Case Study: Hewlett-Packard 1. Problem Definition 1) Primary Business Technology Firm .

. Imaging and Printing Group (IPG) 1) Products: Printers and inks 2)Revenue: 30% of total 2) Personal Systems Group (PSG) 2.1) Products: Desktop PCs, notebooks, servers, flat-scree 2.2) Revenue: 29% of total 3) Technology Solutions Group (TSG) 3.1)Technology and IT services for B2B segment . 3.2)Revenue: 37.5% of total Main Issue HP is struggling to decide whether to continue selling PCs, a large revenue generator with consistently small and diminishing margins. Along with this decision, the firm is also wrestling with how to price the PCs in the market amidst strong competition from Dell and IBM. . 1) PCs are central to HPs strategy to maintain their position as a complete technology provider to both the B2B and B2C segments. 2) Through testing the market, HP has found that the demand for PCs are elastic to price. Increased prices resulted in loss of revenue but increase in margins. Whereas a decrease in prices improved market share, but saw margin erosion. Objectives 1) Decide whether to keep PCs are part of product portfolio. 2) Decide how to price PCs if decided to keep as part of portfolio.

4.) Situation Analysis 4.1. The Market Size: In 2003, the global PC market was estimated at USD 170 billion. Estimated to grow at 11.4%, the forecast for 2004 was USD 182 billion. 4.2. Segments 1. Product: Desktop PCs and portable computers. 2. Customers: Enterprises, small businesses, and consumers.

4.3. HPs Position: 1. Product: HP sold its own-branded computers and also HP Compaq products to customers. 2. Distribution: HP products were sold to business customers through their direct sales force and commercial retailers. They sold to consumer through retail stores. 3. Price: HP is priced approximately 15% higher than Dell PCs due to their brand equity. 4. Image: HP has tried very hard to redefine the brand for their customers. The overall theme is to become more customer-oriented, and less driven by internal innovation. The key aspects of HPs campaign were adaptable, straightforward, trustworthy, and human. The company implemented the Total Customer Experience TCE program in 2000 to enhance the customer focus of HPs employees. By 2004 HP was ranked first in customer satisfaction with Dell and IBM both trailing behind. 5. Competition

5.1 Dell was very well positioned in the consumer market as the low cost, high service-level, and very human product. Their online retail channel was a big success in the late 90s and early 00s. The ability to customize and receive prompt service was very attractive to all customers, perhaps especially for the 18-30 year-old crowd who were becoming quickly accustomed to shopping online. Dell was also priced slightly below HP PCs. 5.2. IBM . IBM had a larger share of B2B PC market through their business relationships with enterprises in providing information technology and consulting services. Through these relationships IBM was able to sell PCs in large quantities instead of through online or retail channels. This perhaps allowed more price tolerance as PCs became part of the total package. 6. Nature of Market 6.1 Growth The market will likely continue to grow at the rate of approximately 10% each year. Growth rate may even increase in the consumer market as households are now owning more than one PC. 6.2. Moores Law Moores Law states that the number of on a microprocessor will double every two years. This puts continuous pressure on the PCs manufacturers to keep up with technology advancements and cost pressures from the market. Margins may become harder and harder to improve. 6. 3. The Internet As Dells online sales strategy is demystified, other PC manufacturers may follow suit. Lower-cost competitors may enter the market using third-part online retail outlets to sell their PCs in low-cost model they do not have to pay retailers for space in their stores. 7 Business Assumptions. Assumptions 7 .1. There will not be further consolidation in the industry whether it is between the top two competitors, Dell and IBM, or between the top two competitors and smaller players in the industry. 7 .2. Purchasing another firm is not feasible for HP. 7.3. PC market continues to grow. 7. 4. A new market-leader will not emerge in the next 5 years. 7.5. PC sales account for 40 50% for HPs total revenue. 7. 6. There will not be an introduction of a new technology innovation that will replace PCs.

. 8 Alternative Evaluation 8. 1. Partner with Dell. Shed the PC manufacturing business and commission Dell to produce PCs in the HP and Compaq brands. Benefits Risks * Take advantage of Dells low cost model and established distribution channels. * Focus on B2B and Imaging segment. * Lose control of quality of product and consequently lose the pricing advantage. * Lose image of a total technology firm. 8.2. Partner with IBM. Convince IBM to cede their PC product, and use HP to provide all PCs Benefits Risks * Additional secure revenue stream (IBM B2B segment). * Remove IBM as player in the market.

* IBM customer may view HP as inferior product and refuse to adopt. * IBM may be using PCs as lost leader and thus margins are still not acceptable. 8.3. Become a premium PC manufacturer like Sony VAIO. Benefits Risks * Capture market less elastic to price, and more attracted to performance. * Increase margins * Lose market share. * Compete with Sony and Apple. 8.4. Cease production of PCs. Benefits Risks * Focus on imaging and B2B segment. * Improve overall firm margins. * Lose brand image of a total technology supplier. * Lose revenue and market share. 9) Recommended Course of Action 9.1. Consumer Market 9.1. Launch Online Sales Channel In order to compete with Dell, launch online sales channel where products can be customized from HP. 9.2. Three Pricing Positions Keep Compaq brand and market as budget PCs. Market HP PCs as medium grade. Launch separate brand as high-performance PCs to compete with Sony and Apple. ]

9.3. Enterprise Market 1. Vendors are Customers Too HP has a good deal of vendors. They use consulting, accounting, and legal firms. They purchase parts and materials. They ship their products and raw materials all over the world via ocean, air, rail, and road. They ship parcels, too. Most of HPs vendors are firms of the same size as they are or even bigger. Require vendors to contract with HP to provide PCs to their businesses. This will not only improve the relationship with the vendor by helping them understand that cost savings to HP will be passed on to them, it will also demonstrate to the market the reliability of the HP product. 10.. Expected Result 10.1. Improved Market Share In order to be truly dominate in the industry, HP now has a product for each segment depending on customer price sensitivity. This should improve HPs overall market share in the PC market. The Internet sales channel should also improve market share in the consumer market. Partnering with vendors will hopefully improve market share in the enterprise market. 10. 2. Improved Margin With targeted three market segments based on price price discrimination, HP will theoretically maximize revenue. If costs are properly controlled based on these pricing segments, profit will consequently be improved. 11 Risks By offering a low-cost product HPs overall quality perception in the market may be compromised. Vendors may be turned off by the partnering offer with HP. 12 . Critical Success Factors 1. Market Share Improvement Measure market share after one year 2. Revenue Increase Measure revenue against last year. At 35% of total sales must be through online channel within first two years. 3. Margin Increase Measure margin against last year.