Docstoc

HCL Facing the Challenge of the Laptop Market

Document Sample
HCL Facing the Challenge of the Laptop Market Powered By Docstoc
					 MANAGEMENT
    CASE                            HCL: Facing the Challenge
  describes a real-life situation
   faced, a decision or action      of the Laptop Market
     taken by an individual
  manager or by an organiza-
   tion at the strategic, func-              Jaydeep Mukherjee and Mahalingam Sundararajan
   tional or operational level




                                    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 com-
                                    panies (MNC), namely Dell and Acer, during 2009-10, the laptop market had wit-
                                    nessed 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. How-
                                    ever, in 2008-09, consumer preference started shifting to laptops because of the mo-
                                    bility 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.

                                    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
        KEY WORDS
                                    market. It was important that HCL built its position in the laptop category too; it
      Marketing Strategy            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
     Global Competition             revenues of the company over the next few years. Ajai set his aim at 20 per cent
         MNC Brands                 share of the overall laptop market in 2012, which would have allowed HCL to lever-
                                    age the economies of scale in manufacturing and marketing.
    Consumer Behaviour
    Distribution Channel
                                    1   The accounting year is from April to March.
   Indian Desktop market
                                    2   ‘Laptop’ is used generically in the case for portable computing device and would include other products
          Laptop Sales                  typically called notebooks now as well as any such innovation in future.




VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                                        113
HCL’S BUSINESS                                              ture of the products, the margins were small and this
HCL Infosystems was a $2.6 billion revenue company          reflected in its profits. Exhibits 5 and 6 give a snapshot
in 2009-10 with businesses in various areas of technol-     of the business and its financials respectively.
ogy hardware. The key divisions were Hardware Manu-
                                                            LAPTOP MARKET IN INDIA
facture, System Integration, Telecom Product
Distribution, and Office Automation. These divisions        The market for laptop in India was growing rapidly and
were independent profit centres and the decision-mak-       the popularity was driven by the product attributes.
ing rested on the heads of the individual divisions, who    Though the product was introduced in the Indian mar-
reported to the CEO. Most of the divisional heads and       ket in mid-1990s, the acceptance was rather limited as it
senior executives were veterans in the company and          was costly and quite heavy, and it therefore took time
were well-experienced in the various areas of technol-      for the market to develop. However, by 2008, it had be-
ogy hardware. Though the businesses were independent        come a very high-selling product with reasonably wide-
as far as management was concerned, they also worked        spread acceptance among the executives and students.
together while facing challenges in the market.             The most appealing attributes for the consumers were
                                                            portability, internet connectivity at lower costs, many
HCL had been present in the Indian market from the          inbuilt features that were not available in standard desk-
late 1970s, and it had unparalleled distribution reach in   tops, and most importantly, a substantial reduction in
the market space. It had a wide ranging service network     the price difference between desktops and laptops —
that was the envy of all its competitors. It was a house-   the laptop average prices fell from 55,000 INR in 2007 to
hold name in the country and people saw the HCL brand       40,000 INR in 2008, while the desktop prices only came
as Indian, dependable, and trustworthy. It was perceived    down from INR 22,000 to 20,000. Also, the PC required
as a value for money brand and not a premium one,           some additional costs like a computer table, uninter-
which appealed to the majority of the Indian desktop        rupted power supply units, etc., which cost additional
consumers. Currently, it was the only domestic player       INR 6,000, which made laptops a better value proposi-
of any note in the Indian laptop market which was oth-      tion compared to desktops to a large majority of Indian
erwise dominated by the MNC brands.                         population. This trend of at least an annual drop of 10
                                                            per cent in laptop market was expected to last till 2012,
HCL also faced fairly steep challenges. It did not have
                                                            which was likely to fuel the laptop sales.
the deep pockets that its MNC competitors had. It was
also limited in terms of product portfolio as compared      In terms of product attributes, there was not much of
to the MNCs who could offer products from their inter-      difference among the equivalent products of different
national portfolio into the Indian marketplace and en-      brands. However, MNC brands dominated the overall
joy economies of scale. There was also the prevalent and    market. The leader HP was the dominant player with a
widespread perception among laptop consumers that           32 per cent market share, followed by Dell, Acer, and
foreign brands were better in terms of quality, which       Lenovo with 23 per cent, 11 per cent, and 8 per cent re-
was a problem that many Indian manufacturers like           spectively. HCL came in at 6 per cent, and a significant
HCL, faced in the marketplace. The HCL brand was also       part of the sales was to business customers. All the
perceived as old-fashioned as it had been around for so     brands were really putting in a lot of initiative in the
long, whereas the foreign brands were seen as new and       market, from a marketing and communication stand-
exciting, especially among the 20-35 year age group, the    point. Exhibits 7, 8, 9, and 10 may be referred to for sales
fastest growing segment of laptop buyers. Finally, while    figures of different brands and city-wise breakups for
HCL had a great distribution presence, this was built       desktops and laptops.
for its desktop business; Exhibit 4 gives the details of
the share of the different players in the desktop market.   All the competitive products were well distributed
HCL faced the challenge of converting desktop retailers     through the retail chain, though each company followed
into the laptop business.                                   selective distribution. Most outlets were multi-brand but
                                                            only stocked a limited set of brands because of space
The company performance was excellent and was grow-         and investment constraints. It was a mature distribu-
ing from year to year. But due to the commoditized na-      tion system and all products were pushed on the basis

114                                                                 HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
of consumer interest and dealer incentive. The consum-        CONSUMER BEHAVIOUR
ers were becoming more knowledgeable; thus, they were         Laptops and desktops were different product catego-
less influenced by the sales pitch at the retail counters.    ries which used the same distribution channel and
Retail consumers were able to negotiate prices on most        seemed to satisfy similar consumer needs. However,
brands by comparing prices across different retail out-       they were considerably different from each other, as was
lets. Thus, margins were thin for manufacturers as well       evident from the fact that except for the market leader
as dealers, but the volumes more than made up for it.         HP, the preeminent brands in the desktop space were
Interestingly, in 2009-10, the sales of laptops in the top    quite different from the laptop space. One way to ex-
four metros grew by 173 per cent and in the rest of India     plain the above could be the fact that while both the cat-
by 48 per cent; however, consumption in the next four         egories fulfilled the same functional need of computing,
cities declined by 16 per cent. The sales of desktops in      the usage of desktops and laptops could be consider-
the top four metros increased by 30 per cent, in the next     ably dissimilar.
four metros by 21 per cent, while in other smaller towns,
it declined by 61 per cent.                                   Desktops are used at a fixed place, either at office or
                                                              home, and for specific tasks, mostly work-related. They
The PC market in India was predominantly price-con-           need additional accessories for enhancement of the us-
scious; however, 5 per cent of the target market could        age, like extra speakers, gaming cards, and some neces-
be termed affluent, capable of purchasing premium             sary additional gadgets like uninterrupted power supply
products and typically residing in the metro cities. There    battery, computer table, etc. Laptops can be used virtu-
were a couple of brands, namely Sony and Apple, which         ally anywhere. Because of the portability feature, a sig-
catered to this segment. They had excellent products,         nificant part of the laptop usage is for entertainment.
great in quality and aesthetics and fitted with the best      Laptops are self-sufficient product, which come with
features. Their customers were typically image-con-           inbuilt speakers and adequate battery life so that it is
scious people with not much of functional requirement         not necessary to plug in additional accessories most of
other than the desire to own the best. These brands of-       the time; hence the overall cost to the consumer is per-
fered higher trade margins as the products had a lim-         ceived to be lesser. Finally, desktops are preferred for
ited market, and they were also perceived as expensive        multi-people usage – i.e., many people could use the
by the retail channel. Exhibit 11 gives the product fea-      same machine, while laptops are generally seen as per-
tures and Exhibit 12 the advertising spends.                  sonal assets, meant more for a single user or at best the
One of the challenges that HCL faced in the branding of       family.
laptop was that it was an Indian brand. Across consumer       The decision criteria and the buying process of laptops
durables and office automation products, it was ob-           and desktops took different paths. While the basic use
served that foreign brands were perceived to be better        of both was for computing, the trigger for desktop was
by the consumers, even when the products for both for-        primarily work and study-related activities, whereas for
eign and Indian brands had the same specifications and        laptop, it was work and entertainment. Desktops were
were made in the same factory. This could be attributed       perceived as a commodity; and so, the focus was more
to the Indian craze for all foreign products that existed     on the amount of features that a certain price could buy.
in the 80s and 90s when the economy was closed. With          This was the reason that there was a huge unorganized
the opening of the Indian economy in early 1990, though       sector in this market. Laptop was a more visible prod-
there was a reversal in this trend, it still dominated many   uct; so, consumers were more image and brand con-
product segments, including laptop. However, from             scious when it came to a buying decision.
HCL’s point of view, the positive aspect was that the
trend was changing with increasing international rec-         There were two major segments in the laptop market:
ognition of intellectual power of Indians as well as pro-     the enterprise (also referred to as business or corporate)
duction and R&D capabilities of the Indian companies.         segment and the consumer (retail) segment. The data
In fact, many industry analysts predicted that in another     regarding the size of the segments are given in Exhibits
decade, the India factor could play a positive role and       13 and 14. The enterprise segment had a collective deci-
Indian brands could command premium.                          sion making process; typically, it was decided by the

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                  115
head of the IT department with inputs from the heads       and were least knowledgeable. For them, it was a fash-
of the user departments. The decision-making was ap-       ionable accessory, a talking point and more of a status
parently rational, specification-oriented, and consulta-   symbol.
tive but the people involved were not really technically
                                                           The manufacturers had not designed the product port-
savvy enough to discern the product differentiation. The
                                                           folio specifically targeting any defined consumer seg-
business buyers of laptops were also concerned with the
                                                           ment in the retail market. The products could be broadly
image connotations as the products were carried by
                                                           classified as two core product ranges – basic models with
employees outside the office. Most marketers had spe-
                                                           minimal features, and the other range at the mid-end
cialist sales force to address this segment and much of
                                                           with good styling and advanced features. Sony and
the sales were acquired directly or jointly along with
                                                           Apple were premium brands having only high-end
the sales team of the distributors.
                                                           products, which were aspired for by many but had lim-
The retail consumer segments buying these products         ited number of buyers because of their high price. The
were also different. The desktops were primarily bought    manufacturers tried to create a generalized brand pull
for work-related purposes, be it at office or home. The    across the segments, but provided a bouquet of prod-
decision was of the elder member of the household like     ucts and features to meet the specific needs of the di-
the father. Laptops were purchased more often by           verse consumers.
younger people who bought it for themselves and their
major decision criterion was entertainment and not         COMPETITIVE MARKET STRATEGIES FOR LAPTOP
work. Even if the father paid the money, members of        The major determinants of success in the market were
the younger generation were the core decision              distribution and communication, as products were simi-
influencers specifying the product features, brand, etc.   lar and were priced competitively. The market leaders
                                                           traditionally had a slightly higher price for products
The consumer segment was for individual buyers – the
                                                           which were high on features as compared to the com-
decision was made by the individuals and the selective
                                                           petitors; this scenario had changed since 2008. One of
distribution channel was used to tap the same. This ac-
                                                           the characteristics which prompted the change was that
counted for 60 per cent of the market and was the seg-
                                                           a company would launch a product with a feature ad-
ment that was growing the most. While no manufacturer
                                                           vantage, but that would be copied by the competitors in
was addressing specific segments, the market broadly
                                                           two months. In fact, so huge was the possibility of obso-
comprised three distinct groups. The fastest growing
                                                           lescence that premium pricing was no more in vogue.
segment included the young students or newly em-
ployed – they were interested in lowest price offerings    Distribution was an important element in the market-
with maximum features and were normally first time         ing mix. The established players in the Indian market
buyers. The middle-aged consumers were typically us-       like HP and Lenovo had excellent distribution cover-
ers of desktops who were upgrading to laptops. They        age. The newer brands were aggressively building their
were concerned about new features but their purchase       distribution networks and were likely to have adequate
decision was mostly influenced by brands. There were       reach in another two years. HCL was in a unique posi-
a few elderly buyers who depended on the retailer’s re-    tion in that it had excellent distribution as far as desk-
commendation and service assurance.                        tops were concerned, though it was still building its
                                                           laptop distribution network. This was because HCL had
Currently, the biggest segment for laptops was the mid-
                                                           launched its own range of laptops in 2008 and the chan-
level corporate executives. They used laptop extensively
                                                           nel was being built up from that period. However, HCL
for work and play and saw it as a way to climb the cor-
                                                           enjoyed the benefit that it could build its laptop channel
porate ladder. Typically, they had been PC users in the
                                                           on the back of its widespread desktop channel.
past and laptop was their second computer purchase.
They knew what they wanted and were seeking value          Communication and brand building provided the op-
and not really price. The smallest segment in terms of     portunity for creating differentiation that was being ex-
number of units was the senior executives, who usually     plored by all the brands. Each had its own
had the best machines, but used only the basic features    communication and media strategy. Some of them had

