Tuesday, August 31, 2010
In 1997 and 1998 the consumer demand for sub-$1,000 computers continued to erode profit margins throughout the industry. Many major computer manufacturers responded by going after small and medium-sized businesses and by launching large-scale e-business ventures. The top marketers supported these moves with glossy multi-million-dollar brand advertising campaigns. IBM made the first and most dramatic move in this direction with a $130 million e-business initiative that targeted businesses using the Internet.
Among Hewlett-Packard’s other competitors were Compaq, Dell, and Apple. Compaq spent some $102 million on advertising in 1997 and planned to double the amount in 1998, when it launched its first global brand campaign. Dell spent $43 million on ads in 1997 and planned to double the amount in 1998 to brand itself as the originator and leader in selling directly to the consumer and in providing technical support services to its customers. Apple spent $47 million on its ‘‘Think Different’’ campaign, which aimed to link the company’s computers with Einstein, Picasso, and other creative people.
The primary target of the initial ‘‘Expanding Possibilities’’ ads was families with children, but the company also wanted to become better known among small businesses, microbusinesses, and the owners of home businesses. Both business owners and workers were targeted. In Canada, Hewlett-Packard made a direct appeal to entrepreneurs and the self-employed. According to Statistics Canada, the latter group numbered 1.8 million, up 28 percent from 1991 to 1998.
Two Stanford University engineers, William Hewlett and David Packard, founded the company with $538 in a Palo Alto garage in 1939. Their first major customer, Walt Disney, bought oscillators to help make his film Fantasia. In the 1970s and 1980s Hewlett-Packard became known as an entrepreneurial high-tech company, and it has been credited with establishing Silicon Valley. For years it made the lists of America’s best-managed companies. By the late 1980s, however, the company seemed entrapped in a bureaucratic jungle, with burdensome decision making by consensus and other organizational problems. In 1990 Hewlett-Packard was reorganized, and cost-cutting measures included voluntary severance and early-retirement programs. The company’s single sales force was divided by product lines, and administrative and manufacturing areas were consolidated.
During its history Hewlett-Packard had always been much better known in the business community than among general consumers. It was the world’s second largest computer supplier and a leading provider of electronic products and systems for computing, measurement, and communications. But it did not use advertising to appeal directly to consumers. Lewis Platt, then the chairman, president, and CEO of Hewlett-Packard, said that 18 months of focus group testing showed that the public felt the company to be trustworthy and reliable but did not view it as innovative. Hewlett-Packard’s reputation stemmed from its engineeringdominated culture, and while people judged its products to be of high quality, they perceived the company as being technical and impersonal.
In addition, the company’s decentralized structure contributed to its fragmented marketing efforts and prevented it from taking full advantage of consumer interactions. For example, the owners of Hewlett-Packard’s 75 million ink-jet printers bought from two to five new cartridges a year, but the company did not have a plan to take advantage of these customer contacts. Hewlett-Packard’s vision of the future included a blending of consumer electronics, including PCs and communications and entertainment products, with new product categories emerging. The company’s goal was to prepare to become the largest consumer electronics supplier by the early 2000s. This would mean becoming much better known among consumers. As the technology battleground moved into the home, however, Hewlett-Packard had to prepare to compete with electronics and entertainment companies such as Sony and General Electric that already had a much higher profile with consumers and that were viewed in more positive terms.