‘Entering one market at a time and doing it the right way will pay off in the long term’ – Sam Szteinbaum, Americas Marketing Manager,Home Product Division, Hewlett-Packard

The Home Product Division is among
the fastest-growing divi-sions in Hewlett-Packard Company. The division is responsible for HP home PC ‘Pavilion’
products worldwide. As Americas Marketing Manager, Sam Szteinbaum and his team share the
credit for the growing popularity of Pavilion home PCs. Sam has been with HP since 1984
and has a cross-function exposure in the company. Beginning as a Senior Financial Analyst,
reviewing Treasury activities for HP’s Latin American subsidiaries to marketing of HP’s PC
and peripheral business to finally spearheading the global marketing efforts for mobile
and wide format DeskJet printers before the current assignment. Sam, who was recently in
India to participate in the launch of the HP’s home PC range in the country, spoke to
DATAQUEST about the company’s strategy to grab a major share in this market. Excerpts:

HP is probably the
last company to foray into the Indian home PC market. Does this bother you?
Not at all. Late entry in any market has never been an issue for us. In fact, our
foray in the home PC segment of the major markets has been late compared to Compaq, IBM or
Packard Bell, yet we are among the top vendors in those markets. So this late entry has
not been by accident but is a part of the overall strategy. We believe that entering one
market at a time and doing it the right way will pay off in the long term. Leveraging HP’s
existing infrastructure to enter many countries would be no problem for us, but we have
not done so. As our purpose is not to enter a market and lose money there. Also, before
launching any product, we take time to set up our business model in place.

What has HP Home PC division
been doing for the past two years in India?

We have been evolving our business model to make sure that we can do the business much
faster and quickly. We dread to enter a market and realize that we cannot do our business
efficiently or that execution is not up to HP’s standards. One can lose a lot of money if
things are not done the right way. By doing things in the right manner, I mean, having
logistics in place, making sure that the channels are ready to handle the product, making
sure that we have the right partnerships in place, making sure that we have our inbound
logistics and supply chain activities well figured out. Our experiences have shown that
whenever we rushed into any market without these things in place, we did not succeed
financially. The problem is not selling products. Our products sell but our concern is:
whether we can make money or not. It has been our fundamental strategy that we don’t enter
in any business or geography if we think we cannot make the business financially
profitable.

We don’t concentrate on numbers but profitability. If we have to choose being number two
and making money and being number one and losing money, we are fine being number two.
Making money without back-end infrastructure is not possible and that’s what we have been
doing for some time.

HP already has effective chanel
structure for its printer business. So why has the launch of the HP home PC been delayed?
As far as the Pavilion business is considered, it is quite different from other
businesses of HP. Worldwide, Pavilion is sold only through retail outlets, not through our
normal resellers or sales force. We feel that a home PC buyer would like to feel and see
the product before making the final decision. What happens with the normal resellers is
that buyers may not have demos of the product, see the product or have the feel of the
product. In India, we felt that the retail business had to mature before we could bring in
our home PCs. Now, we feel that the retail channel has matured enough to handle our
product and hence the timing of our launch.

Since the last two years, the
main prop to the computer market has been the home market. So don’t you feel that you have
lost out on some marketshare by delaying your entry?
We will not rush into any market without doing our homework well. No doubt, we are in
India but so is the case with all the other countries. Yet, we have been able to build
strong marketshare in all these countries. Our secret is to work well with our partners,
be it resellers, distributors or any other. As I said earlier, being efficient is a very
powerful edge in our business. Working closely with our partners and making sure of our
support, making our products available on time, supplying the right number of quantity and
ability to roll out new products on a timely basis become very critical for the success of
any venture. In spite of our late entry in most markets, we have been able to achieve the
# 1 or 2 position in those markets within a year or two. For instance, in the Asia-Pacific
region, we are only in six countries compared to Compaq’s ubiquitous presence in the
region, and still our unit share is higher than that of Compaq in just sheer numbers. What
this means is that HP’s six countries volume is more than Compaq’s in all countries.
Looking at the way things are going, we feel that we will be the # 1 home PC company in
the world by the next year. We expect the same for India. Also, we estimate the consumer
PC market in the country to grow by about 90-95% for the next five years. So, even if we
are late in the market, we are confident of becoming the top home MNC PC vendor in the
country within a year or two.


Do you think that the Indian home PC market dynamics are different from that of other
markets?
It is different, but only marginally. In India, any PC going into a home is a home PC.
If a ‘Brio’ or a ‘Presario’ goes into a home, it’s deemed as a home PC. When people say
they have a home PC, they usually imply a commercial desktop. It may sound a bit confusing
but the fact remains that a ‘home-designed’ PC is different from a commercial designed PC.
The kind of audio capability, the ease of internet set-up, applications loaded, the price
points, the look and feel of the product and others are the subtle changes that
distinguish between a ‘home-designed’ and a ‘business-designed’ product. Though one may
run similar application on both, but the differentiation remains. The key issue governing
the differentiation is: who is at the center of gravity when the product is being
designed? In India, we would like to be the first one to define the concept of home PC.

