1. technology and computing
2. hardware
3. computer
4. portable computer
5. laptop

MANAGEMENT
CASE
describes a real-life situation
faced, a decision or action
taken by an individual
manager or by an organization at the strategic, functional or operational level
HCL: Facing the Challenge
of the Laptop Market
Jaydeep Mukherjee and Mahalingam Sundararajan
M
r. Ajai Chowdhry, Chairman and CEO at HCL Infosystems Limited, a
major technology hardware player in India, was pondering upon the
company’s marketing strategies to build its laptop sales in 2010-111.
Driven by powerful and sustained marketing campaigns by the multinational companies (MNC), namely Dell and Acer, during 2009-10, the laptop market had witnessed tremendous growth. Dell’s 1,500 million Indian Rupee (INR) marketing
initiative had catapulted it from the fifth position (in terms of sales revenues) in
2008-09 to a second position in 2009-10 in the Indian laptop market2. Similarly, Acer
had gone on a marketing and distribution blitz that catapulted it from No. 6 to No. 3
in the market, thereby more than doubling its market share.
The reason for this sustained effort by the players could be attributed to the major
structural changes that were taking place in the rapidly growing Indian computer
marketplace. Traditionally, consumers preferred desktops due to lower costs. However, in 2008-09, consumer preference started shifting to laptops because of the mobility advantage and the falling prices of laptops leading to an exponential growth
of the laptop market. Households accounted for 56 per cent and business customers
accounted for 44 per cent of the market, growing at 83 per cent and 47 per cent
respectively on an annual basis. The laptop market was projected to overtake the
desktop market in 2013 (Refer to Exhibits 1, 2, and 3 for sales and projected sales of
the industry). Due to this, all hardware companies were forced to consolidate their
position in the laptop space. The predominant belief in the industry was that if this
window of opportunity was missed, it would be difficult to get a toehold in the large
and growing laptop market in the near future.
KEY WORDS
Marketing Strategy
Global Competition
MNC Brands
Consumer Behaviour
In 2009-10, HCL was the second largest brand in the desktop personal computer
(PC) category, but a poor sixth with only a 6 per cent revenue share in the laptop
market. It was important that HCL built its position in the laptop category too; it
needed at least a 15 per cent share of the growing laptop market in the next two
years; otherwise it risked facing a large negative impact on the profitability and
revenues of the company over the next few years. Ajai set his aim at 20 per cent
share of the overall laptop market in 2012, which would have allowed HCL to leverage the economies of scale in manufacturing and marketing.
Distribution Channel
Indian Desktop market
Laptop Sales
1
The accounting year is from April to March.
2
‘Laptop’ is used generically in the case for portable computing device and would include other products
typically called notebooks now as well as any such innovation in future.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
113
HCL’S BUSINESS
HCL Infosystems was a $2.6 billion revenue company
in 2009-10 with businesses in various areas of technology hardware. The key divisions were Hardware Manufacture, System Integration, Telecom Product
Distribution, and Office Automation. These divisions
were independent profit centres and the decision-making rested on the heads of the individual divisions, who
reported to the CEO. Most of the divisional heads and
senior executives were veterans in the company and
were well-experienced in the various areas of technology hardware. Though the businesses were independent
as far as management was concerned, they also worked
together while facing challenges in the market.
HCL had been present in the Indian market from the
late 1970s, and it had unparalleled distribution reach in
the market space. It had a wide ranging service network
that was the envy of all its competitors. It was a household name in the country and people saw the HCL brand
as Indian, dependable, and trustworthy. It was perceived
as a value for money brand and not a premium one,
which appealed to the majority of the Indian desktop
consumers. Currently, it was the only domestic player
of any note in the Indian laptop market which was otherwise dominated by the MNC brands.
HCL also faced fairly steep challenges. It did not have
the deep pockets that its MNC competitors had. It was
also limited in terms of product portfolio as compared
to the MNCs who could offer products from their international portfolio into the Indian marketplace and enjoy economies of scale. There was also the prevalent and
widespread perception among laptop consumers that
foreign brands were better in terms of quality, which
was a problem that many Indian manufacturers like
HCL, faced in the marketplace. The HCL brand was also
perceived as old-fashioned as it had been around for so
long, whereas the foreign brands were seen as new and
exciting, especially among the 20-35 year age group, the
fastest growing segment of laptop buyers. Finally, while
HCL had a great distribution presence, this was built
for its desktop business; Exhibit 4 gives the details of
the share of the different players in the desktop market.
HCL faced the challenge of converting desktop retailers
into the laptop business.
The company performance was excellent and was growing from year to year. But due to the commoditized na-
114
ture of the products, the margins were small and this
reflected in its profits. Exhibits 5 and 6 give a snapshot
of the business and its financials respectively.
LAPTOP MARKET IN INDIA
The market for laptop in India was growing rapidly and
the popularity was driven by the product attributes.
Though the product was introduced in the Indian market in mid-1990s, the acceptance was rather limited as it
was costly and quite heavy, and it therefore took time
for the market to develop. However, by 2008, it had become a very high-selling product with reasonably widespread acceptance among the executives and students.
The most appealing attributes for the consumers were
portability, internet connectivity at lower costs, many
inbuilt features that were not available in standard desktops, and most importantly, a substantial reduction in
the price difference between desktops and laptops —
the laptop average prices fell from 55,000 INR in 2007 to
40,000 INR in 2008, while the desktop prices only came
down from INR 22,000 to 20,000. Also, the PC required
some additional costs like a computer table, uninterrupted power supply units, etc., which cost additional
INR 6,000, which made laptops a better value proposition compared to desktops to a large majority of Indian
population. This trend of at least an annual drop of 10
per cent in laptop market was expected to last till 2012,
which was likely to fuel the laptop sales.
In terms of product attributes, there was not much of
difference among the equivalent products of different
brands. However, MNC brands dominated the overall
market. The leader HP was the dominant player with a
32 per cent market share, followed by Dell, Acer, and
Lenovo with 23 per cent, 11 per cent, and 8 per cent respectively. HCL came in at 6 per cent, and a significant
part of the sales was to business customers. All the
brands were really putting in a lot of initiative in the
market, from a marketing and communication standpoint. Exhibits 7, 8, 9, and 10 may be referred to for sales
figures of different brands and city-wise breakups for
desktops and laptops.
All the competitive products were well distributed
through the retail chain, though each company followed
selective distribution. Most outlets were multi-brand but
only stocked a limited set of brands because of space
and investment constraints. It was a mature distribution system and all products were pushed on the basis
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
of consumer interest and dealer incentive. The consumers were becoming more knowledgeable; thus, they were
less influenced by the sales pitch at the retail counters.
Retail consumers were able to negotiate prices on most
brands by comparing prices across different retail outlets. Thus, margins were thin for manufacturers as well
as dealers, but the volumes more than made up for it.
Interestingly, in 2009-10, the sales of laptops in the top
four metros grew by 173 per cent and in the rest of India
by 48 per cent; however, consumption in the next four
cities declined by 16 per cent. The sales of desktops in
the top four metros increased by 30 per cent, in the next
four metros by 21 per cent, while in other smaller towns,
it declined by 61 per cent.
The PC market in India was predominantly price-conscious; however, 5 per cent of the target market could
be termed affluent, capable of purchasing premium
products and typically residing in the metro cities. There
were a couple of brands, namely Sony and Apple, which
catered to this segment. They had excellent products,
great in quality and aesthetics and fitted with the best
features. Their customers were typically image-conscious people with not much of functional requirement
other than the desire to own the best. These brands offered higher trade margins as the products had a limited market, and they were also perceived as expensive
by the retail channel. Exhibit 11 gives the product features and Exhibit 12 the advertising spends.
One of the challenges that HCL faced in the branding of
laptop was that it was an Indian brand. Across consumer
durables and office automation products, it was observed that foreign brands were perceived to be better
by the consumers, even when the products for both foreign and Indian brands had the same specifications and
were made in the same factory. This could be attributed
to the Indian craze for all foreign products that existed
in the 80s and 90s when the economy was closed. With
the opening of the Indian economy in early 1990, though
there was a reversal in this trend, it still dominated many
product segments, including laptop. However, from
HCL’s point of view, the positive aspect was that the
trend was changing with increasing international recognition of intellectual power of Indians as well as production and R&D capabilities of the Indian companies.
In fact, many industry analysts predicted that in another
decade, the India factor could play a positive role and
Indian brands could command premium.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
CONSUMER BEHAVIOUR
Laptops and desktops were different product categories which used the same distribution channel and
seemed to satisfy similar consumer needs. However,
they were considerably different from each other, as was
evident from the fact that except for the market leader
HP, the preeminent brands in the desktop space were
quite different from the laptop space. One way to explain the above could be the fact that while both the categories fulfilled the same functional need of computing,
the usage of desktops and laptops could be considerably dissimilar.
Desktops are used at a fixed place, either at office or
home, and for specific tasks, mostly work-related. They
need additional accessories for enhancement of the usage, like extra speakers, gaming cards, and some necessary additional gadgets like uninterrupted power supply
battery, computer table, etc. Laptops can be used virtually anywhere. Because of the portability feature, a significant part of the laptop usage is for entertainment.
Laptops are self-sufficient product, which come with
inbuilt speakers and adequate battery life so that it is
not necessary to plug in additional accessories most of
the time; hence the overall cost to the consumer is perceived to be lesser. Finally, desktops are preferred for
multi-people usage – i.e., many people could use the
same machine, while laptops are generally seen as personal assets, meant more for a single user or at best the
family.
The decision criteria and the buying process of laptops
and desktops took different paths. While the basic use
of both was for computing, the trigger for desktop was
primarily work and study-related activities, whereas for
laptop, it was work and entertainment. Desktops were
perceived as a commodity; and so, the focus was more
on the amount of features that a certain price could buy.
This was the reason that there was a huge unorganized
sector in this market. Laptop was a more visible product; so, consumers were more image and brand conscious when it came to a buying decision.
There were two major segments in the laptop market:
the enterprise (also referred to as business or corporate)
segment and the consumer (retail) segment. The data
regarding the size of the segments are given in Exhibits
13 and 14. The enterprise segment had a collective decision making process; typically, it was decided by the
115
head of the IT department with inputs from the heads
of the user departments. The decision-making was apparently rational, specification-oriented, and consultative but the people involved were not really technically
savvy enough to discern the product differentiation. The
business buyers of laptops were also concerned with the
image connotations as the products were carried by
employees outside the office. Most marketers had specialist sales force to address this segment and much of
the sales were acquired directly or jointly along with
the sales team of the distributors.
The retail consumer segments buying these products
were also different. The desktops were primarily bought
for work-related purposes, be it at office or home. The
decision was of the elder member of the household like
the father. Laptops were purchased more often by
younger people who bought it for themselves and their
major decision criterion was entertainment and not
work. Even if the father paid the money, members of
the younger generation were the core decision
influencers specifying the product features, brand, etc.
The consumer segment was for individual buyers – the
decision was made by the individuals and the selective
distribution channel was used to tap the same. This accounted for 60 per cent of the market and was the segment that was growing the most. While no manufacturer
was addressing specific segments, the market broadly
comprised three distinct groups. The fastest growing
segment included the young students or newly employed – they were interested in lowest price offerings
with maximum features and were normally first time
buyers. The middle-aged consumers were typically users of desktops who were upgrading to laptops. They
were concerned about new features but their purchase
decision was mostly influenced by brands. There were
a few elderly buyers who depended on the retailer’s recommendation and service assurance.
Currently, the biggest segment for laptops was the midlevel corporate executives. They used laptop extensively
for work and play and saw it as a way to climb the corporate ladder. Typically, they had been PC users in the
past and laptop was their second computer purchase.
They knew what they wanted and were seeking value
and not really price. The smallest segment in terms of
number of units was the senior executives, who usually
had the best machines, but used only the basic features
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and were least knowledgeable. For them, it was a fashionable accessory, a talking point and more of a status
symbol.
The manufacturers had not designed the product portfolio specifically targeting any defined consumer segment in the retail market. The products could be broadly
classified as two core product ranges – basic models with
minimal features, and the other range at the mid-end
with good styling and advanced features. Sony and
Apple were premium brands having only high-end
products, which were aspired for by many but had limited number of buyers because of their high price. The
manufacturers tried to create a generalized brand pull
across the segments, but provided a bouquet of products and features to meet the specific needs of the diverse consumers.
COMPETITIVE MARKET STRATEGIES FOR LAPTOP
The major determinants of success in the market were
distribution and communication, as products were similar and were priced competitively. The market leaders
traditionally had a slightly higher price for products
which were high on features as compared to the competitors; this scenario had changed since 2008. One of
the characteristics which prompted the change was that
a company would launch a product with a feature advantage, but that would be copied by the competitors in
two months. In fact, so huge was the possibility of obsolescence that premium pricing was no more in vogue.
Distribution was an important element in the marketing mix. The established players in the Indian market
like HP and Lenovo had excellent distribution coverage. The newer brands were aggressively building their
distribution networks and were likely to have adequate
reach in another two years. HCL was in a unique position in that it had excellent distribution as far as desktops were concerned, though it was still building its
laptop distribution network. This was because HCL had
launched its own range of laptops in 2008 and the channel was being built up from that period. However, HCL
enjoyed the benefit that it could build its laptop channel
on the back of its widespread desktop channel.
Communication and brand building provided the opportunity for creating differentiation that was being explored by all the brands. Each had its own
communication and media strategy. Some of them had
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
international campaigns while some created specific
campaigns only for the Indian market. All of them used
both advertising and sales promotion aggressively,
though media strategy in terms of the budgets allocated
in different media varied from brand to brand. Exhibit
15 gives a brief idea about the positioning planks used
by competitors.
