hcl: facing the challenge describes a real-life situation ... · dell’s 1,500 million indian...

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012 113

Mr. Ajai Chowdhry, Chairman and CEO at HCL Infosystems Limited, amajor technology hardware player in India, was pondering upon thecompany’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) marketinginitiative had catapulted it from the fifth position (in terms of sales revenues) in2008-09 to a second position in 2009-10 in the Indian laptop market2. Similarly, Acerhad gone on a marketing and distribution blitz that catapulted it from No. 6 to No. 3in the market, thereby more than doubling its market share.

The reason for this sustained effort by the players could be attributed to the majorstructural changes that were taking place in the rapidly growing Indian computermarketplace. 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 growthof the laptop market. Households accounted for 56 per cent and business customersaccounted for 44 per cent of the market, growing at 83 per cent and 47 per centrespectively on an annual basis. The laptop market was projected to overtake thedesktop market in 2013 (Refer to Exhibits 1, 2, and 3 for sales and projected sales ofthe industry). Due to this, all hardware companies were forced to consolidate theirposition in the laptop space. The predominant belief in the industry was that if thiswindow of opportunity was missed, it would be difficult to get a toehold in the largeand 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 laptopmarket. It was important that HCL built its position in the laptop category too; itneeded at least a 15 per cent share of the growing laptop market in the next twoyears; otherwise it risked facing a large negative impact on the profitability andrevenues of the company over the next few years. Ajai set his aim at 20 per centshare of the overall laptop market in 2012, which would have allowed HCL to lever-age the economies of scale in manufacturing and marketing.

M A N A G E M E N T

C A S E HCL: Facing the Challengeof the Laptop Market

Jaydeep Mukherjee and Mahalingam Sundararajan

describes a real-life situationfaced, a decision or action

taken by an individualmanager or by an organiza-tion at the strategic, func-tional or operational level

KEY WORDS

Marketing Strategy

Global Competition

MNC Brands

Consumer Behaviour

Distribution Channel

Indian Desktop market

Laptop Sales

1 The accounting year is from April to March.2 ‘Laptop’ is used generically in the case for portable computing device and would include other products

typically called notebooks now as well as any such innovation in future.

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HCL’S BUSINESS

HCL Infosystems was a $2.6 billion revenue companyin 2009-10 with businesses in various areas of technol-ogy hardware. The key divisions were Hardware Manu-facture, System Integration, Telecom ProductDistribution, and Office Automation. These divisionswere independent profit centres and the decision-mak-ing rested on the heads of the individual divisions, whoreported to the CEO. Most of the divisional heads andsenior executives were veterans in the company andwere well-experienced in the various areas of technol-ogy hardware. Though the businesses were independentas far as management was concerned, they also workedtogether while facing challenges in the market.

HCL had been present in the Indian market from thelate 1970s, and it had unparalleled distribution reach inthe market space. It had a wide ranging service networkthat was the envy of all its competitors. It was a house-hold name in the country and people saw the HCL brandas Indian, dependable, and trustworthy. It was perceivedas a value for money brand and not a premium one,which appealed to the majority of the Indian desktopconsumers. Currently, it was the only domestic playerof any note in the Indian laptop market which was oth-erwise dominated by the MNC brands.

HCL also faced fairly steep challenges. It did not havethe deep pockets that its MNC competitors had. It wasalso limited in terms of product portfolio as comparedto the MNCs who could offer products from their inter-national portfolio into the Indian marketplace and en-joy economies of scale. There was also the prevalent andwidespread perception among laptop consumers thatforeign brands were better in terms of quality, whichwas a problem that many Indian manufacturers likeHCL, faced in the marketplace. The HCL brand was alsoperceived as old-fashioned as it had been around for solong, whereas the foreign brands were seen as new andexciting, especially among the 20-35 year age group, thefastest growing segment of laptop buyers. Finally, whileHCL had a great distribution presence, this was builtfor its desktop business; Exhibit 4 gives the details ofthe share of the different players in the desktop market.HCL faced the challenge of converting desktop retailersinto the laptop business.

The company performance was excellent and was grow-ing from year to year. But due to the commoditized na-

ture of the products, the margins were small and thisreflected in its profits. Exhibits 5 and 6 give a snapshotof the business and its financials respectively.

LAPTOP MARKET IN INDIA

The market for laptop in India was growing rapidly andthe popularity was driven by the product attributes.Though the product was introduced in the Indian mar-ket in mid-1990s, the acceptance was rather limited as itwas costly and quite heavy, and it therefore took timefor the market to develop. However, by 2008, it had be-come a very high-selling product with reasonably wide-spread acceptance among the executives and students.The most appealing attributes for the consumers wereportability, internet connectivity at lower costs, manyinbuilt features that were not available in standard desk-tops, and most importantly, a substantial reduction inthe price difference between desktops and laptops —the laptop average prices fell from 55,000 INR in 2007 to40,000 INR in 2008, while the desktop prices only camedown from INR 22,000 to 20,000. Also, the PC requiredsome additional costs like a computer table, uninter-rupted power supply units, etc., which cost additionalINR 6,000, which made laptops a better value proposi-tion compared to desktops to a large majority of Indianpopulation. This trend of at least an annual drop of 10per cent in laptop market was expected to last till 2012,which was likely to fuel the laptop sales.

In terms of product attributes, there was not much ofdifference among the equivalent products of differentbrands. However, MNC brands dominated the overallmarket. The leader HP was the dominant player with a32 per cent market share, followed by Dell, Acer, andLenovo with 23 per cent, 11 per cent, and 8 per cent re-spectively. HCL came in at 6 per cent, and a significantpart of the sales was to business customers. All thebrands were really putting in a lot of initiative in themarket, from a marketing and communication stand-point. Exhibits 7, 8, 9, and 10 may be referred to for salesfigures of different brands and city-wise breakups fordesktops and laptops.

All the competitive products were well distributedthrough the retail chain, though each company followedselective distribution. Most outlets were multi-brand butonly stocked a limited set of brands because of spaceand investment constraints. It was a mature distribu-tion system and all products were pushed on the basis

HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET


of consumer interest and dealer incentive. The consum-ers were becoming more knowledgeable; thus, they wereless influenced by the sales pitch at the retail counters.Retail consumers were able to negotiate prices on mostbrands by comparing prices across different retail out-lets. Thus, margins were thin for manufacturers as wellas dealers, but the volumes more than made up for it.Interestingly, in 2009-10, the sales of laptops in the topfour metros grew by 173 per cent and in the rest of Indiaby 48 per cent; however, consumption in the next fourcities declined by 16 per cent. The sales of desktops inthe top four metros increased by 30 per cent, in the nextfour metros by 21 per cent, while in other smaller towns,it declined by 61 per cent.

The PC market in India was predominantly price-con-scious; however, 5 per cent of the target market couldbe termed affluent, capable of purchasing premiumproducts and typically residing in the metro cities. Therewere a couple of brands, namely Sony and Apple, whichcatered to this segment. They had excellent products,great in quality and aesthetics and fitted with the bestfeatures. Their customers were typically image-con-scious people with not much of functional requirementother than the desire to own the best. These brands of-fered higher trade margins as the products had a lim-ited market, and they were also perceived as expensiveby the retail channel. Exhibit 11 gives the product fea-tures and Exhibit 12 the advertising spends.

One of the challenges that HCL faced in the branding oflaptop was that it was an Indian brand. Across consumerdurables and office automation products, it was ob-served that foreign brands were perceived to be betterby the consumers, even when the products for both for-eign and Indian brands had the same specifications andwere made in the same factory. This could be attributedto the Indian craze for all foreign products that existedin the 80s and 90s when the economy was closed. Withthe opening of the Indian economy in early 1990, thoughthere was a reversal in this trend, it still dominated manyproduct segments, including laptop. However, fromHCL’s point of view, the positive aspect was that thetrend was changing with increasing international rec-ognition of intellectual power of Indians as well as pro-duction and R&D capabilities of the Indian companies.In fact, many industry analysts predicted that in anotherdecade, the India factor could play a positive role andIndian brands could command premium.

CONSUMER BEHAVIOUR

Laptops and desktops were different product catego-ries which used the same distribution channel andseemed to satisfy similar consumer needs. However,they were considerably different from each other, as wasevident from the fact that except for the market leaderHP, the preeminent brands in the desktop space werequite different from the laptop space. One way to ex-plain the above could be the fact that while both the cat-egories fulfilled the same functional need of computing,the usage of desktops and laptops could be consider-ably dissimilar.

Desktops are used at a fixed place, either at office orhome, and for specific tasks, mostly work-related. Theyneed additional accessories for enhancement of the us-age, like extra speakers, gaming cards, and some neces-sary additional gadgets like uninterrupted power supplybattery, computer table, etc. Laptops can be used virtu-ally anywhere. Because of the portability feature, a sig-nificant part of the laptop usage is for entertainment.Laptops are self-sufficient product, which come withinbuilt speakers and adequate battery life so that it isnot necessary to plug in additional accessories most ofthe time; hence the overall cost to the consumer is per-ceived to be lesser. Finally, desktops are preferred formulti-people usage – i.e., many people could use thesame machine, while laptops are generally seen as per-sonal assets, meant more for a single user or at best thefamily.

The decision criteria and the buying process of laptopsand desktops took different paths. While the basic useof both was for computing, the trigger for desktop wasprimarily work and study-related activities, whereas forlaptop, it was work and entertainment. Desktops wereperceived as a commodity; and so, the focus was moreon the amount of features that a certain price could buy.This was the reason that there was a huge unorganizedsector in this market. Laptop was a more visible prod-uct; so, consumers were more image and brand con-scious when it came to a buying decision.

There were two major segments in the laptop market:the enterprise (also referred to as business or corporate)segment and the consumer (retail) segment. The dataregarding the size of the segments are given in Exhibits13 and 14. The enterprise segment had a collective deci-sion making process; typically, it was decided by the

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head of the IT department with inputs from the headsof the user departments. The decision-making was ap-parently rational, specification-oriented, and consulta-tive but the people involved were not really technicallysavvy enough to discern the product differentiation. Thebusiness buyers of laptops were also concerned with theimage connotations as the products were carried byemployees outside the office. Most marketers had spe-cialist sales force to address this segment and much ofthe sales were acquired directly or jointly along withthe sales team of the distributors.

The retail consumer segments buying these productswere also different. The desktops were primarily boughtfor work-related purposes, be it at office or home. Thedecision was of the elder member of the household likethe father. Laptops were purchased more often byyounger people who bought it for themselves and theirmajor decision criterion was entertainment and notwork. Even if the father paid the money, members ofthe younger generation were the core decisioninfluencers specifying the product features, brand, etc.

The consumer segment was for individual buyers – thedecision was made by the individuals and the selectivedistribution channel was used to tap the same. This ac-counted for 60 per cent of the market and was the seg-ment that was growing the most. While no manufacturerwas addressing specific segments, the market broadlycomprised three distinct groups. The fastest growingsegment included the young students or newly em-ployed – they were interested in lowest price offeringswith maximum features and were normally first timebuyers. The middle-aged consumers were typically us-ers of desktops who were upgrading to laptops. Theywere concerned about new features but their purchasedecision was mostly influenced by brands. There werea few elderly buyers who depended on the retailer’s re-commendation and service assurance.

Currently, the biggest segment for laptops was the mid-level corporate executives. They used laptop extensivelyfor work and play and saw it as a way to climb the cor-porate ladder. Typically, they had been PC users in thepast and laptop was their second computer purchase.They knew what they wanted and were seeking valueand not really price. The smallest segment in terms ofnumber of units was the senior executives, who usuallyhad the best machines, but used only the basic features

and were least knowledgeable. For them, it was a fash-ionable accessory, a talking point and more of a statussymbol.

