PC MARKET: The Heat Is On!

With customers becoming choosier and more price sensitive, PC sellers are going through a nightmare. Schemes are a-dozen-a-dime and therefore don´t make much of an impact. Retail and smaller towns have started occupying a place of importance in the overall marketing strategy. And the PC war is just beginning to heat up.

The market mood is not too upbeat even though the industry saw a

fairly good quarter in JFM 2002. But then, the JFM quarter has traditionally

been one where sales increase, because a major chunk of government and large

corporate buying happens in this period.

The immediate expectations from the AMJ quarter are not too

high. AMJ is traditionally considered the soft quarter. But the silver lining is

expected to come from home customers. With the school and college exams over and

vacations going on, PC business from the home segment is expected to pick up.

Says Arun Bhatacharya, Country Manager-Channels, PCS Industries,

"Now that the school vacations have begun, we hope PC sales will pick up

quickly". Sai Chandrasekhar, Head Product Marketing of HP India, too

supports this line of thinking.

Compare these happenings in the market to what was expected up

to March 2002! It was forecast by MAIT ­ IMRB’s annual survey that PC

shipments would touch the 2.45 million mark by March 2002. But it was not to be.

How to tackle the slow market Improve geographic reach Devise innovative schemes Increase product portfolio Resort to competitive pricing Look for retail presence Ensure effective service infrastructure Develop innovative vertical-focused applications

But the slowdown of last year hit every one and the PC market

was not exception. And now with Indo-Pak cross-border tension escalating,

consumer buying sentiment in the country is again hit.

MAIT revised the projections in January 2002 and scaled it down

to 1.65 million units. It also announced that the PC market in the second half

of 2001 (April to September 2001) had shrunk by four percent as compared to the

same period last year.

But the alarming finding of the survey was that the decline as

compared to the previous half-year (October 2000 to March 2001) was a whopping

23 percent. Though the figures are still not out, the PC market in 2001-02 is

expected to shrink by 10 to 12 percent compared to the previous year.

Buying decisions on hold



With the recessionary trend engulfing the economy, consumer confidence was

hit and consequently spending went down too. PC purchasse by business houses

declined by 1.5 percent in April ­ September 2001 as compared to the same

period in 2000 and 24 percent as compared to October ­ March 2001, the

preceding half year. The fall in the household sector was even steeper at 11 and

20 percent respectively for the corresponding periods.

Says Ajay Mittal, Brand Manager, PC Division, IBM India,

"Customer buying cycles have become longer and more and more customers are

preferring to wait and watch to see if they can get better bargains and cheaper

deals."

Echoing Mittal´s sentiment is S Rajendran, General Manager,

Marketing, Acer India, "Major buying decisions have slowed down."

Corporates want it cheap



Corporate customers have have became more and more price sensitive. This is

reflected in a steeper revenue decline as compared to volume decline. While

volumes in first half of 2001 over first half of 2000 declined at four percent,

the value decline was a whooping 23 percent.

Laments Vinod Marwah of Compunics Information Systems, a Mumbai

based retailer, "Even the corporate sector is wheeling towards low

prices."

The average deal size in the corporate sector has gone down over

the past few quarters. While customers negotiate for larger quantities, they

typically end up buying fewer PCs. Says Sai Chandrasekhar, "1000 plus PC

deals have become a rarity in the market."

Mittal of IBM offers another explanation for the slower than

usual market. Customers in the recent past have already bought systems with

higher configurations than what their applications demanded then. Therefore the

need to upgrade is not that urgent anymore. "This at the very outset",

he opines, "was largely driven by the unusually low memory prices."

Low memory prices apparently made upgrades cheaper.

Lackluster schemes



The picture in the home segment was not too different. Buying was slow and

vendors were trying all the tricks in the book to woo customers. Focus on price

points became even more intense.

On the other hand, vendors and resellers alike are doing

everything to make PC buying an attractive proposition in the lean times. Says

Subir Bhagwati of SD Computeronix, "This quarter we are planning to go into

the lower-end Celeron-based PCs which the customers can afford."