Another determinant of success in the market was ‘after sales service’. With the growth in the unit sales and
geographical spread across more and more remote locations, this was becoming important. The importance
of service increased as more and more people were using the machines heavily and many problems often
cropped up because of the rough usage. Thus manufacturers were forced to beef up their service infrastructure by increasing service locations, offering online and
telephone-based service solutions, and thus become
more service-driven. HCL had an advantage of having
a huge service base in place, due to its longevity in the
market and the preeminence in desktops.
tail consumers. While internationally Dell was a value
player, in India, they focused on being a high end player
(not premium, but on par with HP/Lenovo). They also
created a retail distribution model in India (unlike their
internet-based model followed globally), as they realized that not many people in India currently bought
laptops through the online channel. Dell’s huge marketing spends, brand salience, good performance, international name, and improved retail distribution helped
it in building a good market share.
Acer’s 2009 strategy was multi-pronged, with initiatives
in product, price, promotion, and channel. What they
did was spend hugely in the market, have many product variants and a slightly discounted price, and many
promotional offers. They also roped in a very popular
film celebrity to endorse their product. Industry analysts attributed the growth in market share to the increased spends which leveraged the overall buoyancy
in the laptop market.
HCL traditionally had products at the lower end of the
spectrum, and they were priced lower, to the tune of 25 per cent, than the comparable products from the MNC
brands. In future, HCL wanted to have a presence in the
premium customer segments also, and were slated to
bring in a new range of products with good looks and
features in early 2010. By end 2009, the MNC brands
had also dropped their prices and so there was virtually
no perceptible price differential between the different
key brands. HCL needed to work out its core positioning and appeal in the marketplace. Thus far the communication done by HCL had been purely functional,
and the brand value had not been strongly established
in the consumers’ minds.
Initially, most retail consumers and enterprises bought
desktops as there was a huge price difference between
desktops and laptops. Desktops were seen almost like a
commodity and the decision-making was based on the
best specification that was offered by the various brands
for the lowest price. After-sales service also played a part
in the decision-making, but its importance was limited
because all the manufacturers were now able to give at
least an acceptable level of service. The desktop marketers faced a much bigger and relatively uncontrollable
challenge from the unorganized sector entrepreneurs.
These entrepreneurs assembled the desktops, and could
offer a price advantage to the tune of 30 per cent, thus
having a huge market share in the price-sensitive customer base. With an all-round reduction in prices for
the hardware segment, consumers had started moving
to branded desktops from the unorganized sector as the
price difference had come down to only 10 per cent in
the last year. There was simultaneously a huge movement from the desktops to laptops. Laptop buying was
based on various factors. While price, specifications, and
after-sales service played a significant role, brand value
was becoming an important factor for choice.
Dell had a strong offering in the enterprise segment as it
was perceived as having very functional and high performance products. It leveraged this functionality along
with its competitive pricing when it focused on the re-
A laptop was more visible to others and more personal
than the desktop and hence buyers were becoming conscious of the brand that they would prefer to carry. This
was also impacting the decision-making criteria of the
All manufacturers offered both desktops and laptops,
though their sales performance in these two markets was
normally very different from each other. In the desktop
category, the market was dominated by HCL and HP
and followed by all the other players in equal measure.
The laptop market was led by HP, with Dell and Acer
building their market shares through huge marketing
investments.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
117
enterprise segment — they were not factoring in the
image connotation of the brands as the users carried
these machines with them to meetings outside the office. This shift was also helped by the fact that the top
brands were reducing their prices, and there was less
differential between them and the value brands for comparable products.
The Distribution Channel Dynamics
The predominant distribution model used in the industry was standard across the major players. The commercial segment was addressed directly or through a handful of national distributors, who were directly billed from
the company. The smaller business customers were
marketed by the distributor’s sales team but major clients were also supported by the sales team of the principal.
The retail segment had a three-tier distribution. The
manufacturer supplied to the national distributors. These
national distributors supplied to the regional distributors, who serviced the retailers; they in turn sold to the
end consumer. Since most of the retailers were multibrand, they were motivated to sell only specific brands
and kept switching loyalty. Some manufacturers circumvented the problem by opening their own model stores,
typically located in high traffic markets, but these stores
were essentially for publicity. These stores were staffed
by well-trained and dedicated employees who sold the
brand rather than just generating product sales. The consumers typically understood the product features and
got educated in the model stores. Many consumers learnt
about products and features on the Internet and also took
advice from some young people who were known as
experts on technology.
There were also influential retail chains which dealt with
the manufacturers directly – like Tata’s Chroma, Future
Group’s Home Town, etc. These retail chains accounted
for about 15 per cent of the entire retail market and thus
enjoyed a lot of clout. The online store was another channel which offered limited business currently but was
expected to grow in the future. In addition, each manufacturer had its own service chain — a few of them were
company-owned and others were franchised.
There was no major difference in the distribution channel for laptops and desktops. However, the differences
in business were driven by the fact that desktop market
118
was in the maturity phase while the laptop was still
growing. Also, the consumers of desktops were more
conscious about prices and robustness of the product
while laptop customers were product feature-driven and
brand-conscious.
Debate on Marketing Strategy
Ajai met the top executives in December 2009 to discuss
the 2010 strategy. The abridged organization structure
is given in Exhibit 16. The following discussion took
place:
Ajai – “You are aware that we need to take some key
decisions in the laptop market. I wanted to get your inputs on the approach we should take.”
George Paul, Executive Vice President (EVP), Marketing – “I suggest we go in for some detailed market research before taking any decisions. We don’t have
sufficient information to take a call. We should do qualitative research to understand consumer attitudes and
gap areas and then ratify it through some detailed quantitative research. We can then work out detailed operations, marketing and sales plans.”
EVP, Sales – “Yes, but the market is not going to wait
for you, it might be too late then,” said EVP, Sales,
Rajinder Kumar. “Every one of the competitors knows
the situation and will have their plans ready. Dell and
Acer have already moved ahead and the others are not
going to wait any longer. Anyway, the good thing is
that our product/brand is considered as good as any
other product/brand, or so I understand from the field.
We should just blitz our way through with some high
decibel communication.”
EVP, Marketing – “But what will we say in the communication? That’s one of the key deliverables of consumer
research.”
EVP, Sales – “Say anything, how does it matter, as long
as you plug the brand. Have you seen the competitors’
communication? They are pretty bland, though effective.”
Ajai – “Before we get into what we say in our communication, we need to think about our approach to the market. What sort of investments do we make? Do we go
into this with a heavy investment, or should we be more
cautious in our approach?
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
J V Ramamurthy, COO, said – “I think we need to be
cautious. There is no way by which we can jump from a
weak No. 6 to No. 1 anytime soon. We don’t have anything that the competitor doesn’t have, and I don’t think
we should do a price war, that might make us lose brand
equity in the corporate segment as well.”
Ajai – “So you’re saying that we shouldn’t go for the
retail segment?”
COO – “No, we should launch, but pretty much stick to
what we say in the Enterprise segment – ‘The high quality, no nonsense laptop’. We should focus on building
the channel and become strong there. We should highlight our service credentials and build it into our communication.” (The value proposition of HCL for the
enterprise segment is given in Exhibit 17).
EVP, Sales – “I don’t think we can get anything by being
cautious. We have to go all out; otherwise we don’t stand
a chance. Don’t forget that Dell and Acer have huge
marketing and promotion spends and we will not be
able to do much if we take a slow stance.
Ajai – “Whatever investments we make, we should think
about how we approach the market. JVR wants to look
at it as an extension of the Enterprise market as we already have a very good equity there.
EVP, Marketing – “I think that is one possible approach.
But the core segment that decides on laptops is the youth.
I am not sure that our Enterprise positioning would be
relevant to that audience.”
EVP, Sales – Why don’t we focus on a specific segment
within the youth? Nobody is doing that. We could build
a strong appeal on one segment and build from there.
Dell initially focused on the Small and Medium Enterprise segment, built its credibility and that’s got them
returns across the market.
EVP, Marketing – “That is worth looking at, certainly.
But which segment? The younger segment does not have
the ability to spend much money and the older segment
is not so involved in decision-making. We need to understand this more closely.”
COO – “You are right – ‘You’ll never get a second chance
to make the first impression’.”
Ajai – “Can we create some new features to launch in
the market? Something the competitors do not have?”
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
COO – “All features are reproducible real fast. You know
all laptops are made by 3-4 OEMs from Taiwan. But I’m
sure there would be some features that the competitors
don’t have or have not used yet.”
EVP, Marketing – “But how do we choose the features?
For that we need some solid consumer research. Sorry
to sound like a stuck record …”
Ajai – “OK, let all of us put our thoughts together and
meet next week. We have to use our existing knowledge
and experience to take the decisions, and that should be
adequate to start. We do not have the time to wait for
the formal market research findings to take our initial
decision. However, if need be, in future, we may commission market research to help us tinker with the strategy. We’ll close the action plan then. Thanks for your
time.”
DILEMMAS OF THE CEO
Ajai had a few thoughts on the way forward. He could
replicate the Dell and Acer models of intense consumer
advertising by building adequate retail support. However, given the high investment necessary for this strategy, he would be putting all his eggs in one basket. Also,
he was not convinced about the success of following a
competitor’s strategy.
Another course of action could be to focus on a particular segment and build leadership there. One possible
segment was the B2B space and HCL had high visibility
due to its preeminence in desktops. The challenge here
was that the B2B buyers were notoriously price-sensitive and not brand loyal. HCL would continue to be a
value player and this segment would always be a low
margin one.
Ajai believed that the HCL brand had to be made more
relevant and appealing to the audiences. He felt that a
budget of 600-800 million INR would be optimal for the
organization to spend on advertising and that would
not be sufficient to have an impact on the entire consumer base for laptops. However, if they focused on the
specific lucrative market segments, it could be adequate;
thus there was the need to focus on a specific segment.
One important segment was the youth segment in the
retail market – they were the highest users of computers and also the most influential and knowledgeable.
They currently perceived HCL as an old-fashioned brand
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The economies of scale were very pronounced both for
laptops and desktops. Thus the cost of production could
vary between 70-75 per cent of the selling price depending on the economies of scale achieved in manufacturing. The typical distribution costs were around 12 per
cent and the internal sales and marketing overheads
were in the range of 7-9 per cent based on the company’s
market share and intensity of competition. As a thumb
rule, in the laptop market, economies of scale started
operating after reaching a market share of 10 per cent,
and the impact was around 2 per cent of the selling price.
For every additional market share of 5 per cent, the incremental advantage of economies of scale was 2 per
cent of the selling price. This effect was not really observable after reaching a market share of 30 per cent.
Also, the average selling price of the laptop was expected
to fall by 10 per cent year on year due to improvement
in technology and intense competition. The key challenge was to assess the impact that the rapid changes in
the market and strategic marketing shift could have on
the financial results.
and were more enamoured by the MNC brands. Also,
they could not afford to pay much; and so, most of them
purchased the entry level products.
There was also scope for learning from the mobile market. Since HCL was a distributor for Nokia mobile handsets, some insights from that market were available. The
mobile market was a high decibel market, which had
achieved huge penetration among Indian consumers. It
was focused on good product innovation, and price delivery. Service was turning out to be important and various segments were being created. Ajai reflected on this
category and on whether any points from this could be
applied for laptops. The problem was that the price of
the mobiles was considerably lesser which facilitated
adoption; also the category was entirely different from
the consumer’s expectation point of view.
In the mobile handset market, it was important that the
product delivered on the promised features. Most of the
consumers were not very technology-savvy; they only
knew certain basic features and hence just looked for
them. Hence a robust product design solved the product aspects quite well. Communication and marketing
would get the customers into the store, but unless the
product looked good and attracted customers, the sale
would not happen. A lot of purchase decisions changed
at the showroom; so, it was important that the distribution was enthused and well rewarded for the products.
This would put pressure on margins and that factor
needed to be looked at very carefully. In laptops, the
situation was quite different. The consumers were quite
technology-savvy and were expected to play with it and
use it in different ways. The experience hence could be
quite varied and difficult to manage.
It was also important that the after-sales service be good.
Laptops were a high-use category and needed good support service. It is one of the hygiene considerations for
consumers. Delivering good service also had an impact
on the margins due to the travel cost incurred for geographical coverage and for paying salary to a large number of trained service people. HCL was, however, in a
better position here due to its extended desktop service
and support staff, which could also service laptops at
no extra cost.
Ajai wanted to work out the numbers to be sure that his
marketing strategy and budgets were prudent.
Exhibit 1: Desktop Sales in India (in Units)
5,525,992
1,000,000
5,279,648
2,000,000
5,522,167
3,000,000
3,632,619
4,000,000
4,614,724
5,000,000
5,490,591
6,000,000
2006-07
2007-08
2008-09
2009-10
0
2004-05
2005-06
Source: IMRB Data.
120
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
Exhibit 2: Laptop Sales in India (in Units)
Source: IMRB Data.
Exhibit 3: Desktop and Laptop Sales Projection over 5 Years (in Units)
2009
2010
2011
2012
2013
2014
Consumer Desktop
1818,577
1863,476
1940,234
2035,166
2115,186
2168,819
Commercial Desktop
3389,476
4151,400
4570,582
4881,080
5172,600
5471,001
Total Desktop
5208,053
6014,876
6510,816
6916,246
7287,786
7639,820
Consumer Laptop
1292,013
2047,966
2657,145
3404,915
4290,879
5382,180
Commercial Laptop
1104,987
1452,642
1903,559
2438,754
3075,711
3809,661
Total Laptop
2397,000
3500,608
4560,704
5843,669
7366,590
9191,841
Source: IDC.
