Intel Inside

Anders Vest Christensen, Christopher Plantener Benjamin Esser, Michael Snderby, Niklas Holck

4th of April 2001 4th of April 2001 4th of April 2001

Course: Business Strategy Strategy Course: Business Course: Business Strategy

Case: Case: INSEAD/Intel INSEAD/Intel Case: INSEAT/Intel

The Intel Inside marketing campaign

(Issues to addressed)

The question is: Should we continue with the campaign, and if yes, in what way

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Agenda
Current status Review of our competitive environment Objectives Intel Inside Corporate strategy Strategy Plan Implementation
4th of April 2001 4th of April 2001 Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel

The Intel Inside Campaign

Consumer

Intel Inside
Brand building with the consumer
4th of April 2001 4th of April 2001 Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel

Industry Overview
Entry barriers: High
-High capital investment -High R&D cost -Economies of scale, learning curve -Short product life cycle (3 years) -Patents

Substitutes: High
Clones

Rivalry in the industry: Strong

Favorable Growth Trend Multiple players like AMD (clones) trying to catch up with Intel High pressure to innovate

Supplier Power: low

Supplier of raw material fragmented Conventional materials used

Buyer Power: Low

Buyers: OEM like IBM, HP and Compaq Some degree of backward integration OEMs fairly fragmented Case: INSEAD/Intel Case: INSEAT/Intel

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Industry Drivers
R&D,
Compatibility Technological innovation Time to market Costs

Price,
for products of equal technological level.

TQM,
0 fault level.

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Facts and Figures

Intel holds 80% market share in the microprocessor market (worth $1.5 bill.) Closest competitor AMD and clones Exponential growth expected Financials:
Revenue: $ 4.8 billions Net income: $ 0.8 billions ROE of 18% in 1991

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Stock Performance

50

Stock prise in $

40 30 20 10 0
r r be be ary ry h l m m u ua arc pri ay ne ve ze ly t an ebr A o M M e J F N Ju Ju gus ber D r er u m be ob A t te m c p O ve Se No Overview of 1991

Intel AMD

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Financial overview Chart

4 000 $ 3 000 $ Net Revenue 2 000 $ R&D Net Income 1 000 $

0$ 82 83 84 85 86 87 88 89 90 91

286 Proce s s or 386 Proce s s or 486 Proce s s or

Cash Cow Star

586

?
786
94

686

79

84

89

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Intel Corporation
(Internal Analysis)

Strengths
R&D: Technology leader: R&D investment between 11 and 14% of Revenues Strong capital base current assets app. $ 4,1billion 80% of the market (economy of scale)
4th of April 2001 4th of April 2001

Weaknesses
Lacking patents protection Patent Cross Licensing Agreement with AMD until 1995 Extreme dependence on R&D
Case: INSEAD/Intel Case: INSEAT/Intel

Course: Business Strategy Course: Business Strategy

Intel Corporation
(External Analysis)

Opportunities
Exploding market Setting industry standards Control over product life cycle

Threats
Anti-trust regulations Increased competition Cloning OEMs have forced Intel to sell technology to AMD OEMs may enter the industry.

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Objectives
(80 % market share)
Present (Nov 1991) Short Run (Jan 1993) Long Run (1995)

Technology Leadership Public Recognition Big 3 Participation in Intel Inside Legal Strategy
4th of April 2001 4th of April 2001

486

SX

DX

DX4

586
40% 40%
COMPAQ

686 90%
COMPAQ

HP

HP

IBM

IBM

Lawsuits
Course: Business Strategy Course: Business Strategy

Patents
Case: INSEAD/Intel Case: INSEAT/Intel

The Intel Inside Campaign

Push effect Pull effect

Consumer

Intel Inside
Brand building with the consumer
4th of April 2001 4th of April 2001 Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel

Assessment of current Marketing Campaign

Facts:
Reimbursement of OEMs advertising cost up to 50% Costs of appr. $ 250 million Logo sticker on certain products

Positive aspects
Positive Aspects Positive response from PC manufacturers having agreed.

Negative aspects
4th of April 2001 4th of April 2001

Negative Aspects Big 3not signed up yet. Press: Why brand processors?. Positive in the short run but minimal effect in the long run (see IBM)

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Continuation of Marketing Campaign?

1) No, abort marketing campaign immediately, focus on R&D. 2) Yes, expand on R&D and existing marketing campaign.

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Continuation of Marketing Campaign?

Yes, why?
The campaign is too young to be judged objectively High investment Sign to stakeholders We believe in it

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

Competitive Advantage of INTEL

200 150 Service 100 50 0 Brand Name 1987 1995 Technological Level Financial Leverage

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

(2)Corporate Strategy
R&D strategy Marketing

Support: Legal Strategy

4th of April 2001 4th of April 2001

Alternatives to chosen corporate strategy Cost leader; production optimization Focus strategy; focus on core products
Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel

Marketing Strategy-Plan & Execution

3) Promotion Push Strategy (Big 3 directed)
Image and end consumer pull effect Joint Intel/OEM marketing campaign incentive Indirect through OEM/Intel campaign Direct through media

Pull strategy (end consumer directed)

1)

Product
Continuous introduction of new improved processors (see graph) Keep the competition struggling

2)

Price
Premium pricing
on new processors

Marketing Strategy

Competitive pricing
on older processors

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel

R&D Strategy-Plan & Execution

Develop product portfolio:
1992
Dept. Of innovation

1 year

2 years

786 Processor Dept. Of Improvement

886 Processor

Improved sub product lines for 486/586

R&D spending 1991: $618 million Realistic R&D spending 1993: 2 x $618 million
4th of April 2001 4th of April 2001 Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel

Tracking initiatives
R&D
Technological leadership
Frequent sreening of the cloning market

Marketing
Brand Recognition
Consumer surveys Feedback from OEMs

Benchmarking against competitors Close cooperation with OEMs (are we staying ahead)

Big 3 sign up

Increase freaquency of Product Innovation

Milestones: launch of products Introduction of project mgt.
How is the competitors market share developing?
Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel 4th of April 2001 4th of April 2001

Conclusion
Cloning is the biggest threat to our technological leadership The marketing campaign will help differentiate Intel from the clones Together with our R&D strategy the marketing campaign will help us reach our main goal of sustaining current market share of 80% in 1995 Strategy review
4th of April 2001 4th of April 2001 Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel

What has really happened?

- Intel pursued an aggressive outspend, out-manufacture, outdevelop-strategy - Intel today the third biggest company in the world - Intel Inside one of the most successful marketing campaigns in history - Absolute market leadership until today
4th of April 2001 4th of April 2001 Course: Business Strategy Course: Business Strategy Case: INSEAD/Intel Case: INSEAT/Intel

We Thank you for your attention

4th of April 2001 4th of April 2001

Course: Business Strategy Course: Business Strategy

Case: INSEAD/Intel Case: INSEAT/Intel