Fall 2015 MBA Marketing Management 1
Dr. Rodriquez
Case Analysis
HP Consumer Products Business Organization:
Distributing Printers via the Internet
Presented by: Ketsia Dornevil
November 17, 2015
Fall 2015-MBA Marketing Management
Dr. Rodriguez
INTRODUCTION
HP was founded by Bill Hewelett and Dave Packard in 1939 in Palo Alto garage. By 1962, HP was
ranked 460 on the Fortune 500. The company experimented and grew in the test and measurement
segment, medical electronics, and analytical instrumentation. Two of its best-selling products, the InkJet
and LaserJet printers were launched in 1984. By 1997, HP was named the leader in the printer industry,
contributing $5 billion to its total sales of $42.9 billion.
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ISSUES/PROBLEMS
By 1998 eCommerce has become a familiar tool in the consumer world. Using the internet as a
distribution channel has become something more and more people preferred. It benefited both the
consumer and the manufacturer. Pradeep Jotwani, VP and General Manager of the Consumer Products
Business Organization at HP realized the growth in eCommerce. After selling refurbished printers online
for a little less than a year, Jotwani is faced the decision of selling new printers directly to consumers
using the internet. All of the current sales are through retailers and the decision to use eCommerce
presents a number of costs and benefits.
SITUATION ANALYSIS
Distribution Channels – Some of the major channels for HP are listed below.
Computer Product Superstores – These include stores such as CompUSA that focus on PCs.
Consumer Electronic Superstores – Stores like Circuit City sale many types of consumer
electronics.
Office Product Superstores – Staples is an example of this retail channel that sales computers and
related products, as well as small and home office supplies.
Corporate account dealers, in-direct mail-order companies, department stores, and mass
merchants, such as Walmart
Consumer Market –
First Time Buyers Repeat Buyers
Shop about one month before buying Buys printer as a single purchase
Focus on quality, sales, and after sales Two phase: Upgrading or adding to
service original printer
Phases: Awareness, Consideration,
Mail Order
Purchase behavior
Buys as a bundle (PC, monitor, printer) Behaves like first time buyers with
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Fall 2015 MBA Marketing Management 3
Dr. Rodriquez
new printers
Largest segment
Prices and Profitability – Margins for HP has been low because of all services provided by the retailer
plus the cost of six week inventory in the retail channel. Printers only provide low single digit
percentages in net profit and supplies reach up to the teens. Retail prices and profitability are depicted in
the table below.
Product Retail Net % of retailer
Price Margin sales volume
Printers
InkJet $299 1 - 9% 5 - 10%
LaserJet $999 1 - 9% 5 - 10%
Printer Supplies
InkJet Cartridge $22 - 30 11 - 19%
LaserJet Cartridge $60 11 - 19%
ALTERNATIVE SOLUTIONS
Jotwani had some options to weigh before a final decision was made. First, he could wait and see what
the market does. HP could be taking a risk if they become the first to use the internet channel. For now
they could continue selling refurbished printers online and maintain a good relationship with retailors. If
competitors make the move and are successful, HP can then join. Secondly, HP could participate with
online retailers. Companies such as CompUSA were already operating online channels. As one of HP’s
retailers that made up bulk of its sales, it seemed easy to transition into eCommerce this way. Lastly, HP
play the leader and expand its offering online.
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EVALUATION OF ALTERNATIVES
Careful evaluation of each option should be taken to ensure Jotwani is making the right decision. The
wrong option can affect HP sales.
Option 1: This is the safest option for HP. Relationships will remain intact with retailers and sales will
continue as normal. If competitors take the eCommerce route this will be the deciding factor for HP to
join in. The disadvantage of this option is that HP will lose out on first dibs of the consumers that will
migrate to companies that are first to use eCommerce. HP will either have to gain those lost customers
or gain new ones, or both. If eCommerce takes off, HP will have to play catch up.
Option 2: CompUSA has already utilized the internet channel by mid-1997. The problem with working
with CompUSA is that it is fairly new in the channel and were moving slowly in progression. eTailers
like Value America were already ahead of the game. However, leaders such as Dell and Gateway were
seeing increases in printer sales online.
Option 3: This option is risky but I believe it is the best option for HP. Waiting can set them behind and
scrambling to gain more customers and teaming with stores such as CompUSA can eventually lead them
to the situation they are currently in. Eventually they would venture out on their own. More profit would
be made this way. Below draws out deciding factors for expanding products online.
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NUMBER OF INTERNET USERS (M)
400
350 361
300
250 248
200
150 147
100
70
50
36
16
0
1995 1996 1997 1998 1999 2000
*Source - Internet World Statistics - eMarketer
The use of the internet has multiplied more than 20 times from 1995 to 2000. Worldwide retail sales has
increased approximately 6% every year and is projected to reach $22 trillion by 2016. This is 7.3% of
total retail market worldwide.1 This projection shows that there is indeed potential for customers to
utlize the eCommerce channel. However, costs are associated with this decision.
Costs
Advertising $40, 000, 000
Website Development $500,000
Customer Acquisition $25 - $200
Costs should be determined using this formula: $40,500,000 + $25-200X. X is represented by the
number of customers that are expected to be acquisitioned.
Some potential concerns for using online channels include the large investment in developing the site,
security issues, the uncertain return on investment, shipping and handling charges, and tampered
relationship with retailers.
1 Worldwide Retail Ecommerce - eMarketer
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Fall 2015 MBA Marketing Management 6
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RECOMMENDATION
Based on my analysis, I believe the best option for Jotwani is to expand his products online. Success has
been proven with companies such as Amazon, eBay, and Dell. A solid website and advertising campaign
will allow HP to be successful. All products do not have to be sold online. This way they will still
maintain a relationship with its retailers.
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