116                                                                HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
international campaigns while some created specific          tail consumers. While internationally Dell was a value
campaigns only for the Indian market. All of them used       player, in India, they focused on being a high end player
both advertising and sales promotion aggressively,           (not premium, but on par with HP/Lenovo). They also
though media strategy in terms of the budgets allocated      created a retail distribution model in India (unlike their
in different media varied from brand to brand. Exhibit       internet-based model followed globally), as they real-
15 gives a brief idea about the positioning planks used      ized that not many people in India currently bought
by competitors.                                              laptops through the online channel. Dell’s huge mar-
                                                             keting spends, brand salience, good performance, inter-
Another determinant of success in the market was ‘af-
                                                             national name, and improved retail distribution helped
ter sales service’. With the growth in the unit sales and
                                                             it in building a good market share.
geographical spread across more and more remote lo-
cations, this was becoming important. The importance         Acer’s 2009 strategy was multi-pronged, with initiatives
of service increased as more and more people were us-        in product, price, promotion, and channel. What they
ing the machines heavily and many problems often             did was spend hugely in the market, have many prod-
cropped up because of the rough usage. Thus manufac-         uct variants and a slightly discounted price, and many
turers were forced to beef up their service infrastruc-      promotional offers. They also roped in a very popular
ture by increasing service locations, offering online and    film celebrity to endorse their product. Industry ana-
telephone-based service solutions, and thus become           lysts attributed the growth in market share to the in-
more service-driven. HCL had an advantage of having          creased spends which leveraged the overall buoyancy
a huge service base in place, due to its longevity in the    in the laptop market.
market and the preeminence in desktops.
                                                             Initially, most retail consumers and enterprises bought
All manufacturers offered both desktops and laptops,         desktops as there was a huge price difference between
though their sales performance in these two markets was      desktops and laptops. Desktops were seen almost like a
normally very different from each other. In the desktop      commodity and the decision-making was based on the
category, the market was dominated by HCL and HP             best specification that was offered by the various brands
and followed by all the other players in equal measure.      for the lowest price. After-sales service also played a part
The laptop market was led by HP, with Dell and Acer          in the decision-making, but its importance was limited
building their market shares through huge marketing          because all the manufacturers were now able to give at
investments.                                                 least an acceptable level of service. The desktop market-
HCL traditionally had products at the lower end of the       ers faced a much bigger and relatively uncontrollable
spectrum, and they were priced lower, to the tune of 2-      challenge from the unorganized sector entrepreneurs.
5 per cent, than the comparable products from the MNC        These entrepreneurs assembled the desktops, and could
brands. In future, HCL wanted to have a presence in the      offer a price advantage to the tune of 30 per cent, thus
premium customer segments also, and were slated to           having a huge market share in the price-sensitive cus-
bring in a new range of products with good looks and         tomer base. With an all-round reduction in prices for
features in early 2010. By end 2009, the MNC brands          the hardware segment, consumers had started moving
had also dropped their prices and so there was virtually     to branded desktops from the unorganized sector as the
no perceptible price differential between the different      price difference had come down to only 10 per cent in
key brands. HCL needed to work out its core position-        the last year. There was simultaneously a huge move-
ing and appeal in the marketplace. Thus far the com-         ment from the desktops to laptops. Laptop buying was
munication done by HCL had been purely functional,           based on various factors. While price, specifications, and
and the brand value had not been strongly established        after-sales service played a significant role, brand value
in the consumers’ minds.                                     was becoming an important factor for choice.

Dell had a strong offering in the enterprise segment as it   A laptop was more visible to others and more personal
was perceived as having very functional and high per-        than the desktop and hence buyers were becoming con-
formance products. It leveraged this functionality along     scious of the brand that they would prefer to carry. This
with its competitive pricing when it focused on the re-      was also impacting the decision-making criteria of the

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                   117
enterprise segment — they were not factoring in the           was in the maturity phase while the laptop was still
image connotation of the brands as the users carried          growing. Also, the consumers of desktops were more
these machines with them to meetings outside the of-          conscious about prices and robustness of the product
fice. This shift was also helped by the fact that the top     while laptop customers were product feature-driven and
brands were reducing their prices, and there was less         brand-conscious.
differential between them and the value brands for com-
parable products.                                             Debate on Marketing Strategy
                                                              Ajai met the top executives in December 2009 to discuss
The Distribution Channel Dynamics                             the 2010 strategy. The abridged organization structure
The predominant distribution model used in the indus-         is given in Exhibit 16. The following discussion took
try was standard across the major players. The commer-        place:
cial segment was addressed directly or through a hand-
ful of national distributors, who were directly billed from   Ajai – “You are aware that we need to take some key
the company. The smaller business customers were              decisions in the laptop market. I wanted to get your in-
                                                              puts on the approach we should take.”
marketed by the distributor’s sales team but major cli-
ents were also supported by the sales team of the princi-     George Paul, Executive Vice President (EVP), Market-
pal.                                                          ing – “I suggest we go in for some detailed market re-
The retail segment had a three-tier distribution. The         search before taking any decisions. We don’t have
                                                              sufficient information to take a call. We should do quali-
manufacturer supplied to the national distributors. These
                                                              tative research to understand consumer attitudes and
national distributors supplied to the regional distribu-
                                                              gap areas and then ratify it through some detailed quan-
tors, who serviced the retailers; they in turn sold to the
end consumer. Since most of the retailers were multi-         titative research. We can then work out detailed opera-
brand, they were motivated to sell only specific brands       tions, marketing and sales plans.”
and kept switching loyalty. Some manufacturers circum-        EVP, Sales – “Yes, but the market is not going to wait
vented the problem by opening their own model stores,         for you, it might be too late then,” said EVP, Sales,
typically located in high traffic markets, but these stores   Rajinder Kumar. “Every one of the competitors knows
were essentially for publicity. These stores were staffed     the situation and will have their plans ready. Dell and
by well-trained and dedicated employees who sold the          Acer have already moved ahead and the others are not
brand rather than just generating product sales. The con-     going to wait any longer. Anyway, the good thing is
sumers typically understood the product features and          that our product/brand is considered as good as any
got educated in the model stores. Many consumers learnt       other product/brand, or so I understand from the field.
about products and features on the Internet and also took     We should just blitz our way through with some high
advice from some young people who were known as               decibel communication.”
experts on technology.
                                                              EVP, Marketing – “But what will we say in the commu-
There were also influential retail chains which dealt with    nication? That’s one of the key deliverables of consumer
the manufacturers directly – like Tata’s Chroma, Future       research.”
Group’s Home Town, etc. These retail chains accounted
for about 15 per cent of the entire retail market and thus    EVP, Sales – “Say anything, how does it matter, as long
enjoyed a lot of clout. The online store was another chan-    as you plug the brand. Have you seen the competitors’
nel which offered limited business currently but was          communication? They are pretty bland, though effec-
expected to grow in the future. In addition, each manu-       tive.”
facturer had its own service chain — a few of them were
                                                              Ajai – “Before we get into what we say in our communi-
company-owned and others were franchised.
                                                              cation, we need to think about our approach to the mar-
There was no major difference in the distribution chan-       ket. What sort of investments do we make? Do we go
nel for laptops and desktops. However, the differences        into this with a heavy investment, or should we be more
in business were driven by the fact that desktop market       cautious in our approach?

118                                                                   HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
J V Ramamurthy, COO, said – “I think we need to be           COO – “All features are reproducible real fast. You know
cautious. There is no way by which we can jump from a        all laptops are made by 3-4 OEMs from Taiwan. But I’m
weak No. 6 to No. 1 anytime soon. We don’t have any-         sure there would be some features that the competitors
thing that the competitor doesn’t have, and I don’t think    don’t have or have not used yet.”
we should do a price war, that might make us lose brand
                                                             EVP, Marketing – “But how do we choose the features?
equity in the corporate segment as well.”
                                                             For that we need some solid consumer research. Sorry
Ajai – “So you’re saying that we shouldn’t go for the        to sound like a stuck record …”
retail segment?”
                                                             Ajai – “OK, let all of us put our thoughts together and
COO – “No, we should launch, but pretty much stick to        meet next week. We have to use our existing knowledge
what we say in the Enterprise segment – ‘The high qual-      and experience to take the decisions, and that should be
ity, no nonsense laptop’. We should focus on building        adequate to start. We do not have the time to wait for
the channel and become strong there. We should high-         the formal market research findings to take our initial
light our service credentials and build it into our com-     decision. However, if need be, in future, we may com-
munication.” (The value proposition of HCL for the           mission market research to help us tinker with the strat-
enterprise segment is given in Exhibit 17).                  egy. We’ll close the action plan then. Thanks for your
                                                             time.”
EVP, Sales – “I don’t think we can get anything by being
cautious. We have to go all out; otherwise we don’t stand
                                                             DILEMMAS OF THE CEO
a chance. Don’t forget that Dell and Acer have huge
marketing and promotion spends and we will not be            Ajai had a few thoughts on the way forward. He could
able to do much if we take a slow stance.                    replicate the Dell and Acer models of intense consumer
                                                             advertising by building adequate retail support. How-
Ajai – “Whatever investments we make, we should think        ever, given the high investment necessary for this strat-
about how we approach the market. JVR wants to look          egy, he would be putting all his eggs in one basket. Also,
at it as an extension of the Enterprise market as we al-     he was not convinced about the success of following a
ready have a very good equity there.                         competitor’s strategy.
EVP, Marketing – “I think that is one possible approach.
                                                             Another course of action could be to focus on a particu-
But the core segment that decides on laptops is the youth.
                                                             lar segment and build leadership there. One possible
I am not sure that our Enterprise positioning would be
                                                             segment was the B2B space and HCL had high visibility
relevant to that audience.”
                                                             due to its preeminence in desktops. The challenge here
EVP, Sales – Why don’t we focus on a specific segment        was that the B2B buyers were notoriously price-sensi-
within the youth? Nobody is doing that. We could build       tive and not brand loyal. HCL would continue to be a
a strong appeal on one segment and build from there.         value player and this segment would always be a low
Dell initially focused on the Small and Medium Enter-        margin one.
prise segment, built its credibility and that’s got them
                                                             Ajai believed that the HCL brand had to be made more
returns across the market.
                                                             relevant and appealing to the audiences. He felt that a
EVP, Marketing – “That is worth looking at, certainly.       budget of 600-800 million INR would be optimal for the
But which segment? The younger segment does not have         organization to spend on advertising and that would
the ability to spend much money and the older segment        not be sufficient to have an impact on the entire con-
is not so involved in decision-making. We need to un-        sumer base for laptops. However, if they focused on the
derstand this more closely.”                                 specific lucrative market segments, it could be adequate;
                                                             thus there was the need to focus on a specific segment.
COO – “You are right – ‘You’ll never get a second chance     One important segment was the youth segment in the
to make the first impression’.”                              retail market – they were the highest users of comput-
Ajai – “Can we create some new features to launch in         ers and also the most influential and knowledgeable.
the market? Something the competitors do not have?”          They currently perceived HCL as an old-fashioned brand

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                 119
and were more enamoured by the MNC brands. Also,                                The economies of scale were very pronounced both for
they could not afford to pay much; and so, most of them                         laptops and desktops. Thus the cost of production could
purchased the entry level products.                                             vary between 70-75 per cent of the selling price depend-
                                                                                ing on the economies of scale achieved in manufactur-
There was also scope for learning from the mobile mar-
                                                                                ing. The typical distribution costs were around 12 per
ket. Since HCL was a distributor for Nokia mobile hand-
                                                                                cent and the internal sales and marketing overheads
sets, some insights from that market were available. The
                                                                                were in the range of 7-9 per cent based on the company’s
mobile market was a high decibel market, which had                              market share and intensity of competition. As a thumb
achieved huge penetration among Indian consumers. It                            rule, in the laptop market, economies of scale started
was focused on good product innovation, and price de-                           operating after reaching a market share of 10 per cent,
livery. Service was turning out to be important and vari-                       and the impact was around 2 per cent of the selling price.
ous segments were being created. Ajai reflected on this                         For every additional market share of 5 per cent, the in-
category and on whether any points from this could be                           cremental advantage of economies of scale was 2 per
applied for laptops. The problem was that the price of
                                                                                cent of the selling price. This effect was not really ob-
the mobiles was considerably lesser which facilitated
                                                                                servable after reaching a market share of 30 per cent.
adoption; also the category was entirely different from
                                                                                Also, the average selling price of the laptop was expected
the consumer’s expectation point of view.                                       to fall by 10 per cent year on year due to improvement
In the mobile handset market, it was important that the                         in technology and intense competition. The key chal-
product delivered on the promised features. Most of the                         lenge was to assess the impact that the rapid changes in
consumers were not very technology-savvy; they only                             the market and strategic marketing shift could have on
knew certain basic features and hence just looked for                           the financial results.
them. Hence a robust product design solved the prod-                            It was also important that the after-sales service be good.
uct aspects quite well. Communication and marketing                             Laptops were a high-use category and needed good sup-
would get the customers into the store, but unless the                          port service. It is one of the hygiene considerations for
product looked good and attracted customers, the sale                           consumers. Delivering good service also had an impact
would not happen. A lot of purchase decisions changed                           on the margins due to the travel cost incurred for geo-
at the showroom; so, it was important that the distribu-
                                                                                graphical coverage and for paying salary to a large num-
tion was enthused and well rewarded for the products.
                                                                                ber of trained service people. HCL was, however, in a
This would put pressure on margins and that factor
                                                                                better position here due to its extended desktop service
needed to be looked at very carefully. In laptops, the                          and support staff, which could also service laptops at
situation was quite different. The consumers were quite                         no extra cost.
technology-savvy and were expected to play with it and
use it in different ways. The experience hence could be                         Ajai wanted to work out the numbers to be sure that his
quite varied and difficult to manage.                                           marketing strategy and budgets were prudent.


