Marketing Supplement E Homework Intel’s sustained rise would not have happened without the firm’s ability to create and manage a brand portfolio that included a complex set of endorser brands and sub brands

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SUPPLEMENTAL CASES

Strategic Market Management 10th edition

David Aaker Author

Intel

Samsung Electronics

Xerox: The Early Years

Intel Teaching Note

Samsung Electronics Teaching Note

Xerox: The Early Years Teaching Note

Intel

During the 1990s, Intel achieved remarkable success in terms of increased sales, stock return,

and market capitalization. Sales of its microprocessors went from $1.2 billion in 1989 to over

Intel’s sustained rise would not have happened without the firm’s ability to create and

manage a brand portfolio that included a complex set of endorser brands and subbrands. The

brand story really starts in 1978 when Intel created the microprocessor chip, the 8086, which

won IBM’s approval to power its first PC. The Intel chip and its subsequent generations—the

286 in 1982, the 386 in 1985, and the 486 in 1989—defined the industry standard and made Intel

the dominant brand.

To respond to this business challenge, in the spring of 1991 Intel began a remarkable

ingredient branding program, establishing the “Intel Inside” brand with an initial budget of

around $100 million. (The logo—which has a light, personal touch, as if it was written on an

informal note—was a sharp departure from Intel’s corporate “dropped–e” logo.) Under the

branding program, computer manufacturers who properly displayed the Intel Inside logo

This decision was very controversial within Intel. Many people argued that brand

building was irrelevant for a firm that only sold to a handful of computer manufacturers; the

money could be used for R&D instead. Within a relatively short time, however, the Intel Inside

logo became ubiquitous, and the program was an incredible success. Even as the budget grew to

well over $1 billion per year, the brand-building effort was perceived to generate such loyalty

that it more than paid for itself.

In the fall of 1992, though, when Intel was ready to announce the successor to the 486

chip, it faced increasing competitor confusion despite the Intel Inside campaign. A huge

decision loomed. Calling the successor the Intel 586 would leverage the Intel Inside brand and

provide familiarity to customers who had become accustomed to the X86 progression. Even so,

Intel elected to give the chip a new name: Pentium.

A few years later, Intel developed an improved Pentium with superior graphic capability.

Rather than change the brand name itself, the firm added a branded technology, MMX, to the

Pentium. This decision gave the Pentium brand more time to repay its investment, and it

reserved the impact of announcing a new-generation chip for a more substantial technological

leap. Subsequent generations did emerge and leveraged the Pentium name and equity with

names like Pentium Pro (1995), Pentium II (1997), Pentium III (1999), and Pentium 4 (2000).

In 1998 Intel decided to extend its reach to mid-range and higher-end servers and

workstations. To address this market, it developed features that allowed four or eight processors

to be linked to supply the necessary computing power. This progress, however, raised a

In 2001, the Xeon subbrand stepped out from behind the Pentium name. Technological

advances (in particular, the branded NetBurst architecture) had dramatically improved the chip’s

processing power. The Xeon brand had also become established, making it easier to support as a

stand-alone brand, and initial trademark issues over the Xeon name had been resolved. Finally,

because the target market had become even more important to Intel, having a brand devoted to it

was now a strategic imperative.

The decision was made to link the Celeron to Intel Inside, so there was an indirect link to

Pentium. The trade-off was the credibility that the Intel endorsement would provide to Celeron

versus the need to protect the Pentium brand from cannibalization and a tarnished image through

association with a lower-end entry.

In 2001, Intel introduced the Itanium processor as a new-generation successor to the

Pentium series. Why not call it the Pentium 5? The processor was built from the ground up

In 2003, Intel introduced its Centrino mobile technology. The new processor provided

laptop computers with enhanced performance, extended battery life, integrated wireless

connectivity, and thinner, lighter designs. These groundbreaking advances promised to

fundamentally affect personal lifestyles and business productivity by enabling people to

“unconnect” (the Centrino advertising tag line is “Unwire Your Life”). The new Centrino logo

reflects the Intel vision of the convergence of communication and computing, as well as a new

approach to product development. Rather than simply pushing the performance envelope, this

product responded to real customer needs as determined by market research.

For Discussion

1. The Intel Inside campaign started in the spring of 1991 and $100 million was budgeted for it

in 1992. Was that worthwhile? Why would Compaq participate in the program? What

about Dell? How would you evaluate the program? What alternatives does a competitor

such as AMD have to combat the Intel Inside branding strategy?

2. In the fall of 1992, when the “586” chip was ready, would you have called it Intel 586 or

i586, or would you have started over with a new name? What are the pros and cons of each

alternative?

Strategic Market Management 10th edition

David Aaker Author

Samsung Electronics

Samsung Electronics, which begin in 1972 as a manufacturer of cheap B&W TV sets, in

2002 had sales of over $34 billion and net profit of 5.9 billion dollars which was less than

Microsoft’s profits but more than IBM and Nokia earned who were number three and four in

industry profitability. In part due to product leadership Samsung achieved third place in world

wide mobile handset sales closing on second (after Nokia), became the second place seller of

semiconductors (after Intel) and was the largest manufacturer of television sets and computer

monitors in the world.

In some respects it was the worst of times in late 1996 when Yun Jong Yong became

CEO. He addressed the financial crises in part by cutting some 24,000 people, shutting factories,

and selling business units. But in the face of this adversity, he set the stage for gaining global

leadership by enunciating a bold strategy.

The new course was somewhat aided by the New Management initiative launched in

1993 by Lee Kun-Hee, the CEO of The Samsung Group of which Samsung Electronics is a part.

