HP's strategic shortfall: A paradox of choice
By Manish Chhokar, Andres Camacho, Maria Teresa Morazan, Archit Kansal, Aaron Sanchez and Michael A. Sherry
After a long week at his hectic new consulting job in New York, Robert Baron was anticipating a relaxing evening at the new restaurant in town. He was seated quickly upon his arrival and given an amazing table near the front of the establishment. As he settled in to his booth, and opened the massive menu that lay on his table, he quickly realized that something was off, hampering his ability to truly enjoy the experience that he was about to have.
At first, he was unsure of what was bothering him, but something about being a patron of this particular restaurant was causing him to feel overwhelmed and anxious. As he scanned the 60+ different entree and combination choices staring him in the face, he quickly realized that he was suffering from overwhelm, due to more choices than his brain could effectively process.
This phenomenon has been further examined by psychological studies that have directly correlated the number of choices offered and the inability of human beings to be decisive and confident in their decisions. There are only so many options that the human brain can effectively process and decide upon. Too many options can cause the human brain to enter what experts refer to as “paralysis of analysis,” a syndrome that is linked to having an overabundance of choices.
Unfortunately, this state ultimately leads only to further indecision and overwhelm. In his 2004 acclaimed book “The Paradox of Choice,” author Barry Schwartz argues that by eliminating the number of consumer choices, a company can reduce levels of anxiety and confusion during the shopping process. We believe that a similar challenge has presented itself in the crowded laptop market, and that HP has ultimately suffered from a strategic “identity crisis,” failing to realize the negative consequences of providing an overabundance of choices for its customers.
This over focus on the abundance of choices has led to a long standing debate between customization and personalization. A customized product is built by switching around common components of a product and tailoring it to each customer. For example, some websites allow users to change the background or some of the layout of the web page, which is customization. However, a product is truly personal when someone sees it as extremely valuable and an almost irreplaceable extension of themselves. Take Amazon for example, a company which keeps track of each individual’s purchases and then adapts itself accordingly, providing a list of similar products to offer the customer. This creates a more personal experience because it creates value for the customer by cutting search time for new products. Thus, consumers of Amazon will not want to leave because it feels a personal connection with the company. So, is it customization or personalization that builds a relationship between the company and the consumer?
HP’s fatal flaw in strategic focus is the lack of understanding that a computer is not made personal by customization. Instead, a “personal” computer is related to the emotional attachment that a consumer creates with his computer. It is a relationship that is forged between an individual and machine, almost as if it becomes an extension of the owner. This feeling of connectedness is essentially a marriage between a human being and a machine. HP’s classic misunderstanding has fueled its misguided focus on customization, while not enough emphasis has been placed upon true value creation and personalization for the consumer. Rather, its entire focus seems to rest on making each computer different for each one of its users. This begs the question: Is this the most effective approach for HP to “make the computer personal again?”
If HP wants to understand what “personal” truly means, it should observe one of their customers whip out their laptop in a class, business meeting, or even at the local coffee shop. One needs only to observe someone pull their HP laptop out of a bag, emotionless, and throw it carelessly on the desk, to witness HP’s failed attempt at “personalizing” their products. The company has failed to create an emotional bond between man and machine, and these computers are simply seen as utilitarian tools, to be replaced every couple of years. In contrast to the failed connection between the HP customer and his laptop, HP strategists could learn a lot by observing the distinct experience being had by the typical Apple customer. They normally start by gingerly removing their Apple laptop out of a flashy bag, with an evident sense of pride of ownership. The next step is to remove the laptop from its protective case, almost as if it were a present from Santa Claus on Christmas morning. HP should pay close attention to the Apple owner’s face, typically full of excitement, as he fires up his treasured machine. After much anticipation and ritual, the owner of the computer is ready to start his exciting journey, navigating through endless possibilities of information and entertainment. This process aptly illustrates when a “personal” connection has been forged between man and machine, as opposed to simply a customized, yet uninspired fit for the customer.
Why has HP not succeeded in its campaign of making the computer personal again? There are a few reasons for this conclusion. First, it overemphasizes the customization options of its product to the detriment of its personal connection. There is no question that in the arena of customization, HP is the benchmark for the competition. However, this customization creates little value in the mind of consumer in the long term. It must be concluded that customization does not necessarily translate into a strong personal connection with a product. A prime example of an industry that lacks customization, while producing standardized products that are still extremely personal is the clothing industry. Clothes are homogeneous, yet at the same time extremely personal. They display a person’s style to the world, which creates personalized value for the consumer. However, HP’s fatal flaw in its strategy is that it fails to realize that building a customized computer is far different than building a computer that enhances the experience of the individual by touching all aspects of what the user values.
This flaw is damaging the HP brand immensely. HP seems to be stuck somewhere in the middle and not successfully able to implement the strategy of personalizing the computer. Its efforts to be at the top of both worlds (personal and low priced) are sending confusing signals regarding its brand image. A similar example of a company with a non-congruent strategy is Sainsbury's, the third largest chain of supermarkets. It found itself in a similar dilemma on regarding which strategy to adopt. In spite of being a market leader in its industry at one point, it lost its competitive advantage by trying to implement opposing strategies; namely against low-priced players such as Wal-Mart and high-end competitors like the Marks and Spencer brand simultaneously. Thus, its inability to accurately define and capitalize on its market has led to Sainsbury's declining market share and a loss of brand identity. Therefore, if HP is adamant on overtaking competitors, it should pay closer attention to its strategy, keeping it focused, as not to risk losing its brand value altogether.
