Intel- TheComponentBrandingSaga"WhatMicrosoftis to sq(tware.Intel is to hardware:a marketingandtechnologymonsterthatisseeminglyunstoppable."

- A HoustonChronicleNewsArticle,in 1997.

DANCING ITS WAY TOWARDS LEADERSHIP

Whatcoulda computerhardwarecompanymanufacturingmicroprocessorspossiblyhavein commonwithdiscodancing?A lot,if onegoesbyanadvertisementcampaignreleasedby theworld'slargestmicroprocessorcompany,theCalifornia-basedIntelCorporation(Intel),in 1997.Thetelevision(TV) commercialsdesignedto promoteIntel'sMMX technologyfeaturedpeople(referredto as 'bunnypeople'by thecompany)dressedin silveryastronautsuitsdancingto a popsong,Stayin'Alive](ReferExhibitI).

Oneof thehighlightsof thecampaignwasCompanyChiefExecutiveCraigBarrett(Barrett)goingon stage,accompanyingthe songwith tambourine!It was evenreportedthat'theBeeGeesclassicnowsoundedmorelikethethemesongtoBarrett'seffortsto restoreIntel'sglorydays.'Postersfor thecampaigndepicteda rainbowemergingfromtheIntelMMX logo,givingit a colorful,shinylook.Thecatchyandunusualcampaignreportedlywenton tobecomeoneof themostwell rememberedonesfromIntel.Forthecompany,it wasyetanothersteptowardsbecomingthe'only'brandonecouldthinkof whenit cametomicroprocessors.Intelhadto itscreditthedistinctionofsingle-handedlytransformingthemicroprocessormarketovertheyears.

TI\e companyhadbegunoperationsin dayswhenpeoplewerenotveryawareof thetennmicroprocessoranditssignificancefor thecomputerstheywerebuying(ReferExhibitII foranoteonmicroprocessors).Eventhoseconsumerswhoweresomewhatcomputer-savvydid not know muchaboutthem.But by the early21st century,customersall overtheworldwereableto recitetheirprocessorspecificationslikeanurseryrhyme.ThankstoIntelthatmadethechipinsidethepersonalcomputer(PC)sopopular.

Intelhadbeenabletobringaboutthischange,primarilyduetoitsfocusedR&D andproductdevelopmentefforts.However,its biggestsuccesslay perhapsin itswell-etchedandexecutedmarketingstrategiesdevised,overtheyears,topromoteIntelasa-brand.ThrOUgllitseffortsIntelbecamesynonymouswithcomputermicroprocessorchipsandtheundisputedindustryleader.The companyhadan 80%shareof theglobalmicroprocessormarket- leadingnotonlyin termsof salesrevenues,butalsointenusof innovation.

BACKGROUND NOTE

Intelwasestablishedin 1968,bythreeengineers,RobertNoyce,GordonMoore,andAndyGrove.Unhappywiththestateofaffairsatthecompanytheywereworkingfor,FairchildSemiconductor,thetrio decidedto starttheirowncompanyanddeveloptechnOlogyfor siliconbasedchips.The resultwas the fonnationof Intel (anabbreviationfor IntegratedElectronics)at MountainView, California.Intel'sfirstcommercialproductwas the '3101 Schottkybipolar64-bitstaticrandomaccessmemory'(SRAM)chip.

1 Thesong,SllllgbytheUS-basedpopmusicgroupBeeGees,wasverypopularall overtheworld,andwasfeaturedinthesuccessfulHollywoodmovieSalllrdayNightFever.

53

Brand Management

To meet the requirementsof a Japanesecompany,Busicom. that manufacturedcalculators,Intelmadea microprocessorchipthatperformedthefunctionof 12siliconchipsput together.Named40042, theworld's first microprocessorchip was releasedin 1971. This chip could computeas fast as the ENIAC3, the fastestcomputeravailablethosedays.

Commentingon this invention,David K Allison, a teclmologyhistorian, at theSmithsoniansaid, "I think it (themicroprocessor)ranks in the sameleagueas theinventionof thesteamengine,theautomobileor theairplane.The microprocessorhashada kind of transformingqualityfor civilization.Contrastthe microprocessorwithits predecessor,the ENIAC, which had 18,000 vacuum tubes. Today, we dosomethingfar in excessof that- billions of differentcomponents- on somethingthe'sizeof yourfmgernail.The scalechangedeverything."