Exhibit 4: Percentage Sales of Indian, MNC, and Informal Sector in Desktop Market
Year
India
MNC Informal
2005-06
33
35
28
2006-07
32
39
23
2007-08
23
45
22
2008-09
25
51
18
2009-10
31
52
21
Source: IMRB Data
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
121
Exhibit 5: HCL Infosystems Snapshot
Ajai Chowdhry
Chairman & CEO
HCL Infosystems
1
Services Footprint
Internet and
related services
4%
Computer
systems
26%
Telecom
and office
automation
70%
Largest manufacturer of PCs
State-of-the-art manufacturing for PCs, business servers,
workstations, colour monitors, etc.
2
Leading System Integration organization
Pan-India SI solution provider in verticals like Power, Telecom,
E-governance, Railways, Retail, BFSI, Media & Entertainment,
Health, Infrastructure, Education, etc.
3
Revenue: USD 2.6 Bn
Largest ICT distribution and retail Network
• 93,000 outlets, covering 11,000 towns
• Largest pool of trained manpower handling 2.5 million
support incidents per annum
• Support base of over 3 million assets in 75,000+ sites
• 1,200+ support locations coverage by team of 5,000+
engineers
4
Emerging businesses
• HCL CDC - centres to bridge skilled manpower gap which
exists in the IT industry
• HCL Security - to make the world a much safer place to be
in with its range of state-of-the-art end-to-end technology
solutions for security and surveillance
Ranked “Best IT Employer in India” by DataQuest - Sep 2009
Source: Company Brochures.
Exhibit 6: HCL Infosystems’ Abridged Financial Results (in INR million)
FY 2008-09
FY 2009-10
34,139
88,749
461
-821
122,528
35,340
85,290
767
-898
120,499
4,057
1,773
2,462
-178
3,513
2,400
3,925
1,904
2,159
-138
3,513
2,424
SALES
Computer Systems & Other Related Products and Services (Net)
Telecommunication & Office Automation
Internet & Related Services
Less Inter segment revenue
Total Sales
PROFITS
Net Profit/Loss before Tax and Interest
Computer Systems & Other Related Products and Services (Net)
Telecommunication & Office Automation
Internet & Related Services
Total Profit before Tax
Net Profit after Tax
Source: Annual Reports.
Exhibit 7: Desktop Market Shares (2007-09)
2007
Desktops
Hewlett-Packard
HCL
Dell
Lenovo
Acer
Wipro
Others
Total
2008
2009
Units
Market Share
Units
Market Share
Units
Market Share
757,415
724,830
302,091
386,089
263,711
158,770
2135,132
4728,038
16.02
15.33
6.39
8.17
5.58
3.36
45.16
100.00
727,073
660,113
339,990
296,309
317,611
182,660
3058,351
5582,107
13.03
11.83
6.09
5.31
5.69
3.27
54.79
100.00
642,792
550,689
288,701
211,792
359,623
163,655
2990,794
5208,046
12.34
10.57
5.54
4.07
6.91
3.14
57.43
100.00
Source: IDC Estimates.
122
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
Exhibit 8 Desktop Sales: City Spread
Spread of DESKTOP Sales in % of Annual Sales
Next 4
Rest of India
2004-05
Year
Top 4
38
11
51
2005-06
33
13
54
2006-07
32
8
60
2007-08
23
12
65
2008-09
25
7
68
2009-10
31
8
61
Source: IMRB Data.
Exhibit 9: Laptop Market Shares – 2007-09
2007
Laptops
2008
2009
Units
Market Share
Units
Market Share
Units
HCL
131,683
7.44
161,088
6.96
292,785
Market Share
7.17
Hewlett-Packard
651,386
36.79
714,397
30.86
1,365,851
33.43
Lenovo
283,184
16
302,398
13.06
585,611
14.33
Acer
182,811
10.33
312,158
13.48
494,993
12.12
Dell
137,070
7.74
380,118
16.42
517,212
12.66
Toshiba
108,625
6.14
83,473
3.61
192,108
4.70
Sony
49,982
2.82
91,020
3.93
141,009
3.45
Others
225,588
12.74
270,562
11.69
496,174
12.14
Total
1770,329
100
2315,214
100
4,085,743
100
Source: IDC Estimates.
Exhibit 10: Laptop Sales: City Spread
Spread of LAPTOP Sales in % of Annual Sales
Year
Top 4
Next 4
Rest of India
Total
10
43
100
36
6
58
100
7
24
69
100
2008-09
18
7
75
100
2009-10
68
4
29
100
2005-06
47
2006-07
2007-08
Source: IMRB Data.
Exhibit 11: Features of Important Brands
HP
Dell
Display
Bright view
and flush glass
True life for clear
and bright view
Keyboard
Spill proof and
backlit (option)
Backlit (optional)
and spill proof
Spill proof
Security (against
unauthorized
booting)
Finger print
and spare key
Finger print
and password
Finger print
Veriface and
and password finger print
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
Acer
Lenovo
HCL
Sony
Vibrant view
Perfect technology
for clear and
bright display
Spill proof and
backlit (option)
Isolated
Isolated,
backlit and
spill proof
Finger print
and password
Finger print
and password
123
Exhibit 11 (contd.)
HP
Dell
Acer
Lenovo
HCL
Sony
Data Safety
(Encryption)
TPM and
TPM
Privacy Manager
TPM
TPM
HCL Encryption
S/W and TPM
TPM
Data Recovery
against OS
Corruption,
Virus Attack, etc.
HP Recovery
Manager
Acer eRecovery
S/W
ThinkPad
restore
recovery
HCL EC2
Sony
Recovery
S/W
Dell Ultimate
Source: Internal Reports.
Exhibit 12: Advertising Spends
(INR million)
Advertisers
HP
HCL
2008
2009
130
470
10
140
Compaq
150
210
Sony
150
340
Toshiba
Dell
Wipro
90
200
500
1,150
0
20
Acer
120
250
Lenovo
230
150
Samsung
80
80
LG
50
0
Apple
30
0
Others
100
70
1,640
3,080
Grand Total
Source: Agency Estimates.
Exhibit 13: Desktop Sales in Different Segments
Source: IMRB Data.
124
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
Exhibit 14: Laptop Sales in Different Segments
Source: IMRB Data.
Exhibit 15: Communication Strategy
Brand
Positioning
Communication Theme
Dell
Partner in Success
Take Your Own Path
HP
Innovator
Personal Again
Acer
Solution Provider
Life is Busy, Acer Makes it Easy
Compaq
Enabler of Mobile Computing
Get Going
Lenovo
Feature Rich
New World, New Thinking
Toshiba
Performance
Feel Quality, Feel Toshiba
Sony
Design / Aesthetics
Closer to You
Source: Advertising Agency Analysis.
Exhibit 16: Simplified Organization Structure
Source: Company Reports.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
125
Exhibit 17: HCL Value Proposition of the Enterprise Segment
Category: Corporate/SMB
1. Magnesium/Alumnium surface
2. Spill resistant keyboards
3. Latest technology and architecture
Category: Govt
1. Docking port
2. Battery life more than 4 hrs in working condition
3. Linux support
Category: Education
Category: BFSI
Feature
1. Basic computing device at good price
2. Linux support
3. Battery life more than 4 hrs
1.
2.
3.
4.
High Resolution Camera and Speakers
Sleek but not small display
Higher HDD and Memory
Colour/Design
Looks/Brand
Source: Company Documents.
Jaydeep Mukherjee is an Associate Professor at the Management Development Institute, Gurgaon. He completed his Ph.D
from IIT Kharagpur and PGDM from IIM Calcutta. Before joining academia, he had worked in various capacities in the sales
and marketing function of Godrej GE Appliances¸ ICI India
Limited, and Aristocrat Marketing Limited for a decade. He
offers electives in Product Management, Marketing in the Virtual World, Marketing Strategy, and Sales and Distribution.
He advises HCL Infosystems Limited on their New Product
initiatives and has conducted customized training for executives from Nestle, HP, HMT, BSNL, etc. He takes keen interest
in developing cases from the Indian context for classroom
teaching.
Mahalingam Sundararajan is Vice President, Corporate Strategy - HCL and leads the brand building activities of HCL across
the Enterprise. He also spearheads the marketing activities of
the various initiatives of the Shiv Nadar Foundation. He has
worked for over 20 years in various roles in technology marketing and advertising. Prior to HCL, he has worked with
Microsoft and Hexaware Technologies. He has also worked
for eight years in strategy planning with advertising agency
JWT. Sundar has a degree in Chemical Engineering from IT
BHU, Varanasi and a PGDM from IIM, Bangalore. His interests include sports and fitness.
e-mail: [email protected]
e-mail: [email protected]
126
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
DIAGNOSES
presents analyses of the
management case by
academicians and practitioners
HCL: Challenge of the Laptop Market
Jaydeep Mukherjee and Mahalingam Sundararajan
Case Analysis I
Rajesh Nair
Executive Director, Marketing
Ipsos India
Email: [email protected]
Overview
T
he laptop market has posted impressive growth in India over the last few
years, and is indeed the fastest growing category in the larger computer industry. Like most other sectors, the market for laptop has gone through interesting changes in technology and innovation, and consumer need states and purchasing power. As of 2008-09, households accounted for 56 per cent of the market,
and business customers, 47 per cent. In 2009-10, laptop sales grew by a whopping
173 per cent in the top four cities compared to 48 per cent in the rest of India. Consumers of computing today are increasingly living a mobile routine, progressively
getting technology savvy, proactively getting brand-oriented, and are rapidly becoming status conscious. One of the important categories that reflect all this in purchase behaviour is laptop. Mindful of these, the major players have tuned their
strategies – principally branding and communications – to offer the best promise,
occupy the most prominent mind-space, and garner the finest affinity. HCL, the
traditional leader in desktops and a late entrant in laptops, is keen on waking up
and adapting to the changes and challenges in the category. The brand, which is
currently sixth with a 6 per cent market share in the category, desires to grow to an
ambitious 20 per cent in 2012.
HCL: Legacy and Strengths
The current issue of Vikalpa
has published a Case titled,
HCL: Challenge of the
Laptop Market. This
Diagnoses features analyses
of the Case by Rajesh Nair,
Anirban Basu, Nitin
Pandey, Moutusi Maity,
Rajat Gera, and A P Arora.
A USD 2.6 billion enterprise, HCL has been present in India since the late 1970s. The
Company has businesses across specialist domains within technology, such as Hardware Manufacture, System Integration, Telecom Product Distribution, and Office
Automation. HCL has been a popular, household name especially in the desktop
market. A totally Indian brand, HCL is perceived to be a dependable and trustworthy brand, and carries a value for money image. These worked hugely in favour of
the Indian desktop consumers, who typically went for basic, functional units. Small
wonder, HCL has been one of the leaders of the desktop market in the country. The
greatest strengths of HCL, however, have been their unparalleled distribution reach
and their wide service network.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
127
Ambiguous Strengths and Unleveraged Potential
Though there is no direct evidence reported in the Case,
it appears that many of HCL’s strengths are strengths
in isolation, not capable of leveraging the laptop category
because of the intrinsic differences in consumer choice
behaviour in laptops vis-à-vis desktops. Some of these
strengths therefore can be contended double-edged too,
proving to be counteracting in varying degrees in the
laptop category. HCL is of course an Indian brand, and
a good one at that, but this has probably remained a
dormant fact than cashable equity in the laptop category.
The strengths HCL as a brand has accumulated or built
over time have been certainly good for desktops, but
not quite for laptops. Though HCL entered the laptop
category a few years ago, they could not climb their share
– not because their product was inferior or because they
entered the category late, but because the very brand
was not in the evoked set of the laptop buyer. Their
branding has been weak; their positioning has been unclear; their communication has been little and basic.
Small wonder, they are undifferentiated in the laptop
category. Their brand stretch does not seem to have appealed to the consumer; they do not seem to have made
the right consumer connect.
The Missing Link
The one important missing link in HCL’s vision and
ideas for the laptop market is consumer insight. The
debate in Ajai’s core team – amongst the heads of Marketing, Sales, and Operations – gives ample evidence of
this fact. While George Paul argues for consumer research before the strategy is overhauled, Rajinder Kumar
finds it useless. Conflicting points of view such as this
are not uncommon in discussions between Marketing
and Sales, but the sheer fact that HCL does not have any
updated consumer insights, other than some in-market
metrics and trends, is indeed a lacuna, which is likely to
make their efforts in branding and positioning more of
guesswork. Despite George Paul’s push, Ajai vetoes any
such investment because there is hardly any time. They
are already quite late!
The Market Promise
The greatest promise for HCL, as much as for the other
players, is that the laptop market has been growing rapidly. Throughout its growth and development, the
laptop market has gone through enormous changes trig-
128
gered by consumer demands and their changing need
states. The laptop customer of today is more informed
and educated, wants machines with excellent configuration offering greater and better performance capabilities, likes versatility and exclusivity, and prefers smart
and sleek looks. More importantly, the laptop consumer
today is brand conscious, and wants to own a brand that
is an imprint of his personality than have a device that
executes his routine computing tasks. All this has offered tremendous opportunity to the marketers to innovate and differentiate. Most of the competitive activity
around product extensions and innovation, branding
and communication, and positioning and differentiation
has been to make it more appealing. Though not fortified by timely consumer insights and market knowledge,
HCL is aware of the promise the market offers. This is
more than evident in Ajai’s thoughts and words, but as
a Company, they have not acted yet. The good news is
that they now want to.