In India, HP’s PC business has
not generated the kind of numbers that the market promised. What makes you so sure this
time?
I agree to that. Like I said earlier, we believe in putting the back-end
infrastructure in place before we move in a market. We have been doing the same for the
past two years in India too. The big push for our PC business has come through the
aggressive launch of Brio sometime in October 1998. We believe that we have the right
price point in the MNC brand segment and already Brio is doing fantastic business. We have
already gained marketshare and we are confident that within a year from now, we will
overtake Compaq/Digital in terms of marketshare. As of now, Compaq with Digital has a
marketshare of around 8-10% and we are with 4-5% of the total PC sales. It is just a
matter of time before we overtake them to become the
# 1 MNC PC vendor in India. The aggressive price points have been partly possible, as we
have started the manufacture of Brio in India. So even in the PC market, though we have
been a late entrant, we have covered up very fast. And we expect the same in the home PC
market too.

How and where are you
positioning ‘Pavilion’ in India?

Price-wise, we would be the first MNC company in the home PC business to launch the
Rs50,000-sub range. No doubt, other MNC brands will lower their prices to match ours, but
we want to create the image that we were the first to bring down the prices and that we
really care for the customers. Moreover, we are confident that other vendors will not be
able to match our price points and the functionality of our product, at least for the time
being. However, in the long run, we would leverage on the HP reliability, support, and
functionality of product to gain competitive advantage in the market. We have done the
same in the commercial desktop segment and will repeat the same in the home PC segment.
Looking at the success in the Asia-Pacific region, we feel that one of the important
factors has been our ability to provide the complete solution for the end-user at home. Be
it printers, PCs, scanners or CDs. Since we are working with other divisions of HP, we
make sure that the various HP products complement each other. We expect to leverage on
this and succeed in the Indian market.

What is your channel strategy
for India?

It will be a subset of our existing channel. In India, we have identified retailers in
every city who are going to sell Pavilion. We feel that these retailers will be able to do
justice to our products.

Why not large scale departmental
stores, simlar to other consumer products?

We will be going into supermart and other non-traditional computer outlets. But
unfortunately, we feel that these channels are not geared up for sale of computers and
hence volumes for us will be non-existent. One has to understand that since IT business
forms a very small part of the total business, these channels would not be interested to
dedicate energy to computer products. However, we would be using these channels for the
high visibility of our product and more information. So in India, we expect the volumes
from the traditional computer outlet and visibility and presence from non-traditional
outlets. Of course, we are waiting for the market to mature to move into these channels.
Like in the US, you would find Pavilion in Wal-Mart or Sears stores. Once these channels
mature, we are sure that we would be quick to move into these channels.

Considering the GIDs and local
manufacturers’ quality products at cheaper price, how do you plan to gain marketshare?
Right now, we will be fighting at the MNC space and do expect to cannibalize on their
marketshare. This has been our strategy in almost every country where we have entered. And
we expect the same in India. Secondly, we expect to gain marketshare from the local
players. If one looks at our prices and factors in the functionalities of the product and
add it to a local brand, it would come to about the same pricing as ours. If a one-to-one
comparison of the component is made, the local prices would be equivalent to the Pavilion.
Finally, we expect the market to nearly double in the next five years and hence there
would be ample room for all the players.

No doubt, GIDs would outprice us in the long run, like elsewhere in the world, we feel
that even in India the share of clones would go down and the share of big brands would
increase. For example in Australia, two years ago the shares of clones was around 75% and
today it’s around 43%. So as price becomes more affordable and people aware of the value
of brand, support and reliability, they would be willing to pay a little extra because
they have security of being associated with a well-established brand. We don’t have to get
to the price levels of the GIDs or integrators but bring it down to a point where
consumers are willing to switch over from an assembled to a branded PC. With good product
line and aggressive price points, we will see that happen in India too.

With the Intel initiative in
India, GID products are viewed as quasi-branded and not assembled. So do you still think a
switch will take place?
It will all boil down to the pull created by us. Let’s take the Brio example. This is
the classic example where the switch happened. We have been successful in creating a pull
for Brio and people are coming with the intent of buying Brio. The result: most of the
GIDs are also selling Brio in spite of the 8-10% price differential between Brio and their
product. Likewise for the Pavilion, with the right price point we will create the demand
and I don’t think that GIDs will refuse to sell Pavilion. Another reason why we feel that
HP with its strong brand name will do well is the level of sophistication of the end-user.
The business user tends to be more sophisticated compared to the home user. So home users
tend to value a brand more than a business user and we are confident that it will not be a
hard proposition to sell the HP brand. Among home users, HP has already established itself
with its printers and scanners business. So it is just a matter of time before the switch
takes place.

What role will the Bangalore
facility play in the ramp up for Pavilion?

As of now, we are not using the Bangalore facility for any production of Pavilion.
Depending on the volumes generated on this front, we may decide to use the facility as and
when needed. For some time now we plan to move into the market, set up the logistics and,
if the volumes allow, we will start using the facility.

What are the price points you
are planning for the Pavilion range?

We are introducing four models to begin with. At the low end are the AMD-based PCs with a
street price at Rs49,999 and Rs59,999. The other two higher end models with Pentium II
will retail at Rs89,999 and Rs139,999.

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