The inventionof the 4004chip was a major technologicalachievement,but wouldanybodyotherthanBusicombeinterestedin buyingit? Couldthechipbeusedfor anyotherproductthanthe calculator?Commentingon this situation,RobertNoyeehadsaid,"The questionwaswhetherwe could sell it to anybodyotherthanBusicom;thequestion was whether there were enough applicationsout there other than thecalculatorto makeit worthwhile." Intel was detenninedto find ways in which itschipscouldbeused.

To meetthischallenge,Inteltookup thetaskof educatingtheengineeringcommunityaboutthepotentialof a programmablemicroprocessorchipthatcouldbeusedin manycommonly used products like traffic light controllers,ovens, phones etc. Intelconductededucationalseminarsandsold manualsto createawarenessamongpeopleaboutthechipspossibleuses.Intel alsostartedputtingadsin theprintmedia.The firstadvertisementby Intel appearedin theElectronicNewsmagazine(ReferFigureI) andresultedin hugesalesof the4004.

Figure I: Intel's First Print Advertisement

Source:www.inteJ.com

Following the successof the 4004, Intel releasedthe 8008microprocessorin 1972.This chip was twice as powerfulas the4004andwasusedin a computercalledtheMark-8, oneofthe world's first homecomputers.Then CaInethereleaseof the8080in 1974,whichbecamethebrainsof thefirstPC, Altair. Tensof thousandsof thisPCcosting$395weresold.

2 The 4004chipwasone-sixthinchlongandone-eighthinchwideandconsistedof 2,300MOS transistors(MeanOpinionScore).MOS is usedmainlyin voicecommunicationstodetenninethequalityof thevoiceatthedestinationendofthecircuit.

3 The first deviceusedfor computing,theElectronicNunIericalIntegratorandComputer(ENIAC) wasinventedin 1946.It weighed30tOillIes,occupied3,000cubicft. of spaceandhad18,000vacuumtubes.

54

Intel - The Component Branding Saga

In 1978,Intel releasedthe8086-8088chip.The 8088waschosenby IBM's PCdi.v'isionformakingnewPCs.Thechipwentontobecomeahugesuccessandgaveamajorboostto Intel'ssalesandgoodwill.IntelwasalsorankedamongtheFortune500companies,andFortunemagazinenamedIntelasoneof the'BusinessTriwnphsof the Seventies.' Intel emergedas the most widely acceptedsupplierofmicroprocessors.Computer manufacturersand operating system suppliersincreasinglybeganbuildingtheirproductswithIntelchips.

In 1982,Intelreleasedthe80286microprocessorchip(alsoknownasthe286).It wasthefirstprocessorthatcouldrunprogramswrittenfor itspredecessor.It wasahugesuccess;withinsixyearsof itsreleasetherewerearound15million286basedPCsintheworld. Intelfollowedupthe286withthelaunchof 386andthe486chipsin 1985and1989respectively.Thesechipsalsowentontobecomehighlysuccessfulproducts(ReferExhibit III for a timeline of Intel'smicroprocessorlaunchesanda briefdescriptionof eachmicroprocessor).In 1985,IntelenteredintoanagreementwithMicrosoftCorporationtoformwhatcametobeknownasthe'Wintel'monopoly(Aspertheagreement,everyPC thatranontheWindowsoperatingsystemcamewithanIntelmicroprocessor).Intelalsolicensedthetechnologyof thesechipstocompetitorslikeAdvancedMicrodevices(AMD) tomaketheirownversionsofthechip.

As Intel launchednewerand moreadvancedmicroprocessors,PC performanceimproved.GreaterprocessorspeedshelpedPC's to run quickly,reliably,andsmoothly.Intel playeda vital role in transfonningthe PC from a businessmanagementtooltoadevicethatofferedinfornmtion,entertaimnent,andeducationinrichmultimediafonnat.

