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"We spend 80 percent of our advertising fund supporting second-tier partners"

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DQW Bureau
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Princy Bhatnagar, Market Development Manager (Consumer Peripherals), HP India Ltd has been with the company for a little over three years now. He feels that the best part of HP's planning is that it never devises strategies, which enables it to stop competition. What it works towards is enabling higher business for HP's pie. He concedes that HP grows its market share and revenue by market creation as against trying to curb competition growth. Preety Raheja of the DQ Week catches up with him on what's latest at HP's front.

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HP has been very successful with the channels. What do you attribute this success to?

There are multiple factors influencing our success in the channels. From the beginning, we have looked at business with a very fundamental approach as to how we can make business more convenient for our partners and access of the product more convenient for the user. It works on a complete strategy, which involves not only, sell-through support but also involves support infrastructure. For example, we have support infrastructure through our authorized centers in almost 70 cities today. None of our competitors can claim that kind of an infrastructure. HP also has a stock-rotation management.

None of our reseller can talk of over-stock at any point of time. We know our business is higher volume and hence lower margins and that is the reason why we need to make business more convenient for the channels. First-tier stock never exceeds more than 10 days as compared to the industry standard of 20-21 days. Second-tier stock does not exceed beyond 10 to 15 days. We ensure that once the second-tier is pushed towards taking a stock, we support them through advertising and pull generation programs. 

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HP upgrades the market from time to time by bringing in new technology and new concepts. And this is the reason why our partners always feel very strong emotional bond with HP as a vendor. We spend 80 percent of our advertising fund directly supporting second-tier partners. Entire peripheral industry has followed our example. 

With the other brands in the market getting very aggressive, what strategy are you adopting to combat the competition?

Competition for HP has always been there. When we started the business, there was tremendous competition from dot matrix printers, which had 85 percent of market share at that time. HP was struggling at 10 percent then. The good part of HP planning is that we never devise strategies, which enable us to stop competition. What we work towards is enabling higher business for HP's pie such as strategies like time to market advantage. I have time to market advantage versus all my competition. Now when I say something about the new technology, there is a higher acceptance. So I keep on upgrading the market to higher model. 

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If you look at sub segment analysis, in the Rs 5,000 product range, we have only 50 percent market share. But our overall market-share is 70 percent. Where is this 20 percent coming from? It is from the next range, which is Rs 7,000 to 10,000 market, where we have 90 percent market share. We are growing our market share and our revenue by market creation as against trying to curb competition growth. Last one year, Epson, Canon and Xerox have grown substantially. Canon has grown almost 120 to 130 percent. In spite of that, HP's market share has gone up from 60 to 70 percent.

HP's printers are at times said to be over-distributed products as it moves beyond two-tiers to three or four-tiers. Why?

In an over distribution cycle of six months, there should be a substantial dip which should have come because by that time you would have choked all your existing partners with their finances because this business happens at a wafer-thin margin. But if you see HP's business, we have 60 key sub-distributors across the country who have grown at a rate of 70 to 80 percent per year for last three years. We have added new partners but none of the old partners have gone out of business. That would not have been the case, had the product been over-distributed.

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l How do you cushion the resellers when you make transition from one price point to another?

HP's 640 printer price has not dropped since last January. In spite of the fact that OP has depreciated so substantially, we have actually been absorbing those differences till now. The prices of 840 also have not dropped. 930 was introduced at a list price of Rs 13,000 in March last and it is still at the same price. None of our box-moving products had a price drop.

If a market price varies because of the promotion then it could be a temporary thing in driving the market up. Whenever there is a demand, we drive programs for an end user as well as for second-tier reseller to ensure that one has a reason to sell and the other one has a reason to buy. Somewhere in doing this, there is some level of price correction that naturally happens. 

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In one of your earlier interviews you had mentioned that HP aspires to be most admired consumer brand in the entire consumer space and not only the IT space. Is it a deliberate attempt to move beyond IT?

It's actually a bigger picture in our three-year vision. HP looked at this globally. We are in a consumer market and we are always comparing ourselves to our immediate competitor. We looked at the total consumer market size in consumer electronics and found that the only brand which does more revenue than HP in the consumer market is Sony. It does not make sense for us to limit ourselves to the image of a printer company. If you look at the long-term picture we want to carry, then we want to portray HP as a single consumer business organization. We have to take a space in impulsive consumer buying, which a consumer does. IT purchases are all planned.

HP is called a printer king in the Indian market. Then why do you want to downplay that image and move beyond it?

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It's actually the way you look at it. What we did in 1995 is giving us results today. At that point of time we had invested close to $ 1.2 million in inkjets. The entire machinery is very well oiled now. It's a sustenance model. There are other growth opportunities which are available in the market now. We need to address each and every growth space. If PC is a growth opportunity, we need to tap that today. What we are trying to do is focus on other growth engines that are available in the market. We are actually cashing in on our printer's image to diversify in other areas.

HP has probably the largest share in the inkjet segment and your competitors say that HP has an unsustainable market monopoly. Comment.

An issue of sustenance comes in when we have negative market growth and it was there one-year back. We have learnt from our mistakes and taken corrective measures. As long as we enable the channels to sell and be satisfied with what they are selling from their end, we would be able to sustain the growth. I don't agree that we have a monopoly. This business is such that where you can't sit back and enjoy your past laurels. Every week is a new story. We got to keep up with the expectations. It is very difficult to manage when your competition is investing equal to your investment for the volume that is one-fifth yours or one-tenth.

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