The manufacturers had not designed the product port-folio specifically targeting any defined consumer seg-ment in the retail market. The products could be broadlyclassified as two core product ranges – basic models withminimal features, and the other range at the mid-endwith good styling and advanced features. Sony andApple were premium brands having only high-endproducts, which were aspired for by many but had lim-ited number of buyers because of their high price. Themanufacturers tried to create a generalized brand pullacross the segments, but provided a bouquet of prod-ucts and features to meet the specific needs of the di-verse consumers.

COMPETITIVE MARKET STRATEGIES FOR LAPTOP

The major determinants of success in the market weredistribution and communication, as products were simi-lar and were priced competitively. The market leaderstraditionally had a slightly higher price for productswhich were high on features as compared to the com-petitors; this scenario had changed since 2008. One ofthe characteristics which prompted the change was thata company would launch a product with a feature ad-vantage, but that would be copied by the competitors intwo months. In fact, so huge was the possibility of obso-lescence that premium pricing was no more in vogue.

Distribution was an important element in the market-ing mix. The established players in the Indian marketlike HP and Lenovo had excellent distribution cover-age. The newer brands were aggressively building theirdistribution networks and were likely to have adequatereach in another two years. HCL was in a unique posi-tion in that it had excellent distribution as far as desk-tops were concerned, though it was still building itslaptop distribution network. This was because HCL hadlaunched its own range of laptops in 2008 and the chan-nel was being built up from that period. However, HCLenjoyed the benefit that it could build its laptop channelon the back of its widespread desktop channel.

Communication and brand building provided the op-portunity for creating differentiation that was being ex-plored by all the brands. Each had its owncommunication and media strategy. Some of them had



international campaigns while some created specificcampaigns only for the Indian market. All of them usedboth advertising and sales promotion aggressively,though media strategy in terms of the budgets allocatedin different media varied from brand to brand. Exhibit15 gives a brief idea about the positioning planks usedby competitors.

Another determinant of success in the market was ‘af-ter sales service’. With the growth in the unit sales andgeographical spread across more and more remote lo-cations, this was becoming important. The importanceof service increased as more and more people were us-ing the machines heavily and many problems oftencropped up because of the rough usage. Thus manufac-turers were forced to beef up their service infrastruc-ture by increasing service locations, offering online andtelephone-based service solutions, and thus becomemore service-driven. HCL had an advantage of havinga huge service base in place, due to its longevity in themarket and the preeminence in desktops.

All manufacturers offered both desktops and laptops,though their sales performance in these two markets wasnormally very different from each other. In the desktopcategory, the market was dominated by HCL and HPand followed by all the other players in equal measure.The laptop market was led by HP, with Dell and Acerbuilding their market shares through huge marketinginvestments.

HCL traditionally had products at the lower end of thespectrum, and they were priced lower, to the tune of 2-5 per cent, than the comparable products from the MNCbrands. In future, HCL wanted to have a presence in thepremium customer segments also, and were slated tobring in a new range of products with good looks andfeatures in early 2010. By end 2009, the MNC brandshad also dropped their prices and so there was virtuallyno perceptible price differential between the differentkey brands. HCL needed to work out its core position-ing and appeal in the marketplace. Thus far the com-munication done by HCL had been purely functional,and the brand value had not been strongly establishedin the consumers’ minds.

Dell had a strong offering in the enterprise segment as itwas perceived as having very functional and high per-formance products. It leveraged this functionality alongwith its competitive pricing when it focused on the re-

tail consumers. While internationally Dell was a valueplayer, in India, they focused on being a high end player(not premium, but on par with HP/Lenovo). They alsocreated a retail distribution model in India (unlike theirinternet-based model followed globally), as they real-ized that not many people in India currently boughtlaptops through the online channel. Dell’s huge mar-keting spends, brand salience, good performance, inter-national name, and improved retail distribution helpedit in building a good market share.

Acer’s 2009 strategy was multi-pronged, with initiativesin product, price, promotion, and channel. What theydid was spend hugely in the market, have many prod-uct variants and a slightly discounted price, and manypromotional offers. They also roped in a very popularfilm celebrity to endorse their product. Industry ana-lysts attributed the growth in market share to the in-creased spends which leveraged the overall buoyancyin the laptop market.

Initially, most retail consumers and enterprises boughtdesktops as there was a huge price difference betweendesktops and laptops. Desktops were seen almost like acommodity and the decision-making was based on thebest specification that was offered by the various brandsfor the lowest price. After-sales service also played a partin the decision-making, but its importance was limitedbecause all the manufacturers were now able to give atleast an acceptable level of service. The desktop market-ers faced a much bigger and relatively uncontrollablechallenge from the unorganized sector entrepreneurs.These entrepreneurs assembled the desktops, and couldoffer a price advantage to the tune of 30 per cent, thushaving a huge market share in the price-sensitive cus-tomer base. With an all-round reduction in prices forthe hardware segment, consumers had started movingto branded desktops from the unorganized sector as theprice difference had come down to only 10 per cent inthe last year. There was simultaneously a huge move-ment from the desktops to laptops. Laptop buying wasbased on various factors. While price, specifications, andafter-sales service played a significant role, brand valuewas becoming an important factor for choice.

A laptop was more visible to others and more personalthan the desktop and hence buyers were becoming con-scious of the brand that they would prefer to carry. Thiswas also impacting the decision-making criteria of the

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enterprise segment — they were not factoring in theimage connotation of the brands as the users carriedthese machines with them to meetings outside the of-fice. This shift was also helped by the fact that the topbrands were reducing their prices, and there was lessdifferential between them and the value brands for com-parable products.

The Distribution Channel Dynamics

The predominant distribution model used in the indus-try was standard across the major players. The commer-cial segment was addressed directly or through a hand-ful of national distributors, who were directly billed fromthe company. The smaller business customers weremarketed by the distributor’s sales team but major cli-ents were also supported by the sales team of the princi-pal.

The retail segment had a three-tier distribution. Themanufacturer supplied to the national distributors. Thesenational distributors supplied to the regional distribu-tors, who serviced the retailers; they in turn sold to theend consumer. Since most of the retailers were multi-brand, they were motivated to sell only specific brandsand kept switching loyalty. Some manufacturers circum-vented the problem by opening their own model stores,typically located in high traffic markets, but these storeswere essentially for publicity. These stores were staffedby well-trained and dedicated employees who sold thebrand rather than just generating product sales. The con-sumers typically understood the product features andgot educated in the model stores. Many consumers learntabout products and features on the Internet and also tookadvice from some young people who were known asexperts on technology.

There were also influential retail chains which dealt withthe manufacturers directly – like Tata’s Chroma, FutureGroup’s Home Town, etc. These retail chains accountedfor about 15 per cent of the entire retail market and thusenjoyed a lot of clout. The online store was another chan-nel which offered limited business currently but wasexpected to grow in the future. In addition, each manu-facturer had its own service chain — a few of them werecompany-owned and others were franchised.

There was no major difference in the distribution chan-nel for laptops and desktops. However, the differencesin business were driven by the fact that desktop market

was in the maturity phase while the laptop was stillgrowing. Also, the consumers of desktops were moreconscious about prices and robustness of the productwhile laptop customers were product feature-driven andbrand-conscious.

Debate on Marketing Strategy

Ajai met the top executives in December 2009 to discussthe 2010 strategy. The abridged organization structureis given in Exhibit 16. The following discussion tookplace:

Ajai – “You are aware that we need to take some keydecisions in the laptop market. I wanted to get your in-puts on the approach we should take.”

George Paul, Executive Vice President (EVP), Market-ing – “I suggest we go in for some detailed market re-search before taking any decisions. We don’t havesufficient information to take a call. We should do quali-tative research to understand consumer attitudes andgap areas and then ratify it through some detailed quan-titative research. We can then work out detailed opera-tions, marketing and sales plans.”

EVP, Sales – “Yes, but the market is not going to waitfor you, it might be too late then,” said EVP, Sales,Rajinder Kumar. “Every one of the competitors knowsthe situation and will have their plans ready. Dell andAcer have already moved ahead and the others are notgoing to wait any longer. Anyway, the good thing isthat our product/brand is considered as good as anyother product/brand, or so I understand from the field.We should just blitz our way through with some highdecibel communication.”

EVP, Marketing – “But what will we say in the commu-nication? That’s one of the key deliverables of consumerresearch.”

EVP, Sales – “Say anything, how does it matter, as longas you plug the brand. Have you seen the competitors’communication? They are pretty bland, though effec-tive.”

Ajai – “Before we get into what we say in our communi-cation, we need to think about our approach to the mar-ket. What sort of investments do we make? Do we gointo this with a heavy investment, or should we be morecautious in our approach?



J V Ramamurthy, COO, said – “I think we need to becautious. There is no way by which we can jump from aweak No. 6 to No. 1 anytime soon. We don’t have any-thing that the competitor doesn’t have, and I don’t thinkwe should do a price war, that might make us lose brandequity in the corporate segment as well.”

Ajai – “So you’re saying that we shouldn’t go for theretail segment?”

COO – “No, we should launch, but pretty much stick towhat we say in the Enterprise segment – ‘The high qual-ity, no nonsense laptop’. We should focus on buildingthe channel and become strong there. We should high-light our service credentials and build it into our com-munication.” (The value proposition of HCL for theenterprise segment is given in Exhibit 17).

EVP, Sales – “I don’t think we can get anything by beingcautious. We have to go all out; otherwise we don’t standa chance. Don’t forget that Dell and Acer have hugemarketing and promotion spends and we will not beable to do much if we take a slow stance.

Ajai – “Whatever investments we make, we should thinkabout how we approach the market. JVR wants to lookat it as an extension of the Enterprise market as we al-ready have a very good equity there.

EVP, Marketing – “I think that is one possible approach.But the core segment that decides on laptops is the youth.I am not sure that our Enterprise positioning would berelevant to that audience.”

EVP, Sales – Why don’t we focus on a specific segmentwithin the youth? Nobody is doing that. We could builda strong appeal on one segment and build from there.Dell initially focused on the Small and Medium Enter-prise segment, built its credibility and that’s got themreturns across the market.

EVP, Marketing – “That is worth looking at, certainly.But which segment? The younger segment does not havethe ability to spend much money and the older segmentis not so involved in decision-making. We need to un-derstand this more closely.”

COO – “You are right – ‘You’ll never get a second chanceto make the first impression’.”

Ajai – “Can we create some new features to launch inthe market? Something the competitors do not have?”

COO – “All features are reproducible real fast. You knowall laptops are made by 3-4 OEMs from Taiwan. But I’msure there would be some features that the competitorsdon’t have or have not used yet.”

EVP, Marketing – “But how do we choose the features?For that we need some solid consumer research. Sorryto sound like a stuck record …”

Ajai – “OK, let all of us put our thoughts together andmeet next week. We have to use our existing knowledgeand experience to take the decisions, and that should beadequate to start. We do not have the time to wait forthe formal market research findings to take our initialdecision. However, if need be, in future, we may com-mission market research to help us tinker with the strat-egy. We’ll close the action plan then. Thanks for yourtime.”

DILEMMAS OF THE CEO

Ajai had a few thoughts on the way forward. He couldreplicate the Dell and Acer models of intense consumeradvertising by building adequate retail support. How-ever, given the high investment necessary for this strat-egy, he would be putting all his eggs in one basket. Also,he was not convinced about the success of following acompetitor’s strategy.

Another course of action could be to focus on a particu-lar segment and build leadership there. One possiblesegment was the B2B space and HCL had high visibilitydue to its preeminence in desktops. The challenge herewas that the B2B buyers were notoriously price-sensi-tive and not brand loyal. HCL would continue to be avalue player and this segment would always be a lowmargin one.

Ajai believed that the HCL brand had to be made morerelevant and appealing to the audiences. He felt that abudget of 600-800 million INR would be optimal for theorganization to spend on advertising and that wouldnot be sufficient to have an impact on the entire con-sumer base for laptops. However, if they focused on thespecific lucrative market segments, it could be adequate;thus there was the need to focus on a specific segment.One important segment was the youth segment in theretail market – they were the highest users of comput-ers and also the most influential and knowledgeable.They currently perceived HCL as an old-fashioned brand

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and were more enamoured by the MNC brands. Also,they could not afford to pay much; and so, most of thempurchased the entry level products.