No less than a total change in the way that the group thinks, works and serves the customer, the

initiative included a focus on quality, listening to the world’s markets, creating distinctive

advantage, being the world’s best, anticipating the future, creating organizational environment to

foster innovation and growth, and contribute to a better global society. The initiative was re-

launched in 1996 as it had received little traction. As part of the re-launch, Lee set up in 1996 a

training center for information related infrastructure topics.

There were several key aspects to the implementation of the strategy. One was the hiring

Another initiative was sponsorship and advertising. Yun believed that the new Samsung

could best be communicated by sports sponsorship. The logic was that sports competition,

which involved hard work by athletes striving to achieve ones highest potential, suited the

industry and the associations that Samsung wanted to nurture. Sports also provided a stage to

demonstrate technology. Samsung sponsored several events include the 1998 Bangkok Asian

Games but the crown jewel was the sponsorship of the Olympics starting with the 1998 Winter

games in Nagano Japan. In 1999 Samsung embarked in a $400 million advertising effort around

the tagline DIGITall which signaled that Samsung was a leader in the digital convergence world

and it would apply to all people and all products.

For Discussion

1. Yun lacked support for his new strategy. Is it important that the strategy be accepted? That it

be enthusiastically be embraced? How could the CEO make that happen?

3. How would you change the reward system to reflect the new strategy? In the past all units

have been largely measured on sales and market share.

4. Why didn’t Lee’s initiative gain traction in 1993? What is needed to make it happen?

5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English?

In creating a global strategy would you use a top down or bottom up approach?

Strategic Market Management 10th edition

David Aaker Author

Xerox: The Early Days

When Chester Carlson invented xerography in the 1930s, he attempted to market his idea

to a host of firms, including Kodak and General Electric. All viewed the rather crude invention

as unnecessary in the face of carbon paper and the coated-paper copiers of the day. Finally, in

the 1950s, a small firm took the gamble. The result was the Xerox 914, introduced in 1959,

which truly revolutionized the copying industry. The first plain-paper copier, it was easy to use

and operated at seven copies per minute. The 914 was responsible for the number of copies

made in the United States increasing from 20 million to 9.5 billion in only ten years.

The fifth pillar, a major strategic thrust for Xerox in the 1970s, was the “Office of the

Future.” This concept recognized that the copier was only one instrument of office productivity

and business communication, and Xerox wanted to be a leader in the broader playing field.

Clearly, the key to the strategy was a computer capability. To fill that gaping hole, Xerox in

1969 purchased Scientific Data Systems, a firm that targeted the scientific community, and

changed its name to Xerox Data Systems (XDS). Despite pouring investment into XDS, the

firm’s products for the business data-processing market never had any success in the office,

Xerox’s territory. Further, the Xerox organization had too many layers of bureaucracy in too

many locations to encourage the integration of computer and copier products. In 1975, after six

years of losses, Xerox closed XDS, judging that the computer mainframe market was not part of

its core business after all.

Competitors: Savin, Canon, IBM, and Kodak

averaged 17,000 copies between failures. It made twenty copies per minute, the first in less than

five seconds, a pace far superior to Xerox efforts at the low end. By 1977, Savin placed more

copiers in the United States than Xerox. Meanwhile, Ricoh captured the top market share in

Japan, as measured in units.

IBM attempted through the 1970s to participate in the copier market with as series of

products. It was generally unsuccessful, despite its famous name and a large sales force, in part

because it was technologically behind and its products were unreliable.

Kodak entered the market in 1975 with its Ektaprint 100, a plain-paper copier that soon

became the industry standard for reliability in the mid-volume market. The firm then developed

a series of high-end machines that were by many measures the best in the industry. Kodak

moved slowly, however, making sure the products were reliable, carefully building a strong

Problems at Xerox

After many years of dramatic success, Xerox faced significant threats in 1980. The firm

managed to hold onto its dominance in medium- and high-speed machines, still controlling 60%

of the market for machines over $40,000 in 1981. Performance at the lower end was much

worse, however, and as a result Xerox’s share of U.S. copier revenues declined dramatically,

from 96% in 1970 to 46% in 1980. Between 1976 and 1982, Xerox’s share of worldwide copier

revenues dropped from 82% to 41%. Why? How did this happen?

marketing. Throughout this marathon, the product would be subjected to a system (adopted from

NASA) of staged program management, which entailed constant review and criticism.

One of Xerox’s major problems in the 1970s was its focus on making the largest, fastest,

and fanciest machines. It paid far less attention to reliability, and therefore it was not prepared to

compete with machines made by Kodak. Rather than being lean and trim, it became bloated and

failed to locate low-cost outsourcing opportunities. When machines like the Savin 750 were

introduced, Xerox could not compete in either price or quality.

Xerox ignored the Japanese threat, allowing those firms to get a foothold at the low end

of the market that they exploited by moving up. One rationale was that the early Japanese

machines were of low quality and priced too high; the Savin 750 was a shock. A second

rationale was that the margins at the higher end were much more attractive than those at the low

end. Xerox, however, failed to recognize that the Japanese firms would use their advantage

further down to climb the market ladder. There was also a strong “not invented here” syndrome.

After introducing its 2200 model in Japan in 1973, Fuji Xerox offered to export it to the United

States, but Xerox refused, unable to believe that a Japanese product would be up to Xerox

standards. It was not until 1979 that Xerox finally accepted a Fuji machine for the American

market.

For Discussion

1. Identify and evaluate Xerox’s strategy in the 1960s. What entry barriers did Xerox create in

that decade?

4. What were the strengths and weaknesses of Xerox in the 1980s? What were its strategic

imperatives?