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CASE
describes a real-life situation
faced, a decision or action
taken by an individual
manager or by an organization at the strategic, functional or operational level
KEY WORDS
Marketing Strategy
Global Competition
MNC Brands
Consumer Behaviour
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 laptop
market. It was important that HCL built its position in the laptop category too; it
needed at least a 15 per cent share of the growing laptop market in the next two
years; otherwise it risked facing a large negative impact on the profitability and
revenues of the company over the next few years. Ajai set his aim at 20 per cent
share of the overall laptop market in 2012, which would have allowed HCL to leverage the economies of scale in manufacturing and marketing.
Distribution Channel
Indian Desktop market
Laptop Sales
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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HCLS BUSINESS
HCL Infosystems was a $2.6 billion revenue company
in 2009-10 with businesses in various areas of technology hardware. The key divisions were Hardware Manufacture, System Integration, Telecom Product
Distribution, and Office Automation. These divisions
were independent profit centres and the decision-making rested on the heads of the individual divisions, who
reported to the CEO. Most of the divisional heads and
senior executives were veterans in the company and
were well-experienced in the various areas of technology hardware. Though the businesses were independent
as far as management was concerned, they also worked
together while facing challenges in the market.
HCL had been present in the Indian market from the
late 1970s, and it had unparalleled distribution reach in
the market space. It had a wide ranging service network
that was the envy of all its competitors. It was a household name in the country and people saw the HCL brand
as Indian, dependable, and trustworthy. It was perceived
as a value for money brand and not a premium one,
which appealed to the majority of the Indian desktop
consumers. Currently, it was the only domestic player
of any note in the Indian laptop market which was otherwise dominated by the MNC brands.
HCL also faced fairly steep challenges. It did not have
the deep pockets that its MNC competitors had. It was
also limited in terms of product portfolio as compared
to the MNCs who could offer products from their international portfolio into the Indian marketplace and enjoy economies of scale. There was also the prevalent and
widespread perception among laptop consumers that
foreign brands were better in terms of quality, which
was a problem that many Indian manufacturers like
HCL, faced in the marketplace. The HCL brand was also
perceived as old-fashioned as it had been around for so
long, whereas the foreign brands were seen as new and
exciting, especially among the 20-35 year age group, the
fastest growing segment of laptop buyers. Finally, while
HCL had a great distribution presence, this was built
for its desktop business; Exhibit 4 gives the details of
the share of the different players in the desktop market.
HCL faced the challenge of converting desktop retailers
into the laptop business.
The company performance was excellent and was growing from year to year. But due to the commoditized na-
114
of consumer interest and dealer incentive. The consumers were becoming more knowledgeable; thus, they were
less influenced by the sales pitch at the retail counters.
Retail consumers were able to negotiate prices on most
brands by comparing prices across different retail outlets. Thus, margins were thin for manufacturers as well
as dealers, but the volumes more than made up for it.
Interestingly, in 2009-10, the sales of laptops in the top
four metros grew by 173 per cent and in the rest of India
by 48 per cent; however, consumption in the next four
cities declined by 16 per cent. The sales of desktops in
the top four metros increased by 30 per cent, in the next
four metros by 21 per cent, while in other smaller towns,
it declined by 61 per cent.
The PC market in India was predominantly price-conscious; however, 5 per cent of the target market could
be termed affluent, capable of purchasing premium
products and typically residing in the metro cities. There
were a couple of brands, namely Sony and Apple, which
catered to this segment. They had excellent products,
great in quality and aesthetics and fitted with the best
features. Their customers were typically image-conscious people with not much of functional requirement
other than the desire to own the best. These brands offered higher trade margins as the products had a limited market, and they were also perceived as expensive
by the retail channel. Exhibit 11 gives the product features and Exhibit 12 the advertising spends.
One of the challenges that HCL faced in the branding of
laptop was that it was an Indian brand. Across consumer
durables and office automation products, it was observed that foreign brands were perceived to be better
by the consumers, even when the products for both foreign and Indian brands had the same specifications and
were made in the same factory. This could be attributed
to the Indian craze for all foreign products that existed
in the 80s and 90s when the economy was closed. With
the opening of the Indian economy in early 1990, though
there was a reversal in this trend, it still dominated many
product segments, including laptop. However, from
HCLs point of view, the positive aspect was that the
trend was changing with increasing international recognition of intellectual power of Indians as well as production and R&D capabilities of the Indian companies.