Exhibit 1: Desktop Sales in India (in Units)

                          6,000,000
                                                                                       5,522,167
                                                                    5,490,591




                                                                                                                   5,525,992




                          5,000,000
                                                                                                     5,279,648
                                                      4,614,724




                          4,000,000
                                        3,632,619




                          3,000,000
                          2,000,000
                          1,000,000
                                  0
                                      2004-05       2005-06       2006-07           2007-08        2008-09       2009-10

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
                                              Services Footprint               1       Largest manufacturer of PCs
               HCL Infosystems                Internet and                             State-of-the-art manufacturing for PCs, business servers,
                                            related services    Computer               workstations, colour monitors, etc.
                                                   4%            systems
                                                                  26%          2       Leading System Integration organization
                                                                                       Pan-India SI solution provider in verticals like Power, Telecom,
                                             Telecom
                                                                                       E-governance, Railways, Retail, BFSI, Media & Entertainment,
                                            and office
                                           automation                                  Health, Infrastructure, Education, etc.
                                               70%
                                                                               3       Largest ICT distribution and retail Network
  Revenue: USD 2.6 Bn                                                                  • 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
        Ranked “Best IT Employer in India” by DataQuest - Sep 2009                       solutions for security and surveillance

Source: Company Brochures.


Exhibit 6: HCL Infosystems’ Abridged Financial Results (in INR million)

                                                                                                     FY 2008-09           FY 2009-10
                                                                           SALES
                Computer Systems & Other Related Products and Services (Net)                              34,139              35,340
                Telecommunication & Office Automation                                                     88,749              85,290
                Internet & Related Services                                                                  461                 767
                Less Inter segment revenue                                                                  -821                -898
                Total Sales                                                                              122,528             120,499
                                                                      PROFITS
                Net Profit/Loss before Tax and Interest                                                     4,057               3,925
                Computer Systems & Other Related Products and Services (Net)                                1,773               1,904
                Telecommunication & Office Automation                                                       2,462               2,159
                Internet & Related Services                                                                  -178                -138
                Total Profit before Tax                                                                     3,513               3,513
                Net Profit after Tax                                                                        2,400               2,424
Source: Annual Reports.


Exhibit 7: Desktop Market Shares (2007-09)

                                            2007                                         2008                                       2009
Desktops                           Units        Market Share                   Units        Market Share                   Units        Market Share
Hewlett-Packard                   757,415            16.02                    727,073            13.03                   642,792             12.34
HCL                               724,830            15.33                    660,113            11.83                   550,689             10.57
Dell                              302,091             6.39                    339,990             6.09                   288,701              5.54
Lenovo                            386,089             8.17                    296,309             5.31                   211,792              4.07
Acer                              263,711             5.58                    317,611             5.69                   359,623              6.91
Wipro                             158,770             3.36                    182,660             3.27                  163,655               3.14
Others                           2135,132            45.16                   3058,351            54.79                  2990,794             57.43
Total                            4728,038           100.00                   5582,107           100.00                  5208,046            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
                                             Year             Top 4           Next 4        Rest of India
                                             2004-05              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                                        2008                                      2009
Laptops                            Units          Market Share                  Units      Market Share                    Units     Market Share
HCL                              131,683              7.44                     161,088          6.96                   292,785              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
                                           2005-06           47          10                43            100
                                           2006-07           36            6               58            100
                                           2007-08            7          24                69            100
                                           2008-09           18            7               75            100
                                           2009-10           68            4               29            100
Source: IMRB Data.


Exhibit 11: Features of Important Brands

                         HP                   Dell                     Acer               Lenovo                HCL                  Sony
Display                  Bright view          True life for clear                         Vibrant view          Perfect technology
                         and flush glass      and bright view                                                   for clear and
                                                                                                                bright display
Keyboard                 Spill proof and      Backlit (optional)       Spill proof        Spill proof and       Isolated             Isolated,
                         backlit (option)     and spill proof                             backlit (option)                           backlit and
                                                                                                                                     spill proof
Security (against        Finger print         Finger print             Finger print Veriface and                Finger print         Finger print
unauthorized             and spare key        and password             and password finger print                and password         and password
booting)



VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                                              123
                                                                                                    Exhibit 11 (contd.)
                       HP             Dell                 Acer         Lenovo          HCL               Sony
Data Safety            TPM and         TPM                 TPM          TPM             HCL Encryption    TPM
(Encryption)           Privacy Manager                                                  S/W and TPM
Data Recovery          HP Recovery    Dell Ultimate        Acer e-      ThinkPad        HCL EC2           Sony
against OS             Manager                             Recovery     restore                           Recovery
Corruption,                                                S/W          recovery                          S/W
Virus Attack, etc.
Source: Internal Reports.


Exhibit 12: Advertising Spends

                                                                                                           (INR million)
                                             Advertisers      2008      2009
                                             HP                   130    470
                                             HCL                   10    140
                                             Compaq               150    210
                                             Sony                 150    340
                                             Toshiba              90     200
                                             Dell                 500   1,150
                                             Wipro                  0     20
                                             Acer                 120    250
                                             Lenovo               230    150
                                             Samsung              80      80
                                             LG                    50      0
                                             Apple                 30      0
                                             Others               100     70
                                             Grand Total      1,640     3,080
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
              Category: Govt
                                                                                3. Latest technology and architecture
              1. Docking port
              2. Battery life more than 4 hrs in working condition
              3. Linux support
                                                                      Category: Education
              Category: BFSI
                                                                      1.   High Resolution Camera and Speakers
              1. Basic computing device at good price                 2.   Sleek but not small display
              2. Linux support                                        3.   Higher HDD and Memory
              3. Battery life more than 4 hrs                         4.   Colour/Design
Feature




                  Looks/Brand

Source: Company Documents.




Jaydeep Mukherjee is an Associate Professor at the Manage-           Mahalingam Sundararajan is Vice President, Corporate Strat-
ment Development Institute, Gurgaon. He completed his Ph.D           egy - HCL and leads the brand building activities of HCL across
from IIT Kharagpur and PGDM from IIM Calcutta. Before join-          the Enterprise. He also spearheads the marketing activities of
ing academia, he had worked in various capacities in the sales       the various initiatives of the Shiv Nadar Foundation. He has
and marketing function of Godrej GE Appliances¸ ICI India            worked for over 20 years in various roles in technology mar-
Limited, and Aristocrat Marketing Limited for a decade. He           keting and advertising. Prior to HCL, he has worked with
offers electives in Product Management, Marketing in the Vir-        Microsoft and Hexaware Technologies. He has also worked
tual World, Marketing Strategy, and Sales and Distribution.          for eight years in strategy planning with advertising agency
He advises HCL Infosystems Limited on their New Product              JWT. Sundar has a degree in Chemical Engineering from IT
initiatives and has conducted customized training for execu-         BHU, Varanasi and a PGDM from IIM, Bangalore. His inter-
tives from Nestle, HP, HMT, BSNL, etc. He takes keen interest        ests include sports and fitness.
in developing cases from the Indian context for classroom
teaching.                                                            e-mail: mahalingams@hcl.com

e-mail: jmukherjee@mdi.ac.in




126                                                                             HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
 DIAGNOSES
    presents analyses of the
                                  HCL: Challenge of the Laptop Market
     management case by
 academicians and practitioners         Jaydeep Mukherjee and Mahalingam Sundararajan




                                  Case Analysis I
                                  Rajesh Nair
                                  Executive Director, Marketing
                                  Ipsos India
                                  Email: rajesh.nair@ipsos.com

                                  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 in-
                                          dustry. Like most other sectors, the market for laptop has gone through in-
                                  teresting changes in technology and innovation, and consumer need states and pur-
                                  chasing 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. Con-
                                  sumers of computing today are increasingly living a mobile routine, progressively
                                  getting technology savvy, proactively getting brand-oriented, and are rapidly be-
                                  coming status conscious. One of the important categories that reflect all this in pur-
                                  chase 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
                                  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 Hard-
 The current issue of Vikalpa
                                  ware Manufacture, System Integration, Telecom Product Distribution, and Office
 has published a Case titled,
                                  Automation. HCL has been a popular, household name especially in the desktop
    HCL: Challenge of the
     Laptop Market. This          market. A totally Indian brand, HCL is perceived to be a dependable and trustwor-
 Diagnoses features analyses      thy brand, and carries a value for money image. These worked hugely in favour of
 of the Case by Rajesh Nair,      the Indian desktop consumers, who typically went for basic, functional units. Small
     Anirban Basu, Nitin          wonder, HCL has been one of the leaders of the desktop market in the country. The
   Pandey, Moutusi Maity,         greatest strengths of HCL, however, have been their unparalleled distribution reach
  Rajat Gera, and A P Arora.      and their wide service network.


VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                  127
Ambiguous Strengths and Unleveraged Potential                 gered by consumer demands and their changing need
                                                              states. The laptop customer of today is more informed
Though there is no direct evidence reported in the Case,
                                                              and educated, wants machines with excellent configu-
it appears that many of HCL’s strengths are strengths
                                                              ration offering greater and better performance capabili-
in isolation, not capable of leveraging the laptop category
                                                              ties, likes versatility and exclusivity, and prefers smart
because of the intrinsic differences in consumer choice
                                                              and sleek looks. More importantly, the laptop consumer
behaviour in laptops vis-à-vis desktops. Some of these
                                                              today is brand conscious, and wants to own a brand that
strengths therefore can be contended double-edged too,
                                                              is an imprint of his personality than have a device that
proving to be counteracting in varying degrees in the
                                                              executes his routine computing tasks. All this has of-
laptop category. HCL is of course an Indian brand, and
                                                              fered tremendous opportunity to the marketers to inno-
a good one at that, but this has probably remained a
                                                              vate and differentiate. Most of the competitive activity
dormant fact than cashable equity in the laptop category.
                                                              around product extensions and innovation, branding
The strengths HCL as a brand has accumulated or built
                                                              and communication, and positioning and differentiation
over time have been certainly good for desktops, but
                                                              has been to make it more appealing. Though not forti-
not quite for laptops. Though HCL entered the laptop
                                                              fied by timely consumer insights and market knowledge,
category a few years ago, they could not climb their share
                                                              HCL is aware of the promise the market offers. This is
– not because their product was inferior or because they
                                                              more than evident in Ajai’s thoughts and words, but as
entered the category late, but because the very brand
                                                              a Company, they have not acted yet. The good news is
was not in the evoked set of the laptop buyer. Their
                                                              that they now want to.
branding has been weak; their positioning has been un-
clear; their communication has been little and basic.
                                                              Key Areas of Action
Small wonder, they are undifferentiated in the laptop
category. Their brand stretch does not seem to have ap-       HCL needs to move fast and smart. The target of 20 per
pealed to the consumer; they do not seem to have made         cent by 2012 is uphill; doubling to 12 per cent appears
the right consumer connect.                                   more realistic, with the right moves. Some of their impor-
                                                              tant points of action shall be to attempt the following:
The Missing Link
                                                              Improve the Offer
The one important missing link in HCL’s vision and
                                                              Any real product differentiation is hard to sustain in this
ideas for the laptop market is consumer insight. The
                                                              category. Product attributes such as weight and screen
debate in Ajai’s core team – amongst the heads of Mar-
                                                              size, processor speed, memory, graphics and sound card,
keting, Sales, and Operations – gives ample evidence of
                                                              USB slots, Wi-Fi, hard disc capacity, and power and bat-
this fact. While George Paul argues for consumer re-
                                                              tery have by and large become hygiene. HCL should (a)
search before the strategy is overhauled, Rajinder Kumar
                                                              improve their offer, and (b) expand their range.
finds it useless. Conflicting points of view such as this
are not uncommon in discussions between Marketing             Assuming that technical and functional specs are hy-
and Sales, but the sheer fact that HCL does not have any      giene, the former is about smart aesthetics. Limited yet
updated consumer insights, other than some in-market          extant consumer research has shown that the laptop
metrics and trends, is indeed a lacuna, which is likely to    consumers score high on show-off quotient, attach con-
make their efforts in branding and positioning more of        siderable emotional value to their laptops, and consider
guesswork. Despite George Paul’s push, Ajai vetoes any        their possession to be an extension of their personality.
such investment because there is hardly any time. They
are already quite late!                                       The latter is about more models and, in a limited way,
                                                              extensions. Netbooks are a worthy extension, but tab-
The Market Promise                                            lets are perhaps not. Given that tablets have thus far
                                                              performed below expectations because of the confusions
The greatest promise for HCL, as much as for the other        created in the market, HCL might want to stay clear of
players, is that the laptop market has been growing rap-      risky experiments in extensions. More important, there-
idly. Throughout its growth and development, the              fore, would be to target the right segments and invest in
laptop market has gone through enormous changes trig-         branding.

