Therefore, buying behavior of the U. S. Population has increasingly been shifted from traditional brick- and-mortar store shopping toward e-shopping. In meeting this new buying behavior, HP needs to add this new important channel effectively as soon as possible. This means providing complete product information, obtaining customers’ feedback, and selling all HP products directly to consumers. Currently, large retail accounts represent 90% of Hap’s printer sales, both via physical channel and channel.
Therefore, an important consideration in implementing direct online shopping strategy will be to ensure that conflict with retailers is minimized. Since our plan is to offer all products on our official website, actions must be taken to maintain relationship with retailers by various means. ) Why has HP set up such a complicated distribution system? Hap’s existing distribution system currently consists of multiple channels which are geared or designed to focus and concentrate on different market segments (Selective distribution). See exhibit The major distribution channels represent the bulk of the sales and is clearly defined and segmented by various variables. The main one being customer purchasing behaviors. Such a complicated system has allowed HP to capture a larger customer base through better market segmentation (based on demographics, cryptographic, customer purchasing behavioral models), without the deed to focus in detail on individual customers. To do this HP has carefully selected various distribution channels that represent front line sales in various segments.
Companies can achieve a competitive advantage through the way they design their distribution channels’ coverage, expertise, and performance. Hap’s success in building their brand and making it well-known to the general public is based partly on superior channel development. Using a mix of channels like Hap’s strategy was done In the hope of reaching a different segment of buyers and delivering to them the right product at the right price (not necessarily the lowest price). When this does not 1 OFF excessive costs to HP or/and the customer. ) How has it managed the system so far? HP has managed its 7 channel distribution system by focusing on consumer buying patterns and trying to organize each distribution channel in such a way as to avoid horizontal and multi-channel conflicts. A careful selection of channel members was made which attempted to define and focus each channel to a different market segment (Selective distribution). There were three major channels that were responsible the bulk of HP products sales (Office supplies, Computer peripheral, nonuser electronic stores).
Details of how these channels were managed are outlined below: The Office Supplies stores (e. G. Staples) targets customers who are not technically sax. N. Y. They are likely to be typical office workers who are not in need of high end equipment. Positioning Strategy: Cheap / discounted, user friendly, needed features only However, buyers who visit Computer Peripheral stores (e. G. Compass) are more likely to more technically knowledgeable. They are assumed to be more aware of technical developments and are more likely to be adopters of new technology at a premium price.
As a result, such stores will have better product pushing strategy potential I. E. Customers can be more easily enticed to other HP products. Positioning Strategy: Low to High-end, latest features available (egg. Better connectivity), distinctive and unique. Customers who visit or purchase HP equipment from Consumer Electronic stores (e. G. Circuit City) are most likely to be less technically sax. N. Y home users who have been acquainted to the stores through other consumer electronic goods such as home appliances (Washing machine, refrigerator, kitchen appliances, home entertainment systems, etc).
Positioning Strategy: Cheap / discounted, user-friendly, needed features only. Further to the three main channels discussed above, there were also minor distribution channels that without proper management could have added unnecessary complications to Hap’s distribution overall distribution channel model in the form of horizontal or multi-channel conflicts.. This is due mainly to overlapping target groups and channel conflicts where retailers are competing for the same customers. In effect HP would be competing against itself it not managed properly.
These minor channels include: Corporate account dealers (e. G. Niacin). This type of channel deals with bulk sales to purchases, they require a focal communication point for maintenance and servicing requirements that corporate account dealers can provide. However, corporate business cultures are changing with virtual offices being adopted more and more by various large corporations. As a result, corporate account dealers are being faced with individual purchases rather than mass corporate deals.
Coho’s are becoming integral parts of corporate organizational structures and as such purchasing behaviors of corporations are tending towards individual buyers who now purchase wrought the major distribution channels (Office supplies, Computer peripheral, consumer electronic stores) instead. Indirect mail-order companies (e. G. Microwave’s). Customers who purchase products through indirect mail-order represent a customer target group that is unique and is unlikely to overlap with any other channel since these channels tailor make specific models for a particular segment.
