Hewlett Packard – Marketing Strategy

13 Pages   |   4,049 Words

Table of Contents

 
Table of Contents. 2
Executive Summary. 3
Introduction. 4
Analysis of Marketing Strategy. 4
Marketing Communication. 5
Marketing Mix. 5
Distribution Strategy. 8
Target Customer from B2B and B2C Category. 9
Relative Market Share. 9
Brand Equity. 10
Market Segmentation. 10
Strategic Marketing Partnerships. 11
Recommendations for Creation of Marketing Strategy. 11
Conclusion. 12
Bibliography. 14

Executive Summary

Hewlett-Packard is a technology giant and one of the most successful companies in the world operating in IT industry. The organization has a very long and rich history behind it, and contains a very strong competitive position in the face of the dynamic structure of IT sector. The paper evaluates the marketing strategy of HP with the discussion of individual key concepts like positioning of the brand, marketing mix, market segmentation and marketing communication. Also, competitive comparison is done on these elements with companies like IBM, Apple, Acer, etc. The marketing strategy analysis is followed by comparison of the current years’ financial performance of the company with those of the last two years by taking into account profitability, working capital management and other operation ratios. The objective of the analysis is to create a comprehensive set of guidelines for Leo Apothoker who is appointed as the new President and Chief Executive of Hewlett Packard.

Introduction

Hewlett-Packard Company is a technology company which originated and headquartered in United States of America. The startup of the company was from a small garage and the company grew onto become the largest technology company on the globe. Products of HP are found in every single country of the world. The products and services of HP are omnipresent and the target market of the company includes all forms of entities – from individual household users, small entrepreneurial businesses to giant business entities. The company operates in both hardware and software sectors of computing industry (Vranica, 2007). The computing devices of the company were the foremost offering of the company which was then added on by software for the respective devices. 
 

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The annual revenue of the company exceeds a hundred billion dollars by a huge margin – far greater than GDP of various countries - and yet the company continues to grow. The arch rival of HP is IBM Corporation, however, since the year 2006 HP has been outperforming IBM in terms of marketing excellence and financial performance (Vranica, 2007). The marketing strategy and financial performance of the company is, thus, highly important for both the success and failure of the corporation will be of epic proportions, and will impact millions of stakeholders worldwide. The analysis of the marketing strategy of HP and its three year financials follows.  

Analysis of Marketing Strategy

Analysis of marketing strategy is highly imperative since the resources of the organizations always have multiple avenues to be utilized. Evaluation of marketing strategy determines the usefulness derived from these limited resources and determination of the methods through which a sustainable competitive advantage can be achieved (Bucklin et al.’s, 2008).  So far, the marketing strategy of HP has been geared towards maximization of the reach of the company to different markets and the company even chose to involve in low profitable and even loss-making operations in certain business segments and regions, to fulfill the objective of maximizing the reach (Vranica, 2007). The strategy also included a very large number of acquisitions in between, where the motivation of the merger was more of maximizing the reach rather than gaining expertise of other companies. Itemized details of the marketing initiatives of the company are given in the following paragraphs:

Marketing Communication

The recent approach of HP is towards consolidation of the marketing communication function of the organization. At one point in time, there existed around eighty six marketing departments in the organization due to the vast expanse of the products and services offered by the organization, and a number of mergers of which the company has been a part of (Bucklin et al.’s, 2008). The situation was quite problematic since every functional unit tended to have a different approach towards marketing communication, and multiple positioning of the brand Hewlett Packard were being projected into the market (Mahajan, 1986). Each marketing department had their separate marketing budgets, which meant there was a constant feeling of resentment towards the organization for marketing resources and at the same time there was no focus in the marketing effort at all. Since 2004, HP has put conscious efforts to consolidate its marketing communication and adopted CRM and Marketing Resource Management tools (Murthy, 2000). In addition, a feedback mechanism for marketing communication as established to measure marketing effectiveness through recall, change in perceptions and recognition amongst target audience. The use of the state-of-the-art CRM application means that the expenses of the marketing function are reduced by almost one-tenth and more effective marketing communication is drawn (Mahajan, 1986). Even though coordination of marketing function within itself is improved, there is still significant effort required to enhance coordination of marketing function with the rest of the organization – for instance, production function and finance department.

