CASE REPORT:

HP CONSUMER PRODUCTS BUSINESS

ORGANIZATION: DISTRIBUTING PRINTERS
VIA THE INTERNET

Elaborated by:

AMIRA ATHIMNI

MERIEM BEN YEDDER Instructor : Dr. Mehdi

ZAHAF
REEM NASSAR
Mediterranean School of Business
10/10/2012
RYM BELHADJ
 Outline

Executive Summary ..................................................................................................... 3

1. Situation analysis................................................................................................... 4

a. The market ........................................................................................................ 4

b. Micro-environment ........................................................................................... 4

c. Macro-environment ........................................................................................... 5

2. SWOT analysis ...................................................................................................... 5

a. Strengths ........................................................................................................... 5

b. Weaknesses........................................................................................................ 5

c. Opportunities ..................................................................................................... 5

d. Threats .............................................................................................................. 6

3. Key marketing issue and consequences ................................................................. 6

4. Main decisions and proposed solutions ................................................................. 6

 Executive Summary

In 1998, HP is the leader of the printer industry. Its products were distributed via mixed
channels. Computers, software and peripheral were mainly sold through brick and mortar
companies (B2B), which represented the major part of HP’s gross profit, however, the recent
evolution of e-commerce was an opportunity not to miss, even if HP has already started
selling refurbished printers through an internet Outlet center (B2C), the company was
considering to expand its distribution online.
HP has strong brand equity, and was well known to be a company that considered its
customers and partners needs and tried its best to meet their requirements.
They are thinking about entering e-commerce by offering their printers and printers’ supplies
online.
The company is trying to figure out how to communicate this potential strategy to the actual
channel partners without harming the existing distribution structure, they also have to decide
on the level of strategic emphasis on Internet distribution, in order for it to be a success.
 1. Situation analysis
a. The market
In 1997, the revenue of printer manufacturers was $8 billion for the U.S and $22 billion
worldwide. The printer demand rose as home PC’s became more prevalent.
The actual market is composed of 3 main kinds of printers. First, there are the Inkjet printers,
the most popular; in 1998, HP has got 55% of the US market share. Then, there are the Laser
printers, specified in high volumes of print, HP held 85% of the US market share. Finally,
there are the Multifunction printers, which combined many functions, as printing, copying,
faxing…
HP is leading the printer market, in the Inkjet and Laser segments, especially because of its
advanced technology.
As printers’ are no longer the newest product, the prices are going down, but this doesn’t
mean that people are not interested anymore, consumers are always driven by the new
releases and superior technology.
On the other hand, the printer supply business is very profitable, and in 1997, HP is the leader,
with $5 B of its total sales of $42.9B.
With this new potential online channel, HP wants to develop the printers’ market.

b. Micro-environment
Who are the customers?
We have two targets: the at-home market and the home office market.
First, the at-home market, is composed of 91% of PC owners, and is divided into two groups,
the first time buyers, who go through the normal process of purchasing, usually buy in stores
and are influenced by demonstrations… whereas, the repeat buyers, are more likely willing to
buy printers online, especially, if they are looking to upgrade the technology or buy additional
units; in fact, for them mail order accounts for 8% of all printer sales. This could be
considered as one major target for the direct channel.
The second target is the home office market. In 1997, 52 million Americans worked from
home. The most popular printer is the MFP, because of its several functions. When buying the
product, customers knew exactly what they needed and “had specifics price points in mind”.
This market can also be an interesting target for HP’s new channel.
In general, people welcomed shopping on internet easily; this is due to the growing
dissatisfaction caused by the poor level of service and the lack of knowledgeable sales people
offered in stores. The creation of an online channel will benefit for both unhappy retail
customers and will be a good push to the conventional channel; in this case, if they feel
threatened, they will improve the quality of their services and the training of their employees.

Who are the partners?

HP works with 7 channels of distribution. It has a solid reputation with its primary retail
accounts. In fact, HP made the needs of its partners a priority, and provided them with further
services in order to promote its products.
Larger retail accounts represented 90 % of HP sales, so only 10 % of the products are sold
via other channels, like indirect mail orders and virtual stores (this 10% are a potential target).

Who are the Competitors?

E-channels are one of the competitors, which are composed of 2 types:
 The traditional resellers: like CompUSA, Office depot and Wall Mart, which need to
balance strategy between in store and online goals.
  The new virtual stores: like VA (majority of sales coming from computers) and
AMAZON.

