MANAGEMENT
CASE HCL: Facing the Challenge
describes a real-life situation
faced, a decision or action
taken by an individual
manager or by an organiza-
tion at the strategic, func-
tional or operational level
KEY WORDS
Marketing Strategy
Global Competition
MNC Brands
Consumer Behaviour
Distribution Channel
Indian Desktop market
Laptop Sales
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
of the Laptop Market
Jaydeep Mukherjee and Mahalingam Sundararajan
M
r. Ajai Chowdhry, Chairman and CEO at HCL Infosystems Limited, a
major technology hardware player in India, was pondering upon the
company’s marketing strategies to build its laptop sales in 2010-111.
Driven by powerful and sustained marketing campaigns by the multinational com-
panies (MNC), namely Dell and Acer, during 2009-10, the laptop market had wit-
nessed tremendous growth. Dell’s 1,500 million Indian Rupee (INR) marketing
initiative had catapulted it from the fifth position (in terms of sales revenues) in
2008-09 to a second position in 2009-10 in the Indian laptop market2. Similarly, Acer
had gone on a marketing and distribution blitz that catapulted it from No. 6 to No. 3
in the market, thereby more than doubling its market share.
The reason for this sustained effort by the players could be attributed to the major
structural changes that were taking place in the rapidly growing Indian computer
marketplace. Traditionally, consumers preferred desktops due to lower costs. How-
ever, in 2008-09, consumer preference started shifting to laptops because of the mo-
bility advantage and the falling prices of laptops leading to an exponential growth
of the laptop market. Households accounted for 56 per cent and business customers
accounted for 44 per cent of the market, growing at 83 per cent and 47 per cent
respectively on an annual basis. The laptop market was projected to overtake the
desktop market in 2013 (Refer to Exhibits 1, 2, and 3 for sales and projected sales of
the industry). Due to this, all hardware companies were forced to consolidate their
position in the laptop space. The predominant belief in the industry was that if this
window of opportunity was missed, it would be difficult to get a toehold in the large
and growing laptop market in the near future.
In 2009-10, HCL was the second largest brand in the desktop personal computer
(PC) category, but a poor sixth with only a 6 per cent revenue share in the laptop
market. It was important that HCL built its position in the laptop category too; it
needed at least a 15 per cent share of the growing laptop market in the next two
years; otherwise it risked facing a large negative impact on the profitability and
revenues of the company over the next few years. Ajai set his aim at 20 per cent
share of the overall laptop market in 2012, which would have allowed HCL to lever-
age the economies of scale in manufacturing and marketing.
1 The accounting year is from April to March.
2 ‘Laptop’ is used generically in the case for portable computing device and would include other products
typically called notebooks now as well as any such innovation in future.
113
HCL’S BUSINESS
HCL Infosystems was a $2.6 billion revenue company
in 2009-10 with businesses in various areas of technol-
ogy hardware. The key divisions were Hardware Manu-
facture, System Integration, Telecom Product
Distribution, and Office Automation. These divisions
were independent profit centres and the decision-mak-
ing rested on the heads of the individual divisions, who
reported to the CEO. Most of the divisional heads and
senior executives were veterans in the company and
were well-experienced in the various areas of technol-
ogy hardware. Though the businesses were independent
as far as management was concerned, they also worked
together while facing challenges in the market.
HCL had been present in the Indian market from the
late 1970s, and it had unparalleled distribution reach in
the market space. It had a wide ranging service network
that was the envy of all its competitors. It was a house-
hold name in the country and people saw the HCL brand
as Indian, dependable, and trustworthy. It was perceived
as a value for money brand and not a premium one,
which appealed to the majority of the Indian desktop
consumers. Currently, it was the only domestic player
of any note in the Indian laptop market which was oth-
erwise dominated by the MNC brands.
HCL also faced fairly steep challenges. It did not have
the deep pockets that its MNC competitors had. It was
also limited in terms of product portfolio as compared
to the MNCs who could offer products from their inter-
national portfolio into the Indian marketplace and en-
joy economies of scale. There was also the prevalent and
widespread perception among laptop consumers that
foreign brands were better in terms of quality, which
was a problem that many Indian manufacturers like
HCL, faced in the marketplace. The HCL brand was also
perceived as old-fashioned as it had been around for so
long, whereas the foreign brands were seen as new and
exciting, especially among the 20-35 year age group, the
fastest growing segment of laptop buyers. Finally, while
HCL had a great distribution presence, this was built
for its desktop business; Exhibit 4 gives the details of
the share of the different players in the desktop market.
HCL faced the challenge of converting desktop retailers
into the laptop business.
The company performance was excellent and was grow-
ing from year to year. But due to the commoditized na-
114
ture of the products, the margins were small and this
reflected in its profits. Exhibits 5 and 6 give a snapshot
of the business and its financials respectively.
LAPTOP MARKET IN INDIA
The market for laptop in India was growing rapidly and
the popularity was driven by the product attributes.
Though the product was introduced in the Indian mar-
ket in mid-1990s, the acceptance was rather limited as it
