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Around
two years back, a complacent HP came out of the blue into
the Indian PC market, and blazed skywards thanks to an aggressive
marketing strategy. While the initial burst lost much steam
later, HP India’s latest brand consolidation move definitely
means HP is thinking domination again, says Rajneesh De
IN
THE NEWS
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| HP’s
SUBIN JOSEPH believes the brand merger will go
a long way in ensuring it wins the PC war |
The
proposed HP-Compaq merger was definitely a leading contender
for the most written about deal award in 2001. That it had
major ramifications for the entire business world, and not
just the IT sector, was evident from the space and time trade
analysts and the industry per se devoted to the announcement.
India was no exception, with every analyst and hack donning
their thinking caps to analyse the merger threadbare.
However, with the final ratification of the merger still pending,
what got lost in the general euphoria was the fact that HP
and Compaq also announced individual business strategies perhaps
more important for the Indian market than the global merger.
HP India’s decision to merge all its PC sub-brands under
a unified umbrella, announced at the fag end of 2001, was
one such decision. Unfortunately, it is yet to receive the
attention it deserves, perhaps owing to the media pre- occupation
with the confabulations between the Packard family and a feisty
Carly Fiorina about the HP-Compaq merger.
What’s it all about?
Two major announcements came from HP India: One, all existing
HP PC brands in the Indian market Brio, Pavilion, Vectra and
Kayak are to be consolidated under a single ‘HP PC’
umbrella; and, subsequently, HP PCs are to be sold under two
categories, the essential line and the professional line.
The categories will have a key differentiator price the essential
line, targeted at home users and small and medium businesses
(SMBs), would set a consumer back by about Rs 30,000-Rs 35,000,
whereas the professional line of PCs would come with a price
tag of Rs 50,000 or more.
What does HP gain from this brand consolidation exercise?
Or for that matter, what benefit is there to end-users? Ostensibly,
there will be a two-fold advantage at least that’s the
official line HP is telling the world. Firstly, buying will
become simpler for the customer, based on his product needs.
The Essential PC line, feels Subin Joseph, country manager,
HP PC line, would be an ideal fit for customers looking to
meet core business computing needs mainly ease of use, expandability,
reliability and serviceability. On the other hand, the Professional
line meets the needs of customers looking for flexibility
and long product lifecycles with optimised performance choice,
configurability and stability. Innovative services and tools
would help customers, believes Joseph, decrease PC lifecycle
costs through comprehensive deployment, management and support
solutions.
But can this brand demarcation by customer profile translate
into substantial ROI for HP India? According to Joseph, HP’s
target in the short run is to get to the number-two position
in the domestic PC market from its current third rank. And
it hopes that the expected increase in volumes, thanks to
the new strategy, would play a major role in beefing up its
Rs 1,539 crore turnover in FY 2000, accrued mainly through
HP’s undisputed position in the peripherals segment.
Visible gains
However, the moot question here is how feasible are these
goals, which HP essentially wants to achieve through its brand
merging strategy? Or, is there something more in this announcement
than meets the eye. A careful analysis of the Indian PC market
suggests that it is essentially a combination of both. For
one, brand demarcation on the basis of customer profile was
long overdue. Almost all of HP’s major competitors in
India have already done so. Market leaders Compaq and HCL
have desktops catering to specific needs, and so do leading
vendors like IBM and Wipro or even recent entrants like Dell.
As for the climb from number three to number two in terms
of units shipped, that seems a natural progression for HP
India. The numbers support this view. Till September 2001,
HP had shipped 43,290 units in 2001 according to IDC, with
a 7.1 percent share of the market, almost equal to its 7.2
percent share in 2000 (76,641 units), which was up from its
5.8 percent share in 1999 (41,794 units). In the process,
HP has left behind competitors like Zenith and Wipro who had
seen their share come down in 1999, 2000 and H12001 from 7.1
and 5.3 to 3.5 percent and 6, 4.9 and 5.7 percent respectively.
