Market analysis of touch-enabled AiO PCs in the German consumer market. How Technology Adoption influences the traditional Marketing Mix

TABLE OF CONTENT

ABSTRACT

ACKNOWLEDGEMENTS

TABLE OF CONTENT

LIST OF FIGURES

LIST OF TABLES

LIST OF ABBREVIATIONS

BILINGUAL REFERENCES

1 INTRODUCTION
1.1 Given problem and purpose of the thesis
1.2 Motivation and structure of the thesis
1.3 Introduction to the Hewlett-Packard Company
1.4 Introduction to the desktop PC market and touch technology

2 HYPERCOMPETITIVE AND INNOVATION-DRIVEN MARKETING
2.1 Strategic Marketing
2.1.1 Basics and Definitions
2.1.1.1 Strategy
2.1.1.2 Marketing
2.1.1.3 Marketing Myopia
2.1.1.4 Organizational Strategy
2.1.1.5 Strategic Marketing
2.1.2 Strategic Considerations
2.1.2.1 Strategic Leadership and Positioning
2.1.2.2 Strategic Growth
2.1.3 Marketing Mix
2.1.3.1 Product
2.1.3.2 Price
2.1.3.3 Place
2.1.3.4 Promotion
2.1.3.5 Comparison of the 4 P and 7 P Marketing Mix
2.2 Hypercompetition
2.2.1 Definition and Characteristics
2.2.2 The New 7-S’s
2.2.3 Hypercompetition in the IT industry
2.3 Consumer Behavior and Consumer Analysis
2.4 Technology and Innovation
2.4.1 Invention vs. Innovation
2.4.2 Techno-ready Marketing
2.4.3 Adoption and Diffusion
2.4.4 Technology Readiness
2.4.5 The Five Types of Technology Customers
2.5 Theory Chapter Summary and Transition to Research Part

3 ANALYSIS OF THE CURRENT SITUATION
3.1 Preliminary Market Segmentation
3.1.1 Geographic Segmentation and Comparison (EMEA vs. Germany)
3.1.2 Customer Segmentation (Business vs. Consumer)
3.1.3 Product Segmentation and Differentiation (Standard Desktops vs. AiO Desktops)
3.1.4 Price Segmentation
3.2 Current Market Analysis
3.2.1 Actual Market Share (Volume / Value)
3.2.2 Market Share Development (Volume / Value)
3.2.3 Price Band Analysis
3.3 Assessment of Competitive Situation
3.3.1 Competitor Analysis
3.3.1.1 Apple
3.3.1.2 Lenovo
3.3.1.3 Acer
3.3.1.4 Toshiba and new market entrants
3.3.2 HP’s AiO product portfolio
3.4 Strategic Objectives

4 OPINION RESEARCH
4.1 Methodology of Research
4.1.1 Research Objectives
4.1.2 Survey Method and Questionnaire Design
4.1.3 Survey Distribution and Population
4.1.4 Survey Constraints
4.2 Survey Results

5 RESEARCH EVALUATION AND RECOMMENDATIONS
5.1 Interpretation of Findings
5.2 Reassessment of original Problem Statement
5.3 Influence of Technology Adoption towards Marketing Mix
5.4 Proposed adjustments and recommendations
5.5 Market Outlook

6 CONCLUSION AND FINAL THOUGHTS
6.1 Conclusion
6.2 Benefits of the thesis for HP & PSG Category Germany
6.3 Personal Assessment

REFERENCES

INTERNET REFERENCES

APPENDIXES
Appendix A – AiO Price and Product Analysis, low price segment
Appendix B – Questionnaire: Opinion survey on All-in-One PCs
Appendix C – Results of the opinion survey on AiO PCs [German]

LIST OF FIGURES

Figure 1: Computing Device Fragmentation

Figure 2: Key Trends Computer Market Germany (Jan. 08 – Sep. 11; Sales in units of ths.)

Figure 3: HP Desktop Branding

Figure 4: Ansoff’s product/market expansion grid

Figure 5: Different channels of distribution

Figure 6: The extended marketing mix and the relationship between producers and intermediaries in goods and services marketing

Figure 7: Disruption and the New 7-S's

Figure 8: Costumer-centric marketing strategy

Figure 9: The cycle of customer-focused innovation

Figure 10: Drivers of Technology Readiness

Figure 11: PC penetration rate in European households (in %), 2008 and

Figure 12: Market Share (Volume) Development - AiO DT market Germany (May '11 - Jan. '12)

Figure 13: Market Trends for average unit prices (In €; May '11 - Jan. '12)

Figure 14: HP TouchSmart 520 AiO Desktop PC

Figure 15: Survey result: Number of household members

Figure 16: Survey result: Segmentation of Technology Customers

Figure 17: Survey result: Educational level of Technology Customers

Figure 18: PC usage: Content consumption vs. content creation

Figure 19: Survey result: Product knowledge of AiO PC

Figure 20: DT PC Sales Consumer Channel Germany, online vs. offline

Figure 21: Survey result: Possession of touch-enabled device

Figure 22: Desktop PC Forecast – German Consumer Market

LIST OF TABLES

Table 1: Advantages and disadvantages of TS over other pointing devices

Table 2: Comparison of the 4 P and 7 P Marketing Mix

Table 3: Adopter characteristics in the diffusion of an innovation

Table 4: The shifting focus of a technology-based product or service

Table 5: Market Share Comparison, AiO DT market Germany (January 2012)

Table 6: Market Share (Value) Development - AiO DT market Germany (May '11 - Jan '12)

Table 7: Price Band Analysis with regard to vendor market shares (January 2012)

Table 8: Survey result: Ranking of preferred input functions for AiO PCs

Table 9: Survey result: Brand preferences for the next purchase decision

LIST OF ABBREVIATIONS

Abbildung in dieser Leseprobe nicht enthalten

BILINGUAL REFERENCES

The references are provided in English and German language.