128                                                                                                           DIAGNOSES
Target the Right Segments                                     termined after considering the media mix they are con-
Within the retail segment, HC’s core target should be         sidering, the channels they want to air, their benchmark
young aspirants in Tier I and Tier II markets. These          exposure level given the clutter in the category, the
young aspirants are likely to be either college students      number of bursts they want to do, the duration of the
or employees on their first job. A good majority of them      commercial and so on. In the absence of such informa-
would have had desktops at home, and would now want           tion, one is tempted to advise Ajai to:
to upgrade. For them, the very possession of a laptop is
                                                              1. Avoid print for the time being, given that the com-
proof to enhanced social status. They will still look for
                                                                 munication strategy must be primarily image-ori-
economy options. HCL should continue to play the value
                                                                 ented rather than information-oriented.
for money game, even as not compromising on the hy-
                                                              2. Go digital and television. Digital medium would of-
giene functional factors and the looks. The secondary
                                                                 fer interesting prospects: (a) this category does re-
target would be the affluent variety seekers, all across
                                                                 quire an uninterrupted digital presence; (b) it is
the metros and in Tier I and Tier II markets. The line
                                                                 cheaper; (c) it is more amenable to better and robust
extensions and premium models will appeal to them,
                                                                 tracking than other media. HCL should make a pres-
with the right mix of branding and ATL investments.
                                                                 ence on almost all Digital platforms, and stay live all
Within the enterprise segment, HCL will do well to fo-           through the year. A ballpark of INR 5,000,000 per
cus on the small through medium-sized companies,                 month is likely to generate good visibility and re-
SOHOs, and entrepreneurial firms. Collectively, they             sponses. In Television, a 30-seconder, 4-week burst in
form a sizeable sub-segment, and are likely to respond           a mix of news, movies, and general entertainment is
positively to the non-premium promise of HCL.                    likely to fetch a 4+ exposure amongst 40 per cent of
                                                                 the core target. This could approximately cost INR
Invest in Branding and Communication                             25-30 crore. Since many players in this category are
                                                                 likely to do a festive season burst, HCL could think
It is critical for HCL to have a few strong points of own-
                                                                 of two bursts with approximately INR 10 crore over
ership or difference on the critical functional and im-
                                                                 and above the budget suggested above. They could
agery parameters that drive category choice. Since HCL
                                                                 do one pre-festive burst for 2-2.5 weeks, and one mid-
has unfortunately not invested in consumer research,
                                                                 festive burst for a week or ten days. Any investment
they are in a vacuum, regarding branding and position-
                                                                 and plan beyond this in Year 1 of brand overhaul is
ing options. It is naïve to continue to claim that HCL is a
                                                                 likely to be risky, given the limited brand value and
“dependable and trustworthy” brand. HCL perhaps is
                                                                 visibility HCL has in the laptop category. These are
a dependable and a trustworthy brand, but they cannot
                                                                 ballpark recommendations – the key lies in the qual-
position on these lines because these are not the key
                                                                 ity of branding, quality of execution, and choice of
differentiators in the category. There is no evidence that
                                                                 media.
HCL owns these attributes either. They do not know
                                                              3. Discover alternative, new kinds of media. It is im-
what, beyond “dependable” and “trustworthy” consum-
                                                                 portant for HCL to recognize that marketing experi-
ers relate HCL to. Their immediate task shall be to seek
                                                                 ences are becoming more personally relevant.
expert advice from their ad agency and gain an under-
                                                                 Edelman and Salsberg (2010)1 write about the way
standing (or confirm their current understanding), on
                                                                 consumers perceive and absorb marketing messages.
the positioning themes and routes totally owned or oc-
                                                                 At first glance, personal conversations and experi-
cupied by competition. Progressing from this under-
                                                                 ences do not seem the best way of getting the scale
standing, they must determine what their promise must
                                                                 and reach most marketers crave. But new kinds of
be, what their differentiation will be, and what their
                                                                 media enable richer interactions and improve target-
positioning shall be.
                                                                 ing, so they encourage consumers to share the things
Investing optimally in communication is the next im-             that make them happy. Some companies have de-
portant step. Ajai looks at a budget of INR 600-800 Mio,         veloped expertise in the use of Twitter and other
but it is not clear whether this is only for laptops.
                                                              1   Edelman, David and Salsberg, Brian (2010): “Beyond the Paid Media:
Whether or not this budget is sufficient can only be de-          Marketing’s New Vocabulary,” McKinsey Quarterly, November.


VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                             129
     blogging platforms to promote new products and                       with experiential word-of-mouth by carefully recruited
     promotions by leveraging their customer base to talk                 user-buyers will lead laptop prospects to checking out
     about how much they like the Company’s products.                     the HCL brand in the outlets at a rate more than the
     If this sounds far-fetched, HCL can do well to har-                  current. The first moment of truth to a prospect will be
     ness the experiential word-of-mouth. This, accord-                   the display piece at the point of sale together with the
     ing to Bughin, Doogan and Vetvik (2010)2, will pro-                  dealer/retailer spiel. Careful in-store activation and
     vide ample opportunity to share positive experiences                 dealer training should be implemented in select outlets
     and make the story relatable and relevant to the au-                 in Tier I and Tier II markets to attract the new genera-
     dience. Some companies do build buzz around prod-                    tion retail consumers. Aside of this, HCL might want to
     ucts before launch and work to have early, influential               negotiate with the influential retail chains such as
     adopters by involving consumers in product devel-                    Chroma, Home Town, etc.
     opment, supported by online communities. Consist-
     ently refreshing the product experience also helps                   Conclusion
     harness experiential word-of-mouth. HCL might                        HCL has an uphill task ahead. Garnering 20 per cent in
     want to recruit groups of new intenders and buyers                   two years is too ambitious. But with the right mix of
     from within the “young aspirants” and “affluent va-                  branding and communication initiatives, the brand can
     riety seekers,” involve them in product development,                 go a long way. HCL’s status of being “very Indian” or
     run promotional contests, and through these build                    the “only Indian” laptop brand is, per se, not a limita-
     and leverage positive word-of-mouth.                                 tion. On the contrary, being Indian is likely to appeal
                                                                          very well to the consumers of the current times, if pitched
Leverage the Distribution Network and                                     and communicated well. Not being a “brand” in a cat-
Invest Below the Line
                                                                          egory that is all about brands has been the biggest limi-
One of the greatest strengths of HCL is its impressive                    tation of HCL. Here lies the biggest difference between
distribution network. This is unmatched in the indus-                     desktops and laptops. The key, therefore, lies in build-
try, and the Company must leverage the network to the                     ing the brand and occupying a significant consumer
fullest potential. Smart local BTL initiatives, together                  mind-space.




Case Analysis II
Anirban Basu
Corporate Sales Training Manager
Nestle Equatorial African Region
Mauritius
e-mail: Anirban.Basu@mu.nestle.com



D     ynamism, especially in Indian business environ-
      ment, during the first decade of this 21st century,
has prompted unprecedented transformations for most
                                                                          enterprises to undergo an elemental change in how they
                                                                          like to operate.

of the organizations across industries. In this scenario,                 While evaluating this Case, we will neither discuss
one’s competitiveness would depend not only on one’s                      tidbits of operational efficiency nor do too much of data
ability to adapt to these changes with agility but also on                analysis, but rather try to focus on fundamental strate-
                                                                          gic levers that may bring visible transformation in HCL
being pro-active in bracing oneself for the demand of
                                                                          business processes.
the future. This has forced many so-called successful
                                                                          We will first go for a quick conventional SWOT for the
2
                                                                          organization on the whole. The strengths of HCL are:
    Bughin, Jacques; Doogan, Jonathan and Vetvik, Ole Jorgen (2010). “A
    New Way to Measure Word-of-Mouth Marketing,” McKinsey Quar-           robust market-share in desktops, strong distribution
    terly, April.                                                         network, efficient after-sales service, positive consumer

130                                                                                                                       DIAGNOSES
perception as no-nonsense, value for money, function-                      brands, piggy riding on desktops will help HCL to place
ally efficient brand; and finally, organization’s existence                its insignificant laptop brand among a wider section of
in various domains of technology hardware. Weaknesses                      retailers, including the chains like Tata Croma, Home
as observed include limited portfolio, old-fashioned                       Town (Future Group), etc. This will automatically in-
practices, inability to enjoy economies of scale and prob-                 crease the numeric distribution of HCL laptop brand. If
lems of spending on marketing and communication com-                       executed intelligently, within a short period, HCL can
pared to its multinational rivals. Threats from the MNCs                   at least match if not overtake Dell and Acer in retail pres-
are: wider international portfolio with contemporary                       ence. And the retailing truth is - ‘the wider the distribu-
designs, economies of scale, deeper pockets, and ‘for-                     tion, the higher the offtake (consumption)’. The HCL
eign’ image. We will discuss about opportunities later.                    laptops will surely be picked up from the shelves, if avail-
Now let’s scan the point of purchase drivers for laptops                   able, because of its price advantage over the other laptop
in which HCL is facing difficulties in spite of having a                   brands and the fastest growing consumer segment is
good market footing in desktops. Laptops are purchased                     young college goers, first-time purchasers of computers
more on brand image, style, and entertainment than                         who look for low-priced basic brands. The second chan-
mere functionalities and durability, though after-sales                    nel strategy should be to exploit alternate channels. Al-
service factor is equally important for both the catego-                   ternate channels are those where conventionally compu-
ries. The consumers for laptops are distinctively differ-                  ters are not sold but the target consumers visit these
ent in demographic and psychographic profiles.                             channels and spend quite a lot of time and money. This
                                                                           is a huge opportunity and a blue ocean4. All one needs
What will be the marketing mix? In an era of diminish-                     is creativity and innovation. As an example, HCL can
ing ‘Product Differentiation,’ where almost all the brands                 identify company showrooms of Panasonic, JVC or LG
claim similar quality, features, and advantages, the only                  (those who are not in direct competition) and negotiate
way to get an edge over the competitors is ‘Strategic                      a package with them to place their laptops in their com-
Positioning’3. But ‘Strategic Positioning’ is the sum total                pany showrooms. Along with selling at a special price
of various differentiations – these may be service differ-                 from these outlets, concepts like cross-promotions, on-
entiation, channel differentiation, communication dif-                     pack offers can also be thought of (e.g., if a customer
ferentiation and many more. We try to diagnose the                         purchases a bundle of LG products – LCD TV, Air Con-
scope of ‘Strategic Positioning’ on four specific platforms:               ditioner and Refrigerator, he can be offered an HCL
geography and channels, brand, category and consumer,                      laptop as an on-pack free offer). HCL can tag laptop as a
service and communication.                                                 promotion or gift with holiday packages or time share
                                                                           sales (e.g., Laptop free with Thomas Cook Honeymoon
Geography and Channels                                                     Offer in Mauritius or Mahindra Holidays). Laptops can
In this section, we will primarily discuss the opportuni-                  be tagged with real estate purchases – free with one- or
ties for distribution optimization that HCL can exploit.                   two-room apartments (primary occupants are young
It is apparent from the Case that the future scope for                     single and married professionals). This alternative chan-
laptops lies in the top 4 cities (which grew by 173%) fol-                 nel strategy will not only help HCL to place its products
lowed by the rest of India (48%); hence HCL should fo-                     in non-conventional channels, but also target the right
cus primarily on these geographies. To achieve imme-                       consumer segment of laptops. And exploiting alternate
diate short-term results, the organization should execute                  channels is relatively easier, because all the rivals are
two-pronged channel strategy to exploit the distribu-                      still fighting on the conventional channel platform. I re-
tion reach. Firstly, HCL should use its strong desktop                     ferred to geographic and channel differentiation as
distribution infrastructure to increase its laptop distri-                 ‘quick win’ because this strategy can be executed by
bution width in traditional channels. That means HCL                       using the existing distribution infrastructure and exist-
should ensure its laptop availability in all the HCL desk-                 ing product range without spending more in new dis-
top retailers. As most of the retailers stack limited set of               tribution intermediaries and wider product lines.

                                                                           4   ‘Blue Ocean’ is the uncontested market space where competition is
3   Porter, Michael (1996). “What is Strategy?” Harvard Business Review,       irrelevant. In a blue ocean, you invent and capture new demand and
    November-December, 74(6), 61-78.                                           offer customers a leap in value while also streamlining your costs.


VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                                           131
Brand, Category, and Consumer                                    HCL, being a company with strong functional credibil-
HCL is quite successful in achieving leadership in the           ity, is quite unsuccessful in the laptop category. Here
desktop category. The foundation of this success is pri-         the organization really needs a complete reengineering
marily on three strong pillars: dependability, efficient         of their marketing strategy which is totally different from
after-sales service, and value for money. All these are          that of the desktop. Keeping in mind the psychographic
functional pillars. There are many advantages of estab-          attributes of the laptop buyers, HCL needs to change
lishing a brand on functional pillars — the brand can            the strategic positioning of its laptop from all function-
clearly differentiate itself from the rest of the crowd on       ality to something related to entertainment and style,
efficiency, functionality, and tangible benefit platforms.       image, and brand building. The outward look of the
The consumer can clearly see or feel those advantages            product is also required to be revamped, may be with a
and prefer the brand without any hesitation. Thus over           few contemporary colours, shades, and designs. As the
time, with more consumers in its fold, the leader brand          HCL product is already having a price advantage, wide
enjoys the economies of scale and offers an attractive           distribution reach, and after-sales service assurance, it
price that refutes its rivals to compete. Hence in most of       can quickly pick up market share by successfully con-
the industries, it is observed that, functionally estab-         necting the fastest growing target group with the brand’s
lished brands can hold their leadership positions for a          look, image, and style. To capture the biggest chunk of
long time as the competitors cannot match the leader on          the retail consumers, the mid-level corporate executives,
all the functional aspects. But there are some severe dis-       HCL needs to use its internet and in-shop platform to
advantages also.                                                 offer them customized, need specific products, where
                                                                 each and every component of the product configuration
The first disadvantage is that each and every competi-           can be chosen by the consumer, very much like the Dell
tor is constantly trying to compete with the leader on           internet selling model, involving the consumer to be the
each efficiency and functional platform and the leader           co-creator. “Co-creation is about joint creation of value
has to constantly retaliate and prove its superiority to         by the company and the customer…. allowing the cus-
maintain its leadership. It is quite difficult to persistently   tomer to co-construct the service experience to suit his
walk on such a tight rope. The second disadvantage is            or her context.”5 The edge that HCL can offer over Dell
even more dangerous. Continuous reminders of                     is a quicker delivery time of the finished product using
functionalities in relation to price slowly take the con-        the advantage of being a local manufacturer. Faster de-
sumers away from the brand loyalty; they gradually               livery is a low-cost (for HCL) but high-value (for con-
develop a tendency to gauge the product against the              sumer) proposition. The consumer, after co-creating and
committed set of functionalities. The consumers then             paying for his personalized laptop, waits eagerly to get
come to a point where they pay the price only for the            his new possession. If HCL can assure the delivery in a
functionality and not for the brand. Thus with time, the         week or ten days against Dell’s three to four weeks lead
brand gets commoditized. And when many brands in a               time, this will definitely become a strong decision mak-
category fight continually on functional attributes, the         ing criteria in favour of HCL.
whole category shifts from brand to commodity; as a
result all the brands get into price war. Unorganized            For the time being, the smallest retail segment of senior
players enter and offer much lower price; gradually, it          executives can be ruled out because not only is this seg-
becomes a red ocean environment where often estab-               ment the smallest but more importantly it could further
lished companies lose and get out of the category. The           shrink with the passage of time.
desktop category in India is an example of the above. In
spite of the fact that HCL is leading, the company can-          Service
not reap expected profits out of its strong market posi-         Another large segment of laptop consumer is the enter-
tion as the category is highly commoditized.                     prise segment. To fight with the prominent player, Dell,
The retail laptop market is very different from that of          HCL needs to play in the platform of Service Differen-
the desktop. The market is not commoditized and pri-             5   Prahalad, C K and Ramaswamy, Venkat (2004). The Future of Compe-
marily brand-dominated. The category is sold more on                 tition, Co-creating Unique Value, Boston: Harvard Business School
brand image, style, and design than functional attributes.           Press, pp. 272.


