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Case Analysis
HP CONSUMER PRODUCTS BUSINESS ORGANIZATION:
DISTRIBUTING PRINTERS VIA INTERNET
Submitted by
Section D, Group 3
ANUBHA GOYAL
ASHOK KOTHIYAL
BINIT KIRAN
M VISHVANATH
RAJAT KUMAR
SARAGADE PRIYANKA DILIP
SOMA BANIK
2014PGP047
2014PGP068
2013PGP107
2014PGP187
2014PGP287
2014PGP329
2014PGP370
Table of Contents
1. Problem Statement ............................................................................................................ 2
2. Current Scenario of HP .................................................................................................... 2
2.1. Types of Printers sold by HP ................................................................................. 3
2.2. Consumer Buying Patterns..................................................................................... 3
2.3. HP current printer distribution network ......................................................... 4
3. Sources of HPs operating expenses........................................................................... 4
4. Responsibilities of Retailer ............................................................................................ 4
5. Types of e-channels ........................................................................................................... 5
6. HPs evaluation of strategic options for going online ......................................... 5
7. Other industry examples................................................................................................. 6
8. Suggestions ........................................................................................................................... 9
Section D, Group 3
1. Problem Statement
Due to the growing e-commerce industry in 1990s (46 million in 1997, expected 150 million
2000), there was a slowed growth rate of HP by less than 20%, in 1997 (first time since
1992) due to HPs inability to control operating expenses, lower demand and strength of the
dollar compared to other currencies. Being a 3.1 billion dollar company in terms of PAT, HP
had to take a call on how to bring its printer industry online. The major challenge they faced
was selection of the type of printers and supplies, their prices, which needed to be sold
online. At the same time, they wanted to maintain cordial relations with their channel
distributers and ensure that going online did not offend their channel partners in any form.
Their long-term vision included maximizing their revenues through the most profitable
distribution channels.
2. Current Scenario of HP
In 1998 HP grouped its products into 5 categories as shown below: -
As of 1997, HP sold its refurbished printers online. This way it could study the consumer
buying patterns online and also find a way to re-sell these printers, which the distribution
channels refused to accept.
Section D, Group 3
INKJET PRINTERS
LASER PRINTERS
MULTIFUNCTION
PRINTERS (MFP)
volume Home office
Home/office
Specifications
Versatile, cheap,
HP market share
Selling price
Core technology
55%
$299
Cartridge
Lifecycle
#SKUs
1-2 years
84
High
business
Superior quality and Print, copy, fax, scan
speed, costly
but slow, costly,
occupied more office
space, easy install,
not network friendly
85%
Data not available
$999
Data not available
Cartridge,
toner, Data not available
photoreceptor,
handling,
optics,
scanners
2-3 years
Data not available
52
Data not available
Section D, Group 3
at 65% -70%
Bundles of PC, monitor and
printer for first timers (20%
printers sold) and only
printer for repeat purchasers
Need for more printers,
technological shifts
Inkjet (70% users)
Refurbished
printers
(online)
10% sales
Computer
superstores,
Eg:- CompUSA
Office
product
superstores
90% sales
Consumer
electronics
superstores
Manufacturer,
small retailers
Retailer
s
Customer
4. Responsibilities of Retailer
Section D, Group 3
On an average, HP printers accounted for 5-10% of retailer sales volume and 8-14% retail
margins (less than that of competitors due to rigorous advertising), net margins in single
digits for HP. Reasons for this were retailer services provided, cost of inventory holding and
30 days manufacturer repayment policies. The printer business was profitable with the
pricing of supplies at $22-$30 for inkjet cartridges and $60 for laser cartridges. This was a
$7 billion revenue market as of 1997.
5. Types of e-channels
1. Traditional re-sellers with a brick and click model like CompUSA, Wal-Mart who used
their brand leverage to apply their physical presence to web presence.
2. Virtual stores that existed only on the internet like Value America. These stores
established relationships with over 1000 brands and advertised them in exchange for
payments. Also used non-internet advertising methods like newspapers, etc. They
had a zero inventory model.
Section D, Group 3
Reach price
agreements
Place orders
Acquire
funds for
investors
Assum
e risks
Facilitate
product
storage
Facilita
te
payme
nt
Over
see
own
ershi
p
trans
fer
Internet
Custo
mer
Vendor
Gather
relevant
information
National
account
Section D, Group 3
management
Direct sales
Retail store
Direct mail
Distributors
Dealers and
value added
resellers
This grid consists of major marketing channels and the major channel tasks to be completed.
It also explains why one channel is not efficient.
E-commerce penetration by category
1%
3%
4%
8%
9%
14%
22.00%
34.00%
Section D, Group 3
1. Offline channel
Publishers
Wholesalers
Retailers
Consumers
2. Online Channel
Publishers
Flipkart/
Amazon
Consumers
serviceor depth of functionality. The mega agencies have also been investingmillions in
offline and online advertising to build brand awareness andhave, to a large extent,
succeeded in convincing the consumer that thebest bargains and best service can be found
on their sites.
(Connor, P. Distribution Channel and e-commerce, Handbook of Hospitality Marketing
Management, 2007)
8. Suggestions
From the above evaluation, it is clear that HP must go online directly and open up its online
store. A similar industry example can be taken as that of Dell where customers first choose
the product and customize it on the Dell website since Dell started its business by going
online and then the Dell Company assembles the product after order is received. This way it
prevents its inventory holding cost. Similarly, tech-savvy customers and customers who are
not satisfied with the offline purchasecan go for a HP website for purchasing the printer.
To settle the retaliation from the retailers HP can have a model where customer selects and
make the payment online and collect the product from the nearest retail shop and HP can
share some margin with the retailer. Secondly HP can go for exclusive distribution of some
products which would be only available with the retailers.
Printers supply like print papers and cartridges which have a high margin & home office
market purchases of multifunction printers (MFP) where buying pattern is more deliberate
can be completely shifted online.
Initially HP can build an online platform to provide product information to the customersie
demand generation. The generated demand fulfillment can be done based on customer
preferences either walking by to the nearest retail store or purchase online. Repeat
purchasers are expected to generate more traffic on the website whereas first time
purchasers may prefer a brick-and-mortar model since they wish to try the product after
surfing the HP website.
Other alternatives that we can think of would be reducing the operating expenses for HP in
terms of its inventory management. In the long run, most profitable distribution channels
must be sustained and others channels which are comparatively have low profit margins can
be moved out of the supply chain.
Going online will help HP to get customer trends data directly from its website and can also
review customer purchase feedback that would them to take future business decisions
based on current and accurate trend analysis.
The direct model is a competitive model (difficult to copy) and is also sustainable owing to
the boom of the e-commerce industry. Most importantly, this online model maintains
cordial relationships with HPs retailers and promises sustained value creation and delivery.
Section D, Group 3
HP OFFICIAL
WEBSITE
Product added to
shopping cart
Payment gateway
Order processed
Online home delivery
Section D, Group 3
10