The restitution occurs in my own translation.

Die Quellen sind in englischer und deutscher Sprache zur Verfügung gestellt.

Die Wiedergabe erfolgt in eigener Übersetzung.

ABSTRACT

Martin Asmus, International Business Management, Hochschule Furtwangen University

Abstract of Bachelor’s Thesis, Submitted June 29th, 2012:

Market Analysis of touch-enabled All-in-One PCs in the German Consumer Market

– How Technology Adoption influences the traditional Marketing Mix –

The subject of this work is to give the reader a detailed overview of the current state of the All-in-One PC market for German consumers. The author questions the public perception of All-in-One PCs in the consumers’ minds. Also, the use and acceptance of touch technology for large screen devices is studied. The purpose of this thesis is to analyze how All-in-One PCs can be effectively marketed in an industry that focuses more and more on mobile computing devices.

In the first part an introduction to the desktop PC market and touch screen technology is given. Then, the theoretic concepts of strategic marketing and techno-ready marketing are discussed within a hypercompetitive and innovation-driven industry. The research part consists of a thorough market and competitive analysis of the All-in-One PC market in Germany. In addition, a conducted opinion survey provides valuable insights from a consumer perspective. The findings of the research are afterwards evaluated and interpreted. Thereupon, the originally outlined problem is reassessed and recommendations are given to HP Germany, the cooperating company of this thesis, on how to adjust respective marketing activities for technological innovative products. Finally, a market outlook weighs the opportunities and threats that lie ahead for the product category All-in-One PC. The last chapter summarizes the key learnings of this thesis, how it benefits the cooperating company and ends with a brief personal assessment about the topic by the author.

The results of the market analysis suggest that HP can improve its brand preference and that people are not aware enough of the product All-in-One PC and its features and benefits. A more educative marketing approach is proposed by adding a 5th P – for pedagogy – to the traditional marketing mix.

ACKNOWLEDGEMENTS

This thesis paper was created during and after an interesting internship within the PSG Category Management department of HP Germany in Böblingen. The first idea to write about this topic came after discussions with Birgit Ayasse, Product Lifecycle Manager of Consumer Desktops & Consumer Displays, AiO & TouchSmart. The topic was then further developed and supervised by Christian Sprenger, Senior ACM (Area Category Manager) for desk-based products. Especially the advice on the survey part and on additional AiO PC usage possibilities was much appreciated. In addition I have to thank Claudia Blümle for her insights on product marketing. I would also like to thank the whole PSG and HP team for their ongoing support throughout the internship.

Furthermore I owe many thanks to Prof. Dr. Eva Kirner for her thesis supervision and advice from an academic perspective. Hints in the area of technological innovation and about the correct conduct of the survey were very helpful.

I also want to thank Patrick Lay for his support in the correctness of this thesis, Tobias Dürr for the valuable advice on questionnaire design, and Philipp Antritt for his guidance on the final layout for this thesis.

Last but not least I am thankful for the support of my family who helped me in every possible manner during the development of this thesis.

Thank you very much.

Stuttgart, June 29th, 2012 Martin Asmus

1 INTRODUCTION

Ever since Steve Jobs, the late CEO of Apple Inc., proclaimed the beginning of the ‘post-PC era’, there has been a vivid discussion in the Information Technology (IT) industry about the role of the traditional Personal Computer (PC). Undeniably, in recent years the public focus has shifted on mobile computing caused by the rise of notebooks, tablets, smartphones, and, first and foremost, the Internet. Especially desktop-based PCs have lost ground on portable computer devices as the demand for mobility increases. This ongoing trend can be observed both in the consumer as well as in the commercial business.¹

Another fundamental change as of late has been the way we can interact with personal computing devices. Consumers are now able to command their device via touch-screen, voice control or motion control. Consequently, users are building a more personal rapport to their computing device.

The speed and variety of current and newly emerging technological innovations and products are overwhelming interested consumers with information overload. PC manufacturers in particular have to be aware of not only the availability of information but also the varying stages of technology adoption that different consumers segments find themselves in. This approach calls for a customized marketing mix to effectively fulfill consumer needs and demands.

Under these circumstances, the following thesis paper is going to analyze the present market environment and gather consumer insights for a specific product group. The outcome of this market analysis will then be used to find ideas and possibilities to further improve respective marketing activities of a global IT company. As the country organization is based in Germany, the market analysis is limited to the German market. Also, to limit the scope of the thesis, the market analysis is conducted for the consumer market only. Commercial clients are neglected as far as possible.

1.1 Given problem and purpose of the thesis

In the light of the aforementioned tectonic shift away from desk-based models towards mobile computing devices, this thesis will provide an in-depth look at the current state of desktop(DT)PCs, in particular the product group of All-in-One (AiO) PCs. In an effort to differentiate its products from competitors’, AiO PC manufacturers have adopted touch technology to enhance the user experience. Therefore, the subject of this thesis can be derived from two underlying questions:

1. What is the public perception of All-in-One PCs in the German consumer market?
2. What is the status quo regarding use and acceptance of touch technology with AiO-PCs?

The current dilemma with AiO PCs in Germany is that they continue to be a niche product in a stagnating desktop PC market. The AiO PC market itself is dominated by an undisputed market leader, Apple, with several other players competing for a double-digit market share and thereby the No. 2 or No. 3 spot behind Apple.

Regarding touch technology, the second question implies whether or not touch screen functionality for large screens (>17”) can be considered a competitive product feature or even a unique selling proposition. Has the German market adapted enough to embrace this technology for larger (and non-portable) screens?

Hence, the aim of this thesis is not only to answer both questions accurately but also to analyze current and upcoming trends, challenges and opportunities that could affect All-in-One PC Sales in the short term and in the long term. Ideally, these findings can be used to contribute to an improved marketing mix.