In fact, many industry analysts predicted that in another
decade, the India factor could play a positive role and
Indian brands could command premium.
VIKALPA VOLUME 37 NO 1 JANUARY - MARCH 2012
CONSUMER BEHAVIOUR
Laptops and desktops were different product categories which used the same distribution channel and
seemed to satisfy similar consumer needs. However,
they were considerably different from each other, as was
evident from the fact that except for the market leader
HP, the preeminent brands in the desktop space were
quite different from the laptop space. One way to explain the above could be the fact that while both the categories fulfilled the same functional need of computing,
the usage of desktops and laptops could be considerably dissimilar.
Desktops are used at a fixed place, either at office or
home, and for specific tasks, mostly work-related. They
need additional accessories for enhancement of the usage, like extra speakers, gaming cards, and some necessary additional gadgets like uninterrupted power supply
battery, computer table, etc. Laptops can be used virtually anywhere. Because of the portability feature, a significant part of the laptop usage is for entertainment.
Laptops are self-sufficient product, which come with
inbuilt speakers and adequate battery life so that it is
not necessary to plug in additional accessories most of
the time; hence the overall cost to the consumer is perceived to be lesser. Finally, desktops are preferred for
multi-people usage i.e., many people could use the
same machine, while laptops are generally seen as personal assets, meant more for a single user or at best the
family.
The decision criteria and the buying process of laptops
and desktops took different paths. While the basic use
of both was for computing, the trigger for desktop was
primarily work and study-related activities, whereas for
laptop, it was work and entertainment. Desktops were
perceived as a commodity; and so, the focus was more
on the amount of features that a certain price could buy.
This was the reason that there was a huge unorganized
sector in this market. Laptop was a more visible product; so, consumers were more image and brand conscious 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 data
regarding the size of the segments are given in Exhibits
13 and 14. The enterprise segment had a collective decision making process; typically, it was decided by the
115
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and were least knowledgeable. For them, it was a fashionable accessory, a talking point and more of a status
symbol.
The manufacturers had not designed the product portfolio specifically targeting any defined consumer segment in the retail market. The products could be broadly
classified as two core product ranges basic models with
minimal features, and the other range at the mid-end
with good styling and advanced features. Sony and
Apple were premium brands having only high-end
products, which were aspired for by many but had limited number of buyers because of their high price. The
manufacturers tried to create a generalized brand pull
across the segments, but provided a bouquet of products and features to meet the specific needs of the diverse consumers.
117
118
119
5,525,992
1,000,000
5,279,648
2,000,000
5,522,167
3,000,000
3,632,619
4,000,000
4,614,724
5,000,000
5,490,591
6,000,000
2006-07
2007-08
2008-09
2009-10
0
2004-05
2005-06
120
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.
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
121
Services Footprint
Internet and
related services
4%
Computer
systems
26%
Telecom
and office
automation
70%
Emerging businesses
HCL CDC - centres to bridge skilled manpower gap which
exists in the IT industry
HCL Security - to make the world a much safer place to be
in with its range of state-of-the-art end-to-end technology
solutions for security and surveillance
FY 2009-10
34,139
88,749
461
-821
122,528
35,340
85,290
767
-898
120,499
4,057
1,773
2,462
-178
3,513
2,400
3,925
1,904
2,159
-138
3,513
2,424
SALES
Computer Systems & Other Related Products and Services (Net)
Telecommunication & Office Automation
Internet & Related Services
Less Inter segment revenue
Total Sales
PROFITS
Net Profit/Loss before Tax and Interest
Computer Systems & Other Related Products and Services (Net)
Telecommunication & Office Automation
Internet & Related Services
Total Profit before Tax
Net Profit after Tax
Source: Annual Reports.