There was also scope for learning from the mobile mar-ket. Since HCL was a distributor for Nokia mobile hand-sets, some insights from that market were available. Themobile market was a high decibel market, which hadachieved huge penetration among Indian consumers. Itwas focused on good product innovation, and price de-livery. Service was turning out to be important and vari-ous segments were being created. Ajai reflected on thiscategory and on whether any points from this could beapplied for laptops. The problem was that the price ofthe mobiles was considerably lesser which facilitatedadoption; also the category was entirely different fromthe consumer’s expectation point of view.

In the mobile handset market, it was important that theproduct delivered on the promised features. Most of theconsumers were not very technology-savvy; they onlyknew certain basic features and hence just looked forthem. Hence a robust product design solved the prod-uct aspects quite well. Communication and marketingwould get the customers into the store, but unless theproduct looked good and attracted customers, the salewould not happen. A lot of purchase decisions changedat the showroom; so, it was important that the distribu-tion was enthused and well rewarded for the products.This would put pressure on margins and that factorneeded to be looked at very carefully. In laptops, thesituation was quite different. The consumers were quitetechnology-savvy and were expected to play with it anduse it in different ways. The experience hence could bequite varied and difficult to manage.

The economies of scale were very pronounced both forlaptops and desktops. Thus the cost of production couldvary between 70-75 per cent of the selling price depend-ing on the economies of scale achieved in manufactur-ing. The typical distribution costs were around 12 percent and the internal sales and marketing overheadswere in the range of 7-9 per cent based on the company’smarket share and intensity of competition. As a thumbrule, in the laptop market, economies of scale startedoperating after reaching a market share of 10 per cent,and the impact was around 2 per cent of the selling price.For every additional market share of 5 per cent, the in-cremental advantage of economies of scale was 2 percent of the selling price. This effect was not really ob-servable after reaching a market share of 30 per cent.Also, the average selling price of the laptop was expectedto fall by 10 per cent year on year due to improvementin technology and intense competition. The key chal-lenge was to assess the impact that the rapid changes inthe market and strategic marketing shift could have onthe financial results.

It was also important that the after-sales service be good.Laptops were a high-use category and needed good sup-port service. It is one of the hygiene considerations forconsumers. Delivering good service also had an impacton the margins due to the travel cost incurred for geo-graphical coverage and for paying salary to a large num-ber of trained service people. HCL was, however, in abetter position here due to its extended desktop serviceand support staff, which could also service laptops atno extra cost.

Ajai wanted to work out the numbers to be sure that hismarketing strategy and budgets were prudent.

Source: IMRB Data.


6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

02004-05 2005-06 2006-07 2007-08 2008-09 2009-10

3,6

32

,61

9

4,6

14

,72

4

5,4

90

,59

1

5,5

22

,16

7

5,2

79

,64

8

5,5

25

,99

2

Exhibit 1: Desktop Sales in India (in Units)


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

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.

Source: IMRB Data.

Exhibit 2: Laptop Sales in India (in Units)

122 HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET

Exhibit 5: HCL Infosystems Snapshot

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.

Ajai ChowdhryChairman & CEOHCL Infosystems Internet and

related services4%

Computersystems

26%

Telecomand office

automation70%

Services Footprint

Ranked “Best IT Employer in India” by DataQuest - Sep 2009

Largest manufacturer of PCs

State-of-the-art manufacturing for PCs, business servers,workstations, colour monitors, etc.

Leading System Integration organization

Pan-India SI solution provider in verticals like Power, Telecom,E-governance, Railways, Retail, BFSI, Media & Entertainment,Health, Infrastructure, Education, etc.

Largest ICT distribution and retail Network

• 93,000 outlets, covering 11,000 towns• Largest pool of trained manpower handling 2.5 million

support incidents per annum• Support base of over 3 million assets in 75,000+ sites• 1,200+ support locations coverage by team of 5,000+

engineers

Emerging businesses

• HCL CDC - centres to bridge skilled manpower gap whichexists in the IT industry

• HCL Security - to make the world a much safer place to bein with its range of state-of-the-art end-to-end technologysolutions for security and surveillance

1

2

3

4

Revenue: USD 2.6 Bn


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 technologyand 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 printunauthorized and spare key and password and password finger print and password and passwordbooting)

124

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 Sonyagainst OS Manager Recovery restore RecoveryCorruption, S/W recovery S/WVirus 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.



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.

126

Category: Govt

1. Docking port2. Battery life more than 4 hrs in working condition3. Linux support

Category: Corporate/SMB

1. Magnesium/Alumnium surface2. Spill resistant keyboards3. Latest technology and architecture

Exhibit 17: HCL Value Proposition of the Enterprise Segment

Source: Company Documents.

Mahalingam Sundararajan is Vice President, Corporate Strat-egy - HCL and leads the brand building activities of HCL acrossthe Enterprise. He also spearheads the marketing activities ofthe various initiatives of the Shiv Nadar Foundation. He hasworked for over 20 years in various roles in technology mar-keting and advertising. Prior to HCL, he has worked withMicrosoft and Hexaware Technologies. He has also workedfor eight years in strategy planning with advertising agencyJWT. Sundar has a degree in Chemical Engineering from ITBHU, Varanasi and a PGDM from IIM, Bangalore. His inter-ests include sports and fitness.

e-mail: [email protected]

Jaydeep Mukherjee is an Associate Professor at the Manage-ment Development Institute, Gurgaon. He completed his Ph.Dfrom IIT Kharagpur and PGDM from IIM Calcutta. Before join-ing academia, he had worked in various capacities in the salesand marketing function of Godrej GE Appliances¸ ICI IndiaLimited, and Aristocrat Marketing Limited for a decade. Heoffers electives in Product Management, Marketing in the Vir-tual World, Marketing Strategy, and Sales and Distribution.He advises HCL Infosystems Limited on their New Productinitiatives and has conducted customized training for execu-tives from Nestle, HP, HMT, BSNL, etc. He takes keen interestin developing cases from the Indian context for classroomteaching.



Category: Education

1. High Resolution Camera and Speakers2. Sleek but not small display3. Higher HDD and Memory4. Colour/Design

Feature

Looks/Brand

Category: BFSI

1. Basic computing device at good price2. Linux support3. Battery life more than 4 hrs


Case Analysis I

Rajesh NairExecutive Director, MarketingIpsos IndiaEmail: [email protected]

Overview

The laptop market has posted impressive growth in India over the last fewyears, 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 whopping173 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, progressivelygetting 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 theirstrategies – principally branding and communications – to offer the best promise,occupy the most prominent mind-space, and garner the finest affinity. HCL, thetraditional leader in desktops and a late entrant in laptops, is keen on waking upand adapting to the changes and challenges in the category. The brand, which iscurrently sixth with a 6 per cent market share in the category, desires to grow to anambitious 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. TheCompany has businesses across specialist domains within technology, such as Hard-ware Manufacture, System Integration, Telecom Product Distribution, and OfficeAutomation. HCL has been a popular, household name especially in the desktopmarket. A totally Indian brand, HCL is perceived to be a dependable and trustwor-thy brand, and carries a value for money image. These worked hugely in favour ofthe Indian desktop consumers, who typically went for basic, functional units. Smallwonder, HCL has been one of the leaders of the desktop market in the country. Thegreatest strengths of HCL, however, have been their unparalleled distribution reachand their wide service network.

The current issue of Vikalpa

has published a Case titled,

HCL: Challenge of the

Laptop Market. This

Diagnoses features analyses

of the Case by Rajesh Nair,

Anirban Basu, Nitin

Pandey, Moutusi Maity,

Rajat Gera, and A P Arora.

presents analyses of themanagement case by

academicians and practitioners

D I A G N O S E S

HCL: Challenge of the Laptop MarketJaydeep Mukherjee and Mahalingam Sundararajan

128

Ambiguous Strengths and Unleveraged Potential

Though there is no direct evidence reported in the Case,it appears that many of HCL’s strengths are strengthsin isolation, not capable of leveraging the laptop categorybecause of the intrinsic differences in consumer choicebehaviour in laptops vis-à-vis desktops. Some of thesestrengths therefore can be contended double-edged too,proving to be counteracting in varying degrees in thelaptop category. HCL is of course an Indian brand, anda good one at that, but this has probably remained adormant fact than cashable equity in the laptop category.The strengths HCL as a brand has accumulated or builtover time have been certainly good for desktops, butnot quite for laptops. Though HCL entered the laptopcategory a few years ago, they could not climb their share– not because their product was inferior or because theyentered the category late, but because the very brandwas not in the evoked set of the laptop buyer. Theirbranding has been weak; their positioning has been un-clear; their communication has been little and basic.Small wonder, they are undifferentiated in the laptopcategory. Their brand stretch does not seem to have ap-pealed to the consumer; they do not seem to have madethe right consumer connect.

The Missing Link

The one important missing link in HCL’s vision andideas for the laptop market is consumer insight. Thedebate in Ajai’s core team – amongst the heads of Mar-keting, Sales, and Operations – gives ample evidence ofthis fact. While George Paul argues for consumer re-search before the strategy is overhauled, Rajinder Kumarfinds it useless. Conflicting points of view such as thisare not uncommon in discussions between Marketingand Sales, but the sheer fact that HCL does not have anyupdated consumer insights, other than some in-marketmetrics and trends, is indeed a lacuna, which is likely tomake their efforts in branding and positioning more ofguesswork. Despite George Paul’s push, Ajai vetoes anysuch investment because there is hardly any time. Theyare already quite late!

The Market Promise

The greatest promise for HCL, as much as for the otherplayers, is that the laptop market has been growing rap-idly. Throughout its growth and development, thelaptop market has gone through enormous changes trig-

gered by consumer demands and their changing needstates. The laptop customer of today is more informedand educated, wants machines with excellent configu-ration offering greater and better performance capabili-ties, likes versatility and exclusivity, and prefers smartand sleek looks. More importantly, the laptop consumertoday is brand conscious, and wants to own a brand thatis an imprint of his personality than have a device thatexecutes his routine computing tasks. All this has of-fered tremendous opportunity to the marketers to inno-vate and differentiate. Most of the competitive activityaround product extensions and innovation, brandingand communication, and positioning and differentiationhas been to make it more appealing. Though not forti-fied by timely consumer insights and market knowledge,HCL is aware of the promise the market offers. This ismore than evident in Ajai’s thoughts and words, but asa Company, they have not acted yet. The good news isthat they now want to.

Key Areas of Action

HCL needs to move fast and smart. The target of 20 percent by 2012 is uphill; doubling to 12 per cent appearsmore realistic, with the right moves. Some of their impor-tant points of action shall be to attempt the following:

Improve the Offer

Any real product differentiation is hard to sustain in thiscategory. Product attributes such as weight and screensize, processor speed, memory, graphics and sound card,USB slots, Wi-Fi, hard disc capacity, and power and bat-tery have by and large become hygiene. HCL should (a)improve their offer, and (b) expand their range.

Assuming that technical and functional specs are hy-giene, the former is about smart aesthetics. Limited yetextant consumer research has shown that the laptopconsumers score high on show-off quotient, attach con-siderable emotional value to their laptops, and considertheir possession to be an extension of their personality.

The latter is about more models and, in a limited way,extensions. Netbooks are a worthy extension, but tab-lets are perhaps not. Given that tablets have thus farperformed below expectations because of the confusionscreated in the market, HCL might want to stay clear ofrisky experiments in extensions. More important, there-fore, would be to target the right segments and invest inbranding.

DIAGNOSES


Target the Right Segments

Within the retail segment, HC’s core target should beyoung aspirants in Tier I and Tier II markets. Theseyoung aspirants are likely to be either college studentsor employees on their first job. A good majority of themwould have had desktops at home, and would now wantto upgrade. For them, the very possession of a laptop isproof to enhanced social status. They will still look foreconomy options. HCL should continue to play the valuefor money game, even as not compromising on the hy-giene functional factors and the looks. The secondarytarget would be the affluent variety seekers, all acrossthe metros and in Tier I and Tier II markets. The lineextensions and premium models will appeal to them,with the right mix of branding and ATL investments.