1.2 Motivation and structure of the thesis

HP is one of the players with only a marginal market share in Germany’s consumer AiO PC market. For a company which is either the market leader or the No. 2 in the industry for servers, printers, workstations, and commercial desktops/notebooks², the question naturally arises where this discrepancy in the consumer desktop space originates from. To find out, the required analysis must start with the end customer in mind.

The author of this thesis makes two basic assumptions. First, potential German customers are insufficiently informed about the product ‘AiO PC’ in itself, including its features. Thus, they are also unaware of its consumer benefits. Secondly, the author supposes that the predominant majority of German consumers are familiar with touch technology based on their previous experience with touch-enabled smartphones and tablets. However, it is uncertain to what extent touch control is beneficial and preferred for larger, non-portable PC screens. Both assumptions have led to the formulated questions in section 1.1.

Now in order to verify the trueness of the assumptions and to answer the two questions, an opinion survey is conducted among German consumers. Those valuable customer insights are the central part of the market analysis of touch-enabled All-in-One PCs. After all, the department’s overall strategy is to deliver the best experience to more people. The underlying motivation is to determine if the assumptions can withstand and, if so, to analyze how HP can close the gap to its fellow competitors and market leader Apple.

The thesis is structured as follows. First, the paper introduces the reader to the theoretical aspects of strategic marketing, the marketing mix, and of techno-ready marketing. It is established why the AiO PC industry is of hypercompetitive nature, which requires dynamic corporate and marketing strategies. In order to understand the concept of techno-ready marketing, the typical adoption and diffusion process of innovations is presented, along with the five different types of technology customers. After the theoretical framework, a closer look at the current market and competitive situation is taken. The following opinion research then investigates the public perception of AiO PCs amongst German consumers and their use and acceptance of touch technology. Afterwards, the outcome of the research is evaluated and the findings are interpreted. Based on these results, the original problem statement is reassessed and recommendations are given for a customized marketing mix for AiO customers. A market outlook weighs the opportunities and threats for AiO PCs in the near future. Finally, the concluding part summarizes the key learnings of the market analysis and points out the benefits of the thesis for HP and the German PSG Category team.

1.3 Introduction to the Hewlett-Packard Company

Company overview

The cooperating company of this thesis is Hewlett-Packard GmbH (HP Germany) which is part of the Hewlett-Packard (HP) Company. As the world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and ITinfrastructure to solve customer problems. HP was founded on January 1st, 1939, by Stanford graduates Bill Hewlett and Dave Packard in a garage in Palo Alto, California, United States of America. They flipped a coin to decide on the company’s name.

Today, HP serves more than 1 billion customers in more than 170 countries on six continents and has over 320,000 employees worldwide. The global headquarters is still based in Palo Alto, in the heart of today’s Silicon Valley. In 2011, HP was ranked No. 11 on the U.S. Fortune 500 list and made US $127.2 billion in revenue for fiscal year (FY) 2011.³ Former eBay Inc. executive Meg Whitman leads HP in her role as president and chief executive officer since September 2011.⁴

HP’s operations are organized into seven business segments:

- Personal Systems Group (‘PSG’)
- Imaging and Printing Group (‘IPG’)
- Enterprise Servers, Storage and Networking (‘ESSN’)
- Services
- HP Software
- HP Financial Services (‘HPFS’)
- Corporate Investments

Personal Systems Group

PSG is the PC division of HP. It provides commercial PCs, consumer PCs, workstations, calculators and other related accessories, software and services for the commercial and consumer markets. To address both markets accordingly, commercial notebooks, commercial desktops and workstations constitute commercial clients whereas consumer notebooks and consumer desktops are grouped into consumer clients. As mentioned in the introductory paragraph, PSG, in the same way as the entire PC industry, continues to experience a shift toward mobile products.

Recent organizational realignment

In the summer of 2011 HP contemplated a spin-off for its Personal Systems Group. However, after a thorough evaluation of the strategic, financial and operational impact, it was decided in October to keep PSG within HP as they are ‘better together’.⁵

On March 21st, 2012, HP announced an organizational realignment by merging the company’s Imaging and Printing Group (IPG) and its Personal Systems Group (PSG) to create the Printing and Personal Systems Group (‘PPS’). The combined entity will be led by Todd Bradley and is expected to lead to a better customer experience and to drive innovation in the personal computing and printing business.⁶ For this thesis paper, the term PSG will still be used, as the company-wide transition to the newly-created PPS is yet in progress.

Product range

In the following a closer look is taken at PSG’s current product portfolio and brand lineup in order to distinguish between commercial PCs, consumer PCs, and workstations. Both commercial and consumer PCs run primarily on Microsoft’s Windows operating system (OS) and use processors manufactured by chip makers Intel Corporation (‘Intel’) and Advanced Micro Devices (‘AMD’). HP workstations run on Windows and Linux-based operating systems.

- Commercial PCs are optimized for commercial uses, including CEP and SMB customers⁷, and for connectivity and manageability in networked environments. Business desktops include the Compaq Pro, Compaq Elite, HP Pro and HP Elite lines, as well as the All-in-One TouchSmart and Omni PCs.
- Consumer PCs are focused on the home environment, content creation and multi-media consumption. Along with other notebook and desktop models, the TouchSmart line of touch-enabled All-in-One desktops belongs to this segment.
- Workstations are individual computing products capable of delivering enhanced performance, which is required for computer animation, engineering design and other high-resolution graphics programs.⁸

1.4 Introduction to the desktop PC market and touch technology

Definitions and product characteristics

Based on the ample variety of computing devices in today’s PC landscape and to avoid misinterpretations in the first place, the various models need to be clearly defined before taking a closer look at the current desktop PC market. Portable PCs are deliberately included in this listing, as they must be considered as competing products to traditional desktop PCs.