132                                                                                                                      DIAGNOSES
tiation. The proposal to the enterprise segment should         consumer that only HCL can understand and satisfy this
be an ‘End2End Service package at an affordable price’         special need (solution: customized vernacular fonts)
that includes customized installation, 24X7 servicing,         being the only Indian company.
zero waiting time for spare part replacement, distribu-
                                                               The theme of communication to the enterprise segment
tor, customer care and service centre accessibility, lu-
                                                               should be ‘no worries’. This segment should be targeted
crative packages, and additional services on System
                                                               with the message of excellent service. The commercial
Integration, Telecom services, and Office Automation.
Here HCL should intelligently use the strength of being        should highlight ‘bundling of service solutions at an af-
a multi-specialty technology hardware organization.            fordable price,’ that includes customized installation,
Thus the easiest line of attack to outclass Dell is to offer   24X7 servicing, zero waiting time for spare part replace-
a ‘single window’ approach for the enterprise buyers.          ment, and service centre accessibility. It can also empha-
This is a wonderful opportunity for HCL to increase its        size on an ‘extended solutions under one roof’ concept
business of other divisions through its ‘service’ route.       by highlighting services on System Integration, Telecom,
                                                               and Office Automation, which only HCL can offer.
Not only for the enterprise segment, but with its innu-
merable service centres across the country, HCL can lev-       Apart from the specific consumer-centric communica-
erage this advantage to its fullest as one of the key diffe-   tions, the organization should also communicate its core
rentiators against its competitors for the whole gamut         strengths – dependability, service excellence, and value
of consumers. This is the strongest low-cost high-value        for money, as its corporate message along with its strong
proposition the Indian company has within its sleeves.         Indian values ensuring the consumers that ‘HCL under-
                                                               stands India best’.
Communication
                                                               Unchartered Paths
All along HCL has communicated its functional stren-
gths to its desktop consumers. The communication was           As all the companies are focusing broadly on three seg-
successful to a great extent because the decision making       ments of retail consumers, this gives a brilliant oppor-
criteria for the desktop category are primarily utility-       tunity to HCL to make inroads as first movers into some
based. But the buying criteria for laptops have little to      of the untravelled consumer paths. The universe of chil-
do with functional parameters. As a laptop is very much        dren, especially the high school students, is gradually
a personal possession, it should speak more of style,          getting shifted to the internet platform. Most of the
design, entertainment, and image. Hence the whole              schools float the vacation homeworks and classworks
marketing communication for laptops should hover               in soft media. Many high-end schools are transcending
around the brand image and a feel good factor, espe-           to soft books. And here lies a huge potential. Custom-
cially for the young consumers, the fastest growing seg-       ized low-priced netbooks can be a big hit in this con-
ment. As example, instead of highlighting the features         sumer category.
and configurations of the CPU, the marketing commu-
                                                               The desktop category can also be revitalized by shifting
nication needs to capture moments of young adults in
                                                               focus to new channels and new geographies. Privately
college environment or a young employee with his
                                                               owned cyber cafes in 2nd and 3rd rung cities and innu-
trendy HCL laptop on the first day in his corporate of-
                                                               merable computer centres in small towns, peri-urban
fice. On the whole it is all about engaging the target con-
                                                               and rural markets are the future market spaces for desk-
sumer with the brand they feel good to carry.
                                                               tops. The fast inroad of media and telecommunication
For the middle-aged corporates, the largest segment of         is gradually bringing these geographies closer to the life-
retail consumers, the communication should focus more          styles of top cities. Hence these channels are the poten-
on customization, ease, and convenience. It is impera-         tial consumer contact points for the new generation of
tive to speak with these consumers about the ‘tailor           computer users. Being the only Indian company, it is a
made’ solutions. Novelty can be brought in advertise-          clear advantage of HCL to venture in these geographies
ments by showing needs which are very much ‘Indian’            as the organization enjoys economies of scale, unparallel
in nature (as example, a US-based son wants to write to        distribution, and service networks all across. The com-
his old mother a mail in Hindi) and then assuring the          pany can ensure the future market space for desktop

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                    133
fully under its control by ensuring HCL’s presence and                             band of professionals in the Management should first
branding these channels well before the competitions                               focus on their core strengths and optimize those stren-
start expanding their reach.                                                       gths to attain the low hanging fruits, e.g., expanding
                                                                                   distribution width of laptop, piggy riding on desktop
The One Chart                                                                      reach.
I would love to conclude the whole discussion in one
                                                                                   Once the quick wins are achieved, the team will get a
diagram and I am sure, none other than Igor Ansoff can
                                                                                   kick of motivation to move forward. And that is the time
do it better. Box 1 gives Ansoff’s Product-Market Growth
                                                                                   HCL’s top management would need to align all func-
Matrix6 for plotting HCL’s strategy for growing the busi-
                                                                                   tional heads to work from strength to strength towards
ness via existing or new products, in the existing or new
                                                                                   an ambitious but realistic Corporate Vision, which is yet
markets.
                                                                                   to be developed. Hence, the key priority for the HCL
                                                                                   leaders today is to develop a comprehensive Corporate
The Final Word
                                                                                   Vision with clear-cut roadmap and specific timelines.
Towards the end of the Case, from the small section on                             And, once the vision and the roadmap are created, the
communication amongst the top management of HCL,                                   management needs to finally share the Vision and the
it is loud and clear that the greatest challenge for HCL is                        Roadmap with the ‘Vision Community’ – the employees
not external; rather it is more internal. The experienced                          who will translate the vision into workable reality.

Box 1: Ansoff’s Product-Market Growth Matrix

                       Existing Products                                  New Products
                       • Leap-frogging on desktop distribution            • To develop products with a trendy outward look and contemporary
    Existing Markets




                         strength laptop retail width can be optimized      colours, shades, and designs to attract the fastest growing target
                         in all possible traditional channels. This         group, the young adults.
                         ensures HCL’s laptop category availability in    • Customized, need based, uniquely configured laptops for the
                         all the desktop retailers.                         largest consumer segment, mid-level corporate executives.
                                                                          • Enterprise segment can be offered extended services of System Inte-
                                                                            gration, Telecom services, and Office Automation under one roof.
                       • To exploit alternate channels, the outlets       • Customized low-priced netbooks/laptops can be a big hit in the
    New Markets




                         where conventionally computers are not             untapped consumer category of high school students, as the
                         sold but the target consumers visit frequently     traditional education system is gradually getting shifted to the
                         and spend time and money.                          internet platform.
                       • Desktop category to shift focus to small
                         towns and rural geographies as the future
                         market space for the category.




Case Analysis III
Nitin Pandey
Founder, CEO-Learnmile7
e-mail: nitin@learnmile.com

Background and Key Challenges                                                      brand and the associated hurdles and challenges. HCL,


T                      he Case brings to light the key challenge of trans-         a leading desktop player, wants to acquire a significant
                       forming a business to an aspired-for consumer               standing in the laptop segment too. The company has
                                                                                   its eyes set on the booming laptop category growing at
6        Ansoff, I (1957). “Strategies for Diversification,” Harvard Business      double digits in the household category compared to
         Review, 35(5), September-October, 113-124.                                the B2B space. The segment is presently in its fastest
7        Learnmile is an Education-focused Market Research and Advisory firm,
         based in India.
                                                                                   growth phase and a sharp strategic move now may trans-

134                                                                                                                                  DIAGNOSES
late into a sizeable gain in market share for HCL in this     creased knowledge levels and improved negotiation
high margin and high image segment. HCL is on a               power for the consumer. Laptop is largely a personal
growth path but does not enjoy a healthy margin and           purchase for work and entertainment supported by the
needs to grow to a certain scale (15% market share in         convenience of portability. It is also seen that laptop con-
two years) to be reasonably profitable. The business chal-    sumers are mostly image- and brand-conscious.
lenge hence is to scale up profitably and the key market-
ing challenge is to increase the market share in a highly     Individual Buyers (Household) Segment
competitive market within the inherent constraints of         The household segment has the following characteris-
being an Indian value-for-money brand.                        tics.

Environment Scan                                              • Fastest growing segment: Young students and the
                                                                newly-employed
The laptop segment is on a growth path aided by falling
                                                                Characteristics: Value for money; entry level and low-
prices (10% YOY), rise in consumers’ need for portability,
                                                                est-priced laptops with most features; first-time buy-
and their improved affordability. The segment is domi-
                                                                ers; prefer MNC brands
nated by the heavily marketed MNC brands, perceived
                                                              • Largest segment: Middle level executives
to be better in quality than Indian brands. Laptops are
                                                                Characteristics: For work and play, to climb up the
sold from retail outlets, largely through multi-brand re-
                                                                corporate ladder; second purchase; value-seeking
tail with metros showing the best growth rates year on
                                                              • Smallest segment: Senior executives
year. The overall ad spends are growing by 100 per cent
                                                                Characteristics: Laptop as a fashion accessory; high-
year on year, with HP leading the market on the “Inno-
                                                                end features; low on knowledge; most purchase Sony
vator” plank. With what looks like a “higher spends lead
                                                                and Apple.
to better market share” approach on the surface, the con-
clusion still needs to be examined in depth. (Exhibit 2)      HCL vis-à-vis Market

Consumer Behaviour                                            HCL has grown at a healthy rate in the laptop segment,
                                                              matching the growth rate of the household segment and
The laptop category is divided into business (establish-      inching up on market share. HCL being a seasoned desk-
ment) and individual (household) buyers. While the
                                                              top player has set up a widespread desktop distribution
business buying is done in bulk and through tenders,
                                                              channel over the years but has not been able to leverage
individual purchases rest on the price-value equation.
                                                              the network for laptops. HCL’s financial results show
There is a completely new set of habits, characteristics,
                                                              that the margins for the Info System Business are under
and consumer behaviour emerging in the evolving               pressure and it is only the computer business, which has
laptop segment. Consumers’ belief, that MNC brands            shown any kind of growth in profitability (Exhibit 1).
are better in quality than Indian brands in the laptop        HCL is growing at a rate, which is twice that of its direct
category, hinges on the perception of MNC brands as           competitors, Dell and Acer.
new, young, and modern. The retail segment reflects in-


Exhibit 1: HCL Performance vis-à-vis Market and Direct Competitors (Dell and Acer)

Items                                                                 2008             2009            Delta          %
Computer systems, product and services Sales - HCL (INR mn)          34,139            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            the effectiveness of money spent to retain market share
old-fashioned brand in comparison to the MNC brands                by each player.
in the success critical (20-35 years) customer age group.
However, MNC brands have a wider range in the value-               Further, the effectiveness of ad spend can be analysed
                                                                   in depth to assess the marketing effectiveness. This is
for-money entry-level laptops with more variants, as
                                                                   best reflected through the Multiplier (See Exhibit 4).
well as being perceived better on quality. Discounting
                                                                   Multiplier is the amount of money spent by a brand (in
has resulted in neck-to-neck pricing in the entry-level
segment. The key challenge in retail hence is to have the con-     INR 100 mn) to gain 1 market share point in 2009 over
sumer preference on non-price metrics. Both Acer and Dell          2008. The lower the Multiplier corresponding to the gain
have a wide product portfolio in the entry-level segment.          in market share, the more effective is the marketing strat-
While Dell enjoys the ‘high-performance’ perception rid-           egy over a short-term period, like one or two years.
ing on its enterprise equity, it has also been investing on        Lenovo and HP have been effective overall with Acer
creating a fresh physical channel apart from selling               being the most effective in HCL’s competitive subset;
                                                                   e.g., Multiplier (HP) = (470-130) / (2.5*100) = 1.4 (in 100
online. Acer has benefitted from the rub-off from its
                                                                   mn)
brand ambassador, Hrithik Roshan.

