MARKETING CHANNELS

EXECTIVE SUMMARY

This case study deals with Hewlett-Packard (HP),

a famous manufacturer of computers and
peripherals. In the early 1990s, HP faced a so-
called “Inventory/Service-Crisis” concerning one
of their high volume products, the DeskJet printer.
Despite growing inventory levels at the
distribution centers in Europe and Asia-Pacific,
customer service levels were unsatisfactory.
Affected by growing competition this problem had
to be handled quickly.
 EXECTIVE SUMMARY

• Brent Cartier, Manager for Special Projects in the Materials

Department of HP Company’s Vancouver Division, had tried
his best to find the possible solutions of the issues related with
inventory of DeskJet printers that were arisen at world level
especially, at Europe. He had short time for these tasks
because preparation was needed to be done for Monday’s
meeting with Group Management on worldwide inventory
levels for the DeskJet Printer product line.
• Finally opinions and reactions of different company divisions
concerning the implementation of DC localization are
analyzed. The solution of problems is the reconfiguration of
key strategies related with channel’s management.
 Improvement during the early 1980s
– Manufacturing cycle time reduced
» 8-12 weeks ==> 1 weeks
– Average inventory reduced
» 3.5 months ==> 0.9 months
– All finished goods inventory eliminated
– Importance of response time and transportation time
increased
– Further improvements should be made on supply
chain
 Improvement during the early 1980s

– Manufacturing cycle time reduced

» 8-12 weeks ==> 1 weeks
– Average inventory reduced
» 3.5 months ==> 0.9 months
– All finished goods inventory eliminated
– Importance of response time and transportation
time increased
– Further improvements should be made on supply
chain
 Improvement of supply chain in 1990
Comparison of
Response Time
– Time between order and
(months) delivery reduced
6 5.25
» Europe & Asia:
5 4.25 5.25 months ==> 1.25 months
4

3
» North-America:
2 1.25 4.25 months ==> 0.2 months
1990-
1 0.2
– Importance of transportation
1990+
0
time increased
Europe

America
& Asia

North-

» Europe & Asia: 1% ==> 12%

» North-America: 20% ==> 80%
 ANSWERING THE QUESTIONS

• No.1 (a) Types of consumers to whom HP sells printers
• Business Personal Computer users in Offices
• Personal Computer users in Homes
• No.1 (b) Consumer’s Need: 
• The primary need of all consumers is to print something in the form of images or 
text.
• Three option are available for the customers of HP.
• Dot Matrix Printer
• Inkjet Printer
• Laser Printer
• Prior to 1989, most customers were not aware of inkjet technology. However, 
customers were discovering that inkjet print quality was almost as good as laser 
print quality at a much affordable price.
• Laser printer and other printer related products of HP don’t necessary require the 
online selling. Because customer were discovering that inkjet print quality was 
almost as good as laser print quality at a much affordable price. 
 ANSWERING THE QUESTIONS
• Q No.1 (c)Consumer’s needs met with channel structure or not:
• HP led the inkjet market in US. Means in USA, HP facilitate its customers 
and consumer’s needs are met by current channel structure. But in other 
areas of the world especially in Japan and in Europe HP faces certain 
issues while satisfying customers needs.
• the problem is only in terms of product availability. Channel structure is 
poorly designed especially, in Europe there is no information flow 
between channel members and lack of commitment.
• There is no product availability in some countries while others have access 
inventory (in terms of finished goods; printers).
• Between 80s and 90s HP was the market leader of Inkjet printer but now 
days HP’s DeskJet printer in on sixth position in ranking. Waiting time is 
high in Europe and Asia and availability is low in Europe.
• Physical possession and information flow don’t function properly.
 ANSWERING THE QUESTIONS

