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PPM Computers Case Analysis

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Case Overview

PPM computers:

sold a range of personal, networked and workstation computers through high street outlets, direct mail and specialized distributors; and direct to its major customers.

Hit by the overall decline in the growth of the personal computer market and the greater pressure on profitability.

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Case Overview
Current product range: Sold bulk of its computer in UK Percentage of market share in PC market: 5% Percentage of market share in network market: 3%

Percentage of market share in workstation market: 10% 3/12/12

Personal computer: PC 640. Operating with 386 microprocessor, 1 disc drive, range of hard disk options from 899 in price. Network computer: X912 486 microprocessor. Unix and MSDOS compatible, 1 disc drive, range of hard disk options from 1699 in price. Workstation: Y4000. Pentium (double) 2 disc drive, range of hard disc options from 2999 in price.

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Case Overview
Current product range:

Concentrated on maintaining a low price route to gain market share The company used Far Eastern manufacturers for all product ranges and did not manufacture in-house.

A worrying consequence of this was that the company saw significant fluctuations in stock and was often out 3/12/12 of stock of the PC and workstation ranges.

The company had a limited service network its distribution outlets handled the majority of problems Company used subcontractors for the majority of its servicing and manufacturing Increase in failure rates especially in PC market

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Case Overview
Current distribution: The PC range was primarily sold through high street outlets networked system was handled through distributors. workstation system: Used mail order direct from the company

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The physical distribution of the company was handled almost entirely by road haulage subcontractors In comparison with competitors, PPM was weak in its dependence on dealers for the promotion and sale of network products, an increasing percentage of which were sold by the major companies on a direct basis

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Case Overview
Supporting distribution channel: PC range:
sold

through both high street outlets and dealers. Of these, the high street retailers were the most straightforward. They operated on a gross margin of 40 per cent, and demanded promotional investment in mainstream computer magazines. The dealers that handled PCs looked for sales support as the most important resource that the supplier could provide.

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The

company had two sales representatives for these dealers and three for negotiating with the high street multiples. of these sales teams had been properly trained or integrated each of the sales representatives cost around 20,000.

Neither

Currently

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Case Overview

Supporting distribution channel: Network range:

Mainly serviced through dealers. potential market for the network product was firms with more than 200 employees: an estimated 12,000 outlets. the company employed three sales representatives in this area to support the dealer network; each cost around 25,000. exact job had not been properly defined and all three had limited training.

The

Currently,

Their 3/12/12

Case Overview

Supporting distribution channel: Workstation range:

sold direct to the potential customer via direct mail order employed 5 sales representatives to service an estimated 3,000. was totally inadequate; the detailed nature of the selling task demanded that sales representatives concentrate on a limited number of customers, with 60 being the upper limit.

This

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Case Overview
Sector analysis:
PC:

The customer for the PC : small business and home user. Typically the buyer was around 30, male, and had some computer knowledge.

Customers quite rapidly change their computer products as new improved systems came along, and thought in quite great detail - about the type of machine they required before making a purchase. 3/12/12

Case Overview
Sector analysis: PC market PPM product rank (1-best, 9-worst) Simplicity: 3 Reliability: 6 Software: 8 Manuals: 7 Attachments: 6 Consumables: 4
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Service: 9

Case Overview
Sector analysis: PC:

Company had also fallen behind the industry average in promotional expenditure and had shown a decline Press and magazine advertising were considered more appropriate for products aimed at the mass market

Television was often thought important for 3/12/12 the corporate sector

Case Overview
Sector analysis: X System (network model): The main purchaser of the network model was the medium sized company. PPM concentrated on the provision of products to the financial services sector - one of the most rapidly growing sectors of the market and the most likely to yield substantial profits in the future.

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Failing to meet the key product requirements in this sector: which is service, power, ease of use ,OS and network No company currently used any sales promotion techniques

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Case Overview
Sector analysis: Network market PPM product rank (1best, 9-worst) Customer service: 9 Performance: 5 Ease of use: 4 Operating system: 3 Connectivity: 6 Price: 2
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Case Overview
Sector analysis: X System (network model): Companies spend little on media investment Concentrated on building an effective sales force, providing specialist software programming advice they required. PPM lacked in such support

Companies used direct mail to reach potential customers. 3/12/12

PPM concentrated instead on the dealer network. With 12,000 or so potential customers in the UK, direct mail would not be expensive - about 0.80 per mail item (higher than the PC market because of the need for better quality print and response mechanisms). Price elasticity much lower in the network market than in the PC sector. Customers expected to pay high prices for premium service

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Case Overview
Sector analysis: Workstation:

Restricted to high speed engineering and design uses. The prime requirements, in order of importance, were: speed, power of calculating system, reliability, specialized software, service support, and finally price. The promotional channels used by competitors: sophisticated and highly trained sales force.

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Sales force/ client ratio of 1:120 was the highest acceptable level. In PPM it was 1:600 Price elasticity in the workstation market was low, and continued to be lower than for the network market.