THE NEED FOR A COMPONENT BRAND.SincethedevelopmentofPCs in thelate-1970s,themarketingof IT relatedsoftwareand.hardwarewas mainlydrivenby computervendorsand softwarepublishers.However,Intelreliedcompletelyonitscomputer-vendorcustomersotherwiseknownas.OriginalEquipmentManufacturers(OEMs)toconveytoendusersthebenefitsofusinganIntelprocessor.As a resultconsumershadverylittleawarenessaboutInteland its products.Most PC userswerenot awareof theavailabilityof advancedprocessorsandtheircostsavingperformance.

Intelrealizedthatit neededto createmoreawarenessaboutitselfanditsproductsamongconsumers.This realizationwas inspiredby 'Moore's law,' an industryguidingprinciple,developedbyGordonMoore.Accordingtothislaw'thenumberoftransistorsonthemicroprocessorroughlydoublesevery18monthstotwoyears.'Thistranslatedintogreaterprocessorspeed.Thuscustomerscouldsavecostsbyupgradingtonewerchipversionsratherthanbuyingmultiplechips-somethingcustomerswereunawareof.

Thuswasbornthefirstfocusedmarketinginitiativeby Intelin 1990to marketthe386SX(a newversionof the 386)microprocessor.A smallgroupof marketingpersonnelinteractedwithIT managerswhocametobuyPCs for businesspurposesandbriefedthemaboutthefeaturesandadvantagesof theexistingmicroprocessorsaswell as thenewreleases.As a resultof theabove,customerawarenessaboutthe386SXprocessorincreasedandtranslatedintoincreasingsales.

Evenasthecompanyinitiatedmarketingactivities,it hadto dealwithcertainlegalproblems.Arch-rivalAMD, whichhadbeengiventhelicensetomanufacturechipsbyIntelbeganmakinguseof thelatter'sprocessornwnberstomarketitsownproducts.By offeringchipsatcomparativelycheaperprices.AMD captured52%of themarketby 1990.AccordingtoIntelsources,thecompanyhad'assumed'thatthe386and486processorswereprotectedtraderna.rksandthatnoothercompanycouldmakeuseofthem.Intel thenllladeattemptsto protectthe teclmologyof the 386 and 486

55

Brand Management

processors.As aresultAMD suedIntelforbreachof contract.Intellostthecaseandthecourtsstatedthattheprocessornumberswerenottrademarks.This openedthedoorsforothercompaniestousethem.Intelrealizedtheneedfor abettermarketingprogramthatwouldprotectitsrights.

Thisepisodemadethecompanyrealizethatnumber-namesformicroprocessorswereambiguousandunprotected.Intelneededto transferthebrandequityfromthesenumberstothecompanyfast.Thischangewasexpectedtocorrectlycommunicatethebenefitsof thenewprocessorstotheendusersandatthesametimecreateawarenessaboutthecompany.Intelthussoughttocreatea strongbrandtocommunicatebetterwithconsumers,justifythebillionsof dollarsinvestedin productdevelopment,andhighlightthesuperiorperformanceandreliabilityof itsproducts.

The decisionto go in for componentbrandingwas also takenbecauseof thecompany'sobservationthatalthougha microprocessorwasa keycomponentof thePC, itwaslargelyseenas'justanothercomponent.'IntelthusdecidedtoworkcloselywithPC manufacturers.Its marketingteambeganto studythemarketscloselyandadoptedvariousconsumermarketingtechniquesthathadbeensuccessfullycarriedoutby well-knowncompaniesthatweresupplyinga componentor an ingredientof afinishedproductlikeTeflon,DolbyTMandNutraSweet.Basedontheexperiencesof thesecompanies,IntelconductedvariousmarketingexperimentstofindouthowabrandedcomponentprogramwouldworkinthePC industry.

MARKETING THE MICROPROCESSORS

The companydevelopeda componentbrandingstrategythat aimedat gammgconsumerconfidencein Intelasa brand.It decidedto runcampaignsthatwoulddemonstratethevalueandbenefitsofbuyingaprocessorfroma leadingcompanyinthe industry.The mostinnovativeaspectof this strategywas the decisiontocommunicatedirectlywith end-users.This was a very novel ideafor a 'puretechnology'company.Intel'sdecisionwaseyedwithsuspicionbyindustryobserversasnoothercompanyin theindustryhadeverdonethisbefore.It wasreportedthatevenmanywithinthecompanyalsohadthesameopinion.