Within the enterprise segment, HCL will do well to fo-cus on the small through medium-sized companies,SOHOs, and entrepreneurial firms. Collectively, theyform a sizeable sub-segment, and are likely to respondpositively to the non-premium promise of HCL.

Invest in Branding and Communication

It is critical for HCL to have a few strong points of own-ership or difference on the critical functional and im-agery parameters that drive category choice. Since HCLhas unfortunately not invested in consumer research,they are in a vacuum, regarding branding and position-ing options. It is naïve to continue to claim that HCL is a“dependable and trustworthy” brand. HCL perhaps isa dependable and a trustworthy brand, but they cannotposition on these lines because these are not the keydifferentiators in the category. There is no evidence thatHCL owns these attributes either. They do not knowwhat, beyond “dependable” and “trustworthy” consum-ers relate HCL to. Their immediate task shall be to seekexpert advice from their ad agency and gain an under-standing (or confirm their current understanding), onthe positioning themes and routes totally owned or oc-cupied by competition. Progressing from this under-standing, they must determine what their promise mustbe, what their differentiation will be, and what theirpositioning shall be.

Investing optimally in communication is the next im-portant step. Ajai looks at a budget of INR 600-800 Mio,but it is not clear whether this is only for laptops.Whether or not this budget is sufficient can only be de-

termined after considering the media mix they are con-sidering, the channels they want to air, their benchmarkexposure level given the clutter in the category, thenumber of bursts they want to do, the duration of thecommercial and so on. In the absence of such informa-tion, one is tempted to advise Ajai to:

1. Avoid print for the time being, given that the com-munication strategy must be primarily image-ori-ented rather than information-oriented.

2. Go digital and television. Digital medium would of-fer interesting prospects: (a) this category does re-quire an uninterrupted digital presence; (b) it ischeaper; (c) it is more amenable to better and robusttracking than other media. HCL should make a pres-ence on almost all Digital platforms, and stay live allthrough the year. A ballpark of INR 5,000,000 permonth is likely to generate good visibility and re-sponses. In Television, a 30-seconder, 4-week burst ina mix of news, movies, and general entertainment islikely to fetch a 4+ exposure amongst 40 per cent ofthe core target. This could approximately cost INR25-30 crore. Since many players in this category arelikely to do a festive season burst, HCL could thinkof two bursts with approximately INR 10 crore overand above the budget suggested above. They coulddo one pre-festive burst for 2-2.5 weeks, and one mid-festive burst for a week or ten days. Any investmentand plan beyond this in Year 1 of brand overhaul islikely to be risky, given the limited brand value andvisibility HCL has in the laptop category. These areballpark recommendations – the key lies in the qual-ity of branding, quality of execution, and choice ofmedia.

3. Discover alternative, new kinds of media. It is im-portant for HCL to recognize that marketing experi-ences are becoming more personally relevant.Edelman and Salsberg (2010)1 write about the wayconsumers perceive and absorb marketing messages.At first glance, personal conversations and experi-ences do not seem the best way of getting the scaleand reach most marketers crave. But new kinds ofmedia enable richer interactions and improve target-ing, so they encourage consumers to share the thingsthat make them happy. Some companies have de-veloped expertise in the use of Twitter and other

1 Edelman, David and Salsberg, Brian (2010): “Beyond the Paid Media:Marketing’s New Vocabulary,” McKinsey Quarterly, November.

130

blogging platforms to promote new products andpromotions by leveraging their customer base to talkabout how much they like the Company’s products.If this sounds far-fetched, HCL can do well to har-ness the experiential word-of-mouth. This, accord-ing to Bughin, Doogan and Vetvik (2010)2, will pro-vide ample opportunity to share positive experiencesand make the story relatable and relevant to the au-dience. Some companies do build buzz around prod-ucts before launch and work to have early, influentialadopters by involving consumers in product devel-opment, supported by online communities. Consist-ently refreshing the product experience also helpsharness experiential word-of-mouth. HCL mightwant to recruit groups of new intenders and buyersfrom within the “young aspirants” and “affluent va-riety seekers,” involve them in product development,run promotional contests, and through these buildand leverage positive word-of-mouth.

Leverage the Distribution Network andInvest Below the Line

One of the greatest strengths of HCL is its impressivedistribution network. This is unmatched in the indus-try, and the Company must leverage the network to thefullest potential. Smart local BTL initiatives, together

with experiential word-of-mouth by carefully recruiteduser-buyers will lead laptop prospects to checking outthe HCL brand in the outlets at a rate more than thecurrent. The first moment of truth to a prospect will bethe display piece at the point of sale together with thedealer/retailer spiel. Careful in-store activation anddealer training should be implemented in select outletsin Tier I and Tier II markets to attract the new genera-tion retail consumers. Aside of this, HCL might want tonegotiate with the influential retail chains such asChroma, Home Town, etc.

Conclusion

HCL has an uphill task ahead. Garnering 20 per cent intwo years is too ambitious. But with the right mix ofbranding and communication initiatives, the brand cango a long way. HCL’s status of being “very Indian” orthe “only Indian” laptop brand is, per se, not a limita-tion. On the contrary, being Indian is likely to appealvery well to the consumers of the current times, if pitchedand communicated well. Not being a “brand” in a cat-egory that is all about brands has been the biggest limi-tation of HCL. Here lies the biggest difference betweendesktops and laptops. The key, therefore, lies in build-ing the brand and occupying a significant consumermind-space.

Case Analysis II

Anirban BasuCorporate Sales Training ManagerNestle Equatorial African RegionMauritiuse-mail: [email protected]

Dynamism, especially in Indian business environ-ment, during the first decade of this 21st century,

has prompted unprecedented transformations for mostof the organizations across industries. In this scenario,one’s competitiveness would depend not only on one’sability to adapt to these changes with agility but also onbeing pro-active in bracing oneself for the demand ofthe future. This has forced many so-called successful

enterprises to undergo an elemental change in how theylike to operate.

While evaluating this Case, we will neither discusstidbits of operational efficiency nor do too much of dataanalysis, but rather try to focus on fundamental strate-gic levers that may bring visible transformation in HCLbusiness processes.

We will first go for a quick conventional SWOT for theorganization on the whole. The strengths of HCL are:robust market-share in desktops, strong distributionnetwork, efficient after-sales service, positive consumer

2 Bughin, Jacques; Doogan, Jonathan and Vetvik, Ole Jorgen (2010). “ANew Way to Measure Word-of-Mouth Marketing,” McKinsey Quar-terly, April.

DIAGNOSES


perception as no-nonsense, value for money, function-ally efficient brand; and finally, organization’s existencein various domains of technology hardware. Weaknessesas observed include limited portfolio, old-fashionedpractices, inability to enjoy economies of scale and prob-lems of spending on marketing and communication com-pared to its multinational rivals. Threats from the MNCsare: wider international portfolio with contemporarydesigns, economies of scale, deeper pockets, and ‘for-eign’ image. We will discuss about opportunities later.Now let’s scan the point of purchase drivers for laptopsin which HCL is facing difficulties in spite of having agood market footing in desktops. Laptops are purchasedmore on brand image, style, and entertainment thanmere functionalities and durability, though after-salesservice factor is equally important for both the catego-ries. The consumers for laptops are distinctively differ-ent in demographic and psychographic profiles.

What will be the marketing mix? In an era of diminish-ing ‘Product Differentiation,’ where almost all the brandsclaim similar quality, features, and advantages, the onlyway to get an edge over the competitors is ‘StrategicPositioning’3. But ‘Strategic Positioning’ is the sum totalof various differentiations – these may be service differ-entiation, channel differentiation, communication dif-ferentiation and many more. We try to diagnose thescope of ‘Strategic Positioning’ on four specific platforms:geography and channels, brand, category and consumer,service and communication.

Geography and Channels

In this section, we will primarily discuss the opportuni-ties for distribution optimization that HCL can exploit.It is apparent from the Case that the future scope forlaptops lies in the top 4 cities (which grew by 173%) fol-lowed by the rest of India (48%); hence HCL should fo-cus primarily on these geographies. To achieve imme-diate short-term results, the organization should executetwo-pronged channel strategy to exploit the distribu-tion reach. Firstly, HCL should use its strong desktopdistribution infrastructure to increase its laptop distri-bution width in traditional channels. That means HCLshould ensure its laptop availability in all the HCL desk-top retailers. As most of the retailers stack limited set of

brands, piggy riding on desktops will help HCL to placeits insignificant laptop brand among a wider section ofretailers, including the chains like Tata Croma, HomeTown (Future Group), etc. This will automatically in-crease the numeric distribution of HCL laptop brand. Ifexecuted intelligently, within a short period, HCL canat least match if not overtake Dell and Acer in retail pres-ence. And the retailing truth is - ‘the wider the distribu-tion, the higher the offtake (consumption)’. The HCLlaptops will surely be picked up from the shelves, if avail-able, because of its price advantage over the other laptopbrands and the fastest growing consumer segment isyoung college goers, first-time purchasers of computerswho look for low-priced basic brands. The second chan-nel strategy should be to exploit alternate channels. Al-ternate channels are those where conventionally compu-ters are not sold but the target consumers visit thesechannels and spend quite a lot of time and money. Thisis a huge opportunity and a blue ocean4. All one needsis creativity and innovation. As an example, HCL canidentify company showrooms of Panasonic, JVC or LG(those who are not in direct competition) and negotiatea package with them to place their laptops in their com-pany showrooms. Along with selling at a special pricefrom these outlets, concepts like cross-promotions, on-pack offers can also be thought of (e.g., if a customerpurchases a bundle of LG products – LCD TV, Air Con-ditioner and Refrigerator, he can be offered an HCLlaptop as an on-pack free offer). HCL can tag laptop as apromotion or gift with holiday packages or time sharesales (e.g., Laptop free with Thomas Cook HoneymoonOffer in Mauritius or Mahindra Holidays). Laptops canbe tagged with real estate purchases – free with one- ortwo-room apartments (primary occupants are youngsingle and married professionals). This alternative chan-nel strategy will not only help HCL to place its productsin non-conventional channels, but also target the rightconsumer segment of laptops. And exploiting alternatechannels is relatively easier, because all the rivals arestill fighting on the conventional channel platform. I re-ferred to geographic and channel differentiation as‘quick win’ because this strategy can be executed byusing the existing distribution infrastructure and exist-ing product range without spending more in new dis-tribution intermediaries and wider product lines.

3 Porter, Michael (1996). “What is Strategy?” Harvard Business Review,November-December, 74(6), 61-78.

4 ‘Blue Ocean’ is the uncontested market space where competition isirrelevant. In a blue ocean, you invent and capture new demand andoffer customers a leap in value while also streamlining your costs.

132

Brand, Category, and Consumer

HCL is quite successful in achieving leadership in thedesktop category. The foundation of this success is pri-marily on three strong pillars: dependability, efficientafter-sales service, and value for money. All these arefunctional pillars. There are many advantages of estab-lishing a brand on functional pillars — the brand canclearly differentiate itself from the rest of the crowd onefficiency, functionality, and tangible benefit platforms.The consumer can clearly see or feel those advantagesand prefer the brand without any hesitation. Thus overtime, with more consumers in its fold, the leader brandenjoys the economies of scale and offers an attractiveprice that refutes its rivals to compete. Hence in most ofthe industries, it is observed that, functionally estab-lished brands can hold their leadership positions for along time as the competitors cannot match the leader onall the functional aspects. But there are some severe dis-advantages also.