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Case Overview
Sector analysis: Workstation market PPM product rank (1-best, 9-worst) Speed: 3 Power: 6 Reliability: 4 Specialized software: 5 Service support: 5 Price: 1
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Segmentation
Currently PPM computers caters the following products to three different customer segments: PC Networks Workstations

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PC Segment Analysis

Decline in the rate of growth of the personal computer segment and profitability in PPM computers Customers quite rapidly change their computer products as new improved systems come along

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Devote a great deal of thinking before making a purchase Extremely high elasticity of price - no loyalty for brand

The required product benefits were: simplicity of use, reliability, range of bundled software, comprehensiveness and usefulness of manuals, ease and range of attachments, price, and availability and speed of servicing and the supply of consumables (discs, printer ribbons) 3/12/12

PC Segment Analysis
In order to be competitive in this particular segment as per the rankings given in different product parameters PPM needs to improve its performance in the following areas:
1.

Reliability Software Manuals Attachments Service Support

2.

3.

4.

5.

3/12/12 This revamp will require a total cost of $1.8mn

PC Segment

The total marketing cost to reach the individual households would be approximately $8mn Negative profit growth in PC segment

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Data Analysis PC segment


Modification Costs Marketing Cost
PC modifications Improved Simplicity Reliability Software Manuals Attachments Consumables Service 486 upgrade Pentium upgrade 3/12/12

Cost calculations
0.5 0.6 0.5 0.1 0.1 0.1 0.5 0.7 2 Total 1.8
Direct mail 3200000 (2 mail frequency added)

Total Cost 9859449

Sales (only printer promotion 4004449 added) (50% of 102 Exhibition 765000 days) Magazines 54000 Magazines 36000 Total 8059449 Cost Structure (PC magazine) (PC Magazine) Marketing + Modifications

Profitability Growth
Profits Year PC Network Workstation 1 8 2 3 2 6 2 5 3 5 2 7 Observed growth -14.50120267 0 32.63524026

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Work Stations Segment Analysis

Highest growth in sales figures Highest growth in profitability Price elasticity of demand is the least The required product benefits are speed, power of calculating system, reliability, specialised software, service support

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Work Stations Segment Analysis

In order to be competitive in this particular segment as per the rankings given in different product parameters PPM needs to improve its performance in the following areas: Power of calculation of the system Service Support

1.

1.

This revamp will require a total cost of $1.5mn


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Work Stations Segment

The margin PPM computers receive in case of sale of a Workstation is the highest i.e., 52% Highest profit growth in the Work Station segment i.e., 32%

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Work Station Data Analysis


Modification Cost
Workstation modifications Improved speed Power of calc system Improved reliability Specialized software Service support 7 Year 0.8 2 1.2 0.7 Total= 1.5 PC 8 6 5 1 2 3

Profitability Growth
Profits Observed growth 14.501202 67

Network

0 32.635240 26

Workstation

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Networks Segment

Currently PPM only concentrates on financial services sector - this had been one of the most rapidly growing sectors of the but we can easily cater to manufacturing and transport sector as the requirements are almost the same as financial sector. Currently PPM does not meet some of the product requirements of this sector but as per the case the market is most likely to yield substantial profits in the future
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Price elasticity of demand is low : customers want to pay a high price for a premium service Product benefits desired by customers are customer service, performance, ease of use, OS and connectivity out of which PPM has got good rating in OS and ease of use

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Networks Segment Analysis

In order to be competitive in this particular segment as per the rankings given in different product parameters PPM needs to improve its performance in the following areas: Customer service Performance Connectivity

1.

1.

1.

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Networks Segment

The margin PPM computers receive in case of sale of Networks is 26% The marketing cost incurred for this segment would be $1.5mn The margin PPM receives is 26% which can be improved substantially by increasing the price and service (lot of scope as the competitors prices are way above PPM)

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Networks Data Analysis


Modification Cost
Network modifications improve customer service improve performance improve ease of use upgrade OS improve connectivity 0.3 0.4 1 1 0.5 Total 86400 1.2 Cost structure 26% margin Total margin 441.74 3640000 Cost calculations Direct mail Magazine 28800(3 mail frequency added) 57600(6 specialist magazines, monthly)

Marketing Cost

Profitability Growth
Profits Year PC Network Workstation 1 8 2 3 2 6 2 5 Observed 3growth 5 -14.50120267 2 0 7 32.63524026

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Summary

Apart from the growth, profitability and the cost factors mentioned earlier the advantages of targeting Workstations and Networks is that similar technical knowledge needed for the sales representatives for both the segments- resources can be routed from network to workstation (Economies of Scope) Higher prices can be charged (lot of scope for increasing price yet follow the price competitiveness)

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Increasing price has to be matched by improved product benefits as mentioned earlier Marketing expenditure and product improvement expenditure is less for both Networks and Workstations

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Key Product featuresNetwork Systems


As desired by customers - Factors Customer Service Performance Ease of Use Operating System Connectivity PPM rankings 1-excellent ; 9-poor

9 5 4 3 6

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Product benefits - Network Systems Actual Factors (Features-Functionalities) Perceived Factors


Customer Service- Should develop and train Image Should not be perceived sales force and increase its number. as a low cost product as people are ready to pay for premium prices(coeff of elasticity=2) Performance with good processing speed and reliable system- Quality hardware with better microprocessors. Popularity

Ease of Use as used by companies to carry Reputation out their operations is of importance- Should provide them with customized applications and training. Connectivity , faster data transfer with back up facility and sound network systems with low failure rate- Better hardwares with constant support in case of failure 3/12/12

Reaching customers Network Systems

Currently in Network Systems segment:

PPM uses dealer networks only.

