Branding is key to PC sales success

Commoditisation of hardware is increasing, as vendors get increasing access to the same components. How do the smart manufacturers keep ahead of all their rivals?

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By  Caroline Denslow Published  May 15, 2005

|~|main_commoditisation_page01.jpg|~|As the PC market gets increasingly commoditised, manufacturers have to look at different ways of standing out from the crowd. A solid brand can give a vendor breathing space, which can keep it ahead of competitors. The Middle East is especially brand-conscious, say vendors in the region.|~|When Steve Jobs returned to Apple in 1996, the first thing he did was launch the snazzy iMac. For the first time, consumers could buy a good-looking desktop in the colour of their choice. While consumers raved, industry veterans wondered if Jobs had lost the plot. Apple, they said dismissively, could no longer do real innovation, just rely on a gimmick. But there was more to iMac than a dash of colour. Its Harmon-Kardon speakers delivered great sound. The ad campaign put as much emphasis on its multimedia and entertainment capabilities as it did on its traditional computing prowess. That was ten years ago. People then wondered if selling computers on the quality of sound or plain good looks was such a smart idea. Since then, computers and other hardware products have become commoditised. Companies selling PCs contribute little by way of innovation. Processors, which are the brains of computers, come from basically two sources — Intel and AMD. The rest of the components are supplied by the same vendors: memory from Samsung, Hitachi and other memory makers; hard disks from Seagate, Western Digital and other disk drive vendors; and so on. Similarly, monitors, mice, keyboards all come from the usual suspects. Therefore, there is little difference between a PC bought from a big name company like HP or your friendly neighbourhood assembler. Both use the same building blocks. The result: for each product, there are hundreds of vendors as there are no real entry barriers. This brutal competition is beginning to take its toll. IBM, which invented the PC, had to sell off its PC business. Profit margins for almost all PC/notebook makers — except Dell — have been under pressure. The story in the Middle East is no different. The market is just as competitive as anywhere else. With a much younger population - in most countries in the region as much as 60% of the population is below 30 years of age — the market is very tech savvy. “It’s also far more brand conscious than the markets in most other developing countries,” says Jihad Youssef, director, sales and marketing, Genius Computer Technology. For instance, branded PCs outsell assembled PCs in the region. And in the last quarter, sales of notebooks caught up with the sales of desktops — a first anywhere in the world. In such an environment, how does a company differentiate itself from its rivals? Design, branding, and selective technological innovation are the new tools being deployed by the marketers. In fact, all three are linked to each other. Proprietary technological innovations and good aesthetics are now absolutely essential for a company to create and sustain its own brand. None of these — with the exception of a solid brand — gives a company breathing time of more than six months. Here is an example: IBM launched a disaster recovery feature, which allowed users of its Thinkpad notebooks to retrieve data at the press of a button. By the time IBM’s advertising had been rolled out, almost every major notebook maker — Toshiba, Sony, Samsung — had started shipping notebooks with a matching feature. When it comes to slightly more technology-intensive categories such as servers or enterprise networking products, bundling and services are becoming increasingly important. So much so, that in many cases, companies virtually give away their products free in the hope of making money on the services. Replicating high quality service is much tougher — at least in the short term — for vendors than launching a comparable product. But the really big fault line is likely to emerge between those who champion open source and the ones peddling end-to-end solutions incorporating proprietary technologies. At the higher end of IT technologies, business models are going to be just as important.||**||Dressed to kill|~|main_commoditisation_page02.jpg|~|The Middle East has a very young population, In some countries the proportion below the age of 30 can be as high as 60%. Because of this, the region is very brand-conscious, says Jihad Youssef, of Genius.|~|Let us start with design. What Apple did ten years ago with the iMac, others are doing now. Design is starting to emerge as a major differentiator. And every company you speak to — from Samsung to BenQ — is quick to list the number of design awards it has won. You can not walk through any glitzy electronics store without having to turn your head several times to look at snazzy new models. The Taiwanese company, BenQ, was conceived to ride this trend. “Right from the start, we had the youth segment in mind. When we say youth, we are not talking age brackets…for us the relevant thing is the state of mind. For this segment you need the latest, trendy designs,” says Manish Bakshi, general manager, BenQ Middle East. How seriously BenQ takes design should be evident from the fact that it has set up a ‘lifestyle design centre’ in Taiwan. Samsung, too, is placing big bets on aesthetics. Showing off the biggest monitors and the slimmest notebooks is a way of life in Samsung. Almost all of its TV advertising showcases the slick, high-end range of products. “They are our flagship products. They don’t bring much volume but help us establish our brand,” says K V Narayanan, sales manager, Samsung Electronics Gulf. The company also makes sure that these flagship products — such as its button-less LCD monitor, which is operated completely with the mouse — are displayed prominently at the retail stores. While Samsung concedes it is forced to compete on price in the entry-level mass-market categories such as 15-inch LCD monitors, its wide range and branding helps the company charge a premium over its competitors in the mid- and high-end segments (17-inch onwards). “We look at API (average price index) in a category, and make sure our products are priced at a premium in the latter categories,” says Narayanan. Genius, which sells peripherals such as keyboards and mouse, also believes in dazzling the consumer. It has all kinds of mice — wired, infrared, Bluetooth — in odd but stylish shapes and colours. It recently launched the Envision series of speakers, which are merely one centimetre in thickness. Made of carbon fibre, they deliver very good sound quality. “Earlier, such speakers were available only in notebooks. We are the first company to bring them as accessories for the desktop,” says Youssef. High-end audio firms — JBL and Harmon-Kardon — have designed aesthetically pleasing speakers that produce very high-quality sound, specifically for notebooks and desktops. The round, all-glass Harmon-Kardon speakers are now an essential part of iMac’s appeal. Compaq, now owned by HP, took a leaf out of Apple’s book when it launched the Presario range with built-in JBL speakers. The sonic virtues of Presario were advertised quite prominently. But it is not always easy to replicate a competitor’s strategy. Both Compaq and Dell tried to imitate Apple’s idea of selling desktops in a range of colours. But their supply chains just could not handle the complexity of managing the inventory. Compaq ended up with huge inventories while Dell abandoned the idea quickly enough to escape consequences. That Dell with its famed supply chain could not pull off the gambit shows how aesthetics can give a long-term advantage only if the business processes are aligned well. And even though companies have succeeded in rolling out attractive looking products, few have actually managed to create a distinct look that their brands are identified with. ||**||Innovation|~|main_commoditisation_page03.jpg|~|BenQ takes design very seriously, even setting up its lifestyle design centre in Taiwan, says BenQ’s Bakshi.