was costly and quite heavy, and it therefore took time
for the market to develop. However, by 2008, it had be-
come a very high-selling product with reasonably wide-
spread acceptance among the executives and students.
The most appealing attributes for the consumers were
portability, internet connectivity at lower costs, many
inbuilt features that were not available in standard desk-
tops, and most importantly, a substantial reduction in
the price difference between desktops and laptops —
the laptop average prices fell from 55,000 INR in 2007 to
40,000 INR in 2008, while the desktop prices only came
down from INR 22,000 to 20,000. Also, the PC required
some additional costs like a computer table, uninter-
rupted power supply units, etc., which cost additional
INR 6,000, which made laptops a better value proposi-
tion compared to desktops to a large majority of Indian
population. This trend of at least an annual drop of 10
per cent in laptop market was expected to last till 2012,
which was likely to fuel the laptop sales.
In terms of product attributes, there was not much of
difference among the equivalent products of different
brands. However, MNC brands dominated the overall
market. The leader HP was the dominant player with a
32 per cent market share, followed by Dell, Acer, and
Lenovo with 23 per cent, 11 per cent, and 8 per cent re-
spectively. HCL came in at 6 per cent, and a significant
part of the sales was to business customers. All the
brands were really putting in a lot of initiative in the
market, from a marketing and communication stand-
point. Exhibits 7, 8, 9, and 10 may be referred to for sales
figures of different brands and city-wise breakups for
desktops and laptops.
All the competitive products were well distributed
through the retail chain, though each company followed
selective distribution. Most outlets were multi-brand but
only stocked a limited set of brands because of space
and investment constraints. It was a mature distribu-
tion system and all products were pushed on the basis
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
of consumer interest and dealer incentive. The consum-
ers were becoming more knowledgeable; thus, they were
less influenced by the sales pitch at the retail counters.
Retail consumers were able to negotiate prices on most
brands by comparing prices across different retail out-
lets. Thus, margins were thin for manufacturers as well
as dealers, but the volumes more than made up for it.
Interestingly, in 2009-10, the sales of laptops in the top
four metros grew by 173 per cent and in the rest of India
by 48 per cent; however, consumption in the next four
cities declined by 16 per cent. The sales of desktops in
the top four metros increased by 30 per cent, in the next
four metros by 21 per cent, while in other smaller towns,
it declined by 61 per cent.
The PC market in India was predominantly price-con-
scious; however, 5 per cent of the target market could
be termed affluent, capable of purchasing premium
products and typically residing in the metro cities. There
were a couple of brands, namely Sony and Apple, which
catered to this segment. They had excellent products,
great in quality and aesthetics and fitted with the best
features. Their customers were typically image-con-
scious people with not much of functional requirement
other than the desire to own the best. These brands of-
fered higher trade margins as the products had a lim-
ited market, and they were also perceived as expensive
by the retail channel. Exhibit 11 gives the product fea-
tures and Exhibit 12 the advertising spends.
One of the challenges that HCL faced in the branding of
laptop was that it was an Indian brand. Across consumer
durables and office automation products, it was ob-
served that foreign brands were perceived to be better
by the consumers, even when the products for both for-
eign and Indian brands had the same specifications and
were made in the same factory. This could be attributed
to the Indian craze for all foreign products that existed
in the 80s and 90s when the economy was closed. With
the opening of the Indian economy in early 1990, though
there was a reversal in this trend, it still dominated many
product segments, including laptop. However, from
HCL’s point of view, the positive aspect was that the
trend was changing with increasing international rec-
ognition of intellectual power of Indians as well as pro-
duction and R&D capabilities of the Indian companies.
In fact, many industry analysts predicted that in another
decade, the India factor could play a positive role and
Indian brands could command premium.
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
CONSUMER BEHAVIOUR
Laptops and desktops were different product catego-
ries which used the same distribution channel and
seemed to satisfy similar consumer needs. However,
they were considerably different from each other, as was
evident from the fact that except for the market leader
HP, the preeminent brands in the desktop space were
quite different from the laptop space. One way to ex-
plain the above could be the fact that while both the cat-
egories fulfilled the same functional need of computing,
the usage of desktops and laptops could be consider-
ably dissimilar.
Desktops are used at a fixed place, either at office or
home, and for specific tasks, mostly work-related. They
need additional accessories for enhancement of the us-
age, like extra speakers, gaming cards, and some neces-
sary additional gadgets like uninterrupted power supply
battery, computer table, etc. Laptops can be used virtu-
ally anywhere. Because of the portability feature, a sig-
nificant part of the laptop usage is for entertainment.
Laptops are self-sufficient product, which come with
inbuilt speakers and adequate battery life so that it is
not necessary to plug in additional accessories most of