Marketing Mix

Product - The marketing mix of HP has been highly dynamic over the years. The product offering of HP belongs to several distinct product groups and is impressively diversified for a single firm. HP markets printers, scanners, workstation computers, personal computers, calculators, digital cameras, Personal Digital Assistants and computer servers (Mahajan, 1986). These are just the hardware. HP also offers software and complete set of services associated with the above mentioned hardware. For instance, the IT infrastructure to support these services and implementation of various installations is done by HP (Homberg, 2000). Thus, from marketing strategy point of view, the array of product offering is nothing less than confusing. HP's Imaging and Printing Group markets all forms of printers, scanners and also offers photo products services. In this segment of product offering, the market situation of HP is highly consolidated, for HP’s printers’ posses’ majority of the market share and are considered the best product offering amongst competitors (Mahajan, 1986). HP has also been proactive in product innovation in this segment even when there is no immediate financial gain. For instance, HP created and marketed a free application to print photos directly from iphone. The personnel computer offerings of HP are consolidated as the provider of both business and personal computers to businesses and domestic users. The market itself is segmented into entertainment purpose computing devices, high-performance one and budget ones (Moyi, 2003). In the laptop category, HP has a considerably consolidated position. In desktops, Dell and other value-propositioned brands have given a tough time to HP, until HP chose to buy out Compaq itself. The share of the company’s market share of the whole is consolidated. To stay into the entertainment segment of computing devices, HP even chose to assume status of a reseller of iPod, unless it decided to drop this strategy in favor of focusing on those segments in which the company can reasonably sustain its leadership.
Technology enterprise division of HP comprises of storage and networking systems. This provides businesses the functionality to connect backend functions with front-end or even to integrate organizational functions with external partners (Moyi, 2003). For instance, a retail chain can link up its inventory with producers of goods to automate replenishment. HP not only provides software backbone for these functions, but it also sells switches and routers for these functions to take place (Kunda et al.’s, 2000). This is a highly important product offering of HP in terms of loyalty of the clients. Firstly, it is a B2B segment and secondly, once a business has become client of HP, then all of its organizational functions will become likely client of HP when technology develops to automate them (Moyi, 2003). In future, all replacements of parts will also generated repeat business for HP. In other words, first move advantage in this segment is highly important and HP is acquiring that advantage very speedily.
Price – the pricing strategies of HP used to vary according to the type of customer and the relevant product. The default pricing mechanism which was implemented at HP was market skimming strategy. This was originally adopted because the research and development costs of the creation of new products were used to be very high, and the technology used to change quickly. Therefore, the company’s approach was to get the research investment back as early as possible (Bucklin et al.’s, 2008). For this reason, any innovative product which was launched into the market was used to be priced at a very high value so as to gain as much revenue from the early adopters as possible. Later, the price was tapered off. This pricing strategy was followed in the product category of printers, scanners, storage devices and most importantly in PDA category.
Later, most of the competitors began to be innovative as well, and new products were being launched by almost all major IT company. For this reason, in categories like computer hardware, servers, computer monitors and laptops segment pricing was adopted. The objective of the segment pricing was to maneuver as much revenue from different segments of the market as possible. This was, interestingly, achieved through selling the same product to different segments at different pricing (Vranica, 2007). Those consumer groups which attached a higher weight age to lower pricing were charged at a low, while others were charged higher. This was done by changing very small features of the products like Wi-Fi functionality, camera quality, small changes in pixels, etc. This implied that different models began to be introduced for a single product, so as to differentiate in pricing between different target markets.
Segment pricing also meant that household consumers used to pay a different price for the same product as compared to what business consumers paid. Discounts and allowances were made for large scale buyers (Mahajan, 1986). Functional discounts were introduced for channel members. Special low pricing was done for retailers who used to buy a certain percentage composition of HP’s stock.
Promotion – HP has used all forms of promotion which are generally utilized by suppliers of consumer products. The company used to air television advertisement for its personal computers and optical media products. Channel road shows were employed by the company for a wide range of products (Vranica, 2007). As for below-the-line promotion methods holiday rebate programs and incentives schemes were launched for household consumers. Trade promotion was used to motivate retailers and distributors to push the product more to the consumers.
Placement – placement component of marketing mix is discussed in detail in distribution strategy.
Packaging – packaging was used by HP quite extensively to bundle several of its products together, and then reach value-based customers. The advantage for HP was that it contains a very large portfolio of products. This advantage was leveraged by packaging camera or scanners with optical storage devices, and other products which can serve as complementary product. Also, the packaging of the product was adapted in such a manner so as to make the product user-friendly and still high-tech.
Positioning – positioning of HP has gradually become confusing. HP used to stand for creators of personal computers, and later when the company extensively marketed its optical devices like scanners and printers, the position acquired in the mind was that of printing company. Since, the company never employed sub-branding and operates in more than seven products category, consumers have a very confused positioning of HP in their mind (Murthy et al.’s, 2000).
People - HP has a culture where a deep-rooted value is respect for the workforce. HP believes that its people are its greatest asset and seeks to nurture them through continuous improvement rather than considering them an expense and a drain on organizational resources. The people of HP are, therefore, highly trained and key organizational resource.