Desktop PCs are PCs that fit in a slim rectangular case or a (mini) tower, which can be put underneath or on a desk; usually close-by the monitor. Special versions of desktop PCs are All-in-One PCs. Their computer hardware is housed in an as flat as possible monitor case. Typically, they are space saving and operate power efficient and silently. As multimedia PCs, they are mostly suitable for analog TV and digital TV and are controlled by (wireless) keyboard and mouse or touch screen. Display screen sizes normally range from 17” up until 27”.

Mobile⁹ versions of PCs include laptops, notebooks (NB), netbooks, and, as of late, tablet PCs and ultrabooks. Since all of them are battery-powered computers, they can be used at home, in the workplace or on the go. Laptops are small, portable PCs with a full-sized keyboard and a flip-up monitor. With screen sizes ranging from 14” to 17”, laptops are extremely powerful and can potentially replace an entire desktop PC. Notebooks are somewhat smaller (screen sizes mainly in between 12” and 16”) but have the same basic setup as laptops. Gradually, the term ‘notebook’ has universally replaced the term ‘laptop’, as the latter are considered bulkier and heavier than their handier counterparts. Accordingly, only the term notebook will be used in this thesis from now on.

Below the category of NBs are yet smaller PCs, with different sets of abilities and functions. Obviously, the portability increases when the size of the device decreases. The latest innovation is the concept of ‘ultrabooks’, inspired by Intel. Ultrabooks are PCs combining performance and speed of NBs with the functions of tabletPCs. Highlighted product attributes are fast responsiveness, sleek design and long lasting battery life.¹⁰ This new product category aims to directly compete with Apple’s pre-existing MacBook Air.

Subnotebooks and Netbooks are low-priced minicomputers with screen sizes between 10” and 13” and 10” or less, respectively. Their main purposes are office applications, photo editing, mobile surfing and social media.¹¹ Due to their relatively small sales turnover and market share, both models are widely neglected in this thesis as they do not pose a substantial threat to desktop PC sales.

Tablet PCs, in short tablets, are mobile computers without a keyboard. The touch sensitive monitor automatically presents a virtual keyboard whenever a manual input is required. One side of the device functions as the display, with most screen sizes ranging from 7” to around 10”. The best screen resolution provides up to 3.1 million pixels for the latest iPad model, more than a high-definition (HD) TV. Again, Apple plays a pioneering and industry-leading role in the market with their iPad product line. The predominant operating systems are Apple’s iOS and Google’s Android. Microsoft is expected to enter the tablet market in the near future with the upcoming release of Windows 8. A major driver of growing tablet and smartphone sales are so-called apps, additional software applications which expand the original functionality of the products.¹² Smartphones (although not considered as PCs) shall be mentioned at this point to complete the list, as they are also able to perform basic computing operations such as web browsing and media content consumption.

Desktop PC market

All in all, PCs nowadays appear in all shapes and form factors, a fact which makes it seemingly even more challenging for deskbound PCs to stand their ground against mobile PC units. With regard to this situation, the following section briefly presents the overall desktop PC market and HP’s corresponding product range and brand lineup.

This ongoing computing device fragmentation is illustrated in Figure 1. It shows the development of worldwide computing device shipments from the years 1995 to 2010. Desktop PCs shipments have remained more or less static over the past decade whereas mobile devices shipments, in particular those of notebooks and smartphones, have experienced a steady growth.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Computing Device Fragmentation¹³

The same trend can be identified when looking at the German computer market for consumers. Figure 2 shows the sales history for consumer clients from 2008 up until September 2011. Omitting the traditional peak sales period around Christmas time, mobile PC sales (notebooks and netbooks in this graph) have doubled within 3 to 4 years. Desktop PC sales, in contrast, have shown no signs for growth and have remained constant.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Key Trends Computer Market Germany (Jan. 08 – Sep. 11; Sales in units of ths.)¹⁴

Despite the fact that the overall desktop PC market for private users is stagnating, it is nevertheless attractive due to its size and causes heavy competition among PC manufacturers. Before looking at the market and competitors in greater detail in chapter 3.2 and 3.3, HP’s desktop branding is briefly explained at this point.

The product category desktop PC itself is divided twofold into All-in-One PCs and Tower PCs. Tower PCs include so-called Micro PCs and Mini PCs in this matter, which are basically miniature versions of Towers. As shown in the pyramid in Figure 3, HP’s desktop portfolio features both Tower and AiO PC models across their three product lines Compaq, Pavilion and TouchSmart. The companies Compaq and HP have merged in 2002 to combine synergies and to expand their product portfolio and market position.¹⁵

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: HP Desktop Branding¹⁶

Compaq models are offered for entry-level customers and are made mainly for home office use. Pavilion PCs additionally have multimedia features and are placed in the mid-range price section for Tower PCs. High-end Pavilion HPE models stand out with brilliant performance, high speeds and upgradeability, ideally for demanding PC gamers. In the All-in-One category, HP’s TouchSmarts start with prices from 699€ and upwards. Those products excel with a modern and economic design, multimedia and entertainment features and above all touch functionality. The latter is presented in the following.

Touch technology

This section explains the concept of touch screen (TS) technology, discusses its significance and portrays its pros and cons. In principle, touch screens facilitate the navigation around GUI¹⁷ based environments. They can be defined as follows:

A touch screen is an electronic visual display that can detect the presence and location of a touch within the display area. The term generally refers to touching the display with a finger, hand […] or other passive objects, such as stylus. In other words, a touch screen is any monitor […] that accepts direct onscreen input.¹⁸

This technology enables one to directly interact with the screen rather than using a cursor controlled by a mouse or touchpad. As a result, one’s hands are free to use without having to hold any intermediate device. This more human, intuitive approach has the potential to replace most functions of the mouse and keyboard. In the public everyday life, touch screen solutions are already commonly in use for ATMs, ticket machines and other POS (Point of Sale) environments. Consumer electronics, such as (in-)car navigation systems, are also increasingly adopting the touch technology, which is constantly evolving.