Marketing Analytics                                                Some Observations

The equation between ad spend and gain in market share             • Dell, in spite of doubling its ad spend and higher
is peculiar to a high-activity market going through a                saliency of ad spends, lost market share in 2009.
paradigm shift and points to some interesting patterns             • Lenovo, in spite of reduced ad spends, gained 1.3
(Exhibit 2). The overall ad spend is growing at a higher             per cent share.
rate (100%) than the market growth rate (83% House-                • It is not just the value of money one is spending but
hold and 47% Establishment).                                         also how it is being spent that is important. For ex-
                                                                     ample, Dell spends more money but is on par in
HP, the market leader, has gained 2.5 points in market               market share with Acer, which spends less than 25
share in 2009 with a 262 per cent increase in ad spend,              per cent of Dell (2008,’09-ad spends).
but Lenovo has gained 1.3 points in market share with a            • ROM may lag ad spends
35 per cent drop in ad spend. Dell, the largest spender            • Purchase decision shows the importance of brand
(42% saliency of ad spends in 2009), still lost market share         pull for the household laptop category in multi-brand
in 2009, whereas Acer, which spends less than 25 per                 retail.
cent of Dell on ads, enjoys a market share on par with             • HCL is struggling on ROM and the multiplier and is
Dell’s. Return on Marketing (Exhibit 2) reflects the ad              certainly not among the front-runners on either pa-
spend per market share point for each player and hence               rameter currently.
Exhibit2: Return on Marketing Spends8
Brands                    2008                 2009                                           2008                 2009
                    AD       Market      AD        Market          Delta   Delta     Saliency        ROM    Saliency      ROM*
                   Spend     Share      Spend     Share %           AD     Market      of Ad                  of Ad
                 (INR mn)             (INR mn)                   Spend %   Share     Spend %                Spend %
HCL                  10        6.96      140         7.17        1,300       0.21         1           1.4      5          19.5
HP                  130         31       470         33.5          262        2.5        10           4.2     17           14
Lenovo              230         13       150         14.3          -35        1.3        17          17.7      5          10.5
Acer                120        13.5      250        12.12          108      -1.38         9           8.9      9          20.6
Dell                500       16.42    1,150        12.66          130      -3.76        38          30.5     42          90.8
Toshiba              90        3.61      200         4.7           122       1.09         7          24.9      7          42.6
Sony                150         3.9      340          3.5          127       -0.4        11          38.5     12          97.1
Others              100       11.69       70         12.1          -30       0.41         8           8.6      3           5.8
Total             1,330                2,770                       100

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)
                                           -0.4                                                       Delta AD spend (‘08 to ‘09)
                                       Sony
                                                      127%

                                         Toshiba 1.09
                                                 122%

                                      -3.76
                                              Dell     130%

                                              -1.38
                                               Acer 108%

                                    Lenovo                1.3
                                             -35%

                                                            2.5
                                               HP
                                                           262%

                                                          0.21
                                              HCL                                             1300%

             -600%     -400%         -200%           0%          200%      400%          600%         800%    1000%      1200%     1400%



Exhibit 4: Effectiveness of Marketing


                                                                             0.7
                                                            Others
                                                                          0.41


                                                 Sony -0.40                                                     4.8


                                                                                1.0
                                                           Toshiba
                                                                                 1.09

                                                                                        1.7
                     Dell
                            -3.76

                                                                                0.9                   Multiplier
                                        Acer -1.38                                                    Delta Market share (‘08 to ‘09)

                                                                           0.6
                                                            Lenovo                 1.30

                                                                                   1.4
                                                                  HP                           2.50


                                                                 HCL                                                         6.2
                                                                         0.21

             -6.00           -4.00             -2.00              0.00                2.00             4.00           6.00              8.00


• Laptops have a better acceptance and are growing                                 • Focus on a particular segment - B2B space
  faster in the metros and the next 4 towns                                        • Focus on a particular segment - Youth in retail seg-
                                                                                     ment
Scenarios to Choose From                                                           • Focus on a particular segment - Mid-level corporate
Given the current dynamics, Ajai has the following sce-                              executives
narios to choose from:
                                                                                   It is crucial to examine the scenarios through the com-
• Intense consumer advertising on the lines of (a) Dell                            petitive landscape and HCL’s position so as to check the
  and/or (b) Acer                                                                  strategic fitment and to assess whether it is in line with

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                                              137
HCL’s core competence and constraints (Refer to Exhibit       The numbers show better return on marketing spends
5). The Strategic Fitment Matrix reflects the fitment of      (ROM) for Acer compared to Dell and even better than
probable strategies with respect to HCL’s strengths,          HP who is the market leader. The multiplier for Acer is
weaknesses, and the current reality.                          0.9 compared to 1.7 and 1.4 for Dell and HP respectively.
                                                              This coupled with the fact that Acer is a direct competi-
A strong strategic fitment occurs when the approach
                                                              tor of HCL and competes for the same consumer in en-
leverages HCL’s core competence and strengths and is
                                                              try-level laptops makes this worthy of further attention.
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                                Assumptions
retail segment. Both look strong in strategic fitment for      • Ad spends growing at 100 per cent YOY as seen
HCL.                                                             from 2008-2009 data (Exhibit 4 from the Case)
                                                               • Youth segment for laptop is growing at a rate of 110
Suggested Approach for HCL                                       per cent
First, let us see how Acer is pegged with a similar mar-       • 2008-2009 is taken as 2008 and 2009-2010 is taken
ket share as Dell in spite of spending 78 per cent lower         as 2009 (Exhibits 1, 2, 5, 6, 8, 10 from the case)
than Dell on ads. Perhaps Acer is doing something which        • HCL buyers are mostly first-time buyers.
Dell is not. Is it the MNC imagery, product portfolio,
discounting or something else? The Case details out that      One of the challenges faced by HCL is to overcome the
most of these are on par. Has it got something to do          “old and cheap Indian Brand” image. A brand ambas-
with more entry variants coupled with Hrithik Roshan          sador approach can definitely help HCL reposition it-
as the brand ambassador for Acer? Perhaps there is merit      self, improving itself with sophistication and become a
in evaluating this combination. Looking at the ad spends      better-valued brand. From the ad spends data, year on
to market share statistics (Exhibit 3), Acer had a negligi-   year ad spends is growing by around 100 per cent. HCL,
ble fall in market share compared to Dell in spite of Dell    with INR 600-800 mn estimated range of advertising
spending INR 900 mn more than Acer. There seems to            budgets for 2011, would have a good 11-15 per cent sa-
be no set formula that the growth in ad-spends would          liency in total ad spends for the laptop category if the
necessarily translate into growth in market share. Dell,      ad spends carried on with the same growth rate of 100
Sony, and Acer have lost market shares in spite of spend-     per cent. The brand proposition, for example, could be
ing more in Advertising over last year’s spend, whereas       “Choose the smart value-for-money HCL laptops, en-
Lenovo has gained market share in spite of reduced Ad         dorsed by Yuvraj Singh and backed by a wide service
spends.                                                       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    Features, pricing for        Strong equity in Enterprise, specialized   Weak
      on the lines of Dell   entry laptops                network, 42% saliency of market spend
                                                          (INR 1,150 mn), the elusive MNC Tag
1b    Intense advertising    Value for money, entry       MNC image, product variants, brand         Strong
      on the lines of Acer   laptops, network, 7%         ambassador route to advertising (Actors
                             saliency (market spends),    rub off sophistication)
                             moderate spends 2009
2     Focus on B2B space     Widespread network,          Lower margins, brand disloyalty, network   Moderate
                             proven experience in the     suited for desktops but struggles in the
                             space                        laptop category
3     Focus on Youth in      Value for money, entry-      Product variants with a lot of features,   Strong
      Retail Segment         level laptops, affordable    attracted to MNC brands
                             options
4     Focus on mid-level     Widespread service           Value-seeking, image conscious, for work   Weak
      executives             network                      and play


138                                                                                                           DIAGNOSES
for money and reliable9 laptop on par in quality with                     largest, both in number and influence for laptops. They
the MNCs . This approach would help HCL reposition                        may graduate to becoming middle-level executives who
itself, and give a PAN India reach riding on the brand                    would use an HCL laptop and if they find them deliver-
ambassador, especially, the Rest of India.                                ing on quality, they may become the Early Adopters in
                                                                          the mid-level executive consumer segment.
This could perhaps help HCL in reaching around 8.5
per cent market share at a growth of 200 per cent in a                    Building this approach further, suppose the brand pro-
year’s time (Exhibit 6). However, this approach has two                   position is, “HCL-sub brand (to be positioned for youn-
major limitations. First, that the middle-level executives                ger audience, e.g., ME) laptops for ‘value for money,’
would not find HCL appealing when seeking value.                          endorsed by Virat Kohli backed by a wide service net-
Second, this approach does not propel HCL to a pre-                       work.” This would translate into choosing a smart and
mium fashion accessory to be chosen by the senior ex-                     refreshing entry Laptop (backed by a reposition itself as
ecutives. Clearly, this would fetch traction mainly with                  a young and reliable brand with a better acceptance in
20-35 year old first-time buyers.                                         metros and the next 4 towns, growing faster than the
                                                                          rest of India). This approach perhaps gives HCL the best
On the other hand, if we apply the same brand ambas-                      chance to cross the 10 per cent market share with a
sador approach on a focused segment (Scenario 3), e.g.,                   growth of 400 per cent (Exhibit 7).
Youth (20-35 years) first-time buyers, there is not only
an exact fitment, but this approach gives HCL the op-                     NET-NET
portunity to make a much more focused impact on the
fastest growing and most knowledgeable consumer seg-                      Focusing on a particular segment, with a sub-brand for
ment. Chances are that, this segment may become the                       youth in retail, riding on a youth icon as the brand am-



Exhibit 6: Projected Scenarios

Scenario      Target Customer                           Metrics      Multiplier    Projected Ad        Projected Delta    Estimated
                                                                      (’11)       spends mn INR        in Market Share   Market Share
1b            Entire household category                 Growing           6.2            800                    1.3          8.5
                                                        at 83%
3             Youth niche within household               Fastest
              category                                  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         2            4           6         8          10             12


9   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 warrants the need to do an in-depth research across
this is in line with HCL’s strengths and limitations, and       some metros and smaller towns, to know the emerging
still presents an opportunity to grow to 10 per cent mar-       gaps and to be the first to address them. HCL also needs
ket share with improved profitability and renewed brand         to make sharp choices between investing in R&D, de-
imagery. The next best alternative is to go for the entire      sign, product portfolio, innovation and laptop-focused
household category but this may backfire and also re-           distribution network. There is merit in going with in-
sult in the classic “spray everywhere and you may touch         vestments in design, features, and variants for now and
your consumer” outcome. There is also a high need for           outgrowing competition riding on the fastest growing
HCL to seek in-depth information around purchase de-            youth segment. It needs to consistently appeal to the youth
cision-making for laptops especially from the youth and         with new design variants so as to build a strong pull
mid-level corporate executives.                                 and improve its marketing multiplier.




Case Analysis IV
Moutusy Maity
Assistant Professor
Indian Institute of Management, Lucknow
e-mail: mmaity@iiml.ac.in



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
                                                                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 posi-
wishes to attract; (b) It needs to ascertain that the strat-    tioning strategy that will clearly distinguish it from its
egy it chooses to pursue will help it to achieve a market       competitors. In addition, there is an opportunity for the
share of at least 15 per cent, which will allow it to achieve   brand to target a specific segment (especially a segment
economies of scale and hence, greater profitability (the        that is growing rapidly) with its positioning strategy and
assumption is that an expenditure of between INR 600-           product offerings. This strategy will provide an edge
800 million will allow the company to reach out mean-           over the competitors. The questions that HCL should
ingfully to its target segment). The following discussion       address to achieve the above are:
centres exclusively around the laptop market, and does
                                                                • Which segment should it target?
not discuss the desktop market at all.
                                                                • What are the positioning and communication strate-
Target Segment and Positioning Strategy                           gies pursued by the competitors? Does a clearly iden-
                                                                  tifiable positioning gap exist in the market?
The laptop market, as presented in the Case, consists of        • What should be HCL’s positioning?
several players comprising premium and value brands.
Sony and Apple are premium brands. HCL is a value               Consumer Decision Making
brand, and considers other value brands such as Acer,
Lenovo, and Dell as its direct competitors. These three         A closer look at the laptop as a product, and the con-
laptop brands have developed strong positioning, but,           sumer decision-making involved in purchasing the
none of them is pursuing any particular target segment          product, reveal that when it comes to purchasing a
                                                                laptop, two factors are important to the consumer: (a)
with their product offerings.
                                                                the price that the brand demands (consumers are price-
An average laptop in the marketplace (as presented in           conscious); and (b) the laptop brand name. Therefore,
the case) costs around INR 40,000. An HCL laptop is             consumers tend to carefully examine the product fea-
priced at about 2 to 5 per cent lower than those offered        tures that are available for the given price range. At the
by the leaders in the market. Thus far, most of the com-        same time, purchase decisions are also influenced by the
munication undertaken by HCL has emphasized the                 image of the brand. In other words, one can say that