The first disadvantage is that each and every competi-tor is constantly trying to compete with the leader oneach efficiency and functional platform and the leaderhas to constantly retaliate and prove its superiority tomaintain its leadership. It is quite difficult to persistentlywalk on such a tight rope. The second disadvantage iseven more dangerous. Continuous reminders offunctionalities in relation to price slowly take the con-sumers away from the brand loyalty; they graduallydevelop a tendency to gauge the product against thecommitted set of functionalities. The consumers thencome to a point where they pay the price only for thefunctionality and not for the brand. Thus with time, thebrand gets commoditized. And when many brands in acategory fight continually on functional attributes, thewhole category shifts from brand to commodity; as aresult all the brands get into price war. Unorganizedplayers enter and offer much lower price; gradually, itbecomes a red ocean environment where often estab-lished companies lose and get out of the category. Thedesktop category in India is an example of the above. Inspite of the fact that HCL is leading, the company can-not reap expected profits out of its strong market posi-tion as the category is highly commoditized.

The retail laptop market is very different from that ofthe desktop. The market is not commoditized and pri-marily brand-dominated. The category is sold more onbrand image, style, and design than functional attributes.

HCL, being a company with strong functional credibil-ity, is quite unsuccessful in the laptop category. Herethe organization really needs a complete reengineeringof their marketing strategy which is totally different fromthat of the desktop. Keeping in mind the psychographicattributes of the laptop buyers, HCL needs to changethe strategic positioning of its laptop from all function-ality to something related to entertainment and style,image, and brand building. The outward look of theproduct is also required to be revamped, may be with afew contemporary colours, shades, and designs. As theHCL product is already having a price advantage, widedistribution reach, and after-sales service assurance, itcan quickly pick up market share by successfully con-necting the fastest growing target group with the brand’slook, image, and style. To capture the biggest chunk ofthe retail consumers, the mid-level corporate executives,HCL needs to use its internet and in-shop platform tooffer them customized, need specific products, whereeach and every component of the product configurationcan be chosen by the consumer, very much like the Dellinternet selling model, involving the consumer to be theco-creator. “Co-creation is about joint creation of valueby the company and the customer…. allowing the cus-tomer to co-construct the service experience to suit hisor her context.”5 The edge that HCL can offer over Dellis a quicker delivery time of the finished product usingthe advantage of being a local manufacturer. Faster de-livery is a low-cost (for HCL) but high-value (for con-sumer) proposition. The consumer, after co-creating andpaying for his personalized laptop, waits eagerly to gethis new possession. If HCL can assure the delivery in aweek or ten days against Dell’s three to four weeks leadtime, this will definitely become a strong decision mak-ing criteria in favour of HCL.

For the time being, the smallest retail segment of seniorexecutives can be ruled out because not only is this seg-ment the smallest but more importantly it could furthershrink with the passage of time.

Service

Another large segment of laptop consumer is the enter-prise segment. To fight with the prominent player, Dell,HCL needs to play in the platform of Service Differen-

5 Prahalad, C K and Ramaswamy, Venkat (2004). The Future of Compe-tition, Co-creating Unique Value, Boston: Harvard Business SchoolPress, pp. 272.

DIAGNOSES


tiation. The proposal to the enterprise segment shouldbe an ‘End2End Service package at an affordable price’that includes customized installation, 24X7 servicing,zero waiting time for spare part replacement, distribu-tor, customer care and service centre accessibility, lu-crative packages, and additional services on SystemIntegration, Telecom services, and Office Automation.Here HCL should intelligently use the strength of beinga multi-specialty technology hardware organization.Thus the easiest line of attack to outclass Dell is to offera ‘single window’ approach for the enterprise buyers.This is a wonderful opportunity for HCL to increase itsbusiness of other divisions through its ‘service’ route.

Not only for the enterprise segment, but with its innu-merable service centres across the country, HCL can lev-erage this advantage to its fullest as one of the key diffe-rentiators against its competitors for the whole gamutof consumers. This is the strongest low-cost high-valueproposition the Indian company has within its sleeves.

Communication

All along HCL has communicated its functional stren-gths to its desktop consumers. The communication wassuccessful to a great extent because the decision makingcriteria for the desktop category are primarily utility-based. But the buying criteria for laptops have little todo with functional parameters. As a laptop is very mucha personal possession, it should speak more of style,design, entertainment, and image. Hence the wholemarketing communication for laptops should hoveraround the brand image and a feel good factor, espe-cially for the young consumers, the fastest growing seg-ment. As example, instead of highlighting the featuresand configurations of the CPU, the marketing commu-nication needs to capture moments of young adults incollege environment or a young employee with histrendy HCL laptop on the first day in his corporate of-fice. On the whole it is all about engaging the target con-sumer with the brand they feel good to carry.

For the middle-aged corporates, the largest segment ofretail consumers, the communication should focus moreon customization, ease, and convenience. It is impera-tive to speak with these consumers about the ‘tailormade’ solutions. Novelty can be brought in advertise-ments by showing needs which are very much ‘Indian’in nature (as example, a US-based son wants to write tohis old mother a mail in Hindi) and then assuring the

consumer that only HCL can understand and satisfy thisspecial need (solution: customized vernacular fonts)being the only Indian company.

The theme of communication to the enterprise segmentshould be ‘no worries’. This segment should be targetedwith the message of excellent service. The commercialshould highlight ‘bundling of service solutions at an af-fordable price,’ that includes customized installation,24X7 servicing, zero waiting time for spare part replace-ment, and service centre accessibility. It can also empha-size on an ‘extended solutions under one roof’ conceptby highlighting services on System Integration, Telecom,and Office Automation, which only HCL can offer.

Apart from the specific consumer-centric communica-tions, the organization should also communicate its corestrengths – dependability, service excellence, and valuefor money, as its corporate message along with its strongIndian values ensuring the consumers that ‘HCL under-stands India best’.

Unchartered Paths

As all the companies are focusing broadly on three seg-ments of retail consumers, this gives a brilliant oppor-tunity to HCL to make inroads as first movers into someof the untravelled consumer paths. The universe of chil-dren, especially the high school students, is graduallygetting shifted to the internet platform. Most of theschools float the vacation homeworks and classworksin soft media. Many high-end schools are transcendingto soft books. And here lies a huge potential. Custom-ized low-priced netbooks can be a big hit in this con-sumer category.

The desktop category can also be revitalized by shiftingfocus to new channels and new geographies. Privatelyowned cyber cafes in 2nd and 3rd rung cities and innu-merable computer centres in small towns, peri-urbanand rural markets are the future market spaces for desk-tops. The fast inroad of media and telecommunicationis gradually bringing these geographies closer to the life-styles of top cities. Hence these channels are the poten-tial consumer contact points for the new generation ofcomputer users. Being the only Indian company, it is aclear advantage of HCL to venture in these geographiesas the organization enjoys economies of scale, unparalleldistribution, and service networks all across. The com-pany can ensure the future market space for desktop

134

fully under its control by ensuring HCL’s presence andbranding these channels well before the competitionsstart expanding their reach.

The One Chart

I would love to conclude the whole discussion in onediagram and I am sure, none other than Igor Ansoff cando it better. Box 1 gives Ansoff’s Product-Market GrowthMatrix6 for plotting HCL’s strategy for growing the busi-ness via existing or new products, in the existing or newmarkets.

The Final Word

Towards the end of the Case, from the small section oncommunication amongst the top management of HCL,it is loud and clear that the greatest challenge for HCL isnot external; rather it is more internal. The experienced

band of professionals in the Management should firstfocus on their core strengths and optimize those stren-gths to attain the low hanging fruits, e.g., expandingdistribution width of laptop, piggy riding on desktopreach.

Once the quick wins are achieved, the team will get akick of motivation to move forward. And that is the timeHCL’s top management would need to align all func-tional heads to work from strength to strength towardsan ambitious but realistic Corporate Vision, which is yetto be developed. Hence, the key priority for the HCLleaders today is to develop a comprehensive CorporateVision with clear-cut roadmap and specific timelines.And, once the vision and the roadmap are created, themanagement needs to finally share the Vision and theRoadmap with the ‘Vision Community’ – the employeeswho 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 contemporarystrength laptop retail width can be optimized colours, shades, and designs to attract the fastest growing targetin all possible traditional channels. This group, the young adults.ensures HCL’s laptop category availability in • Customized, need based, uniquely configured laptops for theall 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 thewhere conventionally computers are not untapped consumer category of high school students, as thesold but the target consumers visit frequently traditional education system is gradually getting shifted to theand spend time and money. internet platform.

• Desktop category to shift focus to smalltowns and rural geographies as the futuremarket space for the category.

Exis

ting

Mar

kets

New

Mar

kets

6 Ansoff, I (1957). “Strategies for Diversification,” Harvard BusinessReview, 35(5), September-October, 113-124.

7 Learnmile is an Education-focused Market Research and Advisory firm,based in India.

Case Analysis III

Nitin PandeyFounder, CEO-Learnmile7


Background and Key Challenges

The Case brings to light the key challenge of trans-forming a business to an aspired-for consumer

brand and the associated hurdles and challenges. HCL,a leading desktop player, wants to acquire a significantstanding in the laptop segment too. The company hasits eyes set on the booming laptop category growing atdouble digits in the household category compared tothe B2B space. The segment is presently in its fastestgrowth phase and a sharp strategic move now may trans-

DIAGNOSES


late into a sizeable gain in market share for HCL in thishigh margin and high image segment. HCL is on agrowth path but does not enjoy a healthy margin andneeds to grow to a certain scale (15% market share intwo years) to be reasonably profitable. The business chal-lenge hence is to scale up profitably and the key market-ing challenge is to increase the market share in a highlycompetitive market within the inherent constraints ofbeing an Indian value-for-money brand.

Environment Scan

The laptop segment is on a growth path aided by fallingprices (10% YOY), rise in consumers’ need for portability,and their improved affordability. The segment is domi-nated by the heavily marketed MNC brands, perceivedto be better in quality than Indian brands. Laptops aresold from retail outlets, largely through multi-brand re-tail with metros showing the best growth rates year onyear. The overall ad spends are growing by 100 per centyear on year, with HP leading the market on the “Inno-vator” plank. With what looks like a “higher spends leadto better market share” approach on the surface, the con-clusion still needs to be examined in depth. (Exhibit 2)

Consumer Behaviour

The laptop category is divided into business (establish-ment) and individual (household) buyers. While thebusiness buying is done in bulk and through tenders,individual purchases rest on the price-value equation.There is a completely new set of habits, characteristics,and consumer behaviour emerging in the evolvinglaptop segment. Consumers’ belief, that MNC brandsare better in quality than Indian brands in the laptopcategory, hinges on the perception of MNC brands asnew, young, and modern. The retail segment reflects in-

creased knowledge levels and improved negotiationpower for the consumer. Laptop is largely a personalpurchase for work and entertainment supported by theconvenience of portability. It is also seen that laptop con-sumers are mostly image- and brand-conscious.

Individual Buyers (Household) Segment

The household segment has the following characteris-tics.

• Fastest growing segment: Young students and thenewly-employedCharacteristics: Value for money; entry level and low-est-priced laptops with most features; first-time buy-ers; prefer MNC brands

• Largest segment: Middle level executivesCharacteristics: For work and play, to climb up thecorporate ladder; second purchase; value-seeking

• Smallest segment: Senior executivesCharacteristics: Laptop as a fashion accessory; high-end features; low on knowledge; most purchase Sonyand Apple.

HCL vis-à-vis Market

HCL has grown at a healthy rate in the laptop segment,matching the growth rate of the household segment andinching up on market share. HCL being a seasoned desk-top player has set up a widespread desktop distributionchannel over the years but has not been able to leveragethe network for laptops. HCL’s financial results showthat the margins for the Info System Business are underpressure and it is only the computer business, which hasshown any kind of growth in profitability (Exhibit 1).HCL is growing at a rate, which is twice that of its directcompetitors, Dell and Acer.