Distribution Strategy

The distribution strategy of HP has remained largely unchanged in the face of strong market competition which has come up in recent years. HP used to have an impressive penetration among retailers and the company was almost ubiquitous to be found in all retail store. However, this strength of HP was quickly taken away by Dell when it set up its direct distribution system. There were immense advantages for Dell to adopt the particular strategy. Firstly, it could supply products at a very cheap price, since the margin of the middlemen was eliminated. This revolutionary distribution system created a new concept in the marketing texts – mass customization (Murthy et al.’s, 2000). Consumers can choose online about the parts which they need in their computer system, and it was delivered at the doorstep of the consumer very conveniently.  HP did try to copy Dell by taking orders through internet and phone, however, ended up losing its own focus on retailers.
Soon HP realized that retailer dominance is the core competency of the company and started to repair its relations with retailers. The company created a marketing campaign directed at retail buyers. Also, distribution system was strengthened with corporate business, for this is the market segment which is unlikely to purchase online. Corporate buyers want to create long-term relations with the supplier of their hardware components and also seek service contracts. These can only be provided by institutional suppliers like HP which have physical presence rather than Dell (Vranica, 2007). The second strategy adopted by HP in distribution was to create meaningful partnerships with distributors and to grant them credit terms, if they choose to buy certain minimum quantity of stock. HP became so close to its distributors that the company started contractors to follow request from resellers to view its full product catalogue. In other words, the distribution strategy was to create ‘one stop shop’ for the customers of the company. Also, statuses were being awarded – for instance, ‘valued distribution partner’ – to encourage retailers to do more and more sales.

Target Customer from B2B and B2C Category

The target customer for HP in B2B category has been small and medium businesses (mostly entrepreneurial ventures), as well as, large organization with server management needs. In the B2C category, the target customer of HP is almost all encompassing. From corporate executive to housewives and from professional photographers to young students are among the B2C target market of HP.   

Relative Market Share

The market share of HP in the category of computer components and hardware is a huge thirty percent of the global market for computer hardware and components. The domination of HP in the global computer markets is attributed to the aggressive expansionary policy of HP which it adopted since 2001 (Moyi, 2003). Also, the acquisition of key competitors like EDS and Compaq is also responsible for such consolidated market supremacy of HP. In the personal computer category Dell has traditionally dominated far more than HP, however, recently HP has even taken over Dell in this category. The closest and most agile competitors of HP at present are Acer, Lenovo Group and Toshiba, which compete mostly on price with HP and have carved out mass market share in developing markets like India and other East Asian countries (Lind et al.’s, 2000). Recently, Chinese lesser known brands have also consolidated their markets shares based on the high retail margins which they give to their competitors. In the servers’ category, HP is competing head-on with Sun Microsystems and has lost market share in recent years. In imaging products, Samsung, Xerox, Seiko Epson and Canon have given a tough time, yet HP has enhanced its share of the total market.

Brand Equity

The brand equity of HP is one of the highest in the information technology industry. HP has also repositioned its brands very actively over the years with the changing trends and needs in the market place (Lind et al.’s, 2000). For the first twenty five years of its operations, HP has remained a B2B brand. In fact, HP rebuffed the consumer markets of home computing as a fad and too small for a giant business like HP. However, it recovered speedily after other brands had captured consumer markets (WU et al.’s, 2004). The key marketing strength of HP was its distribution network of the ‘place’ element of marketing mix, which led the company towards creation of a sustainable competitive advantage in the distribution category. The branding initiative of HP called ‘One Voice’ was a very successful one in creation of a line of products in consumer electronics segment and the products made their mark through sleek design and proven functionality. The company moved from twelve to eleventh position in the global most recognizable brand list, which is an evidence of the brand supremacy in the consumer markets (Sadeh, 2002).  