Mass merchants (e. G. Wall-mart, K-mart) catering for ultra low-end markets, and therefore do not compete head on with consumer electronic and office supply stores. Department stores (e. G. Sears) offer low to mid-end products which on the surface may seem to compete directly for the same target customers as consumer electronic and office supply stores but in fact focus on their existing department store customers rather than trying to take market share away from them. Some products may seem to overlap (See exhibit 2) which is almost unavoidable.
However, it is hoped that each channel will have a clearly defined target customer group which is differentiated from other channels. 3) How would an internet presence benefit customers? How would it benefit HP? Benefits to customers ) Less-time consuming: Shopping online can substantially save time for consumers, I. E. , transportation time, parking time, time to look for the right product, etc. 2) No transportation costs: With shopping via the internet, customers save money by not having to pay for gas, parking, etc. ) Price and feature comparison capability: Internet increases capabilities for shoppers to surf various sites for price, specifications, designs, etc. Comparing to going to brick-and-mortar stores, customers, in obtaining above information, would have to travel to many different stores, and even that, still would not be able to obtain s much information as the internet. 4) Ability to shop from anywhere, at anytime: Customers now are able to shop for normally would only be able to sell products in the operating hours (I. E. Am to pm), unlike the internet, where shoppers can shop from home at am in the morning in their pajamas.
Moreover, shoppers worldwide can shop internationally to have products shipped directly to them. 5) Ability to consult with various parties to obtain more product information: consumers can consult their family members, friends at work, etc. Without having to shop together at retail stores. Moreover, consumers can obtain users’ feedback from many internet sites to learn about product first-handed. 6) Obtaining information without dealing with salesperson: At times, when salesperson are on commissions, higher-price products are encouraged to be purchased.
Therefore, it is less likely that product information would be obtained with no bias. Also, salesperson are more likely to provide false information than the manufacturers themselves. Benefits to HP 1) Ability for HP to obtain higher margins: HP is able to charge the same price to consumers and obtain higher margin from product sales than selling through retailers. This is because HP now does not have to pay for shelf positioning, obsolescence of products, production material expenses, commissions, and various other retailer costs. ) Ability to provide correct information directly to consumers: More product details can be provided to consumers than when obtained (only directly) through salesperson. Manufacturers now can provide correct, advanced, and updated product information to consumers directly to assist them in product selection considerations. Furthermore, commission based traditional sales methods are susceptible to product biased opinions from the sales person. Hence the elimination f salesperson can reduce this potential problem. 3) Encouragement for customers to spend more at HP: Internet would allow better after-sales servicing.
With the internet, consumers now can report -problems directly to HP online and in real-time by means of electronic communications. Additionally, customers can choose to upgrade purchased products, buy accessories, and order maintenance parts which would result in more revenue streams to HP. 4) What should be the ‘scope’ of Hap’s presence? Range of products? Just demand generation or fulfillment also? We believe that the HP brand is strong enough to go ahead with offering all HP reduces through their own website without the fear of retailers discontinuing sales of HP products altogether.
Moreover, we still believe that the end-user of HP products still need to stock and have available HP products. Furthermore, the availability of HP products in the store still associates the store with a better image. By implementing this strategy, HP is able to generate demand and fulfill it as well. Demand is generated on the website by offering technical details & specifications of the products. This enables consumers to make buying decision easier and more efficient. Moreover, after consumers realize the products that match their needs, they can purchase them directly from HP website. ) How will you handle the existing channel members? Maintaining good relationships with existing channel members is significant because these channels represented 90% of Hap’s printer sales. In this system, we focus on building brand/product image, creating value of new products and enhancing products’ awareness. As a result, this opportunity would appear to be a win-win solution for both HP and retailers. For retailers, customers would better understand the features of Hap’s products and would be more likely to purchase.
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