the time; hence the overall cost to the consumer is per-
ceived to be lesser. Finally, desktops are preferred for
multi-people usage – i.e., many people could use the
same machine, while laptops are generally seen as per-
sonal assets, meant more for a single user or at best the
family.
The decision criteria and the buying process of laptops
and desktops took different paths. While the basic use
of both was for computing, the trigger for desktop was
primarily work and study-related activities, whereas for
laptop, it was work and entertainment. Desktops were
perceived as a commodity; and so, the focus was more
on the amount of features that a certain price could buy.
This was the reason that there was a huge unorganized
sector in this market. Laptop was a more visible prod-
uct; so, consumers were more image and brand con-
scious when it came to a buying decision.
There were two major segments in the laptop market:
the enterprise (also referred to as business or corporate)
segment and the consumer (retail) segment. The data
regarding the size of the segments are given in Exhibits
13 and 14. The enterprise segment had a collective deci-
sion making process; typically, it was decided by the
115
head of the IT department with inputs from the heads
of the user departments. The decision-making was ap-
parently rational, specification-oriented, and consulta-
tive but the people involved were not really technically
savvy enough to discern the product differentiation. The
business buyers of laptops were also concerned with the
image connotations as the products were carried by
employees outside the office. Most marketers had spe-
cialist sales force to address this segment and much of
the sales were acquired directly or jointly along with
the sales team of the distributors.
The retail consumer segments buying these products
were also different. The desktops were primarily bought
for work-related purposes, be it at office or home. The
decision was of the elder member of the household like
the father. Laptops were purchased more often by
younger people who bought it for themselves and their
major decision criterion was entertainment and not
work. Even if the father paid the money, members of
the younger generation were the core decision
influencers specifying the product features, brand, etc.
The consumer segment was for individual buyers – the
decision was made by the individuals and the selective
distribution channel was used to tap the same. This ac-
counted for 60 per cent of the market and was the seg-
ment that was growing the most. While no manufacturer
was addressing specific segments, the market broadly
comprised three distinct groups. The fastest growing
segment included the young students or newly em-
ployed – they were interested in lowest price offerings
with maximum features and were normally first time
buyers. The middle-aged consumers were typically us-
ers of desktops who were upgrading to laptops. They
were concerned about new features but their purchase
decision was mostly influenced by brands. There were
a few elderly buyers who depended on the retailer’s re-
commendation and service assurance.
Currently, the biggest segment for laptops was the mid-
level corporate executives. They used laptop extensively
for work and play and saw it as a way to climb the cor-
porate ladder. Typically, they had been PC users in the
past and laptop was their second computer purchase.
They knew what they wanted and were seeking value
and not really price. The smallest segment in terms of
number of units was the senior executives, who usually
had the best machines, but used only the basic features
116
and were least knowledgeable. For them, it was a fash-
ionable accessory, a talking point and more of a status
symbol.
The manufacturers had not designed the product port-
folio specifically targeting any defined consumer seg-
ment in the retail market. The products could be broadly
classified as two core product ranges – basic models with
minimal features, and the other range at the mid-end
with good styling and advanced features. Sony and
Apple were premium brands having only high-end
products, which were aspired for by many but had lim-
ited number of buyers because of their high price. The
manufacturers tried to create a generalized brand pull
across the segments, but provided a bouquet of prod-
ucts and features to meet the specific needs of the di-
verse consumers.
COMPETITIVE MARKET STRATEGIES FOR LAPTOP
The major determinants of success in the market were
distribution and communication, as products were simi-
lar and were priced competitively. The market leaders
traditionally had a slightly higher price for products
which were high on features as compared to the com-
petitors; this scenario had changed since 2008. One of
the characteristics which prompted the change was that
a company would launch a product with a feature ad-
vantage, but that would be copied by the competitors in
two months. In fact, so huge was the possibility of obso-
lescence that premium pricing was no more in vogue.
Distribution was an important element in the market-
ing mix. The established players in the Indian market
like HP and Lenovo had excellent distribution cover-
age. The newer brands were aggressively building their
distribution networks and were likely to have adequate
reach in another two years. HCL was in a unique posi-
tion in that it had excellent distribution as far as desk-
tops were concerned, though it was still building its
laptop distribution network. This was because HCL had
launched its own range of laptops in 2008 and the chan-
nel was being built up from that period. However, HCL
enjoyed the benefit that it could build its laptop channel
on the back of its widespread desktop channel.
Communication and brand building provided the op-
portunity for creating differentiation that was being ex-