2008
2009
Units
Market Share
Units
Market Share
Units
Market Share
757,415
724,830
302,091
386,089
263,711
158,770
2135,132
4728,038
16.02
15.33
6.39
8.17
5.58
3.36
45.16
100.00
727,073
660,113
339,990
296,309
317,611
182,660
3058,351
5582,107
13.03
11.83
6.09
5.31
5.69
3.27
54.79
100.00
642,792
550,689
288,701
211,792
359,623
163,655
2990,794
5208,046
12.34
10.57
5.54
4.07
6.91
3.14
57.43
100.00
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Rest of India
2004-05
Year
Top 4
38
11
51
2005-06
33
13
54
2006-07
32
60
2007-08
23
12
65
2008-09
25
68
2009-10
31
61
2008
2009
Units
Market Share
Units
Market Share
Units
HCL
131,683
7.44
161,088
6.96
292,785
Market Share
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
Top 4
Next 4
Rest of India
Total
10
43
100
36
58
100
24
69
100
2008-09
18
75
100
2009-10
68
29
100
2005-06
47
2006-07
2007-08
Dell
Display
Bright view
and flush glass
Keyboard
Backlit (optional)
and spill proof
Spill proof
Security (against
unauthorized
booting)
Finger print
and spare key
Finger print
and password
Finger print
Veriface and
and password finger print
Acer
Lenovo
HCL
Sony
Vibrant view
Perfect technology
for clear and
bright display
Isolated
Isolated,
backlit and
spill proof
Finger print
and password
Finger print
and password
123
Exhibit 11 (contd.)
HP
Dell
Acer
Lenovo
HCL
Sony
Data Safety
(Encryption)
TPM and
TPM
Privacy Manager
TPM
TPM
HCL Encryption
S/W and TPM
TPM
Data Recovery
against OS
Corruption,
Virus Attack, etc.
HP Recovery
Manager
Acer eRecovery
S/W
ThinkPad
restore
recovery
HCL EC2
Sony
Recovery
S/W
Dell Ultimate
2008
2009
130
470
10
140
Compaq
150
210
Sony
150
340
Toshiba
Dell
Wipro
90
200
500
1,150
20
Acer
120
250
Lenovo
230
150
Samsung
80
80
LG
50
Apple
30
Others
100
70
1,640
3,080
Grand Total
Source: Agency Estimates.
124
Positioning
Communication Theme
Dell
Partner in Success
HP
Innovator
Personal Again
Acer
Solution Provider
Compaq
Get Going
Lenovo
Feature Rich
Toshiba
Performance
Sony
Design / Aesthetics
Closer to You
125
Category: Corporate/SMB
1. Magnesium/Alumnium surface
2. Spill resistant keyboards
3. Latest technology and architecture
Category: Govt
1. Docking port
2. Battery life more than 4 hrs in working condition
3. Linux support
Category: Education
Category: BFSI
Feature
1.
2.
3.
4.
Looks/Brand
Source: Company Documents.
Jaydeep Mukherjee is an Associate Professor at the Management Development Institute, Gurgaon. He completed his Ph.D
from IIT Kharagpur and PGDM from IIM Calcutta. Before joining academia, he had worked in various capacities in the sales
and marketing function of Godrej GE Appliances ICI India
Limited, and Aristocrat Marketing Limited for a decade. He
offers electives in Product Management, Marketing in the Virtual World, Marketing Strategy, and Sales and Distribution.
He advises HCL Infosystems Limited on their New Product
initiatives and has conducted customized training for executives from Nestle, HP, HMT, BSNL, etc. He takes keen interest
in developing cases from the Indian context for classroom
teaching.
Mahalingam Sundararajan is Vice President, Corporate Strategy - HCL and leads the brand building activities of HCL across
the Enterprise. He also spearheads the marketing activities of
the various initiatives of the Shiv Nadar Foundation. He has
worked for over 20 years in various roles in technology marketing and advertising. Prior to HCL, he has worked with
Microsoft and Hexaware Technologies. He has also worked
for eight years in strategy planning with advertising agency
JWT. Sundar has a degree in Chemical Engineering from IT
BHU, Varanasi and a PGDM from IIM, Bangalore. His interests include sports and fitness.
e-mail: mahalingams@hcl.com
e-mail: jmukherjee@mdi.ac.in
126
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