In comparison with other pointing devices, touch screens for PCs have various advantages and disadvantages, illustrated in the following table:

Abbildung in dieser Leseprobe nicht enthalten

Table 1: Advantages and disadvantages of TS over other pointing devices¹⁹

Currently, single-touch screens (one touch at a time) are predominant for touch-enabled AiO PCs. Single touch allows for operations like clicking, dragging and painting in an intuitive way. However, as technology advances, multi-touch touch screens (two or more touches on screen at the same time) are on the rise. This is especially true with the upcoming release of new or updated versions of PC operating systems, which are expected to be optimized for touch functionality. Multi-touch gestures additionally offer the ability to stretch, squeeze, or rotate an object on screen and to perform more than one action simultaneously.

In summary we can conclude that touch screen technology per se can be a user-friendly, intuitive way to interact with one’s computing device. The subsequent explorative research in this paper will analyze, to what extent this input method is desired and accepted amongst consumers for larger, desk-based PC screens.

2 HYPERCOMPETITIVE AND INNOVATION-DRIVEN MARKETING

The goal of this thesis is to analyze the market environment for touch-enabled All-in-One PCs. For this purpose we must consider that AiO PCs are technological and innovative products. In the introduction it was established that the author argues that varying customer segments are differently aware of technological products and innovations. On another note, it is to be determined to what extent those varying stages of technology adoption influence the traditional Marketing Mix.

This chapter presents the theoretical framework of strategic marketing, its implications and defines the ‘traditional’ Marketing Mix. Based on common characteristics, it is determined why the IT industry as a whole and the PC market in particular are of hypercompetitive nature and what this implies for companies’ strategies. In this regard, the speed of technology development must be mentioned. Furthermore, the depth of consumer behavior and the concept of market segmentation are explained. Later on, a model to measure technology adoption will exemplify the natural path of acceptance of new technologies and innovations by consumers. Last but not least, a clear distinction is drawn between the terms invention and innovation.

It is explicitly noted that the headline of this chapter, ‘hypercompetitive and innovation-driven marketing’, is not referring to the marketing process itself, but much rather to marketing activities in a hypercompetitive and highly dynamic environment and for innovative products.

2.1 Strategic Marketing

2.1.1 Basics and Definitions

Before going into detail about strategic marketing, it is at first necessary to clearly define various terms and concepts individually.

2.1.1.1 Strategy

A definition of ‘strategy’ in a historical and economical context originated from Chandler (1962, p.13), who defined strategy as “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the resources necessary for carrying out those goals”. From early on, the term strategy included the setting of goals and formulating of action plans to achieve those. This approach was drastically simplified by Mintzberg (1978, p.28), who defined strategy in terms of a recognizable paradigm merely as “a pattern in a stream of decisions”. Mintzberg later acknowledged that strategies can also arise from learning processes over time, and not solely from formulating of plans. On the whole, a strategy serves as a mid-/ to long-term frame of orientation for future actions. In a sense, strategies are the link between company goals, operative decisions and the ensuing measures. As companies are constantly exposed to changes in their environment, strategies must be flexible and ready to adapt to those alterations.²⁰

2.1.1.2 Marketing

The term ‘marketing’ is officially defined by the Chartered Institute of Marketing (2009, p. 2) as “the management process responsible for identifying, anticipating and satisfying customer requirements profitably”. Another valid insight comes from Peter Drucker (1999), cited by Jobber (2010, p. 3):

Because the purpose of business is to create and keep customers, it has only two central functions – marketing and innovation. The basic function of marketing is to attract and retain customers at a profit.

Both conventional definitions have in common that they focus on customers as well as profitability. A third indispensable component which they are missing is competition. Accordingly, a modern version defining the marketing concept would be: “The achievement of corporate goals through meeting and exceeding customer needs and expectations better than the competition” (Jobber, 2010, p. 4). This concept is based on three pillars²¹:

1. Customer orientation: All company activities must be aligned on providing customer satisfaction.
2. Integrated effort: Creation of customer satisfaction is a priority by all departments and not only the marketing team.
3. Goal achievement: Management is convinced and leads by example that satisfied customers help reach business goals.

By pursuing this marketing concept companies ensure that the customer is at the heart of their corporate strategy.

2.1.1.3 Marketing Myopia

The term ‘marketing myopia’ was introduced by Theodore Levitt in 1962. It refers to a management’s inability to recognize the scope of its business and to company strategies that focus themselves predominantly on the product rather than the customer. According to Levitt, all company goals and activities should be aligned toward customer needs and/or desires, as previously described in the modern marketing concept. The reasons for this are frequently occurring changes in the marketing environment and thereby in customers’ wants and requirements. Ideally, organizations are in the position to adapt to such changes as they occur or to even anticipate them beforehand. An inability to do either can severely endanger an organization’s market position in the industry.²²

2.1.1.4 Organizational Strategy

First of all, an organization needs to be clear about their essential purpose, before even contemplating about the corporate and marketing strategy. This can be achieved by asking five basic questions: What is our business? Who is the customer and what is beneficial for him? What will our business be and what should our business be? Answering those questions appraises a company’s current and future core business and identifies the nature of its (potential) customers. The corresponding answers are usually formulated in a corporate mission statement. This in turn can be used to avoid the pitfall of ‘marketing myopia’ (see 2.1.1.3).²³

2.1.1.5 Strategic Marketing

Meanwhile, we are able to define ‘strategic marketing’. In principle it is the management of competitive advantages, which in essence are bound to particular strategic business units (SBU).²⁴ ‘Competitive advantage’ is defined by Jobber (2010, p. 914) as “the achievement of superior performance through differentiation to provide superior customer value or by managing to achieve lowest delivered cost”. In other words, from a customer perspective, the perceived value of a product (or service) must be significantly higher than the expenses he must incur to obtain said product. Additionally, it must be greater than the perceived value of all competitors’ products. This difference between value and cost is the so-called ‘net benefit difference’²⁵.