plored by all the brands. Each had its own
communication and media strategy. Some of them had
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
international campaigns while some created specific
campaigns only for the Indian market. All of them used
both advertising and sales promotion aggressively,
though media strategy in terms of the budgets allocated
in different media varied from brand to brand. Exhibit
15 gives a brief idea about the positioning planks used
by competitors.
Another determinant of success in the market was ‘af-
ter sales service’. With the growth in the unit sales and
geographical spread across more and more remote lo-
cations, this was becoming important. The importance
of service increased as more and more people were us-
ing the machines heavily and many problems often
cropped up because of the rough usage. Thus manufac-
turers were forced to beef up their service infrastruc-
ture by increasing service locations, offering online and
telephone-based service solutions, and thus become
more service-driven. HCL had an advantage of having
a huge service base in place, due to its longevity in the
market and the preeminence in desktops.
All manufacturers offered both desktops and laptops,
though their sales performance in these two markets was
normally very different from each other. In the desktop
category, the market was dominated by HCL and HP
and followed by all the other players in equal measure.
The laptop market was led by HP, with Dell and Acer
building their market shares through huge marketing
investments.
HCL traditionally had products at the lower end of the
spectrum, and they were priced lower, to the tune of 2-
5 per cent, than the comparable products from the MNC
brands. In future, HCL wanted to have a presence in the
premium customer segments also, and were slated to
bring in a new range of products with good looks and
features in early 2010. By end 2009, the MNC brands
had also dropped their prices and so there was virtually
no perceptible price differential between the different
key brands. HCL needed to work out its core position-
ing and appeal in the marketplace. Thus far the com-
munication done by HCL had been purely functional,
and the brand value had not been strongly established
in the consumers’ minds.
Dell had a strong offering in the enterprise segment as it
was perceived as having very functional and high per-
formance products. It leveraged this functionality along
with its competitive pricing when it focused on the re-
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
tail consumers. While internationally Dell was a value
player, in India, they focused on being a high end player
(not premium, but on par with HP/Lenovo). They also
created a retail distribution model in India (unlike their
internet-based model followed globally), as they real-
ized that not many people in India currently bought
laptops through the online channel. Dell’s huge mar-
keting spends, brand salience, good performance, inter-
national name, and improved retail distribution helped
it in building a good market share.
Acer’s 2009 strategy was multi-pronged, with initiatives
in product, price, promotion, and channel. What they
did was spend hugely in the market, have many prod-
uct variants and a slightly discounted price, and many
promotional offers. They also roped in a very popular
film celebrity to endorse their product. Industry ana-
lysts attributed the growth in market share to the in-
creased spends which leveraged the overall buoyancy
in the laptop market.
Initially, most retail consumers and enterprises bought
desktops as there was a huge price difference between
desktops and laptops. Desktops were seen almost like a
commodity and the decision-making was based on the
best specification that was offered by the various brands
for the lowest price. After-sales service also played a part
in the decision-making, but its importance was limited
because all the manufacturers were now able to give at
least an acceptable level of service. The desktop market-
ers faced a much bigger and relatively uncontrollable
challenge from the unorganized sector entrepreneurs.
These entrepreneurs assembled the desktops, and could
offer a price advantage to the tune of 30 per cent, thus
having a huge market share in the price-sensitive cus-
tomer base. With an all-round reduction in prices for
the hardware segment, consumers had started moving
to branded desktops from the unorganized sector as the
price difference had come down to only 10 per cent in
the last year. There was simultaneously a huge move-
ment from the desktops to laptops. Laptop buying was
based on various factors. While price, specifications, and
after-sales service played a significant role, brand value
was becoming an important factor for choice.
A laptop was more visible to others and more personal
than the desktop and hence buyers were becoming con-
scious of the brand that they would prefer to carry. This
was also impacting the decision-making criteria of the
117
enterprise segment — they were not factoring in the
image connotation of the brands as the users carried
these machines with them to meetings outside the of-
fice. This shift was also helped by the fact that the top
brands were reducing their prices, and there was less
differential between them and the value brands for com-
parable products.
The Distribution Channel Dynamics
The predominant distribution model used in the indus-
try was standard across the major players. The commer-
cial segment was addressed directly or through a hand-
ful of national distributors, who were directly billed from
the company. The smaller business customers were
marketed by the distributor’s sales team but major cli-
ents were also supported by the sales team of the princi-
pal.
The retail segment had a three-tier distribution. The
manufacturer supplied to the national distributors. These