Intelhoweverdecidedtogoaheadwithitsplans,andwiththehelpof anadvertisingagency,DahlinSmithandWhite,designedacampaignforitsproducts.Thecompanyadoptedanewtagline-'Intel.Thecomputerinside'- in July 1991.Thistaglineaimedatemphasizingtheimportantroleof amicroprocessorin aPC andalsohighlightthefactthatIntel'sproductswerereliable,safeandtechnologicallyadvanced.Later,thecompanyshortenedthetaglineto 'IntelInside.'Thetaglinewasaccompaniedby anewlogo,in whichthewords:IntelInside'appearedinsideacircle (ReferFigureII).The logowasdesignedto indicatethata necessarycomponentin thePC hadbeenverifiedandapprovedasregardingitsquality.This designsuggestedthatthebrandhadanimplicitsealofapproval.

FigureII: TheIntelInsideLogo

Source:www.intel.com

56

It:.;,;f

Intel - The Component Branding Saga

The newmarketingprogramconsistedmainlyof an incentivebasedcooperativeadvertising(coop)program.Intelcreateda cooperativefundwherein5% of thepurchasepriceof themicroprocessorswaskeptasideforadvertisingfundsandmadeavailabletoall PC makers.IntelsharedtheadvertisingcostswiththeOEMsforprint

, advertisementsthatincludedtheIntellogo. ThisarrangementbecameverypopularlyandmanyOEMsjoinedtheprogram.As aresultofthearrangementOEMscouldnotonlyincreasetheirad spend,theycouldalsobeassuredthattheircomputerswerepoweredbythelatestmicroprocessortechnology.By theendof 1991,around300PCOEMshadjoinedIntelin supportof theIntelInsidecoopprogram.Afterthesuccessof this program,Intelstartedto advertisein theprintmediaaroundtheworldtoexplaintheIntellogotoglobalcustomers.

IntelreleaseditsfirstTV advertisementinearly1992.ThisadwasmadebyIndustrialLightMagic4for thenewInteli486processor.It stressedonthepower,speedandaffordabilityofthechip.Theadvertisementwasdesignedusingstate-of-the-artspecialeffectsandfeatureda tripthroughtheinsideof a computer.TV providedInteltherightplatformto effectivelycommunicatethe Intel Insideprogram'smessagetoconsumers.Intel's colorfulTV advertisementwhich displayedthe Intel logo,accompaniedby a distinctiveandcatchyjinglewhichweretogetherknownasthesignatureill audio-visuallogo.Withthisadvertisement,Intelwasreportedlyabletobuildadistinctiveandpositiveimageinthemindsofconsumerstheworldover.

Intelhada seriesof highprofilelaunchesfor itsnewchipsoverthenextcoupleofyears.PentiumandPentiumPro werelaunchedin 1993and1994respectively.Thecompanyhadnowdecidedtousenamesinsteadnumbersfor itsmicroprocessors(thewordPentiumwasderivedfroma Greekwordmeaningfive).In themeantimeIntel'sinvestmentinmarketingseemedtohavepaidoff.A companyresearchrevealedthatwhileonly24%of EuropeanPC buyershadbeenfamiliarwiththeIntelInsidelogoin late-1991,thefigureincreasedtonearly80%in 1992and94%in 1995.

Commentingonthis,DennisCarter,Intel'sMarketingManager,said,"I believethattherehasbeena lot more(industrywide)advertisingbecauseof the Intel Insideprogramthantherewouldhavebeenotherwise.Thathashelpedto createmorePCdemand.If youbelievethatadvertisingworks,thenmorepeoplearegettingeducatedaboutthebenefitsofthePC becauseoftheIntelInsideprogram."

Intel'smarketingeffortsnotonlyincreasedthedemandforchips,theyalsoincreasedthedemandfor PCs aroundtheworld.This was interestingconsideringthatthedemandforPCswasgrowingsharplyin spiteof increaseinPC prices.Thenumberofpeoplewhoownedhome-PCswasincreasingevenasthePC emergedasthemostviabletoolforbusiness,educationandentertainment.Intelwasthecatalystin thisPCrevolutionthatswepttheentireworld.