• No.3 If HP were to sell direct, should they sell both printers and supplies? What printers should 
be sold online? What should not?
• Now days every company tries to sell their products directly as well as through third party 
distributors. 
• Selling online is also important factor and DELL is the example (most successful) of direct selling.
• There are many advantages of selling online included: quick transactions,
• no physical space required for inventory,
• higher product availability, 
• no waiting time
• no intermediaries required.
So what should needed to do in case of HP?
• So HP should sells both printers and supplies direct (online). 
• There is no such need of selling directly in US because of high product availability because of 
functioning as a local company here. 
• But in Europe and Asia, HP must go direct. 
• HP already has an online system for other product lines like PCs and Laptops. 
• DeskJet printer is most successful brand or product of HP and generates high volume of sales. So 
HP should sell DeskJet printer online.
 ANSWERING THE QUESTIONS
• No.4 Key components of HP’s channel management strategy
• Formulating marketing channel strategy
• Designing marketing channels
• Selecting channel members
• Motivating channel members
• Coordination channel strategy with members
• Evaluating channel member performance
• Managing conflict in the channels
• HP formulates its channel strategy in a better way and choosing channel members properly. In its 
channel members include: suppliers, manufacturer site (Vancouver Division), DCs, resellers, end 
users. 
• While designing channels HP focused on right level and right kind of channel members. Basically 
HP’s Vancouver division, products shipped to three DCs (distribution centers particularly located in 
US, Europe and Asia Pacific) then from DCs to resellers and retailers and finally to consumers.
• HP motivates its channel members and accepts the decisions from their side but there do not do 
too much effort on motivating.
• There is no coordination with channel members at low end. Means resellers and end users don’t 
know what is HP’s channel strategy. 
• There is no evaluation or feedback and finally HP sometimes fails to resolve issues. As we know 
from the case study that representatives conflicting goals prevented them from reaching 
consensus on the issues. 
 ANSWERING THE QUESTIONS
• No.5How are channel members likely to react if HP 
goes direct? How should they react?
• Channel members might be turn towards competitors 
of HP
• They might be take illegal actions, called against HP in 
market
• It is possible that react in positive way and make 
alliances with HP
• They might be adopt negative policy and start to spoil 
the HP’s market
• It is possible that they would started misguiding HP’s
loyal customers
 RECOMMENDATIONS
• HP should do work on value constellation rather than value chain.
• R&D staff should visit all the market especially in Europe and Asia to better 
knowing the customer needs and for demand analysis.
• There is no coordination in channel members so HP must improve this deficiency 
through information flow
• Provide downstream members some extra benefits for their better performance
• Improve forecasting through different strategies 
• DC localizations
• Manufacturing site as Vancouver is also built in Europe and Asia.
• HP should sell printers direct (online) as well as through the current channel 
members
• Air transportation mean is also used to reduce lead time
• Channel manager should perform its functions properly and resolve the conflicts 
among channel members
• Special bar codes are applied to inventory (products) according to specific regions.
• VMS should be introduced
 Connect Supply With Demand

Information
SUPPLY DEMAND
Product

Cash
 Advantages
• No extra warehousing charges bear by Vancouver
• Transportation and inventory costs are reduced
• Millions are saved
• Service level are increased
• Air transportation mean is worth able
• Freight cost is also reduced
• Better communication between channel members is achieved 
resulted in better performance
• Online selling reduce costs and increase product availability 
• HP’s sales and revenues are increased ultimately
• Business portfolio maintenance will leads the business towards 
creativity, innovation, high service output demand fulfillment.
• Local procurement of localization materials
 Disadvantages

• Air transportation mean is expensive
• There are costs of product redesign and DC 
modifications
• More staff is required to better forecasting
• Conflicts arises between HP and channel 
members if HP goes direct
 EXIBITS
Mobile printer
The first DeskJet printer

Color printer

Photo printer
HP DeskJet Printer Supply Chain

Integrated Asia-Pacific
Supplier circuit distribution
Dealers
manufacturing center
Vancouver
4-5
final weeks
Printed assembly
circuit California
Supplier &
assembly 1 day distribution Dealers
& test test
center

4-5
Printed weeks European
Supplier mechanism Supplier distribution Dealers
manufacturing center
 EXIBITS

PCAT FAT Vancouver

1 week
1 day
U.S. DC
4~5 weeks

Europe Asia
 EXIBITS
THE DISTRIBUTION PROCESS
Vice President of
Marketing Manager Peripherals Group Manager

Worldwide Distribution Manager

Operation manager

MIS Quality Marketing Physical Distribution

Distribution Service