140                                                                                                             DIAGNOSES
there is a tension in the consumer’s mind in terms of the      the tradeoffs involved in foregoing a specific feature for
product features obtained (for a given price) vs. the im-      another. Therefore, for desktops, the functional aspects
age of the brand, when it comes to purchasing a laptop.        of the product will probably dominate the decision-
                                                               making processes.
A laptop is more often used for personal use and enter-
tainment. A laptop computer can, therefore, be consid-
                                                               Choosing the Target Segment
ered as an extension of the consumer’s self. It is usually
taken out and used in public, and is a conspicuous con-        HCL needs to carefully choose the segment it wishes to
sumption product. The product brand reflects the con-          target. The Case mentions that the company currently
sumer’s image of herself, as well as how she would want        has enough budgets to pursue only a single segment.
others to see her. Hence, the brand image associated with      But, which segment should it go after? Though the case
the brand of laptop gains importance for the consumer.         does not provide us with the specific break-up of retail
A desktop, on the other hand, is usually associated with       consumers in terms of age groups, it does mention that
work, is a non-conspicuous consumption product, and            the laptop market can broadly be broken into two seg-
is typically situated at home or at work. Therefore, prod-     ments: Retail and Enterprise. The Retail segment has the
uct features offered by the product (at that specific price-   following sub-segments: young consumers (probably in
point) plays a more important role than the brand image        the age group of 17 to 25), middle-aged consumers, and
of the product.                                                elderly consumers (who constitute only a small fraction
                                                               of the entire market). The Enterprise segment has the fol-
Possible Communication Focus                                   lowing sub-segments: mid-level executives (who are
                                                               probably in the age group of 30 to 40 years) and senior
The decision-making undertaken by consumers for pur-
                                                               executives.
chasing laptops and desktops, take different routes. Since
consumers are swayed by the brand image of the prod-           A careful look at the above segments, when considered
uct in addition to the product features offered in a spe-      demographically, indicates that the young consumers
cific price range, while purchasing laptops, consumers         in the Retail segment, and the mid-level executives in
are likely to be persuaded by messages that concentrate        the Enterprise segment, are consumers who are not only
both on cognitive and emotional appeals. The Elabora-          young in terms of age (together they span the age range
tion Likelihood Model (ELM) delineates two different           of 17 to 40 years), but, are also conscious of the brands
routes to persuasion: the central and the peripheral routes.   that they consume. Since laptops are items of conspicu-
Products, for which consumers base their decisions on          ous consumption, these consumers will especially be
cognitive cues, should try and appeal to the consumers         concerned about the brands of laptops that they use, as
using communication that focuses on reasoning. In con-         this act is judged as an “endorsement” of the brand by
trast, products that have an affective appeal for the con-     their peers. (While the Case does mention that the young
sumer, would probably find it more fruitful to concen-         consumers tend to be interested in the lowest price, we
trate on emotional cues in their communication. A laptop       can assume that brand image does matter to this con-
is such a product where consumers base their decisions         sumer segment).
on both types of cues, and therefore, both cognitive and
affective appeals will be important in the communica-          These two groups of consumers constitute the fastest
tion. A consumer will want to know how (from a func-           growing segments when it comes to purchasing laptops.
tional stand point) the product is going to help her, and      Therefore, HCL can aim at targeting these two groups
she is price-sensitive; however, at the same time, she is      of consumers by developing: (a) a strong brand image
willing to probably pay a bit more for a product that          (achieved through a clearly focused positioning strat-
matches with who (from a brand image stand point) she          egy) that appeals to both the segments, and (b) prod-
is. Therefore, HCL has to ensure that both these aspects       ucts that provide the required product features. (The
are addressed in its positioning of the brand and the          Case notes that product features are not meaningful
subsequent communication strategy.                             differe-ntiators any more in this market, and new prod-
                                                               uct features can easily be incorporated by any brand
Since buying a desktop involves considering the at-            within a short span of time).
tributes of the product, consumers will usually consider

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                   141
Positioning Strategy                                              rant by communicating the personal nature of the laptop
What should HCL’s positioning strategy be? Note that              along with a style statement (Figure 1).
the positioning strategy needs to be such that it appeals         The suggested positioning strategy aligns well with the
to the two segments identified in the previous section            way in which the young consumers and the mid-level
(i.e., the young consumers and the mid-level executives).         executives (i.e., the chosen target segments) would like
Currently, the company does not have a clear position-            to think of themselves. These consumers like express-
ing strategy. However, in order to achieve its goals of           ing their own ideas, want to do things their own way,
high growth rate and increased market share, the brand            and value their own individuality. These are consum-
needs to create a strong positioning. The positioning             ers who probably like to work, and have fun at the same
strategies pursued by the existing players in the laptop          time. They are likely to appreciate the value proposi-
market (Case: Exhibit 15), focuses on broadly two as-             tion by a brand that stresses the importance of personal
pects (Figure 1): (a) performance promised by the brand,          choice and style, without compromising product fea-
and (b) product design.                                           tures. (Note that HCL has to ensure that it offers the
Note that none of the value brands has ventured into              product features that these two segments of consumers
positioning themselves as a brand that is “close” to the          would want, though it might not choose to highlight
consumer. Specifically, HP, Dell, and Acer have posi-             that aspect in its positioning strategy).
tioned themselves as helping an “innovator,” being a
“partner in success,” and as “solution provider”. While
                                                                  HCL’s Journey from 2009 to 2012
Acer does attempt to build some panache into its brand            The projected laptop sales for 2009, is 2397,000 units
image by using a movie personality as its brand en-               (Case: Exhibit 3). However, the actual laptop sales achie-
dorser, the overall image of the brand remains one of a           ved in 2009 is 4085,743 units (Case: Exhibit 9). The growth
provider of solutions. The only brand that incorporates           rates for the laptop category are 30.77 per cent in 2008,
the sense of style in its brand image is Sony. However,           and 76.47 per cent in 2009. Thus, there is a large discrep-
this is a premium brand. Therefore, opportunity exists            ancy between the projected market performance for
for a value brand to claim a position in the top right quad-      laptops, and the performance that the laptop category


Figure 1: Identifying Gaps in the Existing Market
                                                     Performance: Personal




                                                                                Opportunity for HCL




                                                                                             Sony

   Product Features                                                                                        Aesthetics/Style

                                                 Dell

                  Lenovo              Compaq                             Acer


                           Toshiba             HP




                                                    Performance: Professional


142                                                                                                                DIAGNOSES
is able to achieve by the year 2009. The market has ex-       conservative estimate of HCL’s market share in 2009 is
panded much more than the projected figures had esti-         9 per cent. However, the company cannot enjoy any
mated. Therefore, the projections made by IDC for the         economies of scale in 2010. However, due to the ex-
subsequent years (Case: Exhibit 3), needs to be re-ex-        panded market, and an increase in the number of units
amined.                                                       sold, HCL achieves a margin of INR 747 (approximately),
                                                              that allows it to spend the necessary amount on adver-
Note that the projected growth rates for the total laptop
                                                              tising. Therefore, by 2011, HCL’s market share can in-
market range between 46.04 per cent in 2010 to 24.78          crease to 12 per cent, and the company can start enjoying
per cent in 2014 (Table 1). However, as already noted,        economies of scale, which continues to 2012 by which
the laptop market has enjoyed phenomenal growth rates         the company can achieve a market share of 15 per cent.
in 2008 and 2009, and the projections seem to be con-
servative (though we are not able to obtain the projected     Scenario 2
growth rate for 2009, the number of units projected for
                                                              Assumptions:
that year, and the number of units that were actually
sold, does indicate an underestimation). We do need to        • Growth rate continues to be robust, and is as pro-
consider various scenarios that can happen as HCL con-          jected
tinues on its quest for 15 per cent market share by 2012.     • HCL’s market share increases.
The various scenarios are presented in Table 2, and are
                                                              In this scenario, too, similar arguments as presented
discussed below.
                                                              above for Scenario 1, indicates that HCL will probably
                                                              be able to achieve its goals.
Scenario 1
Assumptions:                                                  Summing-Up
• Growth rate continues to be robust, and is higher than      The two major issues that face HCL are regarding choos-
  projected                                                   ing a positioning strategy and ascertaining an increased
• HCL’s market share increases.                               market share in order to achieve economies of scale. Due
                                                              to the rapidly growing laptop market, if the brand is
In this scenario, the total margin that HCL reports for
                                                              able to achieve a strong brand image that aligns itself
2009 is INR 413 million (approximately), and hence is
                                                              well with the target segment, buoyed by the expanding
not able to spend the minimum INR 600 million on ad-
                                                              market, HCL should be in a position to achieve its tar-
vertising that it requires in order to expand its market
                                                              get market share by 2012. A word of caution, however,
share in 2010. Let us assume that HCL is able to spend
                                                              needs to be sounded. The above analysis assumes that
about INR 300 million on advertising in 2010. This
                                                              the competitors keep their strategy unchanged. The
amount is more than double the amount that HCL had
                                                              market situation can be dramatically different if the com-
spent in 2009. As a result of this increased expenditure
                                                              petitors choose to target the same segments, and increase
(assuming that its competitor does not increase its ad-
                                                              their advertising expenditure.
vertising expenditure proportionately), HCL would
probably see an increase in its market share in 2010. A


Table 1: Growth Rates for Desktops and Laptops (%)

                                              2009    2010       2011      2012     2013      2014
                         Consumer Desktop              2.47       4.12      4.89     3.93      2.54
                         Commercial Desktop           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)                     40,000        36,000         32,400         29,160      26,244     23,619.6   21,257.64
  (Assumption: Prices fall 10% every
  year)

Selling Price of Average HCL Laptop            39,200        35,280         31,752      28,576.8     25,719.12   23,147.21   20,832.49
  (INR) (Assumption: HCL’s price is
  2% lower than average)

No Economies of Scale

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

Total Cost Per Laptop (INR)                    37,632      33,868.8     30,481.92      27,433.73     24,690.36   22,221.32   19,999.19

Margin Per Laptop (INR)                         1,568        1,411.2      1,270.08     1,143.072     1,028.765   925.8883     833.2995
Scenario 1
Growth Rate % (Optimistic)                               76.47367*               60            50          35          25          25

Total Number of Laptop Units Sold          2315,214*     4085,743*       6537,189       9805,783 13237,807 16547,259 20684,074

HCL’s Market Share (%) (Increases)                       7.166016*                9             12         15          17          20

HCL Laptop Units Sold                                      292,785*       588,347       1176,694     1985,671    2813,034     4136,815

Total Cost (Economies of Scale                           33,868.8** 30,481.92**        26,862.19     23,661.59   21,295.43   18,749.24
(Realized)) Per Laptop (INR)

Margin Per Laptop (INR)                                      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                             -186.822      147.2477      1,417.569     3,485.577   4,609.111   8,018.014
(Minimum)
Scenario 2
Growth Rate % (As Projected)                             76.47367*       46.04122        30.2832     28.13085    26.06104    24.77,742

Total Number of Laptop Units Sold          2315,214*     4085,743*       5966,869       7773,827     9960,672 12556,526 15667,710

HCL’s Market Share (Increases) (%)                       7.166016*                9             12         15          17          20

HCL Laptop Units Sold                                      292,785*     537,018.2      932,859.3     1494,101    2134,609     3133,542

Total Cost (Economies of Scale                           33,868.8** 30,481.92**        26,862.19     23,661.59   21,295.43   1,8749.24
(Realized)) Per Laptop (INR)

Margin Per Laptop (INR)                                      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                             -186.822      82.05607        999.488     2,474.156    3,352.82   5,927.947
(Minimum)
* 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: rgera@imt.edu



T     he case deals with the challenge facing Mr. Ajai
      Chowdhry, Chairman & CEO and his marketing
team at HCL Infosystems Limited, an Indian company,
                                                              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.
a major technology hardware player in India, as it aims
to build a strong position in the laptop computer cat-        Some of the decision options being contemplated by the
                                                              team were to:
egory. This is necessitated by the structural changes af-
fecting the personal computer industry with laptops           • Conduct a detailed market research especially quali-
expected to gain a dominant share with the declining            tative research to understand consumer attitudes and
share of desktops and brand value becoming a determi-           gap areas followed by ratification by a detailed quan-
nant in the purchase decisions in both the sub-catego-          titative research. However, this option was consid-
ries, i.e., laptops and desktops. HCL is a major player in      ered as a medium-term decision since the company
the PC market with a second position in the desktop             needed to immediately implement a marketing strat-
sub-category though it was a poor fifth with 7 per cent         egy.
market share in the laptop sub-category in 2009-2010.         • Execute a high decibel communication campaign.
The laptop was expected to have significant growth in           However, the issue was how to position the HCL
the next few years and overtake the desktop market in           brand as it was perceived as a functional low-priced
2013. Further, while the desktop was a mature category          desktop PC brand for corporate users and hence
wherein the PC was perceived and purchased as a com-            lacked a core value proposition for laptop users.
modity, laptop was considered as a differentiated prod-       • Introduce new models with innovative features.
uct due to its usage, i.e., personal and for entertainment      However, some of the problems in this option were
and computing and its enhanced value proposition for            which features to introduce and to see whether those
consumers due to declining prices and image benefits.           features would create sustainable product differen-
Thus, all PC manufacturers were expected to ensure a            tiation since laptops and their components were
position in the emerging laptop market wherein HCL              mostly made in Taiwan and any feature could easily
enjoyed an unenviable status.                                   be copied by competition within two months.
The challenges before the marketing strategy team con-        • Segment the market and build a strong position in
sisting of George Paul, EVP Marketing, Rajinder Kumar,          one segment before invading other segments similar
EVP, Sales and J V Ramamurthy, COO along with Mr                to what Dell had done, i.e., build a position in the
Ajai Chowdhry, CEO for the laptop PCs were: How to              small and medium business before targeting other
attain the marketing objective of 15 per cent market share      segments. However, the issue was how to segment
in 2010 and 2011 and 20 per cent market share in 2012?          the consumer market. The existing segmentation
                                                                based on age and buying behaviour was not feasible
This required a 400 per cent increase in sales in two years     since the younger consumer was highly price-con-
from the current unit sales of 292,785 in 2009 to 1.168         scious and the older consumer was not knowledge-
million units in 2012. The yearly growth targets trans-         able enough to evaluate the product.
lated into 0.525 million units in 2010 and 0.684 million
units in 2011. The same was expected to be aided by the       Mr Ajai also felt that the HCL should spend 600-800
laptop category growth rate which was expected to be          million INR to make it more relevant and appealing to
46 per cent in 2009-2010, 30 per cent in 2010-2011, and       the youth segment in the retail market. He reflected on
28 per cent in 2010-2011. However, the company was            the approach adopted by Acer and Dell to build market
expected to achieve much higher sales growth rates of         share in the category, i.e., of intense consumer advertis-
79.7 per cent in 2010, 30 per cent in 2011, and 70 per cent   ing with building adequate retail support. The concern