Schemes and promotions targeted at end-customers were introduced

with full gusto, but buyers were reluctant to walk in. The response by and large

has been lackluster. Says Manish Agrawal, Director, Marketing, Vintron

Informatics, "We offered bundles at aggressive price points for the home

market. But these have not really provided any increase in sales though."

Schemes at best yielded no response to lukewarm response. Adds

Raj Saraf, MD, Zenith Computers, "We may not be going strong on schemes in

this quarter."

Sai looks at schemes serving a different purpose in the lean

times. "They generate interest and drive walk-ins that may otherwise not

happen." He looks at schemes as a mechanism to drive the market when it is

down.

Wanted: Innovative schemes



Another reason for the lack-luster performance of schemes has been a lack of

creativity and innovation in their design. Customers have come to accept

bundling offers as a mainstay in the PC buying process. Says Satinder Juneja, Sr

Manager, HCL Infosystems, "Schemes are being run by everybody in the

business today and there is no differentiator."

And since schemes can be easily copied, it is becoming

increasingly difficult for marketers to get customers to notice their offerings.

Adds Juneja, "Innovation in designing schemes will provide pull in the days

to come."

HCL incidentally ran a scratch card scheme for an extremely

short duration handing out to customers non-IT gifts like microwave ovens,

refrigerators, etc.

Quips Mittal of IBM, "The customer must be given value in

bundling through multiple means." IBM offers its customers free insurance

on its ThinkPad range of notebooks. "This guarantees the customer almost

free replacement of the notebook in case of a loss or a theft", says Mittal.

IBM also offers software migration to ease the transition from

an old PC to a new one. The software enables the user to transfer all his

favorite settings from the old PC, thereby helping in decreasing the time spent

on changing the default settings of the new machine to one’s preference.

Multi-pronged approach



Not too many players in the market are looking at days ahead with a lot of

excitement. "The outcome for 2002-03 at this point looks uncertain,"

says Sai of HP. Some industry pundits expect an upward trend, though not a steep

one. Other analysts predict a flat market. But the cause for concern is the

falling revenues despite rising volumes.

Most vendors are looking at multi-pronged approaches to

survive and grow in these tough times. Says Rajendran of Acer, "We will

retain strengths in domains like government and education and consolidate our

position in the SME



segment."

Following a not too radical approach is Zenith, says Raj

Saraf, "We will expand our dealer network and increase our physical

reach." Voicing a similar opinion is Mittal, "We are looking at

covering a wider geography."

IBM will bulwark its expansion strategy with a 20-city

roadshow in the first quarter and a 16-city roadshow in the AMJ quarter. Added

Mittal, "These are very critical to establish a local presence."

An offer just for you



Changing the beaten track of reach and consolidation, Manish Agrawal offers

a different suggestion. He says, "Customized offers with aggressive bundles

may be a good option for growth." But he goes on to add that price points

will have to remain aggressive. Adds Sai, "It is clearly becoming a price

game, though price is not the only determinant."

It is to address this very price-sensitive market that Compaq

in the recent past announced the launch of a sub-Rs 40,000 machine powered by

AMD processors. Ability to address customer preferences across all price points

is gaining prominence as opposed to the older approach of adopting a strategy to

target niche markets.

Very eloquently Sai calls it a product-plus-channel strategy.

"It cannot be an either/or situation. One has to have both products and

channel reach to be successful in the market," says he.

Channel expansion and wider product portfolio offering is a

strategy that more and more players are adopting. HCL, for instance, will use

its channel to showcase Toshiba notebooks that it distributes.

Thrust on retail



Most vendors are aggressively looking at retail as an option to further

penetrate into the home market, which accounts for one­third of the PC market

today. Says Saraf, "Retail is very important in our overall strategy."

He has in the not-so-distant past created news by inaugurating multiple retail

outlets in Mumbai in a single day.

Retailing features prominently in the overall gameplan of

Vintron too. Vintron recently undertaken an aggressive exercise to rapidly

create a retail presence for itself. Agrawal sounds a word of caution though.

