What's up with PCs?

Celebrity endorsements, customised features, flexible payment options... The personal computer market is seeing a surge of sudden activity. Why?

Bollywood stars endorse everything from cars to toilet soaps. But personal computers? In February 2006, Hewlett Packard India hired Bollywood superstar Shah Rukh Khan to endorse the Compaq Presario range of notebook and desktop computers.

Chinese personal computer giant Lenovo, which acquired IBM's personal computer (PC) business in 2004, was not far behind. This month, Lenovo roped in star siblings Saif Ali Khan and Soha Ali Khan as its brand ambassadors.

Why are PC makers lining up alongside film producers at the bungalows of Bollywood stars? The scorching pace of industry growth partly explains the action.

According to research consultancy IDC's India quarterly PC market review, the Indian PC market witnessed a 26 per cent growth in unit sales in 2005, with sales of nearly 4 million units; sales to commercial establishments has been growing at a slower pace "" 14 per cent.

Significantly, the home computer segment until now has been the preserve of the unorganised segment.

According to industry estimates, until a few years ago, the assembled PC market was 1.5 times the size of the branded segment "" that is, it accounted for about 67 per cent of the market. Now that share is down to just 30 per cent.

The reason: the price difference between unbranded PCs and their branded counterparts has narrowed substantially. Even three years ago, a branded PC would be upto 25 per cent more expensive than a locally assembled machine; now, the average markup is less than 10 per cent.

It also helps that branded PC manufacturers are now in the era of the EMI. Customers who buy machines from the unorganised segment usually have to pay for their purchases in one go, sometimes even before taking delivery. In contrast, brands like HCL and Compaq offer the option of paying in monthly instalments as low as Rs 499.

Companies feel that celebrities fit perfectly into this picture. Says Rahul Agarwal, GM, marketing, Lenovo India, "Celebrities will help to increase the PC penetration among the masses and encourage PC usage."

Adds HCL Executive Vice President George Paul, "The introduction of computers below the price point of Rs 10,000 helped break the price barrier. More middle class families began considering a PC purchase for their homes." The IDC report, too, suggests that this strategy has worked. For instance, in just six months after launch, the sub-10,000 PC captured 2 per cent of the market (80,000 units).

If prices are crashing, there's a change in positioning, too. The PC is no longer offered to potential customers as just a communication tool. It's now also a consumer durable.

Says Krishna Kumar, country category manager, consumer desktops, HP, "Most consumers are looking at computers as an investment for their child's future. Others want to integrate the PC unit as an entertainment device."

Which is one reason branded computer manufacturers are now offering products bundled with entertainment devices.

For instance, Lenovo and Acer offer MP3 players, memory sticks, encyclopaedias and video games with their home desktop computers. There have been joint promotions too.

HCL had a joint marketing initiative with telecom major BSNL, targeting customers who were looking for a broadband connection. Companies feel that the popularity of broadband has also resulted in more homes purchasing computers.

It's not just about entertainment, though "" although that's one of the prime reasons for buying a computer at home. With the increase in Internet penetration, more and more computer users are turning to their machines to help them avoid queues "" whether it is to pay their utility bills online, book their plane and train tickets, or even buy a movie ticket.

According to an AC Nielsen online survey in 2005, 36 per cent of Indian respondents booked airline tickets online.

If Indian customers are getting net savvy, computer makers are taking the access word a step forward. For instance, HCL has pre-loaded regional language software, which helps the consumer access the information in a language other than English.

According to a report in Business Standard's Ice World ("Flowering language portals", March 22, 2006), of the existing Internet users in India, 44 per cent prefer Hindi as an alternative to English. And a further 25 per cent users prefer the southern Indian languages.

If HCL talks local, Lenovo plays on the health platform (similar to Korean giant LG Electronics' strategy). This month, Lenovo launched a unique feature for the Indian market "" an anti-bacterial keyboard. The premise? Children tend to use the PC more at home, and keyboards are usually a fertile breeding ground for all kinds of germs. On the other hand, Dell tom-toms the durability of its products. That is why their keyboards are spill-resistant.