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                  145
was that the strategy would require high investment and                     which were being exploited by the major MNC
thus have financial risk of failure.                                        brands in their message and media strategies.
                                                                          • All the MNC brands employed the three-tiered se-
Some additional information from the data given in the                      lective distribution model for the consumer market.
Case is as follows:                                                         The retailers carried multiple but limited set of brands
• HCL was perceived as a value brand and suffered                           due to constraints of space and investment. It was a
  from an image problem especially with the younger                         mature distribution system and all products were
  consumer for whom it was an old, traditional, Indian                      pushed on the basis of consumer interest and dealer
  brand (only Indian Brand) compared to the MNC                             incentive.
  brands which were relatively newer entrants in the
                                                                          Thus, MNC value brands have competitive advantages
  market and were Global brands with higher product
                                                                          of economies of scale, brand image, product portfolio,
  variety and deeper pockets which they were utiliz-
                                                                          and financial resources which they are leveraging in their
  ing to build an innovative brand image and streng-
                                                                          communication and brand building strategies. Due to
  then their distribution network.
                                                                          their high market share, they are also obtaining advan-
• HCL had competitive disadvantages in terms of
                                                                          tage with the distribution channels which they are ag-
  economies of scale; the MNC brands enjoyed better
                                                                          gressively building while HCL is losing out due to its
  economies of scale, and had better perception among
                                                                          late entry into the market. The MNCs are also scaling
  laptop consumers that foreign brands were better in
                                                                          up their after-sales network putting HCL at a disadvan-
  terms of quality, especially with the 25-30 year age
                                                                          tage.
  group which was the most influential and knowl-
  edgeable.                                                               HCL thus faces formidable challenges of how to achieve
• HCL had an excellent distribution network for desk-                     a differentiable advantage in the face of undifferenti-
  tops. Though the same channel could be utilized for                     ated product and price and global disadvantages of
  laptops, it was not yet well established.                               product portfolio, brand image, and communication
• HCL had an advantage with its after-sale service                        budgets. A framework which can be adopted in fram-
  network due to its longevity and dominant presence                      ing of marketing strategies by local players vis-à-vis
  in the desktop.                                                         multinationals is given by Dawar and Frost (1999).10
• While the product was undifferentiated, premium
  brands such as Sony differentiated their products                       An analysis of the globalization pressures facing the in-
  through styling and advanced features.                                  dustry and the competitive assets possessed by the lo-
• The market was largely price-sensitive with almost                      cal player is needed. HCL could yield some insight into
  all major brands offering the same product features                     the approach for differentiation that it can adopt. Glo-
  and at almost the same price. Thus, the price differ-                   balization pressures are high since there are economies
  ence between value and premium brands was nar-                          of scale in product portfolio, branding, and communi-
  rowing. One of the reasons for the same was that                        cation. With the competitive assets that HCL possesses
  almost all the brands of laptops were assembled by                      – a strong distribution network in desktops which can
  the 3-4 OEMs in Taiwan.                                                 be leveraged for laptops, an enviable after-sales network,
• However, there were opportunities for differentia-                      and a trustworthy brand name — it needs to adopt the
  tion through communication and brand building                           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         Contender (focuses on upgrading capabilities and resources to
          chain, enters a joint venture or sells out to an MNC)           match multinationals globally often by keeping to niche
                                                                          markets)
Low       Defender (focuses on leveraging local assets in market          Extender (focuses on expanding into markets similar to those
          segments where multinationals are weak)                         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          There are also opportunities of customizing the product
product and its attributes to local conditions. The Case        by collaborating with educational content providers to
data shows that there are huge opportunities in the rest        offer it for example as a learning solution for the educa-
of India. In terms of sale of units, the share of the rest of   tional market. By developing low-cost versions of the
India has increased by 10 per cent between 2005 and             laptop for the educational and training market, and other
2010 with 2.135 million units out of a total of 3.5 million     similar market segments which are not driven by style
units in 2010 while the top four cities accounted for only      and brand image, HCL can differentiate its product as a
1.085 million units.                                            portable and internet connected computing product vis-
                                                                à-vis entertainment and lifestyle products being offered
Interestingly, in 2009-10, though the sale of laptops in
                                                                by the MNCs. However, the same would require prod-
the top 4 metros grew by 173 per cent, it increased by 48
                                                                uct innovation capabilities in features and design so that
per cent in the rest of India while the sale of desktops
                                                                customized solutions can be developed.
declined by 61 per cent in smaller towns in 2009-2010
(Case data). Thus, HCL can adapt the product features,          Thus by developing localized product, pricing and dis-
e.g., introduce no-frills products with a longer battery        tribution strategies based on its existing competitive
life (12 hrs) and durability at competitive prices to ad-       assets, HCL can differentiate its offer and compete with
dress the needs of the younger consumers who cannot             MNC brands. A ‘me too’ approach would not be feasi-
afford the MNC laptops which are built to international         ble due to the nature of the industry, i.e., globalization
standards of features and styling. Warranties and serv-         advantages for MNC brands and high intensity of com-
ice guarantees could also enhance the attractiveness of         petition, i.e., large number of MNC brands.
the product to the small town consumer. The MNC
brands may not be able to customize the product and its         An analysis of the share of voice of the major MNC
services for the local consumers in the rest of India since     brands and market share (Table 2) shows little correla-
they would lose the economies of scale of standardized          tion between the communication intensity and market
products and service attributes.                                share. Thus, spending resources on communication is
                                                                unlikely to lead to significant market share gains in the
HCL also has the advantage of a 93,000 outlets covering         absence of a brand value proposition.
11,000 towns and the largest pool of trained manpower
handling 2.5 million support incidents per annum. This          Table 2: Share of Voice (%) of Select Brands
asset can be leveraged in creating a rural distribution                  (Calculated from Exhibit 12)
network at low cost which could serve the needs of the
                                                                Brand Name       2008      2008          2009     2009
functional consumer of laptops, e.g., for school children                        SOV       Market        SOV      Market
in Government schools, salespersons of small and me-                                       Share                  Share
dium enterprises, etc. Thus, the needs of the functional        HP                7.92     30.86         15.25     33.43
consumer for laptops that are not being addressed by            HCL               0.6       6.96          4.5       7.17
the MNC brands can actually be served by HCL at a               Dell             30.48     16.42         37.33     12.66
competitive advantage.                                          Acer              7.31     13.48          8.11     12.12
                                                                Lenovo             14      13.06         4.87      14.33
HCL can also compete on price and pricing strategy. It
                                                                Sony              9.14      3.93          11        3.45
can adopt a licensing model wherein, for example,
schools pay for the hardware on a monthly rental basis          Secondly, segmenting the market by age and buying
which includes the cost of the hardware, software, and          behaviour may not be feasible as 20 per cent market share
maintenance. New market segments can be opened up               would require targeting the whole market. For exam-
through innovative pricing strategies which enhance the         ple, targeting the consumer market (approx. 50% of the
affordability of the product. Being a local player, it can      total market) would require 40 per cent market share to
thus customize its pricing and offer a solution (a la IBM)      achieve 20 per cent market share in the laptop market.
to consumer segments that are volume buyers but find            Secondly, brand building and communication costs
the MNC product unaffordable. A localization strategy
                                                                would go up and HCL may suffer in profitability as gross
for component and design could also reduce the cost of
                                                                and net margins are very low (2-4%).
the product.

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                    147
Case Analysis VI
A P Arora
Professor
MDI
e-mail: aparora@mdi.ac.in



H      CL is facing a mature desktop market. In fact, desk-
       top PC has entered a declining market phase, cour-
tesy the introduction of laptops in the market. Ironically,
                                                              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,
for HCL, they have been able to muster highest market
                                                              it may be worthwhile to do a SWOT analysis.
share in the desktop market while they are a distant sixth
in the growing laptop market. The laptop market is
                                                              Strengths
growing on its own as well as at the cost of the desktop
market. HCL is duly placed as a “value for money” prod-       • HCL brand is well known and its “value for money”
uct in the desktop market. This has secured HCL’s posi-         image is well accepted.
tion in the top two slots by volume. Quite predictably,       • It has an extensive distribution reach.
“other” brands offering additional benefits enjoy more        • It has a strong equity in the corporate segment.
than 57 per cent of the market by volume. Perhaps, if
laptops had not come to the market, the maturity pe-          Weaknesses
riod of desktops would have lingered longer.                  • HCL is positioned only along the functional dimen-
                                                                sions. There is no strong emotional connect with its
Laptops were introduced by the multinational market-
                                                                customer groups.
ers with a large range of models to serve the diverse set
                                                              • It has to depend on the available technologies from
of customers who have yet to settle down with a clear
                                                                outside which are open to every other marketer. There
understanding of the product features and their wor-
                                                                are no scale advantages for its laptop business either.
thiness. Majority of the newly entering customers in this
market are students and young executives. Many of             Opportunities
them are existing users of desktop models and are up-
grading themselves to the new convenience of laptops.         • The market for laptops is already on the high growth
                                                                path.
The CEO of the company has suggested a target market          • Corporate executives form a large chunk of new
share of 20 per cent. No clear marketing rationale for          laptop market. HCL has substantial penetration in
this target has been forwarded in the Case. In such a           the corporate sector.
situation, such a target may first be cross-checked for its
economic viability. The Case suggests that at the lower       Threat
end of calculation, i.e., at 10 per cent of market share,     • Many competitors, particularly MNCs with deep
the contribution is in the range of 4-11 per cent (70-75%       pockets, have already acquired market positions and
cost of production, 12% distribution costs, and 7-9% of         should be competing hard for the Indian market.
sales and marketing overheads). Thus, net profit in the
laptop business is wafer thin at the lower end. How-          Suggested Plan of Action
ever, the contribution rises at the rate of about 0.4 per
                                                              Market forces due to the product life cycles of desktops
cent for every increase in the sales share up to a ceiling
                                                              as well as laptops are too strong to be ignored by HCL.
of 30 per cent. The anticipated increasing competitive
                                                              It has to accept them and align its actions to take the
pressure shall prevent any dramatic increase in the share
                                                              best advantage from them. This can be done by target-
anyway.
                                                              ing appropriate segments and implementing a suitable
The target of 20 per cent means a sale of 1.16 million in     action plan for them. From the previous SWOT analysis
2012 from the current sale of 0.29 million, i.e., a jump of   and sales goals of HCL, it is clear that its target segments
300 per cent and a search for 0.87 million customers! This    must be large which should be positively inclined (or at

148                                                                                                           DIAGNOSES
least not negatively disposed) towards HCL. Students,        HCL’s offer better and makes them comfortable to share
young executives, small businessmen, and corporate           with the potential customers around them. Young ex-
executives appear to be filling this bill. They are likely   ecutives may also be approached in a similar way.
to be most receptive to the “value for money” position-
                                                             Small businessmen and corporate executives may be
ing of HCL in the market.
                                                             targeted from the plank of “value for money”. This plat-
For the students’ market, HCL can suitably design its        form is well shared by their key concern and HCL’s
offer which is rugged, fitting in with their active life     image strength. Potential corporate executive custom-
styles, and suiting to their unique areas of requirements.   ers are most likely to be the current desktop users. HCL’s
The number of students from different streams and lev-       existing data base and service relations should be ex-
els should be large enough to support the interesting        tensively used here. Exchange offers can be an effective
possibilities of sub-segments here. This can be well uti-    sales tool for this segment. This may excite them suffi-
lized by HCL to connect strongly with them. An exten-        ciently and fit well with the extensive distribution net-
sive distribution network could be its strong point for      work for the desktop market.
this market.
                                                             The numbers about each of the segments and their sub-
Students’ market could be utilized by HCL in another         segments need to be worked out in details. That is not
way. They can be used as the opinion leaders to effi-        possible from the available Case data. Therefore, addi-
ciently and economically penetrate into rest of the mar-     tional data will have to be collected for reaching to their
kets. These young customers can be approached by HCL         estimates. Once these estimates are available, more ex-
directly through mass media or personal contacts. The        act cost estimates for that particular scale of operations
communication to them should empower and encour-             can also be made. With these cost estimates, HCL can
age them to pass on the message to the next level of         more confidently challenge its existing competitors on
adopters through word of mouth. This is important as         the price front and strengthen its “value for money”
these young people are seen as local experts for laptops     positioning. It shall allow HCL to reap the advantages
and are consulted by many other customers. The key           of commodifying laptops in the major markets before
here may be the demystifying communication made to           its MNC competitors fully exploit their premium
these people which encourages them to relate with            “brand” advantage.




VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012                                                                  149

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:15
posted:8/30/2012
language:English
pages:37