Intel'sadvertisementcampaignsandcoopmarketingstrategyhadbecomea wellknownmarketingsuccessstoriesof the 1990s.Eachnewcampaignin theprint,electronicor.outdoormediaattractedsignificantattention.How~ver,eventhosewhohadacceptedIntelasanunconventionalmarketerwerenotpreparedfor theStayin'Alive campaignin 1997.Commentingon its success,AdvertisingAge said,"Theybecamenothinglessthanthewhimsicaliconsofago-goPC industry."

In thesameyear,IntelstartedadvertisingontheWebandalsoencouragedPC makerstousethismedia.Intelalsoallowedthemtousethecompanylogoandmessagesintheiradvertisements.Thishelpedthecompanyconveytocustomerstheimportantroleitschipsplayedin givingthemagoodInternetbrowsingexperience.

4 Of theGeorgeLucasgroup.GeorgeLucasis themakerof oneof themostsuccessfulHollywoodmovie-seriesofall times,StarWars.

57

Brand Management

As theInternetgainedin popularityduringthelate-1990s,consumersbeganturningtoit for gaininginformationon productsandpurchasingproductsonline.Consequently,Intel tookstepsto becomea leaderin theInterneteconomy.The companysprucedupits Intel Inside Program to promoteand supporte-Commercemarketingactivitiesundertakenby computer'manufacturers.Intel entered into tie ups with manycompaniesaround the world, ranging from experiencedvendors in the US tonewcomersfromcountrieslike JapanandPoland,for innovativeweb-basedmarketingand salesdeals.This way Intel could successfullymarketits chips as a componentbrandduringonlinePC purchasesthroughouttheworld

To leveragethepopularityof theIntel logo,thecompanyevenstartedsellingproductSlike books(for engineersandIT professionals),caps,T-shirts,keychains,pens,coffeemugs and dolls. These products,madeavailablethroughthe company'swebsite,camewith theIntel Insidelogoprintedor embroideredon them.The printedmaterialon themerchandisegenerallyfeaturedthelatestproduct(s)launchedby thecompany.

In 2001, in anotherinnovativemove,Intel setup the Intel InsideOnline Network.This was essentiallya web-basedtool, that helped managebusinesstransactionsrelated to the company's coop advertisingprogram. The Intel Inside OnlineNetwork, which was available24 hoursa day,providedservicesin languagesotherthanEnglish (ChineseandJapanese).

Intel's emphasison marketingactivitiesto support the launch of new productscontinuedwell into the early 21stcentury.In 2000-01,the companyran a seriesofTVCs featuringlittle 'aliens' enjoyingthebenefitsof its chips.The thruston productdevelopmentcontinued,and R&D expenditureincreasedfrom just $780 million in'1992to $3.8 billion in 2001.The companyfocusedheavily on marketingits newhigh-end microprocessorslike the Intel Xeon and Intel ltanium that weremostlyused for Internettechnologies.Intel concentratedon promotingits chips asvital ingredientsfor building missioncritical client serversolutions.The companyreportedlyspent$1.5billion on coopadvertisingfor theyear2001.

Intel's consistentefforts towards providing customersatisfactionthrough qualityservicesand its innovativeeffortsat componentbrandingfetchedit commensurateresults.The company'snetincomeof $7.31billion in 1999increasedto $10.53billionin 2000(Refer Exhibit IV & V). Intel earned35% of its total revenuesfrom NorthAmerica, 31% from the Asia Pacific region,25% from Europeand 9% from Japan.Besides PC manufacturers,the companymarketedits productsto various otherindustriessuch as industrial equipment,military equipmentand communicationsindustries.

WHAT LIES AHEAD?

All was not well with Intel as it movedinto the 21stcentury- in 200I its profitsdecreaseddrasticallyto $1.29billion. Though the companyfelt that the global ITslumpand the US economicslowdownwerepartIyresponsiblefor this decline,thelower averageselling prices of microprocessorsand a decreasein salesin generalwerethemainculprits.