In a market-oriented business environment, a marketing strategy is an integral part of the overall corporate strategy. It is then cascaded to the functional level and to the SBUs. In contrast, competitive advantages always relate to a precise product category and offering in a relevant target market. On these grounds, strategic marketing pays special attention to customers and competition and mainly takes place on the business unit level.²⁶

2.1.2 Strategic Considerations

2.1.2.1 Strategic Leadership and Positioning

Companies can choose between three generic competition dimensions in order to position themselves in the marketplace. They can compete on price, quality, and time.

Price leadership is a one-dimensional, yet complex strategy dimension. One would assume that the price advantage automatically becomes the competitive advantage, too. However, it is not that simple. On the one hand, it can be a cost-based price leadership strategy; based on a leadership in cost efficiency and assuming that prices are objective offer prices. The goal hereby is to achieve a transparent price advantage position over all competitors. On the other hand, it can be aimed at subjective price labels; in which case it is referred to as a perception-based price leadership.²⁷ The latter is more often than not true for high-profile and luxury brands.

Quality leadership, on the contrary, can be obtained in more than just one strategic dimension. Since ‘quality’ is defined differently by each individual, several quality leaders can co-exist and operate in a market. This multidimensionality can be exemplified in the PC market. PCs consist of multiple quality characteristics. In addition to hardware components whose level of performance can be measured, computer models feature attributes like design, for instance. While one user might opt for a sleek design, another customer might prefer a fancy one. In any case, when determining quality under marketing aspects it has to be clear first which quality attributes are suited for the user. Again, this customer-focused approach puts the consumer in the center of any quality leadership strategy.²⁸

Time leadership can be interpreted in two ways. Traditionally, it has been concerned with the right timing of the market entry for companies. Lately, the scarcity of time has become a crucial factor in the consumer’s mind, as it directly relates to opportunity costs and shortened processes in an increasingly fast-paced world. This concept shall be neglected here, as it mostly deals with time-saving products and/or services.

Regarding the right market entry, the goal of timing decisions is to convert product advantages into competitive advantages and, vice versa, to give up disadvantageous situations by choosing the right time to exit the market. For this purpose product development and market development need to be aligned.²⁹ Market exit decisions usually occur in stagnating and declining markets. Conversely, the right timing of the market entry is especially important in emerging, fast-growing markets, typically to be found in the high-tech industry.³⁰ Time is such a critical success factor because a belated market entry can quickly result in high opportunity costs. In a fast-moving market environment with relatively short product life cycles, those missed revenues are difficult to recover.

In time-based market entry strategies, it is distinguished between three segments: Pioneers (the ones who are first-to-market with a new technology or innovative product), early followers (Early-to-market entrants who offer a problem solution) and late followers (arrive when fundamental market structures have been established).³¹

Generic vs. hybrid marketing strategy

So far we have established that companies have three strategic options to create a competitive advantage, namely price leadership, quality leadership and time leadership. The generic marketing strategy approach is to solely focus on either one of three. The so-called hybrid marketing strategy targets a major competitive advantage by simultaneously focusing on two or even all three competition dimensions. The risk of “being stuck in the middle” originally suspected by Porter (1980) when applying the hybrid strategy has been disproved by empirical research³² over the years. An uncertainty remains regarding when and under what circumstances either the generic strategy or the hybrid strategic is more beneficial. The potentially right choice depends upon the competencies and resources of the own company compared to those of the competitors as well as on consumer demands.³³

2.1.2.2 Strategic Growth

In competitive environments, companies constantly need to reflect on their business to at least maintain their market position. The analysis of current and future influential trends on the company-internal and microeconomic level (SWOT analysis³⁴ ) as well as the macroeconomic level (PEEST analysis³⁵ ) provides a good overview of the organization’s actual state in the marketplace.

A simple and instrumental tool for product- and market-oriented companies who are searching for growth opportunities is the product/market expansion grid (Figure 4) developed by Ansoff (1957). It considers products and markets based on their degree of novelty which in turn leads to four strategies with varying characteristics.

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Figure 4: Ansoff’s product/market expansion grid³⁶

1. The goal of the market penetration strategy is to increase the sales volume while maintaining present profit margins. In a growing market this can be achieved by convincing first-time users to buy, in a saturated market by an increase in market share. This strategy is the least risky one since the company is already familiar with its products and customers.
2. The market development strategy aims to offer existing products to new customer groups or geographical regions. For this strategy to succeed, barriers to enter the market, local market conditions and different customer habits and preferences need to be considered.
3. Product development strategy refers to the introduction of new products in existing markets. At the beginning it is mostly uncertain how the regular customers will adopt the new product and if research and development (R&D) costs can be recouped in the long run. Once steady demand is established, this strategy can lead to sales growth and a high profit potential.
4. Diversification strategy is the riskiest of all four mentioned strategies, as the newly developed product/service, a different distribution method or the unknown market environment all represent unfamiliar territory. Thus, this strategy move needs to be carefully planned in advance. On the plus side, diversification reduces the dependency on only one or a few products/markets and, if successfully implemented, offers future growth potential and profitability.³⁷

Palmer and Hartley (2006, p. 257) refer to work by Zook (2004) when stating that the majority of successful growth initiatives occur in markets that are adjacent to a company’s existing business. Nevertheless, companies can’t afford to neglect their core business while they are actively pursuing growth opportunities.

2.1.3 Marketing Mix

Previously (see section 2.1.1.2), we have defined ‘marketing’ in terms of customer centricity, profitability and competition. So how exactly does this translate into marketing activities for firms? In its latest definition, the American Marketing Association includes this transition from marketing as a function towards marketing being an educational process. The new definition states:

Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. (American Marketing Association, 2008)

These four proactive verbs (creating, communicating, delivering, and exchanging offerings of value) lead to the concept of McCarthy’s (1964) classical marketing mix, which consists of the elements product, price, promotion and place; together commonly referred to as the ‘4 Ps’.