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

136

HCL is perceived as a trustworthy, value-for-money, andold-fashioned brand in comparison to the MNC brandsin the success critical (20-35 years) customer age group.However, MNC brands have a wider range in the value-for-money entry-level laptops with more variants, aswell as being perceived better on quality. Discountinghas resulted in neck-to-neck pricing in the entry-levelsegment. The key challenge in retail hence is to have the con-sumer preference on non-price metrics. Both Acer and Dellhave a wide product portfolio in the entry-level segment.While Dell enjoys the ‘high-performance’ perception rid-ing on its enterprise equity, it has also been investing oncreating a fresh physical channel apart from sellingonline. Acer has benefitted from the rub-off from itsbrand ambassador, Hrithik Roshan.

Marketing Analytics

The equation between ad spend and gain in market shareis peculiar to a high-activity market going through aparadigm shift and points to some interesting patterns(Exhibit 2). The overall ad spend is growing at a higherrate (100%) than the market growth rate (83% House-hold and 47% Establishment).

HP, the market leader, has gained 2.5 points in marketshare in 2009 with a 262 per cent increase in ad spend,but Lenovo has gained 1.3 points in market share with a35 per cent drop in ad spend. Dell, the largest spender(42% saliency of ad spends in 2009), still lost market sharein 2009, whereas Acer, which spends less than 25 percent of Dell on ads, enjoys a market share on par withDell’s. Return on Marketing (Exhibit 2) reflects the adspend per market share point for each player and hence

the effectiveness of money spent to retain market shareby each player.

Further, the effectiveness of ad spend can be analysedin depth to assess the marketing effectiveness. This isbest reflected through the Multiplier (See Exhibit 4).Multiplier is the amount of money spent by a brand (inINR 100 mn) to gain 1 market share point in 2009 over2008. The lower the Multiplier corresponding to the gainin market share, the more effective is the marketing strat-egy over a short-term period, like one or two years.Lenovo and HP have been effective overall with Acerbeing the most effective in HCL’s competitive subset;e.g., Multiplier (HP) = (470-130) / (2.5*100) = 1.4 (in 100mn)

Some Observations

• Dell, in spite of doubling its ad spend and highersaliency of ad spends, lost market share in 2009.

• Lenovo, in spite of reduced ad spends, gained 1.3per cent share.

• It is not just the value of money one is spending butalso how it is being spent that is important. For ex-ample, Dell spends more money but is on par inmarket share with Acer, which spends less than 25per cent of Dell (2008,’09-ad spends).

• ROM may lag ad spends• Purchase decision shows the importance of brand

pull for the household laptop category in multi-brandretail.

• HCL is struggling on ROM and the multiplier and iscertainly not among the front-runners on either pa-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)

DIAGNOSES


Exhibit 3:Correlation between Ad Spend and Market Share

Exhibit 4: Effectiveness of Marketing

• Laptops have a better acceptance and are growingfaster in the metros and the next 4 towns

Scenarios to Choose From

Given the current dynamics, Ajai has the following sce-narios to choose from:

• Intense consumer advertising on the lines of (a) Delland/or (b) Acer

• Focus on a particular segment - B2B space• Focus on a particular segment - Youth in retail seg-

ment• Focus on a particular segment - Mid-level corporate

executives

It is crucial to examine the scenarios through the com-petitive landscape and HCL’s position so as to check thestrategic fitment and to assess whether it is in line with

0.41

127%

1.09122%

130%

108%

1.3

2.5262%

0.211300%

-30%

-0.4

-3.76

-1.38

-35%

Others

Sony

Toshiba

Dell

Acer

Lenovo

HP

HCL

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

Delta Market share (‘08 to ‘09)

Delta AD spend (‘08 to ‘09)

0.70.41

-0.404.8

1.01.09

1.7-3.76

0.9

0.61.30

1.42.50

6.20.21

-1.38

-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00

Others

Sony

Toshiba

Dell

Acer

Lenovo

HP

HCL

Multiplier

Delta Market share (‘08 to ‘09)

138

HCL’s core competence and constraints (Refer to Exhibit5). The Strategic Fitment Matrix reflects the fitment ofprobable strategies with respect to HCL’s strengths,weaknesses, and the current reality.

A strong strategic fitment occurs when the approachleverages HCL’s core competence and strengths and ispossible within the constraints faced. Clearly, the choiceis between Scenario 1b – Intense consumer advertisingon the lines of Acer and Scenario 3 – Focus on youth inretail segment. Both look strong in strategic fitment forHCL.

Suggested Approach for HCL

First, let us see how Acer is pegged with a similar mar-ket share as Dell in spite of spending 78 per cent lowerthan Dell on ads. Perhaps Acer is doing something whichDell is not. Is it the MNC imagery, product portfolio,discounting or something else? The Case details out thatmost of these are on par. Has it got something to dowith more entry variants coupled with Hrithik Roshanas the brand ambassador for Acer? Perhaps there is meritin evaluating this combination. Looking at the ad spendsto market share statistics (Exhibit 3), Acer had a negligi-ble fall in market share compared to Dell in spite of Dellspending INR 900 mn more than Acer. There seems tobe no set formula that the growth in ad-spends wouldnecessarily translate into growth in market share. Dell,Sony, and Acer have lost market shares in spite of spend-ing more in Advertising over last year’s spend, whereasLenovo has gained market share in spite of reduced Adspends.

The numbers show better return on marketing spends(ROM) for Acer compared to Dell and even better thanHP who is the market leader. The multiplier for Acer is0.9 compared to 1.7 and 1.4 for Dell and HP respectively.This coupled with the fact that Acer is a direct competi-tor of HCL and competes for the same consumer in en-try-level laptops makes this worthy of further attention.

Assumptions

• Ad spends growing at 100 per cent YOY as seen

from 2008-2009 data (Exhibit 4 from the Case)

• Youth segment for laptop is growing at a rate of 110

per cent

• 2008-2009 is taken as 2008 and 2009-2010 is taken

as 2009 (Exhibits 1, 2, 5, 6, 8, 10 from the case)

• HCL buyers are mostly first-time buyers.

One of the challenges faced by HCL is to overcome the“old and cheap Indian Brand” image. A brand ambas-sador approach can definitely help HCL reposition it-self, improving itself with sophistication and become abetter-valued brand. From the ad spends data, year onyear ad spends is growing by around 100 per cent. HCL,with INR 600-800 mn estimated range of advertisingbudgets for 2011, would have a good 11-15 per cent sa-liency in total ad spends for the laptop category if thead spends carried on with the same growth rate of 100per cent. The brand proposition, for example, could be“Choose the smart value-for-money HCL laptops, en-dorsed by Yuvraj Singh and backed by a wide servicenetwork.” 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 Weakon 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 Strongon 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 Moderateproven experience in the suited for desktops but struggles in thespace laptop category

3 Focus on Youth in Value for money, entry- Product variants with a lot of features, StrongRetail Segment level laptops, affordable attracted to MNC brands

options

4 Focus on mid-level Widespread service Value-seeking, image conscious, for work Weakexecutives network and play

DIAGNOSES


for money and reliable9 laptop on par in quality withthe MNCs . This approach would help HCL repositionitself, and give a PAN India reach riding on the brandambassador, especially, the Rest of India.

This could perhaps help HCL in reaching around 8.5per cent market share at a growth of 200 per cent in ayear’s time (Exhibit 6). However, this approach has twomajor limitations. First, that the middle-level executiveswould not find HCL appealing when seeking value.Second, this approach does not propel HCL to a pre-mium fashion accessory to be chosen by the senior ex-ecutives. Clearly, this would fetch traction mainly with20-35 year old first-time buyers.

On the other hand, if we apply the same brand ambas-sador approach on a focused segment (Scenario 3), e.g.,Youth (20-35 years) first-time buyers, there is not onlyan exact fitment, but this approach gives HCL the op-portunity to make a much more focused impact on thefastest growing and most knowledgeable consumer seg-ment. Chances are that, this segment may become the

largest, both in number and influence for laptops. Theymay graduate to becoming middle-level executives whowould use an HCL laptop and if they find them deliver-ing on quality, they may become the Early Adopters inthe mid-level executive consumer segment.

Building this approach further, suppose the brand pro-position is, “HCL-sub brand (to be positioned for youn-ger audience, e.g., ME) laptops for ‘value for money,’endorsed by Virat Kohli backed by a wide service net-work.” This would translate into choosing a smart andrefreshing entry Laptop (backed by a reposition itself asa young and reliable brand with a better acceptance inmetros and the next 4 towns, growing faster than therest of India). This approach perhaps gives HCL the bestchance to cross the 10 per cent market share with agrowth of 400 per cent (Exhibit 7).

NET-NET

Focusing on a particular segment, with a sub-brand foryouth in retail, riding on a youth icon as the brand am-

9 endorsed by an Achiever Indian player and backed by a wide service network.

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 8.5at 83%

3 Youth niche within household Fastestcategory 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

Household

0 2 4 6 8 10 12

Youth niche

10

4.3

8.5

6.2

Market share ‘11-12

Multiplier ‘11-12

140

bassador seems to be the best way forward for HCL asthis is in line with HCL’s strengths and limitations, andstill presents an opportunity to grow to 10 per cent mar-ket share with improved profitability and renewed brandimagery. The next best alternative is to go for the entirehousehold category but this may backfire and also re-sult in the classic “spray everywhere and you may touchyour consumer” outcome. There is also a high need forHCL to seek in-depth information around purchase de-cision-making for laptops especially from the youth andmid-level corporate executives.

This warrants the need to do an in-depth research acrosssome metros and smaller towns, to know the emerginggaps and to be the first to address them. HCL also needsto make sharp choices between investing in R&D, de-sign, product portfolio, innovation and laptop-focuseddistribution network. There is merit in going with in-vestments in design, features, and variants for now andoutgrowing competition riding on the fastest growingyouth segment. It needs to consistently appeal to the youthwith new design variants so as to build a strong pulland improve its marketing multiplier.

Case Analysis IV

Moutusy MaityAssistant ProfessorIndian Institute of Management, Lucknowe-mail: [email protected]

The 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 itwishes to attract; (b) It needs to ascertain that the strat-egy it chooses to pursue will help it to achieve a marketshare of at least 15 per cent, which will allow it to achieveeconomies of scale and hence, greater profitability (theassumption is that an expenditure of between INR 600-800 million will allow the company to reach out mean-ingfully to its target segment). The following discussioncentres exclusively around the laptop market, and doesnot discuss the desktop market at all.

Target Segment and Positioning Strategy

The laptop market, as presented in the Case, consists ofseveral players comprising premium and value brands.Sony and Apple are premium brands. HCL is a valuebrand, and considers other value brands such as Acer,Lenovo, and Dell as its direct competitors. These threelaptop brands have developed strong positioning, but,none of them is pursuing any particular target segmentwith their product offerings.

An average laptop in the marketplace (as presented inthe case) costs around INR 40,000. An HCL laptop ispriced at about 2 to 5 per cent lower than those offeredby the leaders in the market. Thus far, most of the com-munication undertaken by HCL has emphasized the

functional attributes offered by its products. There is aneed to establish a strong brand image in the minds ofconsumers. To that end, HCL needs to pursue a posi-tioning strategy that will clearly distinguish it from itscompetitors. In addition, there is an opportunity for thebrand to target a specific segment (especially a segmentthat is growing rapidly) with its positioning strategy andproduct offerings. This strategy will provide an edgeover the competitors. The questions that HCL shouldaddress to achieve the above are:

• Which segment should it target?• What are the positioning and communication strate-

gies pursued by the competitors? Does a clearly iden-tifiable positioning gap exist in the market?

• What should be HCL’s positioning?

Consumer Decision Making

A closer look at the laptop as a product, and the con-sumer decision-making involved in purchasing theproduct, reveal that when it comes to purchasing alaptop, two factors are important to the consumer: (a)the price that the brand demands (consumers are price-conscious); and (b) the laptop brand name. Therefore,consumers tend to carefully examine the product fea-tures that are available for the given price range. At thesame time, purchase decisions are also influenced by theimage of the brand. In other words, one can say that

DIAGNOSES


there is a tension in the consumer’s mind in terms of theproduct features obtained (for a given price) vs. the im-age of the brand, when it comes to purchasing a laptop.