The other main competitors are manufacturers like EPSON, DIABLO, QUME and
LEXMARKS in the printer industry, as for the PC’s market, DELL is the “the standard direct-
order selling model”.

c. Macro-environment
We are going to focus on the social and technological environment.
First, technology enabled a faster exchange of information thanks to the booming of internet
which led to the increasing success of e-commerce. In 1997, 46 million internet users were
buying online, and it was supposed to grow to 150 million by 2000. HP noticing this
phenomenon decided in 1997, to sell refurbished printers through an internet outlet, in order
to get to learn the different aspects of Internet direct selling, and to please the increasing
number of Internet shoppers, who either don’t want to waste their time in shopping, or are not
satisfied with the quality of service offered in the stores.
People are also following the speed of technological change (measured by the volume of new
SKU’s introduced each year). Based on the product life cycle, they were buying every 2 to 4
years new printers to replace the older ones. That’s why this frequent change makes this
market appealing .

2. SWOT analysis
a. Strengths
HP’s solid reputation was built through their expertise in choosing and managing their
distribution channels (last transition from VAR’s to retail channel was a success). It is known
as one of the few organizations that were able to marry measurement, computing and
communication at the same time.
The fact that HP printers’ life cycle is relatively short, shows that they are always at the edge
of technology with high quality products. In the other hand, they focus a lot in meeting the
customers’ expectations in a reasonable time frame with successful marketing strategies and
an effective distribution channels. Moreover, they designed 5 different SKU’s to meet large
market share, which made them the leader in the printer industry.
HP has a minimum expertise in selling online (Outlet Center), which represents an overview
about this e-channel.

b. Weaknesses
Exposing HP’s printers only in e-tailers will devalue them. Establishing the e-channel will
add value to HP Products.
In addition to the high cost of designing a new channel (no benchmarking because they are
the first mover) they will have to invest a lot in advertising and communication strategy to
attract new segment of customers.

c. Opportunities
Going into an online distribution channel will open a new market for HP, and therefore
produces higher margins. It will also allow HP to get more information about the customer’s
needs, preferences and buying attitude in a direct basis. In the other hand, there are no barriers
of entry as HP will be the first mover in the online selling. HP should emphasize on the level
of demand of its products, as the shoppers are becoming more comfortable purchasing goods
“sight-unseen”, this represents a great opportunity to enter this market. Furthermore,
consumers’ growing dissatisfaction with the level of service and lack of knowledgeable
salespeople will push them to adopt the “e-channel”, knowing that the previous experience
with mail-order channel accounted for 8% of customers.

d. Threats
“Channel inflection are very challenging” and competitors’ threat is foreseeable, like HP,
they can be working on the same distribution channel to extend their market share. They may
be more ready to launch it, so HP has to take this strategic decision quickly to avoid this kind
of problem and don’t lose the first mover advantage. On the other side, being the first will
allow competitors to have an easy access to information.
The threat of mass merchandisers like Wall Mart, whose got strong brand awareness and
superior channel muscle must be took into consideration too.
However, this action of selling printers online might not work, because of the customer-
incurred shipping charges for example, and this can result in apparent sales decline and lower
demand, which can affect the reputation and the profitability of the company.
In addition, the threat of a disagreement with HP’s existing retailers could decrease the market
share.

3. Key marketing issue and consequences

The main concern is the fierce competition from existing e-channel rivals such as DELL and
VA.
How to target the new segment (online customers)?
The biggest issue of establishing a new distribution channel (e-channel) is the absence of
benchmarking opportunities because they will be the first mover.
As mentioned previously, HP wants to distribute their printers in a new Market to up come the
fact of having a short product life cycle (continuous technology progress).
Regarding the saturation of the existing market and to improve their market share, HP should
pay attention to the growth of e-commerce.
HP should keep their successful distribution channels (retailers), by avoiding conflicts that
may occur with establishing and managing their new direct channel (online distribution).

4. Main decisions and proposed solutions

HP management should expand the offerings online keeping in mind the high cost of
establishing an e-channel and related investments in advertising and attracting potential online
customer (new target segment).
First, HP should offer a limited range of its profitable products which are the Inkjet printer,
the Laser printer, MFP and the printer supply products. This will enable HP to reduce the risk
of failure, because these existing printers have been successfully tried in the market.
Moreover, they should fit the needs of the repeat buyers segment.
Besides, HP new targeted segment enhances the online buyers and the second buyers (used to
the product and need to save the purchasing time), which are not the same customers than the
retailers’, so it will not lead to major conflict the brick and mortar retailers.
After getting the expertise in selling online, they will be able to compete with its potential and
existing online competitors (DELL, VA, WALLMART…). In addition to that, the direct
contact with the customers will allow to HP to take advantage of the buyers’ feedback to
improve the output service which will lead their retailers to implement the same strategy.
A direct channel system will give HP full control when interfacing with customers and will
offer the greatest potential for value added sales and services.