First and foremost, companies must consider the following questions: What is the product or service and how much is charged for it? How do we raise awareness about our product/service and how is it delivered to customers? Afterwards, companies can develop their personal marketing mix strategy. In theory, an effective marketing mix ideally matches customer needs as well as corporate resources, creates a competitive advantage, and is well blended³⁸. In the following, each element is introduced individually.

2.1.3.1 Product

Much more than simply a tangible object or intangible service, a product (or service) is a complex entity with attributes such as quality, functionality, brand name, style/design, packaging and size. This list can be extended by supporting elements like warranties and (after-sales) support. People buy products to satisfy needs and wants. In return for their payment, they expect to receive a benefit larger than the competition can offer. The above listed product attributes can produce those desired benefits and have to be communicated to the end user in order to persuade him or her to make a purchase.³⁹

Explicitly mentioned at this point, to highlight its importance, is the role of a brand. This is pointed out by Proctor (1996, p. 285):

Branding is a major marketing tool that a firm can use to its advantage in the market place. Creating an instantly recognizable brand name for a product or service is a decided benefit in gaining a competitive advantage.

The power of a brand is leveraged to further differentiate one’s products from those of the competition and is typically used to portray a superior quality or lifestyle. Depending on the industry, the brand is at times mentioned as a separate, additional component of the marketing mix. Within the framework of the 4 Ps however, it is closely linked to the elements product and promotion.

2.1.3.2 Price

The perceived benefits of a product or a service and its corresponding price are in constant comparison. The price determines whether or not a customer buys a product at all. As already explored in section 2.1.1.5, the net benefit hereby must be greater than all costs incurred. If this criterion is fulfilled, the shopper then prefers the one product with the largest net benefit difference to him.

The price should never be isolated from the other components in the Marketing Mix. In many cases, so-called ‘price problems’ are not a result of an inadequate pricing policy, but are rather caused by deficiencies in promotional activities, positioning, distribution, or by the product itself.⁴⁰

2.1.3.3 Place

The marketing mix element ‘place’ refers on the one side to where customers buy a product and on the other side how it is distributed to that location. The product can be displayed in a physical location like a shop window or likewise online in an internet store. Distribution is concerned with the transfer of goods from the producer to the customer. Besides the acts of physical distribution (warehousing, transportation, inventory management), the strategic function, also known as channel management, implies the selection of intermediaries in the distribution process.⁴¹

Popular distribution methods which are practiced in the consumer goods industry are illustrated in Figure 5.

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Figure 5: Different channels of distribution⁴²

A distinction is made between the direct and indirect model. Indirect models include the single-tier model and the two-tier model, depending on the number of middlemen. Mail order is a way of both selling and distributing consumer goods directly to customers.

2.1.3.4 Promotion

In simple terms, ‘promotion’ informs prospective customers what a company does and what it can offer. Promotional activities are outlined in the ‘promotional mix’, which consists of the six major tools advertising, personal selling, direct marketing, Internet promotion, sales promotion and publicity. Before launching and implementing a promotional strategy, considerations need to be made beforehand regarding the budget for and the cost of promotional tools, the market size and concentration, customer information needs and product characteristics, and finally whether a push or pull strategy is being pursued. The latter decision questions, closely aligned with the preferred method of distribution, whether a company aims to sell into channel intermediaries (‘push strategy’) or rather communicates directly with consumers (‘pull strategy’).

A successful advertising and promotional campaign is one that raises awareness, creates interest and desire, and ultimately persuades the target person to make a purchase. This principle is known as the AIDA-formula⁴³. Effective promotion should communicate the user benefits and competitive advantage when buying a product and not be one-sided. Maintaining an open dialogue with customers and internal stakeholders is more beneficial than a one-way communication.⁴⁴

2.1.3.5 Comparison of the 4 P and 7 P Marketing Mix

The popular and widely accepted 4 Ps marketing mix concept by McCarthy (1964) has been increasingly challenged with proposals for modifications over the years. The most serious contender is Booms and Bitner’s (1981) 7 Ps marketing mix concept, which adds the elements of people/participants, process, and physical evidence to McCarthy’s four existing Ps. This extension to the traditional marketing mix⁴⁵ has originally been developed for services marketing.

Rafiq and Ahmed’s (1995) paper on the 7 Ps framework suggests that Booms and Bitner’s model should be applied to consumer goods and other marketing situations as well, as it supposedly offers clear advantages over the 4 P version. Table 2 offers an overview of both marketing mixes and detailed descriptions of each element.

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Table 2: Comparison of the 4 P and 7 P Marketing Mix⁴⁶

Rafiq and Ahmed (1995, p. 8) rely on Cowell when arguing that there are no fundamental differences between marketing of goods and services because according to him “the same principles and concepts are of relevance to all fields” (Cowell, 1984, p. 36), and only differ in their degree of emphasis.

In the goods marketing framework, distribution is typically delegated to marketing intermediaries, whereas the product, promotion and pricing are managed by the manufacturer. Intermediaries, such as retailers, also provide people to explain product features and to market the products. Since they interact directly with customers, the demeanor and training of these personnel can be crucial in the sales pitch. As illustrated in Figure 6, the elements of the extended marketing mix (participants, process, and physical evidence) are also delegated to distributors. Companies assume that there is no added product value created at this stage and thus the focus is set on wide distribution. A shortening of the distribution channel, i.e. the elimination of intermediaries, mostly occurs when the quality or the image of the product range are of strategic importance.

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Figure 6: The extended marketing mix and the relationship between producers and intermediaries in goods and services marketing⁴⁷

In the area of services marketing, on the contrary, usually all 7 Ps are fully integrated and under direct control of the service provider. The exceptions to the rule are intermediaries who are utilized for the distribution of standardized products and services, often seen in franchise scenarios.