Key Areas of Action
HCL needs to move fast and smart. The target of 20 per
cent by 2012 is uphill; doubling to 12 per cent appears
more realistic, with the right moves. Some of their important points of action shall be to attempt the following:
Improve the Offer
Any real product differentiation is hard to sustain in this
category. Product attributes such as weight and screen
size, processor speed, memory, graphics and sound card,
USB slots, Wi-Fi, hard disc capacity, and power and battery have by and large become hygiene. HCL should (a)
improve their offer, and (b) expand their range.
Assuming that technical and functional specs are hygiene, the former is about smart aesthetics. Limited yet
extant consumer research has shown that the laptop
consumers score high on show-off quotient, attach considerable emotional value to their laptops, and consider
their possession to be an extension of their personality.
The latter is about more models and, in a limited way,
extensions. Netbooks are a worthy extension, but tablets are perhaps not. Given that tablets have thus far
performed below expectations because of the confusions
created in the market, HCL might want to stay clear of
risky experiments in extensions. More important, therefore, would be to target the right segments and invest in
branding.
DIAGNOSES
Target the Right Segments
Within the retail segment, HC’s core target should be
young aspirants in Tier I and Tier II markets. These
young aspirants are likely to be either college students
or employees on their first job. A good majority of them
would have had desktops at home, and would now want
to upgrade. For them, the very possession of a laptop is
proof to enhanced social status. They will still look for
economy options. HCL should continue to play the value
for money game, even as not compromising on the hygiene functional factors and the looks. The secondary
target would be the affluent variety seekers, all across
the metros and in Tier I and Tier II markets. The line
extensions and premium models will appeal to them,
with the right mix of branding and ATL investments.
Within the enterprise segment, HCL will do well to focus on the small through medium-sized companies,
SOHOs, and entrepreneurial firms. Collectively, they
form a sizeable sub-segment, and are likely to respond
positively to the non-premium promise of HCL.
Invest in Branding and Communication
It is critical for HCL to have a few strong points of ownership or difference on the critical functional and imagery parameters that drive category choice. Since HCL
has unfortunately not invested in consumer research,
they are in a vacuum, regarding branding and positioning options. It is naïve to continue to claim that HCL is a
“dependable and trustworthy” brand. HCL perhaps is
a dependable and a trustworthy brand, but they cannot
position on these lines because these are not the key
differentiators in the category. There is no evidence that
HCL owns these attributes either. They do not know
what, beyond “dependable” and “trustworthy” consumers relate HCL to. Their immediate task shall be to seek
expert advice from their ad agency and gain an understanding (or confirm their current understanding), on
the positioning themes and routes totally owned or occupied by competition. Progressing from this understanding, they must determine what their promise must
be, what their differentiation will be, and what their
positioning shall be.
Investing optimally in communication is the next important step. Ajai looks at a budget of INR 600-800 Mio,
but it is not clear whether this is only for laptops.
Whether or not this budget is sufficient can only be deVIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
termined after considering the media mix they are considering, the channels they want to air, their benchmark
exposure level given the clutter in the category, the
number of bursts they want to do, the duration of the
commercial and so on. In the absence of such information, one is tempted to advise Ajai to:
1. Avoid print for the time being, given that the communication strategy must be primarily image-oriented rather than information-oriented.
2. Go digital and television. Digital medium would offer interesting prospects: (a) this category does require an uninterrupted digital presence; (b) it is
cheaper; (c) it is more amenable to better and robust
tracking than other media. HCL should make a presence on almost all Digital platforms, and stay live all
through the year. A ballpark of INR 5,000,000 per
month is likely to generate good visibility and responses. In Television, a 30-seconder, 4-week burst in
a mix of news, movies, and general entertainment is
likely to fetch a 4+ exposure amongst 40 per cent of
the core target. This could approximately cost INR
25-30 crore. Since many players in this category are
likely to do a festive season burst, HCL could think
of two bursts with approximately INR 10 crore over
and above the budget suggested above. They could
do one pre-festive burst for 2-2.5 weeks, and one midfestive burst for a week or ten days. Any investment
and plan beyond this in Year 1 of brand overhaul is
likely to be risky, given the limited brand value and
visibility HCL has in the laptop category. These are
ballpark recommendations – the key lies in the quality of branding, quality of execution, and choice of
media.
3. Discover alternative, new kinds of media. It is important for HCL to recognize that marketing experiences are becoming more personally relevant.
Edelman and Salsberg (2010)1 write about the way
consumers perceive and absorb marketing messages.
At first glance, personal conversations and experiences do not seem the best way of getting the scale
and reach most marketers crave. But new kinds of
media enable richer interactions and improve targeting, so they encourage consumers to share the things
that make them happy. Some companies have developed expertise in the use of Twitter and other
1
Edelman, David and Salsberg, Brian (2010): “Beyond the Paid Media:
Marketing’s New Vocabulary,” McKinsey Quarterly, November.
129
blogging platforms to promote new products and
promotions by leveraging their customer base to talk
about how much they like the Company’s products.
If this sounds far-fetched, HCL can do well to harness the experiential word-of-mouth. This, according to Bughin, Doogan and Vetvik (2010)2, will provide ample opportunity to share positive experiences
and make the story relatable and relevant to the audience. Some companies do build buzz around products before launch and work to have early, influential
adopters by involving consumers in product development, supported by online communities. Consistently refreshing the product experience also helps
harness experiential word-of-mouth. HCL might
want to recruit groups of new intenders and buyers
from within the “young aspirants” and “affluent variety seekers,” involve them in product development,
run promotional contests, and through these build
and leverage positive word-of-mouth.
Leverage the Distribution Network and
Invest Below the Line
One of the greatest strengths of HCL is its impressive
distribution network. This is unmatched in the industry, and the Company must leverage the network to the
fullest potential. Smart local BTL initiatives, together
with experiential word-of-mouth by carefully recruited
user-buyers will lead laptop prospects to checking out
the HCL brand in the outlets at a rate more than the
current. The first moment of truth to a prospect will be
the display piece at the point of sale together with the
dealer/retailer spiel. Careful in-store activation and
dealer training should be implemented in select outlets
in Tier I and Tier II markets to attract the new generation retail consumers. Aside of this, HCL might want to
negotiate with the influential retail chains such as
Chroma, Home Town, etc.
Conclusion
HCL has an uphill task ahead. Garnering 20 per cent in
two years is too ambitious. But with the right mix of
branding and communication initiatives, the brand can
go a long way. HCL’s status of being “very Indian” or
the “only Indian” laptop brand is, per se, not a limitation. On the contrary, being Indian is likely to appeal
very well to the consumers of the current times, if pitched
and communicated well. Not being a “brand” in a category that is all about brands has been the biggest limitation of HCL. Here lies the biggest difference between
desktops and laptops. The key, therefore, lies in building the brand and occupying a significant consumer
mind-space.
Case Analysis II
Anirban Basu
Corporate Sales Training Manager
Nestle Equatorial African Region
Mauritius
e-mail: [email protected]
D
ynamism, especially in Indian business environment, during the first decade of this 21st century,
has prompted unprecedented transformations for most
of the organizations across industries. In this scenario,
one’s competitiveness would depend not only on one’s
ability to adapt to these changes with agility but also on
being pro-active in bracing oneself for the demand of
the future. This has forced many so-called successful
2
Bughin, Jacques; Doogan, Jonathan and Vetvik, Ole Jorgen (2010). “A
New Way to Measure Word-of-Mouth Marketing,” McKinsey Quarterly, April.
130
enterprises to undergo an elemental change in how they
like to operate.
While evaluating this Case, we will neither discuss
tidbits of operational efficiency nor do too much of data
analysis, but rather try to focus on fundamental strategic levers that may bring visible transformation in HCL
business processes.
We will first go for a quick conventional SWOT for the
organization on the whole. The strengths of HCL are:
robust market-share in desktops, strong distribution
network, efficient after-sales service, positive consumer
DIAGNOSES
perception as no-nonsense, value for money, functionally efficient brand; and finally, organization’s existence
in various domains of technology hardware. Weaknesses
as observed include limited portfolio, old-fashioned
practices, inability to enjoy economies of scale and problems of spending on marketing and communication compared to its multinational rivals. Threats from the MNCs
are: wider international portfolio with contemporary
designs, economies of scale, deeper pockets, and ‘foreign’ image. We will discuss about opportunities later.
Now let’s scan the point of purchase drivers for laptops
in which HCL is facing difficulties in spite of having a
good market footing in desktops. Laptops are purchased
more on brand image, style, and entertainment than
mere functionalities and durability, though after-sales
service factor is equally important for both the categories. The consumers for laptops are distinctively different in demographic and psychographic profiles.
What will be the marketing mix? In an era of diminishing ‘Product Differentiation,’ where almost all the brands
claim similar quality, features, and advantages, the only
way to get an edge over the competitors is ‘Strategic
Positioning’3. But ‘Strategic Positioning’ is the sum total
of various differentiations – these may be service differentiation, channel differentiation, communication differentiation and many more. We try to diagnose the
scope of ‘Strategic Positioning’ on four specific platforms:
geography and channels, brand, category and consumer,
service and communication.
Geography and Channels
In this section, we will primarily discuss the opportunities for distribution optimization that HCL can exploit.
It is apparent from the Case that the future scope for
laptops lies in the top 4 cities (which grew by 173%) followed by the rest of India (48%); hence HCL should focus primarily on these geographies. To achieve immediate short-term results, the organization should execute
two-pronged channel strategy to exploit the distribution reach. Firstly, HCL should use its strong desktop
distribution infrastructure to increase its laptop distribution width in traditional channels. That means HCL
should ensure its laptop availability in all the HCL desktop retailers. As most of the retailers stack limited set of
brands, piggy riding on desktops will help HCL to place
its insignificant laptop brand among a wider section of
retailers, including the chains like Tata Croma, Home
Town (Future Group), etc. This will automatically increase the numeric distribution of HCL laptop brand. If
executed intelligently, within a short period, HCL can
at least match if not overtake Dell and Acer in retail presence. And the retailing truth is - ‘the wider the distribution, the higher the offtake (consumption)’. The HCL
laptops will surely be picked up from the shelves, if available, because of its price advantage over the other laptop
brands and the fastest growing consumer segment is
young college goers, first-time purchasers of computers
who look for low-priced basic brands. The second channel strategy should be to exploit alternate channels. Alternate channels are those where conventionally computers are not sold but the target consumers visit these
channels and spend quite a lot of time and money. This
is a huge opportunity and a blue ocean4. All one needs
is creativity and innovation. As an example, HCL can
identify company showrooms of Panasonic, JVC or LG
(those who are not in direct competition) and negotiate
a package with them to place their laptops in their company showrooms. Along with selling at a special price
from these outlets, concepts like cross-promotions, onpack offers can also be thought of (e.g., if a customer
purchases a bundle of LG products – LCD TV, Air Conditioner and Refrigerator, he can be offered an HCL
laptop as an on-pack free offer). HCL can tag laptop as a
promotion or gift with holiday packages or time share
sales (e.g., Laptop free with Thomas Cook Honeymoon
Offer in Mauritius or Mahindra Holidays). Laptops can
be tagged with real estate purchases – free with one- or
two-room apartments (primary occupants are young
single and married professionals). This alternative channel strategy will not only help HCL to place its products
in non-conventional channels, but also target the right
consumer segment of laptops. And exploiting alternate
channels is relatively easier, because all the rivals are
still fighting on the conventional channel platform. I referred to geographic and channel differentiation as
‘quick win’ because this strategy can be executed by
using the existing distribution infrastructure and existing product range without spending more in new distribution intermediaries and wider product lines.
4
3
Porter, Michael (1996). “What is Strategy?” Harvard Business Review,
November-December, 74(6), 61-78.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
‘Blue Ocean’ is the uncontested market space where competition is
irrelevant. In a blue ocean, you invent and capture new demand and
offer customers a leap in value while also streamlining your costs.
131
Brand, Category, and Consumer
HCL is quite successful in achieving leadership in the
desktop category. The foundation of this success is primarily on three strong pillars: dependability, efficient
after-sales service, and value for money. All these are
functional pillars. There are many advantages of establishing a brand on functional pillars — the brand can
clearly differentiate itself from the rest of the crowd on
efficiency, functionality, and tangible benefit platforms.
The consumer can clearly see or feel those advantages
and prefer the brand without any hesitation. Thus over
time, with more consumers in its fold, the leader brand
enjoys the economies of scale and offers an attractive
price that refutes its rivals to compete. Hence in most of
the industries, it is observed that, functionally established brands can hold their leadership positions for a
long time as the competitors cannot match the leader on
all the functional aspects. But there are some severe disadvantages also.
The first disadvantage is that each and every competitor is constantly trying to compete with the leader on
each efficiency and functional platform and the leader
has to constantly retaliate and prove its superiority to
maintain its leadership. It is quite difficult to persistently
walk on such a tight rope. The second disadvantage is
even more dangerous. Continuous reminders of
functionalities in relation to price slowly take the consumers away from the brand loyalty; they gradually
develop a tendency to gauge the product against the
committed set of functionalities. The consumers then
come to a point where they pay the price only for the
functionality and not for the brand. Thus with time, the
brand gets commoditized. And when many brands in a
category fight continually on functional attributes, the
whole category shifts from brand to commodity; as a
result all the brands get into price war. Unorganized
players enter and offer much lower price; gradually, it
becomes a red ocean environment where often established companies lose and get out of the category. The
desktop category in India is an example of the above. In
spite of the fact that HCL is leading, the company cannot reap expected profits out of its strong market position as the category is highly commoditized.