national distributors supplied to the regional distribu-
tors, who serviced the retailers; they in turn sold to the
end consumer. Since most of the retailers were multi-
brand, they were motivated to sell only specific brands
and kept switching loyalty. Some manufacturers circum-
vented the problem by opening their own model stores,
typically located in high traffic markets, but these stores
were essentially for publicity. These stores were staffed
by well-trained and dedicated employees who sold the
brand rather than just generating product sales. The con-
sumers typically understood the product features and
got educated in the model stores. Many consumers learnt
about products and features on the Internet and also took
advice from some young people who were known as
experts on technology.
There were also influential retail chains which dealt with
the manufacturers directly – like Tata’s Chroma, Future
Group’s Home Town, etc. These retail chains accounted
for about 15 per cent of the entire retail market and thus
enjoyed a lot of clout. The online store was another chan-
nel which offered limited business currently but was
expected to grow in the future. In addition, each manu-
facturer had its own service chain — a few of them were
company-owned and others were franchised.
There was no major difference in the distribution chan-
nel for laptops and desktops. However, the differences
in business were driven by the fact that desktop market
118
was in the maturity phase while the laptop was still
growing. Also, the consumers of desktops were more
conscious about prices and robustness of the product
while laptop customers were product feature-driven and
brand-conscious.
Debate on Marketing Strategy
Ajai met the top executives in December 2009 to discuss
the 2010 strategy. The abridged organization structure
is given in Exhibit 16. The following discussion took
place:
Ajai – “You are aware that we need to take some key
decisions in the laptop market. I wanted to get your in-
puts on the approach we should take.”
George Paul, Executive Vice President (EVP), Market-
ing – “I suggest we go in for some detailed market re-
search before taking any decisions. We don’t have
sufficient information to take a call. We should do quali-
tative research to understand consumer attitudes and
gap areas and then ratify it through some detailed quan-
titative research. We can then work out detailed opera-
tions, marketing and sales plans.”
EVP, Sales – “Yes, but the market is not going to wait
for you, it might be too late then,” said EVP, Sales,
Rajinder Kumar. “Every one of the competitors knows
the situation and will have their plans ready. Dell and
Acer have already moved ahead and the others are not
going to wait any longer. Anyway, the good thing is
that our product/brand is considered as good as any
other product/brand, or so I understand from the field.
We should just blitz our way through with some high
decibel communication.”
EVP, Marketing – “But what will we say in the commu-
nication? That’s one of the key deliverables of consumer
research.”
EVP, Sales – “Say anything, how does it matter, as long
as you plug the brand. Have you seen the competitors’
communication? They are pretty bland, though effec-
tive.”
Ajai – “Before we get into what we say in our communi-
cation, we need to think about our approach to the mar-
ket. What sort of investments do we make? Do we go
into this with a heavy investment, or should we be more
cautious in our approach?
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
J V Ramamurthy, COO, said – “I think we need to be
cautious. There is no way by which we can jump from a
weak No. 6 to No. 1 anytime soon. We don’t have any-
thing that the competitor doesn’t have, and I don’t think
we should do a price war, that might make us lose brand
equity in the corporate segment as well.”
Ajai – “So you’re saying that we shouldn’t go for the
retail segment?”
COO – “No, we should launch, but pretty much stick to
what we say in the Enterprise segment – ‘The high qual-
ity, no nonsense laptop’. We should focus on building
the channel and become strong there. We should high-
light our service credentials and build it into our com-
munication.” (The value proposition of HCL for the
enterprise segment is given in Exhibit 17).
EVP, Sales – “I don’t think we can get anything by being
cautious. We have to go all out; otherwise we don’t stand
a chance. Don’t forget that Dell and Acer have huge
marketing and promotion spends and we will not be
able to do much if we take a slow stance.
Ajai – “Whatever investments we make, we should think
about how we approach the market. JVR wants to look
at it as an extension of the Enterprise market as we al-
ready have a very good equity there.
EVP, Marketing – “I think that is one possible approach.
But the core segment that decides on laptops is the youth.
I am not sure that our Enterprise positioning would be
relevant to that audience.”
EVP, Sales – Why don’t we focus on a specific segment
within the youth? Nobody is doing that. We could build
a strong appeal on one segment and build from there.
Dell initially focused on the Small and Medium Enter-
prise segment, built its credibility and that’s got them
returns across the market.
EVP, Marketing – “That is worth looking at, certainly.
But which segment? The younger segment does not have
the ability to spend much money and the older segment
is not so involved in decision-making. We need to un-
derstand this more closely.”
COO – “You are right – ‘You’ll never get a second chance
to make the first impression’.”
Ajai – “Can we create some new features to launch in
the market? Something the competitors do not have?”
VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012
COO – “All features are reproducible real fast. You know
all laptops are made by 3-4 OEMs from Taiwan. But I’m
sure there would be some features that the competitors