Market Segmentation

The market segmentation strategy followed at HP is the one based on the type of consumers. Business consumers are divided into corporations and small business. Consumers markets are segmented according to the psychographics, as to whether the consumer is seeking entertainment, computing or information needs from the devices. One market segment in which HP is very weak is the managed consulting services. The major competitors in this segment are efficient companies like Accenture, IBM and EMC (Dehning et al.’s, 2003). Among these three competitors, IBM and Accenture have established very strong ties in the corporate sector and are the preferred choice of business in terms of solutions and consultancy. This market segment presents highly sophisticated needs and it is indeed a challenge for HP to secure a share of this market.

Strategic Marketing Partnerships

HP has created some strategic partnerships in marketing with other IT organizations which does not directly competes with any of the business segments of HP (Lind et al.’s, 2000). Rather, these organizations’ product offering is such that it complements strengths of HP. In cloud computing segment, HP has partnered with Yahoo and Intel Corporation to create a global multi-date centre. The objective of this centre is to test the open source code for cloud computing research (Weon et al.’s, 2008). Cloud computing is estimated to be more than forty million dollar industry and termed as the breakthrough in education and all forms of researches.

Recommendations for Creation of Marketing Strategy

There are a number of key considerations which should be made by HP in creation of marketing strategy which leads to creation of profitable path to sustainable sales and growth. The President and Chief Executives should keep each one of these in perspective in the development of overall marketing strategy of the firm (Lind et al.’s, 2000). Firstly, HP should prioritize its consumers segments in terms of profitability, since the marketing resources of the company are being spread too thin, trying to attach equal attention to both highly profitable and barely profitable market segments. Secondly, the target audience for HP at which the company should attach primary importance is small business segment, for this is the one which is likely to grow most in coming years (Becker-Olsen, 2000). Further, the company should integrate the concept of social marketing in its overall marketing programs. There is an increased awareness among global consumers about the environmental impacts of a business while conducting its business, and there is a gap among IT firms in terms of gaining a positioning in terms of socially responsible firm. HP can acquire this position.  
HP is not considered an affordable brand among consumers, while the greatest growth in IT products is coming from developing economies. HP will need to develop a sub-brand to gain access to such markets as well. Also, mobile computing is likely to be the most growing area in developing countries where traditional personal computer markets are becoming saturated. This implies that PDA products should be the focus of HP in developed markets (Weon et al.’s, 2008). Also, the execution of marketing communication should be undertaken individually, even if the strategy formulation is centralized. The point is that HP creates launch events for thirty nine of its products at a single time, while Apple creates one event for a single product. Both companies operate in a large portfolio of products, yet Apple has focus in its marketing communication to a single product. Thus, Apple creates far greater buzz in media for iPad, iPhone or iPod, while HP fails to develop individual brands. HP stands very strongly as a single brand, yet it has become too vague a brand to create leadership in a single category (Weon et al.’s, 2008). The strategy which should be adopted by HP is to identify star products, assign sub-brands to them and focus its marketing communication on developing those brands under the endorsement of HP brand.
It is also essential for HP to consolidate its brand image in the consumer markets. Interestingly, research has shown that people associated HP brand with printers and imaging, rather than a holistic solution to all IT needs. Even though printing and imaging services are only a small part of HP’s overall business and contribute only a quarter of company’s total revenues, yet it has overshadowed other business segments of Hewlett Packard organization (Weon et al.’s, 2008). The personal computing industry is the one which is the largest in terms of revenue, and HP is competing closely with Dell in this sector. HP should choose to create a sub-brand under the endorsement of Hewlett Packard name, for penetration into this sector. Panel interviews have revealed that consumers view Hewlett Packard as a boring and old brand (Weon et al.’s, 2008). The brand persona does not appeal to younger audiences. Hence, is the need to develop a new brand with a more upbeat persona, to which the younger target audience are able to associate.
HP should also communicate its core values to its target market in its brand communication. The organization should seek to implement the concept of Integrated Marketing Communication to bring about cohesiveness in different media through which the company communicates with its consumers.

Conclusion

Hewlett Packard is the organization which is one of the largest revenue earning corporations in the world. The company has grown exponentially over the years to create its hold in every sector of IT industry ranging from B2B markets to B2C markets, both in hardware and software segments. The marketing strategy of HP has been revolving around extending the single brand name Hewlett Packard across the entire portfolio. Recommendations have been made regarding the brand strategy to be adopted.

Bibliography

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