Home Run

Consumer product? The PC is getting there. It now vies with a

second TV set, in many home budgets. Middle class families aspire to own PCs,

right after a TV and fridge.

But it’s not quite there. It’s still a complex device.

Consumers have to grapple with RAM and GB and MHz, choose specs for a dozen

components and hope they’ll work out, figure out how to connect everything and

set it up for Internet access…. What’s more, financing isn’t as smooth as

it is for consumer devices, especially if you’re buying anything other than a

few top brands.

Jyotin

Verma of HCL Insys’ Frontline division says that PC selling is quickly turning

into a retail business, "and as with white goods, good financing is a

must." Marketing people with major PC vendors say the PC will soon begin to

get shelf-space in electronics retail outlets.

Volume sales have led to local assembly by all the major

vendors, thus lowering PC prices. Vendors don’t have a choice: all of them

floundered with high-priced skim-the-market-quick home models. HP discovered

that no one was buying its Pavilions; instead, home buyers were buying the

aggressively-priced Brio corporate desktops. IBM still doesn’t have affordable

Aptiva models, and it’s only recently brought in a competitively-priced office

PC–the big reason for its sluggish PC performance, barring a few large

corporate deals. Compaq is the only player with a good showing in home-branded

PCs, thanks to sensible pricing right from the early introduction of its

Presarios



years ago.

In

1999, of the 1.1 million PCs sold in India, just under 330,000 PCs were bought

by homes. According to IDC, the past three years have witnessed annual growth of

over 80% in the home PC segment. IDC projects the compounded annual growth rate

for consumer desktop between now and 2003-04 at nearly 57%, well ahead of the

41% for commercial desktops. This high growth is largely driven by rising

Internet and Web usage.

As you’d expect, 79% of the future home PC buyers want to

have Internet connections, according to IDC India’s Millennium Survey 2000.

Clearly, the Web is pushing the PCs into the home segment. Says Amitabh Kumar,

director (operations), VSNL, "In the next one year, over 2.5 million

Internet accounts are expected to be added, as home PCs get cheaper and so do

Internet connections from various ISPs." Those connections will

include the free Internet offerings too.

Brands and performance

As PCs become consumer products, all vendors–from MNCs to

assemblers and white-box assemblers–try to grab consumer mindshare. Assemblers

still enjoy a dominant market share–over 70% (IDC India). That, of course, is

largely thanks to price, but there are other–sometimes surprising–reasons.

One is the sales experience: personalized service and a greater degree of

attention. Two, even service, contrary to expectations, often tips the scales in

favor of assemblers who deal with a limited circle of people who get to know

them personally.

A

recent DQ survey held from November 1999 to February 2000 involving 1,000

households in the four metros has shown that the buyers for assembled PCs were

mostly in a monthly income group of Rs 10,000 to Rs 40,000. For a branded PC the

intention to purchase is highest in the Rs 40,000-plus category.

Kaushik Bellani, manager, home PC, HP, says, "Families

are turning into e-families. PCs are the Window to the Web. One year ago it was

multimedia kits, now the minimum requirement is modems and Internet connections.

A successful consumer PC brand has to track these changing customer needs, and

match them."

Consumer expectations are changing quickly. With broadband

and DSL coming in the year ahead, cable modems will become commonplace in

households by 2001, as is happening in the US since 1999. Even Ethernet cards

will enter multi-PC households.

Here, MNC brands with their understanding of world trends,

deeper pockets and good worldwide sourcing may be quicker to adjust to the

markets. The worst hit will be the Indian brands. Last year the sales

performance of the Indian brands was lackluster. Big brands HCL and Zenith saw

dropping market-share, and Wipro had almost no growth. The big gainers were

Compaq and HP.

In the IMRB survey done for MAIT, the share of Indian brands

has shrunk from 25% to 19% between the periods 1998-99 and 1999-2000. One of the

major reasons for this is the reducing price gap between MNC and Indian brands.

"We have been able to convince the customers that value for money is more

with our brands than with local ones. And as we are becoming cost effective, we

are also in a position to offer good products at attractive prices," says

Suchi Sarkar, GM, consumer division, Compaq.

Expectedly, HCL disagrees, and says Indian brands are

well-positioned to benefit from the current surge in demand. Says Jyotin Verma,

"We are at least 25% cheaper than an MNC brand and in no way

inferior." Major Indian vendors say that in terms of design, service

support, features and quality, Indian brands are at par with what MNCs offer.

"At least we don’t have costs hidden in fine print, which consumers

discover when they’re actually buying," Verma adds.

Raj

Saraf, MD, Zenith, says that the Indian consumer PCs are no inferior to the MNCs

on parameters like service and the quality delivered. "The higher brand

value of MNC brands rests on the idea that they manufacture their own PC–which

is not at all true. Most of them have third-party sourcing," says Saraf.

But squeezed between the assembled and the MNC segments and

with the specter of the import duties vanishing, what should Indian brands do to

stay in the race? Unlike in the corporate sector, where there is a sizeable

captive buyer for the Indian brands, as well as in the government, Indian brands

have failed to create this pull in the consumer segments. And as a result,

consumers looking for a brand tend to go for the MNCs.

"Indian vendors have to build up their brands,"

says an MNC marketing manager. "They have to take a re-look at their brand

positioning, and do some major brand promotion. Slogans like ‘MNC quality,

Indian price’ are becoming meaningless. If a consumer can get MNC quality and

brand at a local price, why go for the Indian brand?"

HCL’s Verma takes the value and peace-of-mind-factor

approach, a la auto major Maruti. "Our brand represents the best features

at the best price," he says. "We have support centers all over the

country."

The PC as consumer durable

The Home PC is still conceived as a home computing and web

access device. Tomorrow’s consumer will look for more features–Web cameras,

TV tuner cards, DVD drives.

So the future home PC will have not only more power, but also

more added features. But vendors should not try to make the mistake of combining

a TV or a music system with the PC and expect the combo to replace multiple

consumer devices. "To see the PC as a total infotainment box is not

correct," says HP’s Bellani. "Rather, we should view the PC as a

gadget that can perform several functions, while not taking away the consumer’s

need for a TV or a music system."

The same holds for information appliances such as PDAs or WAP-enabled

cellphones. Consumers will use PCs to play games, but more and more of them will

also use video game consoles to play online games with gamers worldwide.

The home PC market is undergoing radical changes. Home PC

models have to keep pace, to meet the needs of space constraints, the growing

consumer demand of good looks and easy operation. All home PCs use USB ports;

the days of messy wiring are over. Distribution and service have to follow the

tough standards set by consumer products. Freebies and bundled value-adds are

becoming important.

The PC vendors have to negotiate all these issues before they

can make it big in the home market. And these are the areas where the MNC

vendors have the edge, with their global experience, and these are where the

Indian ones have to pull up their socks and fight it out.

Indranil ChakraBorty



in New Delhi