Furthermore, the personalization of a computer is really created when the values of the consumers are incorporated into the machine. Similar to relationships between people, it really begins with a level of trust. One of the main reasons Apple is able to build such intensely personal relationships with their consumers is because of the steadfast reliability that their computers offer. Apple computers are commonly known to have a longer lifespan than HP and other Windows-based computers, which is one factor that allows them to charge a premium over other machines. Additionally, the longer product life adds value to the experience and relationship the consumer has with the product, as they have more time to develop their connection to the machine that never lets them down. The longer product life is directionally proportional to the perceived value that the customer ultimately places on the machine.
Quite another interesting contributor to the overall value that a consumer places on a machine is the investment in aesthetics and physical design. It is noteworthy that HP has in fact invested heavily in this branding strategy, which is evident in the new Pavilion™ line of notebook computers, which sport a redesigned, illuminated logo and a sleek new casing. HP has still failed to truly understand its consumers’ values, however. It highlights many advertisements of models matching their computers with their outfits. This campaign tries to emphasize idea of personal style and sexiness of the computer. However, what is sexier to a woman: models wearing outfits that match their computers, or a luxury item that everyone desires? Other items that are highly desired by women include Louis Vuitton handbags, Prada shoes, and diamonds. Women flock to these items strictly because they are desired and revered by other women, with a high perceived value. Arguably, Apple computers have succeeded in developing this type of brand envy among consumers, leaving HP’s product offerings to be seen as second-rate at best.
In addition to the appearance of the machine, another important aspect of a laptop valued by customers is the weight. Consumers prefer to have all the latest technology in a lightweight product due to their on-the-go lifestyle. Consumers have been constantly upgrading computers, switching from desktops to laptops, and even changing laptops for smaller, more powerful, lightweight models. The consumer desire for reduction in size and weight of their computers has been the impetus fueling the innovation of smaller and increasingly powerful machines. Apple understands consumer values and modifies its products to give its customers exactly what they desire. This led to the creation of the MacBook Air laptop, the flagship machine for the next generation of laptops. A normal HP laptop weighs anywhere between 3 to 7 lbs (www.hp.com) whereas the MacBook Air weighs only 0.74 lbs.(www.apple.com) This is a crucial factor to the mobility of the product, and creates additional value with the customer’s desires in mind.
Another important aspect that HP has been ignoring is a consumer’s desire for simplicity. We can see this in successful companies that have managed to simplify their strategies in external terms, such as a more basic logo design. The customer might initially think that “more is better,” in terms of options, but realizes that his preference truly is for something simpler. He wants a machine that harmonizes with his tastes and desires and ultimately just feels “right.” HP is trying to imitate Apple by making a computer personal, but has failed to recognize that simple can be more personal. Google is a classic example of a search engine with a simple interface that has successfully attracted more advanced searches than rival, more complex search engines. Perhaps HP could have more success in its attempt to gain brand loyalty by changing their campaign “The Computer is Personal Again” to something similar to Phillips’s successful strategic P.R. campaign “Sense and Simplicity.”(www.philips.com) Phillips learned the lesson that simplicity trumps complexity in the minds of consumers, and has been rightly recognized for its innovation, proving that becoming simple does not equate to remaining static either in time or technology.
Arguably, the root of HP’s strategic problems stem from the fact that HP has failed to choose what NOT to do. HP has managed to identify the specific demands and values that its customers prioritize, which has been reflected in their efforts to transform the company’s focus and marketing strategy. However, upon closer inspection, it becomes readily apparent that the company has failed to choose what not to offer. The brand image is deteriorated by attempting to sell luxury, high perceived-value products and low cost solutions under the same brand name. HP must recognize that by offering a service that is not prioritized by the end customer, not only will it fail to add value, but will also drive up unnecessary production costs in the process. Although eliminating some of its product line could lead to a reduction in sales, this can easily be offset due to the reduction of operation costs, thus increasing profit margins. Due to rapid technology advances in the industry, HP will be more apt to better manage its component parts, and avoid having warehouses full of obsolete technology. HP will provide the ancillary benefit to their customers of an easier, more pleasurable shopping experience, while also lowering their IT requirements, due to its strategic move away from over customization.
The evidence indicates that HP has fallen short of its strategic aim: making the computer personal again. Its miscomprehension of customers’ actual values is what has fueled its recent misguided efforts. HP wants to believe it is an innovator in the industry and does not focus on its competition, yet its most recent marketing campaign is imitating a competitor that it will not acknowledge. The best advice for HP is to take a good look in the mirror to figure out its personality. HP will start advancing as a company once it realizes the difference between the customization and personalization of a product, and how to leverage this new brand identity onto the hearts and minds of old and new customers alike. Therefore, the future looks grim for HP unless it manages to snap out of its self-inflicted identity crisis, acknowledges its failed imitation of Apple’s blue ocean, and strategically reinvents itself.
This report was a group project for the Global Strategy class of Thunderbird School of Global Management Professor Nathan Washburn, Ph.D.