brand and price

Make office life easier athome, multi-tasking

Phase 1 behavior Visiting websites, peeradvice, physical shops trials

Ordering online directly forrepeaters, same as at-homefor first time buyers

Product availability atphysical store

65% -70% Data not avail

Purchase pattern Bundles of PC, monitor andprinter for first timers (20%printers sold) and onlyprinter for repeat purchasers

Specific about choices andprice points

Repeat purchase reasons Need for more printers,technological shifts

Printer life cycle

Printer preference Inkjet (70% users) MFP


5/11


2.3. HP current printer distribution network

3. Sources of HPs 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

Corporate account dealers,indirect-mail ordercompanies, mass merchants

and department stores

10% sales

Manufacturer,small retailers

Retailer

90% sales

Refurbishedprinters(online)

Customer

Printer

7 Channeldistributers

Computersuperstores,Eg:- CompUSA

Consumer

electronicssuperstores

Officeproductsuperstores


6/11


On an average, HP printers accounted for 5-10% of retailer sales volume and 8-14% retailmargins (less than that of competitors due to rigorous advertising), net margins in singledigits for HP. Reasons for this were retailer services provided, cost of inventory holding and30 days manufacturer repayment policies. The printer business was profitable with thepricing 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 forpayments. Also used non-internet advertising methods like newspapers, etc. They

had a zero inventory model.

6. HPs evaluation of strategic options for going online


7/11


7 . Other industry examples Most companies today opt for multichannel strategy. Disney sells its DVDs through fivemain channels: movie rental stores such as Blockbuster, Disney stores, retail stores such asBest Buy, online retailers such as Disneys own online stores and Amazon.com and theDisney catalog and other catalog sellers.

Integrated marketing channel system reflects the strategies and tactics of selling throughone 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

V e n

d o r

Gatherrelevantinformation

Developcommunications

Reach priceagreements

Place orders Acquirefunds forinvestors

Assume risks

Facilitateproductstorage

Facilitatepayment

Overseeownershiptransfer

Internet

C u s t o

Nationalaccount


8/11


9/11


1. Offline channel

2. Online Channel

As technological innovations continue to increase, particularly in the areas of marketintelligence such as customer buying patterns, publishers and distributors are now workingcloser with retailers to improve their forecasting and distribution channels. Many publishershave 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 bygenre 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 throughonline channels.

2. Tourism industry- With the enactment of e-commerce, tourism industry is able tofacilitate direct communication and sales with the customers. It put an end to theintermediaries 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 travelagencies websites. Brand-directsupplier sites simply cannot compete in terms of breadth of

Publishers WholesalersRetailers

Publishers Flipkart/Amazon Consumers

Consumers


10/11


serviceor depth of functionality. The mega agencies have also been investingmillions inoffline 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 foundon their sites.

(Connor, P. Distribution Channel and e-commerce, Handbook of Hospitality MarketingManagement, 2007)

8. Suggestions From the above evaluation, it is clear that HP must go online directly and open up its onlinestore. A similar industry example can be taken as that of Dell where customers first choosethe product and customize it on the Dell website since Dell started its business by goingonline and then the Dell Company assembles the product after order is received. This way itprevents 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 andmake the payment online and collect the product from the nearest retail shop and HP canshare some margin with the retailer. Secondly HP can go for exclusive distribution of someproducts which would be only available with the retailers.

Printers supply like print papers and cartridges which have a high margin & home officemarket purchases of multifunction printers (MFP) where buying pattern is more deliberatecan be completely shifted online.

Initially HP can build an online platform to provide product information to the customersiedemand generation. The generated demand fulfillment can be done based on customerpreferences either walking by to the nearest retail store or purchase online. Repeatpurchasers are expected to generate more traffic on the website whereas first timepurchasers may prefer a brick-and-mortar model since they wish to try the product aftersurfing the HP website.

Other alternatives that we can think of would be reducing the operating expenses for HP interms of its inventory management. In the long run, most profitable distribution channelsmust be sustained and others channels which are comparatively have low profit margins canbe moved out of the supply chain.

Going online will help HP to get customer trends data directly from its website and can alsoreview customer purchase feedback that would them to take future business decisionsbased on current and accurate trend analysis.

The direct model is a competitive model (difficult to copy) and is also sustainable owing tothe boom of the e-commerce industry. Most importantly, this online model maintainscordial relationships with HPs retailers and prom ises sustained value creation and delivery.


11/11

Case Analysis_HP Consumer Product_Section D_Group3

Documents

Transcript of Case Analysis_HP Consumer Product_Section D_Group3