MARKETING II

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

HP CONSUMER PRODUCTS BUSINESS ORGANIZATION: DISTRIBUTING PRINTERS VIA THE

INTERNET (1998)

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

2.1. Types of Printers sold by HP

Printer
type/specifications
Utility

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

2.2. Consumer Buying Patterns

At-home market
Market type
% First time printer buyers in 91%
1997
Shopping duration
1 month
Main focus
Quality, speed, after-sales
service, support, availability,
brand and price
Phase 1 behavior
Visiting
websites,
peer
advice, physical shops trials
Product
availability
physical store
Purchase pattern

Repeat purchase reasons

Printer preference

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)

Home office market

~21% (11M/52M)
Less than 1 month
Make office life easier at
home, multi-tasking
Ordering online directly for
repeaters, same as at-home
for first time buyers
Data not avail
Specific about choices and
price points

Printer life cycle

MFP

2.3. HP current printer distribution network

Printer
product
7 Channel
distributers

Refurbished
printers
(online)

Corporate account dealers,

indirect-mail order
companies, mass merchants
and department stores

10% sales

Computer
superstores,
Eg:- CompUSA

Office
product
superstores

90% sales

Consumer
electronics
superstores

Manufacturer,
small retailers
Retailer
s

Customer

3. Sources of HPs operating expenses

Reimbursing resellers for cooperative ads at prices fixed by HP
Payment to detailers for understanding market trends to help retailers- category
management
Logistics and inventory management
Inventory price protection for retailers

4. Responsibilities of Retailer

Breaking bulk orders and shipping merchandise to individual retail stores

Sales assistance
Advertising
After-sales customer service and support
Credit collections from customers
Returns processing
Helped shoppers try the product

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.

6. HPs evaluation of strategic options for going online

Section D, Group 3

7. Other industry examples

Most companies today opt for multichannel strategy. Disney sells its DVDs through five
main channels: movie rental stores such as Blockbuster, Disney stores, retail stores such as
Best Buy, online retailers such as Disneys own online stores and Amazon.com and the
Disney catalog and other catalog sellers.
Integrated marketing channel system reflects the strategies and tactics of selling through
one or more channel. Adding more channels provide the companies additional benefits,
these are as follows:

Increased market coverage

Lower cost channel
Customized selling

Demand Generation tasks

Develop
communicat
ions

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

(Fig.The Hybrid Grid. Adapted from Kotler, Marketing Management)

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

2012 estimates for the United States

2012 estimates for the United States
Grocery
Home & DIY
Personal Care
Beauty (mass & luxury)
Consumer healthcare

1%
3%
4%
8%
9%

Apparel & footwear

14%

Entertainment & leisure

22.00%

Electronics & Appliances

34.00%

(Source: U.S. Department of Commerce, 2012; Datamonitor)

1. Book Industry
The publishing houses like Wiley.com, Taylor & Francis, Mcgraw Hill offer a range of
products through multi-channel strategy.
Online- Flipkart, Amazon, Company websites.
Offline- Crosswords, Barnes & Nobles, Landmark.
Channels:
Book supply chains

Section D, Group 3

1. Offline channel

Publishers

Wholesalers

Retailers

Consumers
2. Online Channel

Publishers

Flipkart/
Amazon

Consumers

As technological innovations continue to increase, particularly in the areas of market

intelligence such as customer buying patterns, publishers and distributors are now working
closer with retailers to improve their forecasting and distribution channels. Many publishers
have signed on with industry analyst services (such as Nielsen BookScan)which monitor
retail data and provide a range of information including publisher market share, sales by
genre
and
discount
analysis.
(Source: Winning business strategies for publishing and book distribution, IBS bookmaster).
The publishing industry also provides its products in e-book format, audio format through
online channels.
2. Tourism industry- With the enactment of e-commerce, tourism industry is able to
facilitate direct communication and sales with the customers. It put an end to the
intermediaries or travel agents that was present in the distribution channel. Hotel industries
are able to provide its pricing services and other facilities through own websites or travel
agencies websites. Brand-directsupplier sites simply cannot compete in terms of breadth of
Section D, Group 3

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 pickup at retail

Order processed
Online home delivery

Section D, Group 3

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