The retail laptop market is very different from that of
the desktop. The market is not commoditized and primarily brand-dominated. The category is sold more on
brand image, style, and design than functional attributes.
132
HCL, being a company with strong functional credibility, is quite unsuccessful in the laptop category. Here
the organization really needs a complete reengineering
of their marketing strategy which is totally different from
that of the desktop. Keeping in mind the psychographic
attributes of the laptop buyers, HCL needs to change
the strategic positioning of its laptop from all functionality to something related to entertainment and style,
image, and brand building. The outward look of the
product is also required to be revamped, may be with a
few contemporary colours, shades, and designs. As the
HCL product is already having a price advantage, wide
distribution reach, and after-sales service assurance, it
can quickly pick up market share by successfully connecting the fastest growing target group with the brand’s
look, image, and style. To capture the biggest chunk of
the retail consumers, the mid-level corporate executives,
HCL needs to use its internet and in-shop platform to
offer them customized, need specific products, where
each and every component of the product configuration
can be chosen by the consumer, very much like the Dell
internet selling model, involving the consumer to be the
co-creator. “Co-creation is about joint creation of value
by the company and the customer…. allowing the customer to co-construct the service experience to suit his
or her context.”5 The edge that HCL can offer over Dell
is a quicker delivery time of the finished product using
the advantage of being a local manufacturer. Faster delivery is a low-cost (for HCL) but high-value (for consumer) proposition. The consumer, after co-creating and
paying for his personalized laptop, waits eagerly to get
his new possession. If HCL can assure the delivery in a
week or ten days against Dell’s three to four weeks lead
time, this will definitely become a strong decision making criteria in favour of HCL.
For the time being, the smallest retail segment of senior
executives can be ruled out because not only is this segment the smallest but more importantly it could further
shrink with the passage of time.
Service
Another large segment of laptop consumer is the enterprise segment. To fight with the prominent player, Dell,
HCL needs to play in the platform of Service Differen5
Prahalad, C K and Ramaswamy, Venkat (2004). The Future of Competition, Co-creating Unique Value, Boston: Harvard Business School
Press, pp. 272.
DIAGNOSES
tiation. The proposal to the enterprise segment should
be an ‘End2End Service package at an affordable price’
that includes customized installation, 24X7 servicing,
zero waiting time for spare part replacement, distributor, customer care and service centre accessibility, lucrative packages, and additional services on System
Integration, Telecom services, and Office Automation.
Here HCL should intelligently use the strength of being
a multi-specialty technology hardware organization.
Thus the easiest line of attack to outclass Dell is to offer
a ‘single window’ approach for the enterprise buyers.
This is a wonderful opportunity for HCL to increase its
business of other divisions through its ‘service’ route.
Not only for the enterprise segment, but with its innumerable service centres across the country, HCL can leverage this advantage to its fullest as one of the key differentiators against its competitors for the whole gamut
of consumers. This is the strongest low-cost high-value
proposition the Indian company has within its sleeves.
consumer that only HCL can understand and satisfy this
special need (solution: customized vernacular fonts)
being the only Indian company.
The theme of communication to the enterprise segment
should be ‘no worries’. This segment should be targeted
with the message of excellent service. The commercial
should highlight ‘bundling of service solutions at an affordable price,’ that includes customized installation,
24X7 servicing, zero waiting time for spare part replacement, and service centre accessibility. It can also emphasize on an ‘extended solutions under one roof’ concept
by highlighting services on System Integration, Telecom,
and Office Automation, which only HCL can offer.
Apart from the specific consumer-centric communications, the organization should also communicate its core
strengths – dependability, service excellence, and value
for money, as its corporate message along with its strong
Indian values ensuring the consumers that ‘HCL understands India best’.
Communication
All along HCL has communicated its functional strengths to its desktop consumers. The communication was
successful to a great extent because the decision making
criteria for the desktop category are primarily utilitybased. But the buying criteria for laptops have little to
do with functional parameters. As a laptop is very much
a personal possession, it should speak more of style,
design, entertainment, and image. Hence the whole
marketing communication for laptops should hover
around the brand image and a feel good factor, especially for the young consumers, the fastest growing segment. As example, instead of highlighting the features
and configurations of the CPU, the marketing communication needs to capture moments of young adults in
college environment or a young employee with his
trendy HCL laptop on the first day in his corporate office. On the whole it is all about engaging the target consumer with the brand they feel good to carry.
For the middle-aged corporates, the largest segment of
retail consumers, the communication should focus more
on customization, ease, and convenience. It is imperative to speak with these consumers about the ‘tailor
made’ solutions. Novelty can be brought in advertisements by showing needs which are very much ‘Indian’
in nature (as example, a US-based son wants to write to
his old mother a mail in Hindi) and then assuring the
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
Unchartered Paths
As all the companies are focusing broadly on three segments of retail consumers, this gives a brilliant opportunity to HCL to make inroads as first movers into some
of the untravelled consumer paths. The universe of children, especially the high school students, is gradually
getting shifted to the internet platform. Most of the
schools float the vacation homeworks and classworks
in soft media. Many high-end schools are transcending
to soft books. And here lies a huge potential. Customized low-priced netbooks can be a big hit in this consumer category.
The desktop category can also be revitalized by shifting
focus to new channels and new geographies. Privately
owned cyber cafes in 2nd and 3rd rung cities and innumerable computer centres in small towns, peri-urban
and rural markets are the future market spaces for desktops. The fast inroad of media and telecommunication
is gradually bringing these geographies closer to the lifestyles of top cities. Hence these channels are the potential consumer contact points for the new generation of
computer users. Being the only Indian company, it is a
clear advantage of HCL to venture in these geographies
as the organization enjoys economies of scale, unparallel
distribution, and service networks all across. The company can ensure the future market space for desktop
133
fully under its control by ensuring HCL’s presence and
branding these channels well before the competitions
start expanding their reach.
The One Chart
I would love to conclude the whole discussion in one
diagram and I am sure, none other than Igor Ansoff can
do it better. Box 1 gives Ansoff’s Product-Market Growth
Matrix6 for plotting HCL’s strategy for growing the business via existing or new products, in the existing or new
markets.
The Final Word
Towards the end of the Case, from the small section on
communication amongst the top management of HCL,
it is loud and clear that the greatest challenge for HCL is
not external; rather it is more internal. The experienced
band of professionals in the Management should first
focus on their core strengths and optimize those strengths to attain the low hanging fruits, e.g., expanding
distribution width of laptop, piggy riding on desktop
reach.
Once the quick wins are achieved, the team will get a
kick of motivation to move forward. And that is the time
HCL’s top management would need to align all functional heads to work from strength to strength towards
an ambitious but realistic Corporate Vision, which is yet
to be developed. Hence, the key priority for the HCL
leaders today is to develop a comprehensive Corporate
Vision with clear-cut roadmap and specific timelines.
And, once the vision and the roadmap are created, the
management needs to finally share the Vision and the
Roadmap with the ‘Vision Community’ – the employees
who will translate the vision into workable reality.
New Markets
Existing Markets
Box 1: Ansoff’s Product-Market Growth Matrix
Existing Products
New Products
• Leap-frogging on desktop distribution
strength laptop retail width can be optimized
in all possible traditional channels. This
ensures HCL’s laptop category availability in
all the desktop retailers.
• To develop products with a trendy outward look and contemporary
colours, shades, and designs to attract the fastest growing target
group, the young adults.
• Customized, need based, uniquely configured laptops for the
largest consumer segment, mid-level corporate executives.
• Enterprise segment can be offered extended services of System Integration, Telecom services, and Office Automation under one roof.
• To exploit alternate channels, the outlets
where conventionally computers are not
sold but the target consumers visit frequently
and spend time and money.
• Desktop category to shift focus to small
towns and rural geographies as the future
market space for the category.
• Customized low-priced netbooks/laptops can be a big hit in the
untapped consumer category of high school students, as the
traditional education system is gradually getting shifted to the
internet platform.
Case Analysis III
Nitin Pandey
Founder, CEO-Learnmile7
e-mail: [email protected]
Background and Key Challenges
T
he Case brings to light the key challenge of transforming a business to an aspired-for consumer
6
7
Ansoff, I (1957). “Strategies for Diversification,” Harvard Business
Review, 35(5), September-October, 113-124.
Learnmile is an Education-focused Market Research and Advisory firm,
based in India.
134
brand and the associated hurdles and challenges. HCL,
a leading desktop player, wants to acquire a significant
standing in the laptop segment too. The company has
its eyes set on the booming laptop category growing at
double digits in the household category compared to
the B2B space. The segment is presently in its fastest
growth phase and a sharp strategic move now may transDIAGNOSES
late into a sizeable gain in market share for HCL in this
high margin and high image segment. HCL is on a
growth path but does not enjoy a healthy margin and
needs to grow to a certain scale (15% market share in
two years) to be reasonably profitable. The business challenge hence is to scale up profitably and the key marketing challenge is to increase the market share in a highly
competitive market within the inherent constraints of
being an Indian value-for-money brand.
Environment Scan
The laptop segment is on a growth path aided by falling
prices (10% YOY), rise in consumers’ need for portability,
and their improved affordability. The segment is dominated by the heavily marketed MNC brands, perceived
to be better in quality than Indian brands. Laptops are
sold from retail outlets, largely through multi-brand retail with metros showing the best growth rates year on
year. The overall ad spends are growing by 100 per cent
year on year, with HP leading the market on the “Innovator” plank. With what looks like a “higher spends lead
to better market share” approach on the surface, the conclusion still needs to be examined in depth. (Exhibit 2)
Consumer Behaviour
The laptop category is divided into business (establishment) and individual (household) buyers. While the
business buying is done in bulk and through tenders,
individual purchases rest on the price-value equation.
There is a completely new set of habits, characteristics,
and consumer behaviour emerging in the evolving
laptop segment. Consumers’ belief, that MNC brands
are better in quality than Indian brands in the laptop
category, hinges on the perception of MNC brands as
new, young, and modern. The retail segment reflects in-
creased knowledge levels and improved negotiation
power for the consumer. Laptop is largely a personal
purchase for work and entertainment supported by the
convenience of portability. It is also seen that laptop consumers are mostly image- and brand-conscious.
Individual Buyers (Household) Segment
The household segment has the following characteristics.
• Fastest growing segment: Young students and the
newly-employed
Characteristics: Value for money; entry level and lowest-priced laptops with most features; first-time buyers; prefer MNC brands
• Largest segment: Middle level executives
Characteristics: For work and play, to climb up the
corporate ladder; second purchase; value-seeking
• Smallest segment: Senior executives
Characteristics: Laptop as a fashion accessory; highend features; low on knowledge; most purchase Sony
and Apple.
HCL vis-à-vis Market
HCL has grown at a healthy rate in the laptop segment,
matching the growth rate of the household segment and
inching up on market share. HCL being a seasoned desktop player has set up a widespread desktop distribution
channel over the years but has not been able to leverage
the network for laptops. HCL’s financial results show
that the margins for the Info System Business are under
pressure and it is only the computer business, which has
shown any kind of growth in profitability (Exhibit 1).
HCL is growing at a rate, which is twice that of its direct
competitors, Dell and Acer.
Exhibit 1: HCL Performance vis-à-vis Market and Direct Competitors (Dell and Acer)
Items
Computer systems, product and services Sales - HCL (INR mn)
2008
34,139
2009
Delta
%
35,340
1201
4
Desktop sales - HCL (Nos.)
660,113
550,689
-109,424
-17
Laptop sales - HCL (Nos.)
161,088
292,785
131,697
82
Desktop overall sales (Nos.)
5582,107
5208,046
-374,061
-7
Desktop sales - Organized (Nos.)
2523,756
2217,252
-306,504
-12
Laptop overall sales (Nos.)
2315,214
4085,743
1770,529
76
Direct competitors - Laptop
692,276
1012,205
319,929
46
Household - Laptop (Nos.)
769,760
1409,785
640,025
83
Establishment - Laptop (Nos.)
746,699
1098,779
352,080
47
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
135
HCL is perceived as a trustworthy, value-for-money, and
old-fashioned brand in comparison to the MNC brands
in the success critical (20-35 years) customer age group.
However, MNC brands have a wider range in the valuefor-money entry-level laptops with more variants, as
well as being perceived better on quality. Discounting
has resulted in neck-to-neck pricing in the entry-level
segment. The key challenge in retail hence is to have the consumer preference on non-price metrics. Both Acer and Dell
have a wide product portfolio in the entry-level segment.
While Dell enjoys the ‘high-performance’ perception riding on its enterprise equity, it has also been investing on
creating a fresh physical channel apart from selling
online. Acer has benefitted from the rub-off from its
brand ambassador, Hrithik Roshan.
the effectiveness of money spent to retain market share
by each player.
Marketing Analytics
Some Observations
The equation between ad spend and gain in market share
is peculiar to a high-activity market going through a
paradigm shift and points to some interesting patterns
(Exhibit 2). The overall ad spend is growing at a higher
rate (100%) than the market growth rate (83% Household and 47% Establishment).
• Dell, in spite of doubling its ad spend and higher
saliency of ad spends, lost market share in 2009.
• Lenovo, in spite of reduced ad spends, gained 1.3
per cent share.
• It is not just the value of money one is spending but
also how it is being spent that is important. For example, Dell spends more money but is on par in
market share with Acer, which spends less than 25
per cent of Dell (2008,’09-ad spends).
• ROM may lag ad spends
• Purchase decision shows the importance of brand
pull for the household laptop category in multi-brand
retail.
