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.

Indian PC vendors lost six percentage points to the MNC brands in the home market last year...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
years ago.

...while the top 10 PC brands lost three percentage points to assemblers and smaller playersIn
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
[consumer] 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.

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.

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

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

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