In an exploratory survey among European academics, respondents praised the 4 Ps mix for its simplicity and ease of understanding. Critics stated that it is too simplistic and neglects factors like relationship marketing and the service aspects of marketing. The 7 Ps framework, in contrast, is regarded as more complicated. The inclusion of participants/people and the model type character are considered as strengths of the 7 Ps, which have become widely accepted as a generic marketing mix by the surveyed population. According to the authors, this supports the case that Booms and Bitner’s 7 Ps framework has the potential to replace McCarthy’s 4 Ps framework as the generic marketing mix in the long term.⁴⁸

2.2 Hypercompetition

2.2.1 Definition and Characteristics

As established in section 2.1.2.1, companies compete on price, quality (plus know-how), and time. Besides, the existence of strongholds (firms who possess a dominant market position) and participants with deep pockets, i.e. plenty of capital resources available, can influence the competitive landscape. Traditionally, in steady competitive environments, significant changes in participants’ market position occurred spread over a relatively long time frame, at least a decade or even longer. Since movement amongst competitors and in the market place was slow, companies had the chance to sustain their competitive advantage and to rely on their corporate and marketing strategy for longer periods of time. This movement has accelerated significantly in recent years. As a consequence, formerly stable environments are now increasingly disrupted by innovations and rapidly changing. Sustainable advantages have become temporary advantages at best. This type of environment is called hypercompetition. D’Aveni and Gunther (1995, p. 154) offer the following definition:

Hypercompetition is an environment characterized by intense and rapid competitive moves, in which competitors must move quickly to build advantages and erode advantages of their rivals. This speeds up the dynamic strategic interactions among competitors.

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¹ Cf. Kane, Y.; Wingfield, N. (2011).

² Cf. HP. (2011). HP Unternehmenspräsentation 2011, p.14.

³ Cf. HP. (2012): Facts.; HP. (2012): HP Timeline (Appendix E).

⁴ Cf. HP. (2012): Meg Whitman | HP.

⁵ Cf. HP. (2011): HP to keep PC division.

⁶ Cf. HP. (2012): HP Announces Organizational Realignment.

⁷ CEP = Corporate, Enterprise and Public (>1.000 employees); SMB = small and medium-sized businesses

⁸ Cf. HP (2011): 2011 Annual Report, p.4.

⁹ The terms ‘mobile’ and ‘portable’ are used interchangeably in this paper. Both refer to PCs that can be easily transported in briefcases, backpacks or special carrying bags.

¹⁰ Cf. Intel. (2011): Computex 2011, p.1.; cf. Intel. (2012): Ultrabook.

¹¹ Cf. ITWissen.info. (2012): Definitions.

¹² Cf. Notebookinfo.de. (2012): Tablet PC Kaufberatung.

¹³ Morgan Stanley. (2011): Tablet Demand and Disruption, p.11.

¹⁴ GfK Retail and Technology. (2011): Key Trends Computer Market Germany, p.4. (see Appendix E).

¹⁵ Cf. HP. (2001): Hewlett-Packard and Compaq agree to merge, creating $87 billion global technology leader

¹⁶ Cf. HP Desktop Retail Deck. (2011), p.4.

¹⁷ GUI = Graphical user interface. User-friendly technique which permits computer interaction with images instead of text commands.

¹⁸ Bhalla, M.R.; Bhalla, A.V. (2010), p.1.

¹⁹ Cf. HP Desktop Retail Deck. (2011), p.4.

²⁰ Cf. Backhaus, K; Schneider, H. (2007), p. 14ff.

²¹ Cf. Jobber, D. (2010), p. 4.

²² Cf. Proctor, T. (1996), p. 14, p. 32.

²³ Cf. Palmer, A; Hartley, B. (2006), p. 279.

²⁴ Cf. Backhaus, K; Schneider, H. (2007), p. 29.

²⁵ English translation for: „Netto-Nutzen-Differenz“ (NND)

²⁶ Cf. Backhaus, K; Schneider, H. (2007), p. 30, p.40.

²⁷ Cf. Backhaus, K; Schneider, H. (2007), p. 77f.

²⁸ Cf. Backhaus, K; Schneider, H. (2007), p. 116ff.

²⁹ Cf. Perillieux, R. (1995), pp. 267-284.

³⁰ Cf. Meffert, H. (1994), p. 203f, p. 227f.

³¹ Cf. Backhaus, K; Schneider, H. (2007), p. 140ff.

³² Cf. Jenner, T. (2000), p. 10.

³³ Cf. Backhaus, K; Schneider, H. (2007), p. 157ff.

³⁴ SWOT analysis – a structured approach evaluating the strategic position of a business by identifying its strengths, weaknesses, opportunities and threats; as defined by Jobber (2010, p. 60).

³⁵ PEEST analysis – the analysis of the political/legal, economic, ecological/physical, social/cultural, and technological environments; as defined by Jobber (2010, p. 919).

³⁶ Cf. Proctor, T. (1996), p. 244.

³⁷ Cf. Palmer, A; Hartley, B. (2006), p. 255f.; Proctor, T. (1996), p. 243ff.

³⁸ Cf. Jobber, D. (2010), p. 26.

³⁹ Cf. Proctor, T. (1996), p. 268ff.

⁴⁰ Cf. Simon, H. (1995), p. 5.

⁴¹ Cf. Proctor, T. (1996), p. 448.

⁴² Cf. Proctor, T. (1996), p. 449.

⁴³ AIDA: Attention, Interest, Desire and Action.

⁴⁴ Cf. Jobber, D. (2010), pp. 462-68; Chartered Institute of Marketing. (2009), p. 5f.

⁴⁵ In the context of this paper, the 4 Ps are referred to as the traditional marketing mix and the 7 Ps are referred to as the extensive marketing mix.

⁴⁶ Cf. Rafiq, M; Ahmed, P. K. (1995), p. 6.

⁴⁷ Rafiq, M; Ahmed, P. K. (1995), p. 8.

⁴⁸ Cf. Rafiq, M; Ahmed, P. K. (1995), p. 13.