don’t have or have not used yet.”
EVP, Marketing – “But how do we choose the features?
For that we need some solid consumer research. Sorry
to sound like a stuck record …”
Ajai – “OK, let all of us put our thoughts together and
meet next week. We have to use our existing knowledge
and experience to take the decisions, and that should be
adequate to start. We do not have the time to wait for
the formal market research findings to take our initial
decision. However, if need be, in future, we may com-
mission market research to help us tinker with the strat-
egy. We’ll close the action plan then. Thanks for your
time.”
DILEMMAS OF THE CEO
Ajai had a few thoughts on the way forward. He could
replicate the Dell and Acer models of intense consumer
advertising by building adequate retail support. How-
ever, given the high investment necessary for this strat-
egy, he would be putting all his eggs in one basket. Also,
he was not convinced about the success of following a
competitor’s strategy.
Another course of action could be to focus on a particu-
lar segment and build leadership there. One possible
segment was the B2B space and HCL had high visibility
due to its preeminence in desktops. The challenge here
was that the B2B buyers were notoriously price-sensi-
tive and not brand loyal. HCL would continue to be a
value player and this segment would always be a low
margin one.
Ajai believed that the HCL brand had to be made more
relevant and appealing to the audiences. He felt that a
budget of 600-800 million INR would be optimal for the
organization to spend on advertising and that would
not be sufficient to have an impact on the entire con-
sumer base for laptops. However, if they focused on the
specific lucrative market segments, it could be adequate;
thus there was the need to focus on a specific segment.
One important segment was the youth segment in the
retail market – they were the highest users of comput-
ers and also the most influential and knowledgeable.
They currently perceived HCL as an old-fashioned brand
119
and were more enamoured by the MNC brands. Also,
they could not afford to pay much; and so, most of them
purchased the entry level products.
There was also scope for learning from the mobile mar-
ket. Since HCL was a distributor for Nokia mobile hand-
sets, some insights from that market were available. The
mobile market was a high decibel market, which had
achieved huge penetration among Indian consumers. It
was focused on good product innovation, and price de-
livery. Service was turning out to be important and vari-
ous segments were being created. Ajai reflected on this
category and on whether any points from this could be
applied for laptops. The problem was that the price of
the mobiles was considerably lesser which facilitated
adoption; also the category was entirely different from
the consumer’s expectation point of view.
In the mobile handset market, it was important that the
product delivered on the promised features. Most of the
consumers were not very technology-savvy; they only
knew certain basic features and hence just looked for
them. Hence a robust product design solved the prod-
uct aspects quite well. Communication and marketing
would get the customers into the store, but unless the
product looked good and attracted customers, the sale
would not happen. A lot of purchase decisions changed
at the showroom; so, it was important that the distribu-
tion was enthused and well rewarded for the products.
This would put pressure on margins and that factor
needed to be looked at very carefully. In laptops, the
situation was quite different. The consumers were quite
technology-savvy and were expected to play with it and
use it in different ways. The experience hence could be
quite varied and difficult to manage.
Exhibit 1: Desktop Sales in India (in Units)
6,000,000
5,000,000
4,614,724
4,000,000
3,632,619
3,000,000
2,000,000
1,000,000
0
2004-05 2005-06
Source: IMRB Data.
120
The economies of scale were very pronounced both for
laptops and desktops. Thus the cost of production could
vary between 70-75 per cent of the selling price depend-
ing on the economies of scale achieved in manufactur-
ing. The typical distribution costs were around 12 per
cent and the internal sales and marketing overheads
were in the range of 7-9 per cent based on the company’s
market share and intensity of competition. As a thumb
rule, in the laptop market, economies of scale started
operating after reaching a market share of 10 per cent,
and the impact was around 2 per cent of the selling price.
For every additional market share of 5 per cent, the in-
cremental advantage of economies of scale was 2 per
cent of the selling price. This effect was not really ob-
servable after reaching a market share of 30 per cent.
Also, the average selling price of the laptop was expected
to fall by 10 per cent year on year due to improvement
in technology and intense competition. The key chal-
lenge was to assess the impact that the rapid changes in
the market and strategic marketing shift could have on
the financial results.
It was also important that the after-sales service be good.
Laptops were a high-use category and needed good sup-
port service. It is one of the hygiene considerations for
consumers. Delivering good service also had an impact
on the margins due to the travel cost incurred for geo-
graphical coverage and for paying salary to a large num-
ber of trained service people. HCL was, however, in a
better position here due to its extended desktop service
and support staff, which could also service laptops at
no extra cost.
Ajai wanted to work out the numbers to be sure that his
marketing strategy and budgets were prudent.
5,522,167
5,490,591
5,525,992
5,279,648
2006-07 2007-08 2008-09 2009-10
HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET
Exhibit 2: Laptop Sales in India (in Units)