Says he, "The retail segment is quite dull presently and it remains to be

seen how fast the market will react to it."

Juneja of HCL Infosys-tems looks at retailing from another

perspective. Says he, "Retailing is critical because the customer´s

interaction with the brand happens here."

Despite the fact that it is IBM´s global strategy not to be

dominant in the retail environment because of their well-defined focus on the

commercial user, they are still undertaking the establishment of IBM demo

centers to showcase both their desktops and mobile computing devices.

More products in the kitty



Since brand-customer interaction is facilitated through products, more and

more vendors are increasing their product portfolio on display at retail

outlets.

HP is also looking at announcing new products in the coming

days. And the retail environment will give them a ready-made platform to

showcase the same.

With Agrani´s entry in the retail scene, PC retailing is

expected to come of age faster than was predicted a few years ago. Agrani offers

PC manufacturers a ready platform to experiment and evolve strategies for

different market segments. Innovation will take the driver´s seat.

The B and C of growth



Another key component of the companies´ strategies is a greater thrust on

the upcountry markets. Sellers are addressing these markets as aggressively as

they are battling it out in the metros. And it is not without logic. The top

twelve B and C-class towns make up close to 50 percent of the market today.

The growth of Internet in smaller towns and opening of VOIP

will further fuel this growth. Says Bhagwati of SD Computeronix, "The

growth in the home segment is increasing, because customers are going for the

VoIP."

A number of characteristics of the B and C-class towns make

it a different ball game altogether. The volume generated per outlet is

typically lower in a smaller town as opposed to a metro city.

Both vendors and partners appreciate this and are evolving

strategies to address the same. However Daljeet Singh of Compro cautions, "ROI

on branches is insufficient to expand and partners operating out of metros tend

to spread their resources too thin."

Vendors look at local resellers to address the local market

despite the fact that the cost of training is higher, because the level of

expertise is lower. This extra investment is offset by the fact that the local

partner understands the geography much better.

Secondly the sensitivity of the customer to price is much

higher. And it is in this very segment that more and more vendors are coming up

with cost effective offerings. Says Juneja, "We can attribute our growth to

our ability to offer the latest technology at the best price point."

My dealer, my friend



The customer´s reliance on the reseller for advice and consultation gives

the channel partner a much greater influence of the customer´s final buying

decision. Says Mittal, "The bonding between the customer and the reseller

and the principal and the reseller is much stronger in B and C class

towns." Adds Sai, "Word of mouth therefore plays an important

role."

Retail gains all the more prominence in smaller towns because

one-off buying by self employed professionals like CAs, lawyers and doctors is

much higher. Adds Sai, "In such a situation, we have to evolve strategies

to capitalize on the consulting role of the partners."

But this opens a window of opportunity for vendors too. With

fewer resellers serving customers in smaller towns, their dependence on the

reseller is also higher. "Service from this standpoint becomes a very

critical aspect in the scheme of affairs", adds Juneja.

Product shifts



While the shipments of Pentium 4 are going up, the near future will see the

comeback of the integrated graphics with the launch of new 845 chipsets by

Intel.

Another shift is the move to USB as standard connectivity

from the older and slower standards. Says Rajenderan, "USB will become

standard in PCs." This is also being driven by the fact that more and more

peripherals today are USB.

Last year, the 15" monitor edged out the 14" one as

standard equipment. The market is now seeing the shift happening in flat panel

LCD monitors. With LCD monitor prices steadily following the downward spiral,

they are becoming affordable. Says Sai, "Increased drive by vendors will

soon make LCD monitors mainstream."

The PC market looks like a turbulent place from any angle one

looks at it. Products are rapidly evolving, distribution strategies are

undergoing change and not to mention the customer, who is more aware and is

ready to negotiate.

But then all the action is also here. While the market is

definitely slow, it is too early to write it off. After all, one must bear in

mind that India as a country is highly under-penetrated when one talks of PC

density.

MOHIT CHABBRA in New Delhi With inputs from Sunila Paul in

Bangalore and Goldie in Mumbai.