There are more examples of customisation to suit Indian customers. The biggest stumbling blocks to a computer purchase are power and space.

HCL, therefore, makes personal computers that have an inbuilt power-backup that lasts five to six hours. And Wipro designs its machines "" slim monitors, for instance "" so that employees make the most of their limited desk space.

As continuous power supply is an issue in India, HCL units usually come with a power back-up of five to six hours. Wipro has been concentrating on optimum usage of office space as real estate is expensive. The company designs products in a way that it occupies limited desk space.

The last shot at the assembled PC segment is by offering superior after sales service (see Expert speak: The brand edge). Lenovo, for instance, offers one year warranty for PC sales to individual and three years for commercial establishments.

As Nitin Chaudhry, country manager, commercial PC, HP says, "As organisations are moving to multi-location set-ups, the local branded players are unable to service across various locations."

If the unorganised sector fails to catch up with the expanding reach of customers, the brands are taking care that they are not left behind. Hence Acer, which operates through 200 retail points across India, aims to grow to 400 this year.

Lenovo, too, is looking to doubling its retail presence: from 45 to 90 outlets. Dell, on the other hand, is sticking to its international direct model "" no middlemen or channels "" for India as well, where a customer can buy a built-to-order system.

Of course, it's not enough to just be there. So where Wipro organises seminars for small and medium enterprises in B- and C-class towns on the merits of IT (on the premise that PC ownership in these areas is likely to be more among organisations than individuals), Acer adopts below-the-line promotions to generate interest in its product range: in Kerala, for instance, elephants wearing banners promoting Acer products walked around several towns.

The PC buyer has changed, say industry experts. Declares Alok Shende, director, ICT practice, Frost & Sullivan, "The consumer is now tuned into all the changes taking place in the technology spectrum."

Does that mean that celebrity endorsements will have a wallpaper effect? As always, the product will have to do the talking.

EXPERT SPEAK: THE BRAND EDGE

There are two things that have worked well abroad and could work well in the Indian context. As a point of differentiation companies must focus on after- sales service. This could include two to three year warranties.

Also, companies could provide upgrades to customers two years after they have first purchased the brand. That's a powerful way for brands to compete against the ones that are cobbled together by the unorganised segment. One of the major problems that people face when they buy a computer is: what to do when something goes wrong?

If customers are really knowledgeable, they tinker around with it themselves. But, these customers make up only a small portion of the overall market.

First-time computer buyers either want to surf the Internet or use a word program. That's it. They don't know how a computer really works. The warranty of post-purchase service is really important for a lot of people. That's one way brands could differentiate themselves.

The second thought I had was in to context to what Dell has done in other markets. Though, I am not sure if they are doing this in India. Dell's differentiated itself by customisation.

When customers order for Dell, they get a wide variety of options to choose from. Instead of buying a PC that has two features you want and eight features that you would never use, you can customise them to suit your convenience.

And only pay for the features you would want to use! This has been extremely successful for Dell. Also, customers can order directly through the Internet and the product gets shipped directly from the factory. So customers do not go to retailers and the company saves on distribution or channel costs. This model has been extremely successful in the US and Europe.

But, in India there are a lot of first time buyers""people who do not know what they want. In that case, offering this set of customers just three different options, but focusing heavily on after sales service is essential. For the more sophisticated buyers, companies could provide a much more elaborate choice.

As regards to computer makers hiring brand ambassadors: to me, ambassadors represent a kind of fashion or achievement. To connect customers this way to a PC does not make sense. I don't see how the glamorous qualities of a filmstar will translate into PC sales. Hence, I am surprised. However, I do know that India as a market use endorsers much more than any other market in every product category. If the computer is being positioned as an entertainment device rather than as a communication tool, then I can see the connection.

Giana M Eckhardt teaches international marketing at the Australian Graduate School of Management, Sydney.

(As told to Prasad Sangameshwaran)

In The Strategist next week: Q&A WITH ECKHARDT