Source: IMRB Data.

Exhibit 3: Desktop and Laptop Sales Projection over 5 Years (in Units)

2009 2010 2011 2012 2013 2014

Consumer Desktop 1818,577 1863,476 1940,234 2035,166 2115,186 2168,819
Commercial Desktop 3389,476 4151,400 4570,582 4881,080 5172,600 5471,001
Total Desktop 5208,053 6014,876 6510,816 6916,246 7287,786 7639,820
Consumer Laptop 1292,013 2047,966 2657,145 3404,915 4290,879 5382,180
Commercial Laptop 1104,987 1452,642 1903,559 2438,754 3075,711 3809,661
Total Laptop 2397,000 3500,608 4560,704 5843,669 7366,590 9191,841
Source: IDC.

Exhibit 4: Percentage Sales of Indian, MNC, and Informal Sector in Desktop Market

Year India MNC Informal

2005-06 33 35 28
2006-07 32 39 23
2007-08 23 45 22
2008-09 25 51 18
2009-10 31 52 21
Source: IMRB Data

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012 121

Exhibit 5: HCL Infosystems Snapshot
Ajai Chowdhry
Chairman & CEO
Services Footprint 1 Largest manufacturer of PCs
HCL Infosystems Internet and State-of-the-art manufacturing for PCs, business servers,
related services Computer workstations, colour monitors, etc.
4% systems
26% 2 Leading System Integration organization
Pan-India SI solution provider in verticals like Power, Telecom,
Telecom
E-governance, Railways, Retail, BFSI, Media & Entertainment,
and office
automation Health, Infrastructure, Education, etc.
70%
3 Largest ICT distribution and retail Network
Revenue: USD 2.6 Bn • 93,000 outlets, covering 11,000 towns
• Largest pool of trained manpower handling 2.5 million
support incidents per annum
• Support base of over 3 million assets in 75,000+ sites
• 1,200+ support locations coverage by team of 5,000+
engineers
4 Emerging businesses
• HCL CDC - centres to bridge skilled manpower gap which
exists in the IT industry
• HCL Security - to make the world a much safer place to be
in with its range of state-of-the-art end-to-end technology
Ranked “Best IT Employer in India” by DataQuest - Sep 2009 solutions for security and surveillance

Source: Company Brochures.

Exhibit 6: HCL Infosystems’ Abridged Financial Results (in INR million)

FY 2008-09 FY 2009-10
SALES
Computer Systems & Other Related Products and Services (Net) 34,139 35,340
Telecommunication & Office Automation 88,749 85,290
Internet & Related Services 461 767
Less Inter segment revenue -821 -898
Total Sales 122,528 120,499
PROFITS
Net Profit/Loss before Tax and Interest 4,057 3,925
Computer Systems & Other Related Products and Services (Net) 1,773 1,904
Telecommunication & Office Automation 2,462 2,159
Internet & Related Services -178 -138
Total Profit before Tax 3,513 3,513
Net Profit after Tax 2,400 2,424
Source: Annual Reports.

Exhibit 7: Desktop Market Shares (2007-09)

2007 2008 2009

Desktops Units Market Share Units Market Share Units Market Share
Hewlett-Packard 757,415 16.02 727,073 13.03 642,792 12.34
HCL 724,830 15.33 660,113 11.83 550,689 10.57
Dell 302,091 6.39 339,990 6.09 288,701 5.54
Lenovo 386,089 8.17 296,309 5.31 211,792 4.07
Acer 263,711 5.58 317,611 5.69 359,623 6.91
Wipro 158,770 3.36 182,660 3.27 163,655 3.14
Others 2135,132 45.16 3058,351 54.79 2990,794 57.43
Total 4728,038 100.00 5582,107 100.00 5208,046 100.00
Source: IDC Estimates.

122 HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET

Exhibit 8 Desktop Sales: City Spread

Spread of DESKTOP Sales in % of Annual Sales

Year Top 4 Next 4 Rest of India
2004-05 38 11 51
2005-06 33 13 54
2006-07 32 8 60
2007-08 23 12 65
2008-09 25 7 68
2009-10 31 8 61
Source: IMRB Data.

Exhibit 9: Laptop Market Shares – 2007-09

2007 2008 2009

Laptops Units Market Share Units Market Share Units Market Share
HCL 131,683 7.44 161,088 6.96 292,785 7.17
Hewlett-Packard 651,386 36.79 714,397 30.86 1,365,851 33.43
Lenovo 283,184 16 302,398 13.06 585,611 14.33
Acer 182,811 10.33 312,158 13.48 494,993 12.12
Dell 137,070 7.74 380,118 16.42 517,212 12.66
Toshiba 108,625 6.14 83,473 3.61 192,108 4.70
Sony 49,982 2.82 91,020 3.93 141,009 3.45
Others 225,588 12.74 270,562 11.69 496,174 12.14
Total 1770,329 100 2315,214 100 4,085,743 100
Source: IDC Estimates.