The declinein saleswasbelievedtobe causedby thebadpublicity.causedby antitrustinvestigationscarried out on the companyby the European Commission. Thisinvestigationwas carriedout becauseof severalcomplaintsagainstIntel for using'abusivemarketingpractices.'[A newsreport(fromwww.newsfactor.com)statedthatIntel gavesubsidiesto PC vendorsfor optingfor Intel microprocessorsandusingthe'Intel Inside' logos or tunesin their advertisements.]The issuebroughtback bittermemoriesof anothersimilarcasethatwas filed in late-1999,in which Intel andtheFederalTrade Commissionof the US had madea settlementout of public view in2000.Intelwasalsoaccusedof chargingexorbitantpricesfor itschipsasit reportedlysoldits chipsata profitof about10,000%!

58

Intel- The ComponentBrandingSaga

Intel'sbadfortunescontinuedin theyear2002,whenit faceda nationwide(USA)classactionsuitregardingtheperfonnanceof thePentium4Processor.TheplaintiffsaccusedIntelof misleadingcustomersaboutthespeedof thePentium4 Processor.TheystatedthatthePentium4 chipswerelesspowerfulthanthecompany'sownPentiumIII andAMD'sAthlonchips.

ForAMD, thiswasoneofthoseraretimesthatit seemedtobeone-uponIntel.Duetothelatter'svirtualstrangleholdonthemicroprocessormarket,AMD (andthe'distant'players,VIA TechnologiesandMotorola)hadremainedfar behindthroughoutthe1990s(ReferTableI for IntelandAMD's marketsharesandExhibitVI for a briefnoteonAMD, VIA andMotorola).

TableI

Microprocessor(PC) Industry- MarketShares

"'dataforsixmonths(July- Dee 98.Jan-July 99).

However,bylate-2002,AMD hadincreaseditsfocusonmarketingitsprocessors.likeneverbeforeandlauncheda multimediacampaignsimilarto Intel's.Thesemovesalong.withthefactthatAMD's processorsweremorereasonablypricedthanIntel'sandthegrowingpublicperceptionthatAMD's processorswereasgoodorbetterthan

, Intel's,couldleadtostiffcompetitionforIntel.

Meanwhile,thepeoplewhobelievedthatIntelhadnothingtoworryaboutseemedtooutnumbertheskeptics.It stillremainedtheonlycompanyin theworldthatwasabletomakethePCjustapackagethatcamewithIntelchipsinsideit. Intel'smarketsharehadclimbedbackto87%in2002.ThefactthatcustomersrushedtoupgradetheirPCseverytimeIntelreleaseda newchipspokevolumesaboutthe 'cultof Intel Insidedevotees'thecompanyhadcreatedandnurturedovertheyears.

Questionsfor Discussion:

1. Examine the businessenvironmentin which Intel began selling itsmicroprocessorsin the early-1980s.Why did Intel decideto intensifyitsmarketingactivitiesinthe1990s?Discuss.

2. ExamineIntel's decisionto targetthe PC end-usersthroughits marketingcampaigns.Also,commentonthecoopmarketingstrategyandtheexecutionoftheIntel Insidecampaign.Whatarethemeritsanddemeritsof a componentbrandingstrategy?

3. 'Intelhasbeentakingcustomersfora ridebyover-pricingitschipsandofferingless efficientprocessorsthan its competitors.'Criticallycommenton thisstatementin lightof thefactthatIntel's perfo~ce haddeclineddrasticallyintheearly21stcentury.Whatkindof marketingstrategiesshouldInteladoptnowtoincreaseitsprofitmargins?

ICFAI Centerfor ManagementResearch.All rightsreserved.

59

Brand Management

Exhibit I

The 'Bunny People' Advertisement

Source:ICFAI Centerfor ManagementResearch

Exhibit II

What's in a Microprocessor

Source:www.whatis.com.www.intel.com

60

Intel - The Component Branding Saga

ExhibitIII

61

Brand Management

!Source:www.intel.com

ExhibitIV

Intel- NetRevenues& R&D Expenditure(1992-2001)

*(Excludingpurchasedresearchanddevelopment)

Source:www.intel.com

62

Intel - The Component Branding Saga

Exhibit V

Intel- ConsolidatedStatementsofIncome (1999-2001)

(in $million)

Source:ICFAI Centerfor ManagementResearch

63