• HCL is struggling on ROM and the multiplier and is
certainly not among the front-runners on either parameter currently.
HP, the market leader, has gained 2.5 points in market
share in 2009 with a 262 per cent increase in ad spend,
but Lenovo has gained 1.3 points in market share with a
35 per cent drop in ad spend. Dell, the largest spender
(42% saliency of ad spends in 2009), still lost market share
in 2009, whereas Acer, which spends less than 25 per
cent of Dell on ads, enjoys a market share on par with
Dell’s. Return on Marketing (Exhibit 2) reflects the ad
spend per market share point for each player and hence
Further, the effectiveness of ad spend can be analysed
in depth to assess the marketing effectiveness. This is
best reflected through the Multiplier (See Exhibit 4).
Multiplier is the amount of money spent by a brand (in
INR 100 mn) to gain 1 market share point in 2009 over
2008. The lower the Multiplier corresponding to the gain
in market share, the more effective is the marketing strategy over a short-term period, like one or two years.
Lenovo and HP have been effective overall with Acer
being the most effective in HCL’s competitive subset;
e.g., Multiplier (HP) = (470-130) / (2.5*100) = 1.4 (in 100
mn)
Exhibit2: Return on Marketing Spends8
Brands
2008
AD
Spend
(INR mn)
HCL
HP
Lenovo
Acer
Dell
Toshiba
Sony
Others
Total
8
10
130
230
120
500
90
150
100
1,330
Market
Share
6.96
31
13
13.5
16.42
3.61
3.9
11.69
2009
AD
Spend
(INR mn)
140
470
150
250
1,150
200
340
70
2,770
2008
2009
Market
Share %
Delta
AD
Spend %
Delta
Market
Share
Saliency
of Ad
Spend %
ROM
Saliency
of Ad
Spend %
ROM*
7.17
33.5
14.3
12.12
12.66
4.7
3.5
12.1
1,300
262
-35
108
130
122
127
-30
100
0.21
2.5
1.3
-1.38
-3.76
1.09
-0.4
0.41
1
10
17
9
38
7
11
8
1.4
4.2
17.7
8.9
30.5
24.9
38.5
8.6
5
17
5
9
42
7
12
3
19.5
14
10.5
20.6
90.8
42.6
97.1
5.8
(ROM=Ad spend/Market share)
136
DIAGNOSES
Exhibit 3: Correlation between Ad Spend and Market Share
Others
0.41
-30%
Delta Market share (‘08 to ‘09)
Delta AD spend (‘08 to ‘09)
-0.4
Sony
127%
Toshiba 1.09
122%
-3.76
130%
Dell
-1.38
Acer 108%
Lenovo
1.3
-35%
HP
HCL
-600%
-400%
-200%
0%
2.5
262%
0.21
1300%
200%
400%
600%
800%
1000%
1200%
1400%
Exhibit 4: Effectiveness of Marketing
Others
0.7
0.41
4.8
Sony -0.40
1.0
1.09
Toshiba
Dell
1.7
-3.76
Lenovo
0.6
1.30
1.4
HP
HCL
-6.00
-4.00
-2.00
Multiplier
Delta Market share (‘08 to ‘09)
0.9
Acer -1.38
2.50
6.2
0.21
0.00
• Laptops have a better acceptance and are growing
faster in the metros and the next 4 towns
Scenarios to Choose From
Given the current dynamics, Ajai has the following scenarios to choose from:
• Intense consumer advertising on the lines of (a) Dell
and/or (b) Acer
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
2.00
4.00
6.00
8.00
• Focus on a particular segment - B2B space
• Focus on a particular segment - Youth in retail segment
• Focus on a particular segment - Mid-level corporate
executives
It is crucial to examine the scenarios through the competitive landscape and HCL’s position so as to check the
strategic fitment and to assess whether it is in line with
137
HCL’s core competence and constraints (Refer to Exhibit
5). The Strategic Fitment Matrix reflects the fitment of
probable strategies with respect to HCL’s strengths,
weaknesses, and the current reality.
A strong strategic fitment occurs when the approach
leverages HCL’s core competence and strengths and is
possible within the constraints faced. Clearly, the choice
is between Scenario 1b – Intense consumer advertising
on the lines of Acer and Scenario 3 – Focus on youth in
retail segment. Both look strong in strategic fitment for
HCL.
Suggested Approach for HCL
First, let us see how Acer is pegged with a similar market share as Dell in spite of spending 78 per cent lower
than Dell on ads. Perhaps Acer is doing something which
Dell is not. Is it the MNC imagery, product portfolio,
discounting or something else? The Case details out that
most of these are on par. Has it got something to do
with more entry variants coupled with Hrithik Roshan
as the brand ambassador for Acer? Perhaps there is merit
in evaluating this combination. Looking at the ad spends
to market share statistics (Exhibit 3), Acer had a negligible fall in market share compared to Dell in spite of Dell
spending INR 900 mn more than Acer. There seems to
be no set formula that the growth in ad-spends would
necessarily translate into growth in market share. Dell,
Sony, and Acer have lost market shares in spite of spending more in Advertising over last year’s spend, whereas
Lenovo has gained market share in spite of reduced Ad
spends.
The numbers show better return on marketing spends
(ROM) for Acer compared to Dell and even better than
HP who is the market leader. The multiplier for Acer is
0.9 compared to 1.7 and 1.4 for Dell and HP respectively.
This coupled with the fact that Acer is a direct competitor of HCL and competes for the same consumer in entry-level laptops makes this worthy of further attention.
Assumptions
• Ad spends growing at 100 per cent YOY as seen
from 2008-2009 data (Exhibit 4 from the Case)
• Youth segment for laptop is growing at a rate of 110
per cent
• 2008-2009 is taken as 2008 and 2009-2010 is taken
as 2009 (Exhibits 1, 2, 5, 6, 8, 10 from the case)
• HCL buyers are mostly first-time buyers.
One of the challenges faced by HCL is to overcome the
“old and cheap Indian Brand” image. A brand ambassador approach can definitely help HCL reposition itself, improving itself with sophistication and become a
better-valued brand. From the ad spends data, year on
year ad spends is growing by around 100 per cent. HCL,
with INR 600-800 mn estimated range of advertising
budgets for 2011, would have a good 11-15 per cent saliency in total ad spends for the laptop category if the
ad spends carried on with the same growth rate of 100
per cent. The brand proposition, for example, could be
“Choose the smart value-for-money HCL laptops, endorsed by Yuvraj Singh and backed by a wide service
network.” This would translate into choosing a value
Exhibit 5: Strategic Fitment Matrix*
No. Scenario
Factors in Favour of HCL
Factors Not in Line with HCL
Strategic Fitment*
1a
Intense advertising
on the lines of Dell
Features, pricing for
entry laptops
Strong equity in Enterprise, specialized
network, 42% saliency of market spend
(INR 1,150 mn), the elusive MNC Tag
Weak
1b
Intense advertising
on the lines of Acer
Value for money, entry
laptops, network, 7%
saliency (market spends),
moderate spends 2009
MNC image, product variants, brand
ambassador route to advertising (Actors
rub off sophistication)
Strong
2
Focus on B2B space
Widespread network,
proven experience in the
space
Lower margins, brand disloyalty, network
suited for desktops but struggles in the
laptop category
Moderate
3
Focus on Youth in
Retail Segment
Value for money, entrylevel laptops, affordable
options
Product variants with a lot of features,
attracted to MNC brands
Strong
4
Focus on mid-level
executives
Widespread service
network
Value-seeking, image conscious, for work
and play
Weak
138
DIAGNOSES
for money and reliable9 laptop on par in quality with
the MNCs . This approach would help HCL reposition
itself, and give a PAN India reach riding on the brand
ambassador, especially, the Rest of India.
This could perhaps help HCL in reaching around 8.5
per cent market share at a growth of 200 per cent in a
year’s time (Exhibit 6). However, this approach has two
major limitations. First, that the middle-level executives
would not find HCL appealing when seeking value.
Second, this approach does not propel HCL to a premium fashion accessory to be chosen by the senior executives. Clearly, this would fetch traction mainly with
20-35 year old first-time buyers.
On the other hand, if we apply the same brand ambassador approach on a focused segment (Scenario 3), e.g.,
Youth (20-35 years) first-time buyers, there is not only
an exact fitment, but this approach gives HCL the opportunity to make a much more focused impact on the
fastest growing and most knowledgeable consumer segment. Chances are that, this segment may become the
largest, both in number and influence for laptops. They
may graduate to becoming middle-level executives who
would use an HCL laptop and if they find them delivering on quality, they may become the Early Adopters in
the mid-level executive consumer segment.
Building this approach further, suppose the brand proposition is, “HCL-sub brand (to be positioned for younger audience, e.g., ME) laptops for ‘value for money,’
endorsed by Virat Kohli backed by a wide service network.” This would translate into choosing a smart and
refreshing entry Laptop (backed by a reposition itself as
a young and reliable brand with a better acceptance in
metros and the next 4 towns, growing faster than the
rest of India). This approach perhaps gives HCL the best
chance to cross the 10 per cent market share with a
growth of 400 per cent (Exhibit 7).
NET-NET
Focusing on a particular segment, with a sub-brand for
youth in retail, riding on a youth icon as the brand am-
Exhibit 6: Projected Scenarios
Scenario
Target Customer
Metrics
Multiplier
(’11)
Projected Ad
spends mn INR
Projected Delta
in Market Share
Estimated
Market Share
1b
Entire household category
Growing
at 83%
6.2
800
1.3
8.5
3
Youth niche within household
category
Fastest
growing*
4.3
800
1.9
9.50~10
* Youth being the fastest growing has been assumed to be growing at 100%+
Exhibit 7: Projected Multiplier & Market Share of HCL
10
Youth niche
4.3
Market share ‘11-12
Multiplier ‘11-12
8.5
Household
6.2
0
9
2
4
6
8
10
12
endorsed by an Achiever Indian player and backed by a wide service network.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
139
bassador seems to be the best way forward for HCL as
this is in line with HCL’s strengths and limitations, and
still presents an opportunity to grow to 10 per cent market share with improved profitability and renewed brand
imagery. The next best alternative is to go for the entire
household category but this may backfire and also result in the classic “spray everywhere and you may touch
your consumer” outcome. There is also a high need for
HCL to seek in-depth information around purchase decision-making for laptops especially from the youth and
mid-level corporate executives.
This warrants the need to do an in-depth research across
some metros and smaller towns, to know the emerging
gaps and to be the first to address them. HCL also needs
to make sharp choices between investing in R&D, design, product portfolio, innovation and laptop-focused
distribution network. There is merit in going with investments in design, features, and variants for now and
outgrowing competition riding on the fastest growing
youth segment. It needs to consistently appeal to the youth
with new design variants so as to build a strong pull
and improve its marketing multiplier.
Case Analysis IV
Moutusy Maity
Assistant Professor
Indian Institute of Management, Lucknow
e-mail: [email protected]
T
he key concerns that HCL faces in this Case are: (a)
It needs to zero-in on a positioning strategy based
on its identification of the segment of consumers that it
wishes to attract; (b) It needs to ascertain that the strategy it chooses to pursue will help it to achieve a market
share of at least 15 per cent, which will allow it to achieve
economies of scale and hence, greater profitability (the
assumption is that an expenditure of between INR 600800 million will allow the company to reach out meaningfully to its target segment). The following discussion
centres exclusively around the laptop market, and does
not discuss the desktop market at all.
Target Segment and Positioning Strategy
The laptop market, as presented in the Case, consists of
several players comprising premium and value brands.
Sony and Apple are premium brands. HCL is a value
brand, and considers other value brands such as Acer,
Lenovo, and Dell as its direct competitors. These three
laptop brands have developed strong positioning, but,
none of them is pursuing any particular target segment
with their product offerings.
An average laptop in the marketplace (as presented in
the case) costs around INR 40,000. An HCL laptop is
priced at about 2 to 5 per cent lower than those offered
by the leaders in the market. Thus far, most of the communication undertaken by HCL has emphasized the
140
functional attributes offered by its products. There is a
need to establish a strong brand image in the minds of
consumers. To that end, HCL needs to pursue a positioning strategy that will clearly distinguish it from its
competitors. In addition, there is an opportunity for the
brand to target a specific segment (especially a segment
that is growing rapidly) with its positioning strategy and
product offerings. This strategy will provide an edge
over the competitors. The questions that HCL should
address to achieve the above are:
• Which segment should it target?
• What are the positioning and communication strategies pursued by the competitors? Does a clearly identifiable positioning gap exist in the market?
• What should be HCL’s positioning?
Consumer Decision Making
A closer look at the laptop as a product, and the consumer decision-making involved in purchasing the
product, reveal that when it comes to purchasing a
laptop, two factors are important to the consumer: (a)
the price that the brand demands (consumers are priceconscious); and (b) the laptop brand name. Therefore,
consumers tend to carefully examine the product features that are available for the given price range. At the
same time, purchase decisions are also influenced by the
image of the brand. In other words, one can say that
DIAGNOSES
there is a tension in the consumer’s mind in terms of the
product features obtained (for a given price) vs. the image of the brand, when it comes to purchasing a laptop.
A laptop is more often used for personal use and entertainment. A laptop computer can, therefore, be considered as an extension of the consumer’s self. It is usually
taken out and used in public, and is a conspicuous consumption product. The product brand reflects the consumer’s image of herself, as well as how she would want
others to see her. Hence, the brand image associated with
the brand of laptop gains importance for the consumer.
A desktop, on the other hand, is usually associated with
work, is a non-conspicuous consumption product, and
is typically situated at home or at work. Therefore, product features offered by the product (at that specific pricepoint) plays a more important role than the brand image
of the product.