A laptop is more often used for personal use and enter-tainment. A laptop computer can, therefore, be consid-ered as an extension of the consumer’s self. It is usuallytaken out and used in public, and is a conspicuous con-sumption product. The product brand reflects the con-sumer’s image of herself, as well as how she would wantothers to see her. Hence, the brand image associated withthe brand of laptop gains importance for the consumer.A desktop, on the other hand, is usually associated withwork, is a non-conspicuous consumption product, andis typically situated at home or at work. Therefore, prod-uct features offered by the product (at that specific price-point) plays a more important role than the brand imageof the product.

Possible Communication Focus

The decision-making undertaken by consumers for pur-chasing laptops and desktops, take different routes. Sinceconsumers are swayed by the brand image of the prod-uct in addition to the product features offered in a spe-cific price range, while purchasing laptops, consumersare likely to be persuaded by messages that concentrateboth on cognitive and emotional appeals. The Elabora-tion Likelihood Model (ELM) delineates two differentroutes to persuasion: the central and the peripheral routes.Products, for which consumers base their decisions oncognitive cues, should try and appeal to the consumersusing communication that focuses on reasoning. In con-trast, products that have an affective appeal for the con-sumer, would probably find it more fruitful to concen-trate on emotional cues in their communication. A laptopis such a product where consumers base their decisionson both types of cues, and therefore, both cognitive andaffective appeals will be important in the communica-tion. A consumer will want to know how (from a func-tional stand point) the product is going to help her, andshe is price-sensitive; however, at the same time, she iswilling to probably pay a bit more for a product thatmatches with who (from a brand image stand point) sheis. Therefore, HCL has to ensure that both these aspectsare addressed in its positioning of the brand and thesubsequent communication strategy.

Since buying a desktop involves considering the at-tributes of the product, consumers will usually consider

the tradeoffs involved in foregoing a specific feature foranother. Therefore, for desktops, the functional aspectsof the product will probably dominate the decision-making processes.

Choosing the Target Segment

HCL needs to carefully choose the segment it wishes totarget. The Case mentions that the company currentlyhas enough budgets to pursue only a single segment.But, which segment should it go after? Though the casedoes not provide us with the specific break-up of retailconsumers in terms of age groups, it does mention thatthe laptop market can broadly be broken into two seg-ments: Retail and Enterprise. The Retail segment has thefollowing sub-segments: young consumers (probably inthe age group of 17 to 25), middle-aged consumers, andelderly consumers (who constitute only a small fractionof the entire market). The Enterprise segment has the fol-lowing sub-segments: mid-level executives (who areprobably in the age group of 30 to 40 years) and seniorexecutives.

A careful look at the above segments, when considereddemographically, indicates that the young consumersin the Retail segment, and the mid-level executives inthe Enterprise segment, are consumers who are not onlyyoung in terms of age (together they span the age rangeof 17 to 40 years), but, are also conscious of the brandsthat they consume. Since laptops are items of conspicu-ous consumption, these consumers will especially beconcerned about the brands of laptops that they use, asthis act is judged as an “endorsement” of the brand bytheir peers. (While the Case does mention that the youngconsumers tend to be interested in the lowest price, wecan assume that brand image does matter to this con-sumer segment).

These two groups of consumers constitute the fastestgrowing segments when it comes to purchasing laptops.Therefore, HCL can aim at targeting these two groupsof consumers by developing: (a) a strong brand image(achieved through a clearly focused positioning strat-egy) that appeals to both the segments, and (b) prod-ucts that provide the required product features. (TheCase notes that product features are not meaningfuldiffere-ntiators any more in this market, and new prod-uct features can easily be incorporated by any brandwithin a short span of time).

142

Positioning Strategy

What should HCL’s positioning strategy be? Note thatthe positioning strategy needs to be such that it appealsto the two segments identified in the previous section(i.e., the young consumers and the mid-level executives).Currently, the company does not have a clear position-ing strategy. However, in order to achieve its goals ofhigh growth rate and increased market share, the brandneeds to create a strong positioning. The positioningstrategies pursued by the existing players in the laptopmarket (Case: Exhibit 15), focuses on broadly two as-pects (Figure 1): (a) performance promised by the brand,and (b) product design.

Note that none of the value brands has ventured intopositioning themselves as a brand that is “close” to theconsumer. Specifically, HP, Dell, and Acer have posi-tioned themselves as helping an “innovator,” being a“partner in success,” and as “solution provider”. WhileAcer does attempt to build some panache into its brandimage by using a movie personality as its brand en-dorser, the overall image of the brand remains one of aprovider of solutions. The only brand that incorporatesthe sense of style in its brand image is Sony. However,this is a premium brand. Therefore, opportunity existsfor a value brand to claim a position in the top right quad-

rant by communicating the personal nature of the laptopalong with a style statement (Figure 1).

The suggested positioning strategy aligns well with theway in which the young consumers and the mid-levelexecutives (i.e., the chosen target segments) would liketo think of themselves. These consumers like express-ing their own ideas, want to do things their own way,and value their own individuality. These are consum-ers who probably like to work, and have fun at the sametime. They are likely to appreciate the value proposi-tion by a brand that stresses the importance of personalchoice and style, without compromising product fea-tures. (Note that HCL has to ensure that it offers theproduct features that these two segments of consumerswould want, though it might not choose to highlightthat aspect in its positioning strategy).

HCL’s Journey from 2009 to 2012

The projected laptop sales for 2009, is 2397,000 units(Case: Exhibit 3). However, the actual laptop sales achie-ved in 2009 is 4085,743 units (Case: Exhibit 9). The growthrates for the laptop category are 30.77 per cent in 2008,and 76.47 per cent in 2009. Thus, there is a large discrep-ancy between the projected market performance forlaptops, and the performance that the laptop category

Figure 1: Identifying Gaps in the Existing Market

Performance: Personal

Performance: Professional

Product Features Aesthetics/Style

Acer

Sony

Dell

Compaq

HPToshiba

Lenovo

Opportunity for HCL

DIAGNOSES


is able to achieve by the year 2009. The market has ex-panded much more than the projected figures had esti-mated. Therefore, the projections made by IDC for thesubsequent years (Case: Exhibit 3), needs to be re-ex-amined.

Note that the projected growth rates for the total laptopmarket range between 46.04 per cent in 2010 to 24.78per cent in 2014 (Table 1). However, as already noted,the laptop market has enjoyed phenomenal growth ratesin 2008 and 2009, and the projections seem to be con-servative (though we are not able to obtain the projectedgrowth rate for 2009, the number of units projected forthat year, and the number of units that were actuallysold, does indicate an underestimation). We do need toconsider various scenarios that can happen as HCL con-tinues on its quest for 15 per cent market share by 2012.The various scenarios are presented in Table 2, and arediscussed below.

Scenario 1

Assumptions:

• Growth rate continues to be robust, and is higher thanprojected

• HCL’s market share increases.

In this scenario, the total margin that HCL reports for2009 is INR 413 million (approximately), and hence isnot able to spend the minimum INR 600 million on ad-vertising that it requires in order to expand its marketshare in 2010. Let us assume that HCL is able to spendabout INR 300 million on advertising in 2010. Thisamount is more than double the amount that HCL hadspent in 2009. As a result of this increased expenditure(assuming that its competitor does not increase its ad-vertising expenditure proportionately), HCL wouldprobably see an increase in its market share in 2010. A

conservative estimate of HCL’s market share in 2009 is9 per cent. However, the company cannot enjoy anyeconomies of scale in 2010. However, due to the ex-panded market, and an increase in the number of unitssold, HCL achieves a margin of INR 747 (approximately),that allows it to spend the necessary amount on adver-tising. Therefore, by 2011, HCL’s market share can in-crease to 12 per cent, and the company can start enjoyingeconomies of scale, which continues to 2012 by whichthe company can achieve a market share of 15 per cent.

Scenario 2

Assumptions:

• Growth rate continues to be robust, and is as pro-jected

• HCL’s market share increases.

In this scenario, too, similar arguments as presentedabove for Scenario 1, indicates that HCL will probablybe able to achieve its goals.

Summing-Up

The two major issues that face HCL are regarding choos-ing a positioning strategy and ascertaining an increasedmarket share in order to achieve economies of scale. Dueto the rapidly growing laptop market, if the brand isable to achieve a strong brand image that aligns itselfwell with the target segment, buoyed by the expandingmarket, HCL should be in a position to achieve its tar-get market share by 2012. A word of caution, however,needs to be sounded. The above analysis assumes thatthe competitors keep their strategy unchanged. Themarket situation can be dramatically different if the com-petitors choose to target the same segments, and increasetheir advertising expenditure.

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

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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% everyyear)

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 is2% 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.

DIAGNOSES


The case deals with the challenge facing Mr. AjaiChowdhry, Chairman & CEO and his marketing

team at HCL Infosystems Limited, an Indian company,a major technology hardware player in India, as it aimsto build a strong position in the laptop computer cat-egory. This is necessitated by the structural changes af-fecting the personal computer industry with laptopsexpected to gain a dominant share with the decliningshare of desktops and brand value becoming a determi-nant in the purchase decisions in both the sub-catego-ries, i.e., laptops and desktops. HCL is a major player inthe PC market with a second position in the desktopsub-category though it was a poor fifth with 7 per centmarket share in the laptop sub-category in 2009-2010.The laptop was expected to have significant growth inthe next few years and overtake the desktop market in2013. Further, while the desktop was a mature categorywherein the PC was perceived and purchased as a com-modity, laptop was considered as a differentiated prod-uct due to its usage, i.e., personal and for entertainmentand computing and its enhanced value proposition forconsumers due to declining prices and image benefits.Thus, all PC manufacturers were expected to ensure aposition in the emerging laptop market wherein HCLenjoyed an unenviable status.

The challenges before the marketing strategy team con-sisting of George Paul, EVP Marketing, Rajinder Kumar,EVP, Sales and J V Ramamurthy, COO along with MrAjai Chowdhry, CEO for the laptop PCs were: How toattain the marketing objective of 15 per cent market sharein 2010 and 2011 and 20 per cent market share in 2012?

This required a 400 per cent increase in sales in two yearsfrom the current unit sales of 292,785 in 2009 to 1.168million units in 2012. The yearly growth targets trans-lated into 0.525 million units in 2010 and 0.684 millionunits in 2011. The same was expected to be aided by thelaptop category growth rate which was expected to be46 per cent in 2009-2010, 30 per cent in 2010-2011, and28 per cent in 2010-2011. However, the company wasexpected to achieve much higher sales growth rates of79.7 per cent in 2010, 30 per cent in 2011, and 70 per cent

in 2012, i.e., 4 times in the next two years compared tothe growth rates of 22.9 per cent in 2007-08 and 81 percent in 2008-09.

Some of the decision options being contemplated by theteam were to:

• Conduct a detailed market research especially quali-tative research to understand consumer attitudes andgap areas followed by ratification by a detailed quan-titative research. However, this option was consid-ered as a medium-term decision since the companyneeded to immediately implement a marketing strat-egy.

• Execute a high decibel communication campaign.However, the issue was how to position the HCLbrand as it was perceived as a functional low-priceddesktop PC brand for corporate users and hencelacked a core value proposition for laptop users.

• Introduce new models with innovative features.However, some of the problems in this option werewhich features to introduce and to see whether thosefeatures would create sustainable product differen-tiation since laptops and their components weremostly made in Taiwan and any feature could easilybe copied by competition within two months.

• Segment the market and build a strong position inone segment before invading other segments similarto what Dell had done, i.e., build a position in thesmall and medium business before targeting othersegments. However, the issue was how to segmentthe consumer market. The existing segmentationbased on age and buying behaviour was not feasiblesince the younger consumer was highly price-con-scious and the older consumer was not knowledge-able enough to evaluate the product.