Therefore, even if brand consolidation has not happened, HP
would have still managed to come close to market leaders HCL
and Compaq in terms of market share by units shipped even
if it just matched its sales till September. In September
2001, HCL had 10.8 percent (66,106 units) of market share
while Compaq had 8.2 percent (50,420 units).
How do these figures translate into revenues? Through this
view too HP was at third position in September 2001 with 8.7
percent market share, with revenues of $47.4 million, behind
Compaq with 12 percent market share ($65.9 million), and HCL
with 10.3 percent ($56.2 million). Being an MNC brand and
therefore in the higher price bracket, HP has a higher market
share in terms of revenues than desi brands like Wipro and
Zenith. However, the purpose of this entire exercise was to
show that HP was anyway set to take the number two slot in
terms of market share by units shipped as also revenue earned,
displacing either HCL or Compaq in either category. Therefore,
brand consolidation would achieve what was already fait accompli,
the only difference being that it would either hasten the
process or enable HP to consolidate its lead.
Real gameplan
In the light of this, there seems to be a strong case for
the view that there is more to HP’s brand consolidation
than meets the eye. And the probable HP-Compaq merger seems
to be the hidden catalyst. Let’s examine the effects
in a post-merger scenario: in September 2001, HP enjoyed 7.1
percent market share by units shipped, and 8.7 percent by
revenue, while for Compaq, the figures were pegged at 8.2
and 12 percent respectively. Therefore, using simple mathematics,
the merged entity is supposed to enjoy 15.8 percent of market
share by units shipped, and 20.2 percent by revenue, way ahead
of its nearest rival HCL at 10.8 and 10.3 respectively. However,
the modalities of the merger are now mired in murky waters,
a far cry from the day when Fiorina and Capellas shook hands
and smiled broadly at every photo-op. With the Packard family
firmly putting its feet down, there is a possibility that
the merger might never see the light of day.
With the very real possibility that Thiagarajan and Doraiswamy,
the head honchos of HP and Compaq in India, might never get
their merger photo-ops, the brand merger exercise seems like
a conscious business strategy for HP India, directly pitted
against Compaq India. While HP’s strength in India is
its domination of the peripherals market with a nearly 80
percent share both companies are head-to-head competition
in both the server and the mass PC arena. Compaq’s Presario
multimedia PC has been taking on HP’s Pavilion in the
home PC segment where both slashed prices in 2001 to bring
systems below the Rs 40,000 mark. In the office desktop space
too, the two companies have been competing aggressively: Compaq’s
DeskPro versus HP’s Brio, though unlike Pavilion, HP
seems to have the slightest of edges here. Brand consolidation,
where both Pavilion and Brio are priced in the Rs 30,000-Rs
35,000 market as part of its Essential Line of HP PCs, is
sure to bring down Presario and DeskPro prices too, in addition
to giving HP a sudden spurt in sales volumes in the short
run.
Another pointer that the brand merger was announced with an
eye on the possible failure of the HP-Compaq merger is HP’s
stated intention that it plans to cover the major chunk of
its targeted PC sales from the Essential Line. The Professional
Line basically corresponds to personal workstations, an area
where even Compaq is not such a potent force. This is one
segment dominated by IBM and now Dell too is in the picture.
However, as neither IBM nor Dell has a significant presence
in the personal desktop space, HP is not really looking at
either of them as major competitors in the PC sector either.
HP also plans to augment its manufacturing and channel strategy
post brand merger. It currently has two PC manufacturing facilities
at Pondicherry and Bangalore with a monthly capacity of 15,000
units, which it plans to double over the next year. HP India’s
PCs are distributed by five distributors, six large systems
integrators and more than 500 resellers across 48 cities in
India. Distributors include Redington India, Tech Pacific,
Ingram Micro, Thakral India and Iris. Besides these, HP India
has been working closely with system integration partners
such as HCL, CMC, Zenith and PCS.
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