Possible Communication Focus
The decision-making undertaken by consumers for purchasing laptops and desktops, take different routes. Since
consumers are swayed by the brand image of the product in addition to the product features offered in a specific price range, while purchasing laptops, consumers
are likely to be persuaded by messages that concentrate
both on cognitive and emotional appeals. The Elaboration Likelihood Model (ELM) delineates two different
routes to persuasion: the central and the peripheral routes.
Products, for which consumers base their decisions on
cognitive cues, should try and appeal to the consumers
using communication that focuses on reasoning. In contrast, products that have an affective appeal for the consumer, would probably find it more fruitful to concentrate on emotional cues in their communication. A laptop
is such a product where consumers base their decisions
on both types of cues, and therefore, both cognitive and
affective appeals will be important in the communication. A consumer will want to know how (from a functional stand point) the product is going to help her, and
she is price-sensitive; however, at the same time, she is
willing to probably pay a bit more for a product that
matches with who (from a brand image stand point) she
is. Therefore, HCL has to ensure that both these aspects
are addressed in its positioning of the brand and the
subsequent communication strategy.
Since buying a desktop involves considering the attributes of the product, consumers will usually consider
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
the tradeoffs involved in foregoing a specific feature for
another. Therefore, for desktops, the functional aspects
of the product will probably dominate the decisionmaking processes.
Choosing the Target Segment
HCL needs to carefully choose the segment it wishes to
target. The Case mentions that the company currently
has enough budgets to pursue only a single segment.
But, which segment should it go after? Though the case
does not provide us with the specific break-up of retail
consumers in terms of age groups, it does mention that
the laptop market can broadly be broken into two segments: Retail and Enterprise. The Retail segment has the
following sub-segments: young consumers (probably in
the age group of 17 to 25), middle-aged consumers, and
elderly consumers (who constitute only a small fraction
of the entire market). The Enterprise segment has the following sub-segments: mid-level executives (who are
probably in the age group of 30 to 40 years) and senior
executives.
A careful look at the above segments, when considered
demographically, indicates that the young consumers
in the Retail segment, and the mid-level executives in
the Enterprise segment, are consumers who are not only
young in terms of age (together they span the age range
of 17 to 40 years), but, are also conscious of the brands
that they consume. Since laptops are items of conspicuous consumption, these consumers will especially be
concerned about the brands of laptops that they use, as
this act is judged as an “endorsement” of the brand by
their peers. (While the Case does mention that the young
consumers tend to be interested in the lowest price, we
can assume that brand image does matter to this consumer segment).
These two groups of consumers constitute the fastest
growing segments when it comes to purchasing laptops.
Therefore, HCL can aim at targeting these two groups
of consumers by developing: (a) a strong brand image
(achieved through a clearly focused positioning strategy) that appeals to both the segments, and (b) products that provide the required product features. (The
Case notes that product features are not meaningful
differe-ntiators any more in this market, and new product features can easily be incorporated by any brand
within a short span of time).
141
Positioning Strategy
What should HCL’s positioning strategy be? Note that
the positioning strategy needs to be such that it appeals
to the two segments identified in the previous section
(i.e., the young consumers and the mid-level executives).
Currently, the company does not have a clear positioning strategy. However, in order to achieve its goals of
high growth rate and increased market share, the brand
needs to create a strong positioning. The positioning
strategies pursued by the existing players in the laptop
market (Case: Exhibit 15), focuses on broadly two aspects (Figure 1): (a) performance promised by the brand,
and (b) product design.
Note that none of the value brands has ventured into
positioning themselves as a brand that is “close” to the
consumer. Specifically, HP, Dell, and Acer have positioned themselves as helping an “innovator,” being a
“partner in success,” and as “solution provider”. While
Acer does attempt to build some panache into its brand
image by using a movie personality as its brand endorser, the overall image of the brand remains one of a
provider of solutions. The only brand that incorporates
the sense of style in its brand image is Sony. However,
this is a premium brand. Therefore, opportunity exists
for a value brand to claim a position in the top right quad-
rant by communicating the personal nature of the laptop
along with a style statement (Figure 1).
The suggested positioning strategy aligns well with the
way in which the young consumers and the mid-level
executives (i.e., the chosen target segments) would like
to think of themselves. These consumers like expressing their own ideas, want to do things their own way,
and value their own individuality. These are consumers who probably like to work, and have fun at the same
time. They are likely to appreciate the value proposition by a brand that stresses the importance of personal
choice and style, without compromising product features. (Note that HCL has to ensure that it offers the
product features that these two segments of consumers
would want, though it might not choose to highlight
that aspect in its positioning strategy).
HCL’s Journey from 2009 to 2012
The projected laptop sales for 2009, is 2397,000 units
(Case: Exhibit 3). However, the actual laptop sales achieved in 2009 is 4085,743 units (Case: Exhibit 9). The growth
rates for the laptop category are 30.77 per cent in 2008,
and 76.47 per cent in 2009. Thus, there is a large discrepancy between the projected market performance for
laptops, and the performance that the laptop category
Figure 1: Identifying Gaps in the Existing Market
Performance: Personal
Opportunity for HCL
Sony
Aesthetics/Style
Product Features
Dell
Acer
Compaq
Lenovo
Toshiba
HP
Performance: Professional
142
DIAGNOSES
is able to achieve by the year 2009. The market has expanded much more than the projected figures had estimated. Therefore, the projections made by IDC for the
subsequent years (Case: Exhibit 3), needs to be re-examined.
Note that the projected growth rates for the total laptop
market range between 46.04 per cent in 2010 to 24.78
per cent in 2014 (Table 1). However, as already noted,
the laptop market has enjoyed phenomenal growth rates
in 2008 and 2009, and the projections seem to be conservative (though we are not able to obtain the projected
growth rate for 2009, the number of units projected for
that year, and the number of units that were actually
sold, does indicate an underestimation). We do need to
consider various scenarios that can happen as HCL continues on its quest for 15 per cent market share by 2012.
The various scenarios are presented in Table 2, and are
discussed below.
Scenario 1
conservative estimate of HCL’s market share in 2009 is
9 per cent. However, the company cannot enjoy any
economies of scale in 2010. However, due to the expanded market, and an increase in the number of units
sold, HCL achieves a margin of INR 747 (approximately),
that allows it to spend the necessary amount on advertising. Therefore, by 2011, HCL’s market share can increase to 12 per cent, and the company can start enjoying
economies of scale, which continues to 2012 by which
the company can achieve a market share of 15 per cent.
Scenario 2
Assumptions:
• Growth rate continues to be robust, and is as projected
• HCL’s market share increases.
In this scenario, too, similar arguments as presented
above for Scenario 1, indicates that HCL will probably
be able to achieve its goals.
Assumptions:
Summing-Up
• Growth rate continues to be robust, and is higher than
projected
• HCL’s market share increases.
The two major issues that face HCL are regarding choosing a positioning strategy and ascertaining an increased
market share in order to achieve economies of scale. Due
to the rapidly growing laptop market, if the brand is
able to achieve a strong brand image that aligns itself
well with the target segment, buoyed by the expanding
market, HCL should be in a position to achieve its target market share by 2012. A word of caution, however,
needs to be sounded. The above analysis assumes that
the competitors keep their strategy unchanged. The
market situation can be dramatically different if the competitors choose to target the same segments, and increase
their advertising expenditure.
In this scenario, the total margin that HCL reports for
2009 is INR 413 million (approximately), and hence is
not able to spend the minimum INR 600 million on advertising that it requires in order to expand its market
share in 2010. Let us assume that HCL is able to spend
about INR 300 million on advertising in 2010. This
amount is more than double the amount that HCL had
spent in 2009. As a result of this increased expenditure
(assuming that its competitor does not increase its advertising expenditure proportionately), HCL would
probably see an increase in its market share in 2010. A
Table 1: Growth Rates for Desktops and Laptops (%)
2009
Consumer Desktop
Commercial Desktop
2010
2011
2012
2013
2014
2.47
4.12
4.89
3.93
2.54
22.48
10.10
6.79
5.97
5.77
Total Desktop
15.49
8.25
6.23
5.37
4.83
Consumer Laptop
58.51
29.75
28.14
26.02
25.43
Commercial Laptop
31.46
31.04
28.12
26.12
23.86
Total Laptop
46.04
30.28
28.13
26.06
24.78
Source: Case Exhibit 3
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
143
Table 2: Possible Scenarios
2008
2009
2010
2011
2012
2013
2014
Average Laptop Price (INR)
(Assumption: Prices fall 10% every
year)
40,000
36,000
32,400
29,160
26,244
23,619.6
21,257.64
Selling Price of Average HCL Laptop
(INR) (Assumption: HCL’s price is
2% lower than average)
39,200
35,280
31,752
28,576.8
25,719.12
23,147.21
20,832.49
Production Cost (75%) (INR)
29,400
26,460
23,814
21,432.6
19,289.34
17,360.41
15,624.37
Distribution Cost (12%) (INR)
4,704
4,233.6
3,810.24
3,429.216
3,086.294
2,777.665
2,499.898
Sales+Marketing (9%)
3,528
3,175.2
2,857.68
2,571.912
2,314.721
2,083.249
1,874.924
37,632
33,868.8
30,481.92
27,433.73
24,690.36
22,221.32
19,999.19
1,568
1,411.2
1,270.08
1,143.072
1,028.765
925.8883
833.2995
76.47367*
60
50
35
25
25
4085,743*
6537,189
7.166016*
9
12
15
17
20
292,785*
588,347
1176,694
1985,671
2813,034
4136,815
33,868.8** 30,481.92**
26,862.19
23,661.59
21,295.43
18,749.24
No Economies of Scale
Total Cost Per Laptop (INR)
Margin Per Laptop (INR)
Scenario 1
Growth Rate % (Optimistic)
Total Number of Laptop Units Sold
2315,214*
HCL’s Market Share (%) (Increases)
HCL Laptop Units Sold
Total Cost (Economies of Scale
(Realized)) Per Laptop (INR)
Margin Per Laptop (INR)
9805,783 13237,807 16547,259 20684,074
1,411.2
1,270.08
1,714.608
2,057.53
1,851.777
2,083.249
Total Margin (INR)
4.13E+08
7.47E+08
2.02E+09
4.09E+09
5.21E+09
8.62E+09
Total Margin (in Million)
413.1782
747.2477
2,017.569
4,085.577
5,209.111
8,618.014
(Less) 600 Million Expenditure
(Minimum)
-186.822
147.2477
1,417.569
3,485.577
4,609.111
8,018.014
76.47367*
46.04122
30.2832
28.13085
26.06104
24.77,742
4085,743*
5966,869
7773,827
7.166016*
9
12
15
17
20
292,785*
537,018.2
932,859.3
1494,101
2134,609
3133,542
33,868.8** 30,481.92**
26,862.19
23,661.59
21,295.43
1,8749.24
Scenario 2
Growth Rate % (As Projected)
Total Number of Laptop Units Sold
HCL’s Market Share (Increases) (%)
HCL Laptop Units Sold
Total Cost (Economies of Scale
(Realized)) Per Laptop (INR)
Margin Per Laptop (INR)
2315,214*
9960,672 12556,526 15667,710
1,411.2
1,270.08
1,714.608
2,057.53
1,851.777
2,083.249
Total Margin (INR)
4.13E+08
6.82E+08
1.6E+09
3.07E+09
3.95E+09
6.53E+09
Total Margin (in Million)
413.1782
682.0561
1,599.488
3,074.156
3,952.82
6,527.947
(Less) 600 Million Expenditure
(Minimum)
-186.822
82.05607
999.488
2,474.156
3,352.82
5,927.947
* Obtained from Exhibit 9
** No economies of scale during these years. Economies of scale are achieved for subsequent years.
144
DIAGNOSES
Case Analysis V
Rajat Gera
Professor
IMT, Ghaziabad
e-mail: [email protected]
T
he case deals with the challenge facing Mr. Ajai
Chowdhry, Chairman & CEO and his marketing
team at HCL Infosystems Limited, an Indian company,
a major technology hardware player in India, as it aims
to build a strong position in the laptop computer category. This is necessitated by the structural changes affecting the personal computer industry with laptops
expected to gain a dominant share with the declining
share of desktops and brand value becoming a determinant in the purchase decisions in both the sub-categories, i.e., laptops and desktops. HCL is a major player in
the PC market with a second position in the desktop
sub-category though it was a poor fifth with 7 per cent
market share in the laptop sub-category in 2009-2010.
The laptop was expected to have significant growth in
the next few years and overtake the desktop market in
2013. Further, while the desktop was a mature category
wherein the PC was perceived and purchased as a commodity, laptop was considered as a differentiated product due to its usage, i.e., personal and for entertainment
and computing and its enhanced value proposition for
consumers due to declining prices and image benefits.
Thus, all PC manufacturers were expected to ensure a
position in the emerging laptop market wherein HCL
enjoyed an unenviable status.
The challenges before the marketing strategy team consisting of George Paul, EVP Marketing, Rajinder Kumar,
EVP, Sales and J V Ramamurthy, COO along with Mr
Ajai Chowdhry, CEO for the laptop PCs were: How to
attain the marketing objective of 15 per cent market share
in 2010 and 2011 and 20 per cent market share in 2012?