|~|Notwithstanding the lure of fashion, innovation is just as important for differentiation in the IT industry as it ever was. What has changed is the approach: it has become far more selective than it was before. Earlier, when products incorporated a great deal of proprietary technology, inventing something new meant inventing everything. Now, companies have a choice. While using standard components such as an Intel processor or a Seagate hard drive, they can add a few innovations of their own. Toshiba, for instance, builds its notebooks using much the same components as every other notebook maker. But then it throws in some exclusive goodies too; QosmioPlayer, which runs on Linux, allows users to play DVD, CD and TV in just a few seconds without booting up the operating system. It does this by making it possible for two operating systems — Windows and Linux — to run simultaneously. The Japanese company, known for its prowess in research and development, believes such differentiators are crucial to its future. “That has brought about a shift in our strategy. Earlier, when we invented something new, we would not only incorporate it in our products but also release it in the market at the same time. Now we have decided that we will use new technology exclusively in our products at least for six months,” says R Murlidharan, general manager, Al-Futtaim Technologies, Toshiba’s partner in the Middle East. Selective enhancements are becoming the order of the day. For instance, BenQ LCDs boast Senseye technology, which improves the quality of image. Similarly, Samsung has a similar technology that can, Narayanan claims, adjust picture quality depending on the type of application being used; dull screen for applications such as MS Word and bright screen should you turn on a gaming programme. While such enhancements help, competition usually catches up sooner than later. In the technology industry, there is just no substitute for continuous innovation. And here, big established vendors with large research and development budgets have a bit of an advantage over rivals. A judicious combination of design and innovation has helped companies such as Samsung, Sony, Toshiba and BenQ build recognisable brands. But this game is not for everyone. It requires deep pockets and a huge appetite for risk. Fortunately, not all companies need to take such risks. There are companies whose origins have shaped them well enough to play in a commoditised market. ||**||Born to battle|~|main_commoditisation_page04.jpg|~|Acer works with industry-standard components, says Andrew Lamb, ME business development manager.|~|Acer is one such company. The Taiwanese company started off as a contract manufacturer — a pedigree that makes it highly conscious of costs. It has a competitive manufacturing operation, which can deliver a very wide range of products. It is this wide range, which is priced competitively, that is at the core of Acer’s marketing strategy. “We work with industry-standard components and offer a lot of flexibility, even at the entry level,” says Andrew Lamb, business development manager, Acer Computer Middle East. He cites the case of Xeon-based servers. While Acer’s competitors stuff their servers with all kinds of technology such as onboard rate controllers, such features are optional in Acer’s case. “We know that most of the time such high-end features are not used by a customer who is buying an entry-level server, so why add cost?” asks Lamb. The market for servers is a lot more quality conscious than the market for desktops as even those using entry-level servers run mission-critical applications. Acer’s proposition of flexibility and good price, while the offering quality assurance that goes with a branded manufacturer, is quite appealing. But delivering such a proposition is far from easy. “Once something gets commoditised, it should be available off-the-shelf,” admits Lamb. To make this possible, Acer is reworking the way its products are distributed. It will ship servers with basic configurations to its distributors. They will also get components that can be added according to customer requirement. The distributor would then assemble everything and deliver it to the customer. “Earlier, the final configuration was put together in Taiwan and then shipped. That took a lot of time. We hope [that by putting it together at the local distributors’ end] we will save a lot of time.” That is the idea at least. If it pulls it off, then it might help Acer consolidate its position as a player to reckon with, alongside Dell. Dell — one of the very few hardware makers who make good profit — has made a huge success out of selling in a commoditised market. But it requires a business model that is extremely cost-effective and highly responsive to changing market needs — not an easy task to master. And that will be the challenge for Acer. Those who have found it tough to compete on costs are trying to change the rules of the game. ||**||The new game|~||~||~|With little to differentiate between products, companies such as IBM are betting on services. IBM is telling enterprises all over the world to outsource their entire IT (including manpower) function. Such contracts run into millions of dollars (at times into billions as well) and span long periods (as long as ten years). IBM provides everything from hardware to software to manpower during the entire period of the contract. It allows IBM to bundle its hardware and software (some of which might not be competitive on a standalone basis) together. A more limited option, preferred by companies such as Sun Microsystems, is to provide services on top of the solutions that include offerings from Sun. But Sun does not completely take over the IT department in a company. Never shy to take pot shots at competitors, Sun’s Graham Porter, marketing manager, Sun Microsystems Middle East and North Africa, dismisses IBM’s model as a way of selling stuff no one would otherwise buy. He says, “We call them [IT departments in companies that have been taken over by IBM] IBM’s warehouses.” Either way, companies are realising that there is only so much you can do to win in a commoditised marketplace. Whatever may be the model, for many companies, the future will depend on whether they make a success of selling services, unless, of course, they can hire another Steve Jobs.||**||

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