Should use the following mode:Mode Cost Assumption

Direct mail 28800 Specialist Magazines 57600 Total 86400

(3 mail frequency added) (6 specialist magazines, monthly)

Should use trained dedicated sales force instead of dealers The cost of sales force could be offset by increased margins Benefits-

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Overall

Thus for providing these crucial product benefits PPM needs to:

Improve the product benefits in terms of connectivity, customer service and performance Use direct promotion methods. Improve customer service by developing sales force team Use direct mailing to customer than using the

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To gain competitive advantage - Network systems

Provide complete solution- From need recognition to customization to installations and after sales services and support. Provide added benefits using sales promotion techniques- Providing constant up grades with changing needs. Using below the line marketing techniques- target group limited and specific.

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Key Product featuresWorkstations


As desired by customers - Factors Speed Power of calculating system Reliability Specialized software Service support Price 3/12/12 PPM rankings 1-excellent ; 9-poor

3 6 4 5 5 1

Product benefits- Workstations


Actual Factors (Features-Functionalities) Perceived Factors System should operate with superior speed-Faster Image processors System should have very high processing powerMultiprocessing processors, Larger memory options System performance should be stable as well as reliable- Premium quality components those are durable and advanced Specialized software should complement hardware and should satisfy the computing needs- Upgraded effective software Service support staff should be well trained and results should be satisfactory- Effective sales force in right number 3/12/12 Popularity

Reputation

Reaching customers -Workstations

Currently in Workstation segment:

PPM uses mail order direct from the company Sells directly to the potential customers Sales-force/client ratio 1:600 (5 sales rep/3000 clients)

Market leader HP employs sales-force/client ratio of 1:120 According to trade sources this ratio should be 1:60 Thus, PPM needs to increase the strength of its

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Overall

Thus for providing these crucial product benefits PPM needs to:

Improve the power of the workstation systems being produced Upgrade the specialized bundled software needed for engineering and design uses Improve the service support system by improving the number of sales representatives Create highly trained and sophisticated salesforce for addressing the complicated queries and requirements of customers

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To gain competitive advantage

Use FUD (Fear, Uncertainty, Doubt) strategy: IBM sales people used to instill fear, uncertainty and doubt in the minds of potential customers who might be considering competitors products. PPM can do the same for workstations with their sales force to capture the market share. PPM can have a VAR (Value-added Reseller) Channel, where they can provide assembled workstations to companies for adding value (operating system and specialized software) and reselling them under PPM brand.

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Lack of information

Budget of PPM Benefits from investment in terms of increased sales Convertibility ratio of promotional activities/marketin g efforts. Cost of sales force

Marketing Plan required:

Customer segmentation Product benefits Distribution channels Sales-force numbers & skills Promotional

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Key Product features-PC Product


As desired by customers - Factors Simplicity Reliability Software Manuals Attachments Consumables Customer Service Price 3/12/12 PPM rankings 1-excellent ; 9-poor

3 6 8 7 6 4 9 2

Actual Factors (Features-Functionalities)

Product benefits- PC Product

Perceived Factors

System should operate with superior speed-Faster Image processors (Pentium upgrade and re-engineering modifications) System should be simple and easy to use Improved manuals and simplicity. Popularity

PC performance should be stable as well as Reputation reliable- Quality components those are durable and advanced PC should complement software and attachments - Popularity Upgraded effective software

Service support staff should be well trained . 3/12/12

Reaching customers -PC Product

Currently in PC segment:

PPM sells PC product through high street outlets and dealers. PC market has high price elasticity In last 3 years growth has slowed and sophistication has expanded.

PPM promote its product by

Press and magazine advertising Exhibitions ($15000 per day for national exhibition)

According 3/12/12

to market research its competitors

Overall

Thus for providing these crucial product benefits PPM needs to:

Improve the simplicity and reliability of PC products by upgrading processors and components. Improve the service support system by improving its service network with dealers. PPM can reduce its cost by subcontracting its entire PC operation.

Create highly trained sales-force and dealer network for addressing the issues and requirements of customers 3/12/12

To gain competitive advantage

PPM should focus on its low price strategy as PC markets is price elastic. PPM should improve its product quality an durability by upgrading software and components.

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Information System to control marketing plan

Customer information system A short period sales report. A Traffic Volume, Revenue and Profit Budget, by market segment and key customer account

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