This required a 400 per cent increase in sales in two years
from the current unit sales of 292,785 in 2009 to 1.168
million units in 2012. The yearly growth targets translated into 0.525 million units in 2010 and 0.684 million
units in 2011. The same was expected to be aided by the
laptop category growth rate which was expected to be
46 per cent in 2009-2010, 30 per cent in 2010-2011, and
28 per cent in 2010-2011. However, the company was
expected to achieve much higher sales growth rates of
79.7 per cent in 2010, 30 per cent in 2011, and 70 per cent
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
in 2012, i.e., 4 times in the next two years compared to
the growth rates of 22.9 per cent in 2007-08 and 81 per
cent in 2008-09.
Some of the decision options being contemplated by the
team were to:
• Conduct a detailed market research especially qualitative research to understand consumer attitudes and
gap areas followed by ratification by a detailed quantitative research. However, this option was considered as a medium-term decision since the company
needed to immediately implement a marketing strategy.
• Execute a high decibel communication campaign.
However, the issue was how to position the HCL
brand as it was perceived as a functional low-priced
desktop PC brand for corporate users and hence
lacked a core value proposition for laptop users.
• Introduce new models with innovative features.
However, some of the problems in this option were
which features to introduce and to see whether those
features would create sustainable product differentiation since laptops and their components were
mostly made in Taiwan and any feature could easily
be copied by competition within two months.
• Segment the market and build a strong position in
one segment before invading other segments similar
to what Dell had done, i.e., build a position in the
small and medium business before targeting other
segments. However, the issue was how to segment
the consumer market. The existing segmentation
based on age and buying behaviour was not feasible
since the younger consumer was highly price-conscious and the older consumer was not knowledgeable enough to evaluate the product.
Mr Ajai also felt that the HCL should spend 600-800
million INR to make it more relevant and appealing to
the youth segment in the retail market. He reflected on
the approach adopted by Acer and Dell to build market
share in the category, i.e., of intense consumer advertising with building adequate retail support. The concern
145
was that the strategy would require high investment and
thus have financial risk of failure.
Some additional information from the data given in the
Case is as follows:
• HCL was perceived as a value brand and suffered
from an image problem especially with the younger
consumer for whom it was an old, traditional, Indian
brand (only Indian Brand) compared to the MNC
brands which were relatively newer entrants in the
market and were Global brands with higher product
variety and deeper pockets which they were utilizing to build an innovative brand image and strengthen their distribution network.
• HCL had competitive disadvantages in terms of
economies of scale; the MNC brands enjoyed better
economies of scale, and had better perception among
laptop consumers that foreign brands were better in
terms of quality, especially with the 25-30 year age
group which was the most influential and knowledgeable.
• HCL had an excellent distribution network for desktops. Though the same channel could be utilized for
laptops, it was not yet well established.
• HCL had an advantage with its after-sale service
network due to its longevity and dominant presence
in the desktop.
• While the product was undifferentiated, premium
brands such as Sony differentiated their products
through styling and advanced features.
• The market was largely price-sensitive with almost
all major brands offering the same product features
and at almost the same price. Thus, the price difference between value and premium brands was narrowing. One of the reasons for the same was that
almost all the brands of laptops were assembled by
the 3-4 OEMs in Taiwan.
• However, there were opportunities for differentiation through communication and brand building
which were being exploited by the major MNC
brands in their message and media strategies.
• All the MNC brands employed the three-tiered selective distribution model for the consumer market.
The retailers carried multiple but limited set of brands
due to constraints of space and investment. It was a
mature distribution system and all products were
pushed on the basis of consumer interest and dealer
incentive.
Thus, MNC value brands have competitive advantages
of economies of scale, brand image, product portfolio,
and financial resources which they are leveraging in their
communication and brand building strategies. Due to
their high market share, they are also obtaining advantage with the distribution channels which they are aggressively building while HCL is losing out due to its
late entry into the market. The MNCs are also scaling
up their after-sales network putting HCL at a disadvantage.
HCL thus faces formidable challenges of how to achieve
a differentiable advantage in the face of undifferentiated product and price and global disadvantages of
product portfolio, brand image, and communication
budgets. A framework which can be adopted in framing of marketing strategies by local players vis-à-vis
multinationals is given by Dawar and Frost (1999).10
An analysis of the globalization pressures facing the industry and the competitive assets possessed by the local player is needed. HCL could yield some insight into
the approach for differentiation that it can adopt. Globalization pressures are high since there are economies
of scale in product portfolio, branding, and communication. With the competitive assets that HCL possesses
– a strong distribution network in desktops which can
be leveraged for laptops, an enviable after-sales network,
and a trustworthy brand name — it needs to adopt the
Dodger strategy (Table 1) to achieve competitive differ-
Table 1: Globalization Pressures in the Industry/Competitive Assets
Customized to Home Market
Transferable Abroad
High
Dodger (focuses on a locally-oriented link in the value
chain, enters a joint venture or sells out to an MNC)
Contender (focuses on upgrading capabilities and resources to
match multinationals globally often by keeping to niche
markets)
Low
Defender (focuses on leveraging local assets in market
segments where multinationals are weak)
Extender (focuses on expanding into markets similar to those
of the home base using competencies developed at home)
10
Dawar, Niraj and Frost, Tony (1999). “Competing with Giants,” Harvard Business Review, March-April.
146
DIAGNOSES
entiation. This could be made possible by adapting the
product and its attributes to local conditions. The Case
data shows that there are huge opportunities in the rest
of India. In terms of sale of units, the share of the rest of
India has increased by 10 per cent between 2005 and
2010 with 2.135 million units out of a total of 3.5 million
units in 2010 while the top four cities accounted for only
1.085 million units.
Interestingly, in 2009-10, though the sale of laptops in
the top 4 metros grew by 173 per cent, it increased by 48
per cent in the rest of India while the sale of desktops
declined by 61 per cent in smaller towns in 2009-2010
(Case data). Thus, HCL can adapt the product features,
e.g., introduce no-frills products with a longer battery
life (12 hrs) and durability at competitive prices to address the needs of the younger consumers who cannot
afford the MNC laptops which are built to international
standards of features and styling. Warranties and service guarantees could also enhance the attractiveness of
the product to the small town consumer. The MNC
brands may not be able to customize the product and its
services for the local consumers in the rest of India since
they would lose the economies of scale of standardized
products and service attributes.
HCL also has the advantage of a 93,000 outlets covering
11,000 towns and the largest pool of trained manpower
handling 2.5 million support incidents per annum. This
asset can be leveraged in creating a rural distribution
network at low cost which could serve the needs of the
functional consumer of laptops, e.g., for school children
in Government schools, salespersons of small and medium enterprises, etc. Thus, the needs of the functional
consumer for laptops that are not being addressed by
the MNC brands can actually be served by HCL at a
competitive advantage.
HCL can also compete on price and pricing strategy. It
can adopt a licensing model wherein, for example,
schools pay for the hardware on a monthly rental basis
which includes the cost of the hardware, software, and
maintenance. New market segments can be opened up
through innovative pricing strategies which enhance the
affordability of the product. Being a local player, it can
thus customize its pricing and offer a solution (a la IBM)
to consumer segments that are volume buyers but find
the MNC product unaffordable. A localization strategy
for component and design could also reduce the cost of
the product.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
There are also opportunities of customizing the product
by collaborating with educational content providers to
offer it for example as a learning solution for the educational market. By developing low-cost versions of the
laptop for the educational and training market, and other
similar market segments which are not driven by style
and brand image, HCL can differentiate its product as a
portable and internet connected computing product visà-vis entertainment and lifestyle products being offered
by the MNCs. However, the same would require product innovation capabilities in features and design so that
customized solutions can be developed.
Thus by developing localized product, pricing and distribution strategies based on its existing competitive
assets, HCL can differentiate its offer and compete with
MNC brands. A ‘me too’ approach would not be feasible due to the nature of the industry, i.e., globalization
advantages for MNC brands and high intensity of competition, i.e., large number of MNC brands.
An analysis of the share of voice of the major MNC
brands and market share (Table 2) shows little correlation between the communication intensity and market
share. Thus, spending resources on communication is
unlikely to lead to significant market share gains in the
absence of a brand value proposition.
Table 2: Share of Voice (%) of Select Brands
(Calculated from Exhibit 12)
Brand Name
2008
SOV
2008
Market
Share
2009
SOV
2009
Market
Share
HP
7.92
30.86
15.25
33.43
HCL
0.6
6.96
4.5
7.17
Dell
30.48
16.42
37.33
12.66
Acer
7.31
13.48
8.11
12.12
14
13.06
4.87
14.33
9.14
3.93
11
3.45
Lenovo
Sony
Secondly, segmenting the market by age and buying
behaviour may not be feasible as 20 per cent market share
would require targeting the whole market. For example, targeting the consumer market (approx. 50% of the
total market) would require 40 per cent market share to
achieve 20 per cent market share in the laptop market.
Secondly, brand building and communication costs
would go up and HCL may suffer in profitability as gross
and net margins are very low (2-4%).
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Case Analysis VI
A P Arora
Professor
MDI
e-mail: [email protected]
H
CL is facing a mature desktop market. In fact, desktop PC has entered a declining market phase, courtesy the introduction of laptops in the market. Ironically,
for HCL, they have been able to muster highest market
share in the desktop market while they are a distant sixth
in the growing laptop market. The laptop market is
growing on its own as well as at the cost of the desktop
market. HCL is duly placed as a “value for money” product in the desktop market. This has secured HCL’s position in the top two slots by volume. Quite predictably,
“other” brands offering additional benefits enjoy more
than 57 per cent of the market by volume. Perhaps, if
laptops had not come to the market, the maturity period of desktops would have lingered longer.
Laptops were introduced by the multinational marketers with a large range of models to serve the diverse set
of customers who have yet to settle down with a clear
understanding of the product features and their worthiness. Majority of the newly entering customers in this
market are students and young executives. Many of
them are existing users of desktop models and are upgrading themselves to the new convenience of laptops.
The CEO of the company has suggested a target market
share of 20 per cent. No clear marketing rationale for
this target has been forwarded in the Case. In such a
situation, such a target may first be cross-checked for its
economic viability. The Case suggests that at the lower
end of calculation, i.e., at 10 per cent of market share,
the contribution is in the range of 4-11 per cent (70-75%
cost of production, 12% distribution costs, and 7-9% of
sales and marketing overheads). Thus, net profit in the
laptop business is wafer thin at the lower end. However, the contribution rises at the rate of about 0.4 per
cent for every increase in the sales share up to a ceiling
of 30 per cent. The anticipated increasing competitive
pressure shall prevent any dramatic increase in the share
anyway.
The target of 20 per cent means a sale of 1.16 million in
2012 from the current sale of 0.29 million, i.e., a jump of
300 per cent and a search for 0.87 million customers! This
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may just be an internal target. This has to be matched
with the market reality and a suitable plan of action.
Before suggesting any suitable plan of action for HCL,
it may be worthwhile to do a SWOT analysis.
Strengths
• HCL brand is well known and its “value for money”
image is well accepted.
• It has an extensive distribution reach.
• It has a strong equity in the corporate segment.
Weaknesses
• HCL is positioned only along the functional dimensions. There is no strong emotional connect with its
customer groups.
• It has to depend on the available technologies from
outside which are open to every other marketer. There
are no scale advantages for its laptop business either.
Opportunities
• The market for laptops is already on the high growth
path.
• Corporate executives form a large chunk of new
laptop market. HCL has substantial penetration in
the corporate sector.
Threat
• Many competitors, particularly MNCs with deep
pockets, have already acquired market positions and
should be competing hard for the Indian market.
Suggested Plan of Action
Market forces due to the product life cycles of desktops
as well as laptops are too strong to be ignored by HCL.
It has to accept them and align its actions to take the
best advantage from them. This can be done by targeting appropriate segments and implementing a suitable
action plan for them. From the previous SWOT analysis
and sales goals of HCL, it is clear that its target segments
must be large which should be positively inclined (or at
DIAGNOSES
least not negatively disposed) towards HCL. Students,
young executives, small businessmen, and corporate
executives appear to be filling this bill. They are likely
to be most receptive to the “value for money” positioning of HCL in the market.
For the students’ market, HCL can suitably design its
offer which is rugged, fitting in with their active life
styles, and suiting to their unique areas of requirements.
The number of students from different streams and levels should be large enough to support the interesting
possibilities of sub-segments here. This can be well utilized by HCL to connect strongly with them. An extensive distribution network could be its strong point for
this market.
Students’ market could be utilized by HCL in another
way. They can be used as the opinion leaders to efficiently and economically penetrate into rest of the markets. These young customers can be approached by HCL
directly through mass media or personal contacts. The
communication to them should empower and encourage them to pass on the message to the next level of
adopters through word of mouth. This is important as
these young people are seen as local experts for laptops
and are consulted by many other customers. The key
here may be the demystifying communication made to
these people which encourages them to relate with
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
HCL’s offer better and makes them comfortable to share
with the potential customers around them. Young executives may also be approached in a similar way.
Small businessmen and corporate executives may be
targeted from the plank of “value for money”. This platform is well shared by their key concern and HCL’s
image strength. Potential corporate executive customers are most likely to be the current desktop users. HCL’s
existing data base and service relations should be extensively used here. Exchange offers can be an effective
sales tool for this segment. This may excite them sufficiently and fit well with the extensive distribution network for the desktop market.
The numbers about each of the segments and their subsegments need to be worked out in details. That is not
possible from the available Case data. Therefore, additional data will have to be collected for reaching to their
estimates. Once these estimates are available, more exact cost estimates for that particular scale of operations
can also be made. With these cost estimates, HCL can
more confidently challenge its existing competitors on
the price front and strengthen its “value for money”
positioning. It shall allow HCL to reap the advantages
of commodifying laptops in the major markets before
its MNC competitors fully exploit their premium
“brand” advantage.
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