Exhibit 10: Laptop Sales: City Spread

Spread of LAPTOP Sales in % of Annual Sales

Year Top 4 Next 4 Rest of India Total
2005-06 47 10 43 100
2006-07 36 6 58 100
2007-08 7 24 69 100
2008-09 18 7 75 100
2009-10 68 4 29 100
Source: IMRB Data.

Exhibit 11: Features of Important Brands

HP Dell Acer Lenovo HCL Sony

Display Bright view True life for clear Vibrant view Perfect technology
and flush glass and bright view for clear and
bright display
Keyboard Spill proof and Backlit (optional) Spill proof Spill proof and Isolated Isolated,
backlit (option) and spill proof backlit (option) backlit and
spill proof
Security (against Finger print Finger print Finger print Veriface and Finger print Finger print
unauthorized and spare key and password and password finger print and password and password
booting)

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012 123

 Exhibit 11 (contd.)
HP Dell Acer Lenovo HCL Sony
Data Safety TPM and TPM TPM TPM HCL Encryption TPM
(Encryption) Privacy Manager S/W and TPM
Data Recovery HP Recovery Dell Ultimate Acer e- ThinkPad HCL EC2 Sony
against OS Manager Recovery restore Recovery
Corruption, S/W recovery S/W
Virus Attack, etc.
Source: Internal Reports.

Exhibit 12: Advertising Spends

(INR million)
Advertisers 2008 2009
HP 130 470
HCL 10 140
Compaq 150 210
Sony 150 340
Toshiba 90 200
Dell 500 1,150
Wipro 0 20
Acer 120 250
Lenovo 230 150
Samsung 80 80
LG 50 0
Apple 30 0
Others 100 70
Grand Total 1,640 3,080
Source: Agency Estimates.

Exhibit 13: Desktop Sales in Different Segments

Source: IMRB Data.

124 HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET

Exhibit 14: Laptop Sales in Different Segments

Source: IMRB Data.

Exhibit 15: Communication Strategy

Brand Positioning Communication Theme

Dell Partner in Success Take Your Own Path
HP Innovator Personal Again
Acer Solution Provider Life is Busy, Acer Makes it Easy
Compaq Enabler of Mobile Computing Get Going
Lenovo Feature Rich New World, New Thinking
Toshiba Performance Feel Quality, Feel Toshiba
Sony Design / Aesthetics Closer to You
Source: Advertising Agency Analysis.

Exhibit 16: Simplified Organization Structure

Source: Company Reports.

VIKALPA • VOLUME 37 • NO 1 • JANUARY - MARCH 2012 125

Exhibit 17: HCL Value Proposition of the Enterprise Segment

Category: Corporate/SMB
1. Magnesium/Alumnium surface
2. Spill resistant keyboards
Category: Govt
3. Latest technology and architecture
1. Docking port
2. Battery life more than 4 hrs in working condition
3. Linux support
Category: Education
Category: BFSI
1. High Resolution Camera and Speakers
1. Basic computing device at good price 2. Sleek but not small display
2. Linux support 3. Higher HDD and Memory
3. Battery life more than 4 hrs 4. Colour/Design
Feature

Looks/Brand

Source: Company Documents.

Jaydeep Mukherjee is an Associate Professor at the Manage-
ment Development Institute, Gurgaon. He completed his Ph.D
from IIT Kharagpur and PGDM from IIM Calcutta. Before join-
ing academia, he had worked in various capacities in the sales
and marketing function of Godrej GE Appliances¸ ICI India
Limited, and Aristocrat Marketing Limited for a decade. He
offers electives in Product Management, Marketing in the Vir-
tual World, Marketing Strategy, and Sales and Distribution.
He advises HCL Infosystems Limited on their New Product
initiatives and has conducted customized training for execu-
tives from Nestle, HP, HMT, BSNL, etc. He takes keen interest
in developing cases from the Indian context for classroom
teaching.
Mahalingam Sundararajan is Vice President, Corporate Strat-
egy - HCL and leads the brand building activities of HCL across
the Enterprise. He also spearheads the marketing activities of
the various initiatives of the Shiv Nadar Foundation. He has
worked for over 20 years in various roles in technology mar-
keting and advertising. Prior to HCL, he has worked with
Microsoft and Hexaware Technologies. He has also worked
for eight years in strategy planning with advertising agency
JWT. Sundar has a degree in Chemical Engineering from IT
BHU, Varanasi and a PGDM from IIM, Bangalore. His inter-
ests include sports and fitness.
e-mail: mahalingams@hcl.com

e-mail: jmukherjee@mdi.ac.in

126 HCL: FACING THE CHALLENGE OF THE LAPTOP MARKET