Professional Documents
Culture Documents
HP Dist Printers
HP Dist Printers
The Dilemma
Pradeep Jotwani, VP and GM of Consumer Products Business Organization of HP is contemplating on ecommerce channel for selling
new printers
Motives
HP was already selling refurbished printers online Competitors were successful through direct selling
Concerns:
Currently new printers are sold only through retailer channels. Will it Impact on retailer relationship?
The HP Timeline
1939
Founded by Bill Hewlett and Dave Packard in 1939 at Palo Alto Garage Oscillators for sound systems WW II Demand for HPs Electronic instruments
1940
1962
Ranked 460 in Fortune 500 Medical electronics and analytical instrumentation business
1970
1984
ThinkJet and Laser printers introduced HP becomes a major force in computer industry and printer market
1996-97
One of the few organizations that was able to marry measurement, computing and communication Ranked 17th in Fortune 500 list | Net revenue : $42.9 billion | 121,900 employees
PC Market
Printer Market
HP changed the market in 1984 with its inkjet and laser printers
1994 saw HP introducing first color laser printer
Printer Industry
Inkjet
Laser
Multifunction (MFP) with PRINT + COPY + FAX
Twice as costly
Consumer Market
Mail order was a popular channel Accounted for 8% of all printer sales
Consumer Market
Distribution Channels
Retail stores like CompUSA Broad and deep assortment of computer related products Category Specialists
Computer products were just part of many consumer electronics products sold
Targets SOHO (Small and home offices) Again computers were just part of the product mix sold
Distribution Channels
Mass merchants
Departmental stores
Retail space
HP Account teams Each had assigned retailers and multiple support functions Logistics and Inventory management Promotional activities by HP teams up to 1.5% of sales Small retail chains were focused only by distributors HP only authorizes small retail chains
Printer business
5% - 10% of sales with 8% - 14% margins HP products provided lesser margins than competitor products
Retail space
Considered profitable Margins between 13% - 19% Major revenue provider for Office super stores Challenge was to maintain multiple SKUs Laser and InkJet cartridges particularly were repeat items
Right Product at Right place at Right time Internet solved the puzzle
eCommerce market
Traditional resellers leveraging their brand online New Virtual stores existing only on the internet
Value America (VA) that sold only branded products Cooperative advertising for brands No inventory Only order processing
Growing dissatisfaction with conventional channels Increasing acceptance of mail order channels Amazon.com growing at 100% year on year during 1996-97
eTailers
Valuation
Major expense during brand awareness building stages Revenues expected to decrease when economies of scale sets in
Direct order selling model Standard of efficiency JIT leading to very efficient inventory handling $3 million sales per day in 1998
Projections
$21 - $56 billion by year 2000 | $115 billion by year 2005 Changing lifestyles leading to promising online sales
Challenges
While large retailers resent the impact of online competitors small retailers had a clear dent in sales
Removal of Middlemen could disrupt distribution channels Uncertain and large investments associated Higher product returns and customer incurred shipping charges
HPs View
Strategic options
Associate with conventional retailers that moved online But, it is perceived by HP that these players were on slow mode Dell and Gateway taking the market through Direct selling
Helps interact directly with customers and build relationship First mover risk offset by success of eTailers like Amazon Involves new investments on website creation, marketing and advertisement etc.,
Q1
What kind of on-line presence do you think HP should have ? Why ? Some of the facts supporting option 3 Expanding the offers online
As per the case, HP clearly intends to explore the benefits of direct selling
+ + +
HP was not satisfied with retailers selling performance Retailers clearly are aware of poorer margins compared to competitors Printer supply business is profitable both to HP and retailers. But customers find it difficult to find the right cartridge among the many SKUs
Q1 Contd.
Global Internet Sales projection
140000 120000 Sales in million $ 100000 80000 60000 40000 20000
0
1996 1997 Year 2000 2005
Q1 Contd.
+ + + + + +
Cost savings include of ~6.5% increase in margins Resellers find selling of printers less profitable Amazon has proven internet selling with 100% growth in a year Dell is another success story with $3 million in sales Proven mail order pickups on printer sales Break even in 5 years possible through online sales. It must be even quicker with internet user base and online purchaser population to grow rapidly
281% 277%
Q1 Contd.
+ + + +
Benefits of Internet reach are humongous HP may not be interested in refurbished printer ecommerce business It is possible to take orders online and allow a nearby shop pickup. This will help customer as well as retailer. Retailers have also realized the power of internet and have started adopting internet selling.
Q2
What risks do you see in your strategy? How would you manage them ? Some of the clear cut risk in Expanding the offers online are:
Initial investment is high 90% sales is currently from retailers. So it is advisable to go online considering retailers.
should help
Order management through a new sales channel needs to be spot on. It is advisable to take help of consultants to set this up.
Q2 Contd.
So a thorough study of the whole new sales channel characteristics will ensure minimal gaps.
Q3
Again with 90% of the sales through conventional retail channels it is advisable to migrate online on a phased approach
The case says that for retailers, printers are 5% - 10% of sales with 8% 14% margins.
So naturally, push for HPs product from retailers (and its sales reps on the shop floor) is expected to be less
For HP, this means extra time and reduced margins due to additional promotional exercises
It is recommended to start selling printing supplies first and then follow it with printers when the time is ripe.
Q3 Contd.
frequently purchased and are repeat purchases and does not requires physical examination before purchase
They are less priced though the margins are high. So magnitude of
profits per sale is less compared to sale of a printer with a lesser margin
Internet solves this puzzle by throwing all the relationships. Also convincing retailers on the sale of supplies online with these reasoning is possible owing to practical difficulties in stocking all combinations of SKUs on the shop floor
Price of Inkjet cartridge Price of Laser cartridge Revenue per printer per year Total supplies per printer Price of a Inkjet printer
$999 $719
$1419
Q4
What would the people at Best Buy think of your plan ? Would it be any different at CompUSA or the same ? What reactions might they have to news of your plans ?
While BestBuy as a Consumer Electronic superstore will not find it denting its sales (since printer supplies do provide a very less sales volume), CompUSA will find it impacting. Reasons include:
Q4 Contd.
CompUSA might resort to placement of HP products at the end of the queue and provide importance to products of other players like IBM and Compaq.
A competing view is that HP is one of the 3 major brands sold by CompUSA in that segment.
Reducing order placement Adopting Internet selling proposal from HP and integrate order management with HP
Thank you !