Case Study: Hewlett-Packard
Primary Business – Technology Firm
Imaging and Printing Group (IPG)
Products: Printers and inks
Revenue: 30% of total
Personal Systems Group (PSG)
Products: Desktop PCs, notebooks, servers, flat-screen TVs 2.
Revenue: 29% of total
Technology Solutions Group (TSG)
Technology and IT services for B2B segment 2.
Revenue: 37.5% of total
Main Issue – HP is struggling to decide whether to continue selling PCs, a large revenue generator with consistently small and diminishing margins. Along with this decision, the firm is also wrestling with how to price the PCs in the market amidst strong competition from Dell and IBM. 1.
PCs are central to HP’s strategy to maintain their position as a complete technology provider to both the B2B and B2C segments. 2.
Through testing the market, HP has found that the demand for PCs are elastic to price. Increased prices resulted in loss of revenue but increase in margins. Whereas a decrease in prices improved market share, but saw margin erosion. 2.
Decide whether to keep PCs are part of product portfolio. 2.
Decide how to price PCs if decided to keep as part of portfolio. 3.
1. The Market
1. Size: In 2003, the global PC market was estimated at USD 170 billion. Estimated to grow at 11.4%, the forecast for 2004 was USD 182 billion. 2. Segments
1. Product: Desktop PCs and portable computers. 2. Customers: Enterprises, small businesses, and consumers. 3. HP's Position:
1. Product: HP sold it's own-branded computers and also HP Compaq products to customers. 2. Distribution: HP products were sold to business customers through their direct sales force and commercial retailers. They sold to consumer through retail stores. 3. Price: HP is priced approximately 15% higher than Dell PCs due to their brand equity. 4. Image: HP has tried very hard to redefine the brand for their customers. The overall theme is to become more customer-oriented, and less driven by internal innovation. The key aspects of HP's campaign were "adaptable", "straightforward", "trustworthy", and "human". The company implemented the Total Customer Experience "TCE" program in 2000 to "enhance the customer focus of HP's employees. By 2004 HP was ranked first in customer satisfaction with Dell and IBM both trailing behind. 2. Competition
1. Dell was very well positioned in the consumer market as the low cost, high service-level, and very "human" product. Their online retail channel was a big success in the late 90s and early 00s. The ability to customize and receive prompt service was very attractive to all customers, perhaps especially for the 18-30 year-old crowd who were becoming quickly accustomed to shopping online. Dell was also priced slightly below HP PCs. 2. IBM
1. IBM had a larger share of B2B PC market through their business relationships with enterprises in providing information technology and consulting services. Through these relationships IBM was able to sell PCs in large quantities instead of through online or retail channels. This...
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