Mr Ajai also felt that the HCL should spend 600-800million INR to make it more relevant and appealing tothe youth segment in the retail market. He reflected onthe approach adopted by Acer and Dell to build marketshare in the category, i.e., of intense consumer advertis-ing with building adequate retail support. The concern

Case Analysis V

Rajat GeraProfessorIMT, Ghaziabade-mail: [email protected]

146

was that the strategy would require high investment andthus have financial risk of failure.

Some additional information from the data given in theCase is as follows:

• HCL was perceived as a value brand and sufferedfrom an image problem especially with the youngerconsumer for whom it was an old, traditional, Indianbrand (only Indian Brand) compared to the MNCbrands which were relatively newer entrants in themarket and were Global brands with higher productvariety and deeper pockets which they were utiliz-ing to build an innovative brand image and streng-then their distribution network.

• HCL had competitive disadvantages in terms ofeconomies of scale; the MNC brands enjoyed bettereconomies of scale, and had better perception amonglaptop consumers that foreign brands were better interms of quality, especially with the 25-30 year agegroup which was the most influential and knowl-edgeable.

• HCL had an excellent distribution network for desk-tops. Though the same channel could be utilized forlaptops, it was not yet well established.

• HCL had an advantage with its after-sale servicenetwork due to its longevity and dominant presencein the desktop.

• While the product was undifferentiated, premiumbrands such as Sony differentiated their productsthrough styling and advanced features.

• The market was largely price-sensitive with almostall major brands offering the same product featuresand at almost the same price. Thus, the price differ-ence between value and premium brands was nar-rowing. One of the reasons for the same was thatalmost all the brands of laptops were assembled bythe 3-4 OEMs in Taiwan.

• However, there were opportunities for differentia-tion through communication and brand building

which were being exploited by the major MNCbrands in their message and media strategies.

• All the MNC brands employed the three-tiered se-lective distribution model for the consumer market.The retailers carried multiple but limited set of brandsdue to constraints of space and investment. It was amature distribution system and all products werepushed on the basis of consumer interest and dealerincentive.

Thus, MNC value brands have competitive advantagesof economies of scale, brand image, product portfolio,and financial resources which they are leveraging in theircommunication and brand building strategies. Due totheir high market share, they are also obtaining advan-tage with the distribution channels which they are ag-gressively building while HCL is losing out due to itslate entry into the market. The MNCs are also scalingup their after-sales network putting HCL at a disadvan-tage.

HCL thus faces formidable challenges of how to achievea differentiable advantage in the face of undifferenti-ated product and price and global disadvantages ofproduct portfolio, brand image, and communicationbudgets. A framework which can be adopted in fram-ing of marketing strategies by local players vis-à-vismultinationals is given by Dawar and Frost (1999).10

An analysis of the globalization pressures facing the in-dustry and the competitive assets possessed by the lo-cal player is needed. HCL could yield some insight intothe approach for differentiation that it can adopt. Glo-balization pressures are high since there are economiesof scale in product portfolio, branding, and communi-cation. With the competitive assets that HCL possesses– a strong distribution network in desktops which canbe leveraged for laptops, an enviable after-sales network,and a trustworthy brand name — it needs to adopt theDodger strategy (Table 1) to achieve competitive differ-

10 Dawar, Niraj and Frost, Tony (1999). “Competing with Giants,” Harvard Business Review, March-April.

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 tochain, 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 thosesegments where multinationals are weak) of the home base using competencies developed at home)

DIAGNOSES


entiation. This could be made possible by adapting theproduct and its attributes to local conditions. The Casedata shows that there are huge opportunities in the restof India. In terms of sale of units, the share of the rest ofIndia has increased by 10 per cent between 2005 and2010 with 2.135 million units out of a total of 3.5 millionunits in 2010 while the top four cities accounted for only1.085 million units.

Interestingly, in 2009-10, though the sale of laptops inthe top 4 metros grew by 173 per cent, it increased by 48per cent in the rest of India while the sale of desktopsdeclined by 61 per cent in smaller towns in 2009-2010(Case data). Thus, HCL can adapt the product features,e.g., introduce no-frills products with a longer batterylife (12 hrs) and durability at competitive prices to ad-dress the needs of the younger consumers who cannotafford the MNC laptops which are built to internationalstandards of features and styling. Warranties and serv-ice guarantees could also enhance the attractiveness ofthe product to the small town consumer. The MNCbrands may not be able to customize the product and itsservices for the local consumers in the rest of India sincethey would lose the economies of scale of standardizedproducts and service attributes.

HCL also has the advantage of a 93,000 outlets covering11,000 towns and the largest pool of trained manpowerhandling 2.5 million support incidents per annum. Thisasset can be leveraged in creating a rural distributionnetwork at low cost which could serve the needs of thefunctional consumer of laptops, e.g., for school childrenin Government schools, salespersons of small and me-dium enterprises, etc. Thus, the needs of the functionalconsumer for laptops that are not being addressed bythe MNC brands can actually be served by HCL at acompetitive advantage.

HCL can also compete on price and pricing strategy. Itcan adopt a licensing model wherein, for example,schools pay for the hardware on a monthly rental basiswhich includes the cost of the hardware, software, andmaintenance. New market segments can be opened upthrough innovative pricing strategies which enhance theaffordability of the product. Being a local player, it canthus customize its pricing and offer a solution (a la IBM)to consumer segments that are volume buyers but findthe MNC product unaffordable. A localization strategyfor component and design could also reduce the cost ofthe product.

There are also opportunities of customizing the productby collaborating with educational content providers tooffer it for example as a learning solution for the educa-tional market. By developing low-cost versions of thelaptop for the educational and training market, and othersimilar market segments which are not driven by styleand brand image, HCL can differentiate its product as aportable and internet connected computing product vis-à-vis entertainment and lifestyle products being offeredby the MNCs. However, the same would require prod-uct innovation capabilities in features and design so thatcustomized solutions can be developed.

Thus by developing localized product, pricing and dis-tribution strategies based on its existing competitiveassets, HCL can differentiate its offer and compete withMNC brands. A ‘me too’ approach would not be feasi-ble due to the nature of the industry, i.e., globalizationadvantages for MNC brands and high intensity of com-petition, i.e., large number of MNC brands.

An analysis of the share of voice of the major MNCbrands and market share (Table 2) shows little correla-tion between the communication intensity and marketshare. Thus, spending resources on communication isunlikely to lead to significant market share gains in theabsence of a brand value proposition.

Table 2: Share of Voice (%) of Select Brands(Calculated from Exhibit 12)

Brand Name 2008 2008 2009 2009SOV Market SOV Market

Share Share

HP 7.92 30.86 15.25 33.43

HCL 0.6 6.96 4.5 7.17

Dell 30.48 16.42 37.33 12.66

Acer 7.31 13.48 8.11 12.12

Lenovo 14 13.06 4.87 14.33

Sony 9.14 3.93 11 3.45

Secondly, segmenting the market by age and buyingbehaviour may not be feasible as 20 per cent market sharewould require targeting the whole market. For exam-ple, targeting the consumer market (approx. 50% of thetotal market) would require 40 per cent market share toachieve 20 per cent market share in the laptop market.Secondly, brand building and communication costswould go up and HCL may suffer in profitability as grossand net margins are very low (2-4%).

148

HCL 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,for HCL, they have been able to muster highest marketshare in the desktop market while they are a distant sixthin the growing laptop market. The laptop market isgrowing on its own as well as at the cost of the desktopmarket. HCL is duly placed as a “value for money” prod-uct in the desktop market. This has secured HCL’s posi-tion in the top two slots by volume. Quite predictably,“other” brands offering additional benefits enjoy morethan 57 per cent of the market by volume. Perhaps, iflaptops had not come to the market, the maturity pe-riod of desktops would have lingered longer.

Laptops were introduced by the multinational market-ers with a large range of models to serve the diverse setof customers who have yet to settle down with a clearunderstanding of the product features and their wor-thiness. Majority of the newly entering customers in thismarket are students and young executives. Many ofthem are existing users of desktop models and are up-grading themselves to the new convenience of laptops.

The CEO of the company has suggested a target marketshare of 20 per cent. No clear marketing rationale forthis target has been forwarded in the Case. In such asituation, such a target may first be cross-checked for itseconomic viability. The Case suggests that at the lowerend of calculation, i.e., at 10 per cent of market share,the contribution is in the range of 4-11 per cent (70-75%cost of production, 12% distribution costs, and 7-9% ofsales and marketing overheads). Thus, net profit in thelaptop business is wafer thin at the lower end. How-ever, the contribution rises at the rate of about 0.4 percent for every increase in the sales share up to a ceilingof 30 per cent. The anticipated increasing competitivepressure shall prevent any dramatic increase in the shareanyway.

The target of 20 per cent means a sale of 1.16 million in2012 from the current sale of 0.29 million, i.e., a jump of300 per cent and a search for 0.87 million customers! This

may just be an internal target. This has to be matchedwith the market reality and a suitable plan of action.

Before suggesting any suitable plan of action for HCL,it may be worthwhile to do a SWOT analysis.

Strengths

• HCL brand is well known and its “value for money”image is well accepted.

• It has an extensive distribution reach.• It has a strong equity in the corporate segment.

Weaknesses

• HCL is positioned only along the functional dimen-sions. There is no strong emotional connect with itscustomer groups.

• It has to depend on the available technologies fromoutside which are open to every other marketer. Thereare no scale advantages for its laptop business either.

Opportunities

• The market for laptops is already on the high growthpath.

• Corporate executives form a large chunk of newlaptop market. HCL has substantial penetration inthe corporate sector.

Threat

• Many competitors, particularly MNCs with deeppockets, have already acquired market positions andshould be competing hard for the Indian market.

Suggested Plan of Action

Market forces due to the product life cycles of desktopsas well as laptops are too strong to be ignored by HCL.It has to accept them and align its actions to take thebest advantage from them. This can be done by target-ing appropriate segments and implementing a suitableaction plan for them. From the previous SWOT analysisand sales goals of HCL, it is clear that its target segmentsmust be large which should be positively inclined (or at

Case Analysis VI

A P AroraProfessorMDIe-mail: [email protected]

DIAGNOSES


least not negatively disposed) towards HCL. Students,young executives, small businessmen, and corporateexecutives appear to be filling this bill. They are likelyto be most receptive to the “value for money” position-ing of HCL in the market.

For the students’ market, HCL can suitably design itsoffer which is rugged, fitting in with their active lifestyles, and suiting to their unique areas of requirements.The number of students from different streams and lev-els should be large enough to support the interestingpossibilities of sub-segments here. This can be well uti-lized by HCL to connect strongly with them. An exten-sive distribution network could be its strong point forthis market.

Students’ market could be utilized by HCL in anotherway. They can be used as the opinion leaders to effi-ciently and economically penetrate into rest of the mar-kets. These young customers can be approached by HCLdirectly through mass media or personal contacts. Thecommunication to them should empower and encour-age them to pass on the message to the next level ofadopters through word of mouth. This is important asthese young people are seen as local experts for laptopsand are consulted by many other customers. The keyhere may be the demystifying communication made tothese people which encourages them to relate with

HCL’s offer better and makes them comfortable to sharewith the potential customers around them. Young ex-ecutives may also be approached in a similar way.

Small businessmen and corporate executives may betargeted from the plank of “value for money”. This plat-form is well shared by their key concern and HCL’simage strength. Potential corporate executive custom-ers are most likely to be the current desktop users. HCL’sexisting data base and service relations should be ex-tensively used here. Exchange offers can be an effectivesales tool for this segment. This may excite them suffi-ciently and fit well with the extensive distribution net-work for the desktop market.

The numbers about each of the segments and their sub-segments need to be worked out in details. That is notpossible from the available Case data. Therefore, addi-tional data will have to be collected for reaching to theirestimates. Once these estimates are available, more ex-act cost estimates for that particular scale of operationscan also be made. With these cost estimates, HCL canmore confidently challenge its existing competitors onthe price front and strengthen its “value for money”positioning. It shall allow HCL to reap the advantagesof commodifying laptops in the major markets beforeits MNC competitors fully exploit their premium“brand” advantage.