Marketing Teaching Notes Homework Intel Inside was really the idea of Dentsu who was trying to do something to make Intel better known and more prestigious in Japan

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Strategic Market Management 10th edition

David Aaker Author

TEACHING NOTES FOR SUPPLEMENTAL CASES:

TN—INTEL

1. In the spring of 1991 the Intel Inside campaign was started, and $100

million was budgeted in 1992. Was that worthwhile? How would you

evaluate it? Why would Compaq or Dell participate?

What were the problems facing Intel?

1. Competitors were selling the Intel name 386/486.

2. Competitors were distorting it by selling different versions than Intel, even to the point of

Was the $100-million campaign worthwhile?

NO it was a mistake—spend $100 million on R&D or shareholders

– OEMs just buy on price and specs and you need to compete on price and specs.

– End users just buy a 386 class machine from Compaq and don’t care what chip is used.

If so it makes no sense—you hurt your cost structure—better spend on R&D.

What about NutraSweet—was their campaign effective? They insisted that all use their logo.

YES it was a good move

– It works by making people more familiar with Intel—people are reassured by the Intel name

even though they have no clue as to how it differs—Why look into it – just buy Intel and be

sure.

Note: What about the logo? Isn’t it friendly?

Note: Compare the effectiveness of Intel Inside vs. a campaign telling people that Intel is better

How to measure the results of Intel Inside

– Measure the space advertising-

During 18 months (1992 and first half of 1993), over 90,000 pages of OEM

NutraSweet 1992(when unknown) 1993

PC specifies (Job to specify) 80% 60% 90%

Business end users 80% 46% 80%

– Measure the extra people will pay

– Measure the market share/price

– Measure the attitude toward

– Measure the image of Intel

Why would Compaq or Dell participate?

1. To avoid being perceived as less than others on the chip side.

2. In the Fall of 1992, the “586” chip was ready. Would you call it Intel

586 or i586 or would you start over with a new name? What are the pros

and cons of each alternative?

Pro for i586

– Draws upon the X86 equity-

Customers already know what the product is.

– The Intel Inside provides a brand name that is Intel – you don’t need another.

– Competitors will not be allowed to have the 586 name for nothing.

– A new name will cost a bundle-

If there is to be a new name—what is the criteria that should be used:

Intel’s Criteria

Trademarkable

Hard to copy

Has positive associations

Works worldwide

Can effectively transition from generation to generation

Supports Intel’s brand equity

Works with our partners’ brand names

Funny names considered: iCUCyrix, iAmFastest, 586NOT!

3. When would a new product require a new name such as Pentium, a new

subbrand such as Xeon.

It really depends on the separation needed between the brand and the new product from

two perspectives. Will the new product help or hurt the brand? If it will hurt more separation is

4. Evaluate the Centrino brand strategy. Will it help Intel be relevant to the

mobile computing world?

An important strategic initiative for Intel is to be relevant, indeed be a driver of the

technology behind the mobile world. The Centrino is the brand asset that will represent the core

of the business strategy. The brand name itself and its logo might be worth discussing. What

Strategic Market Management 10th edition

David Aaker Author

TN—Samsung Electronics

This case provides a look at one of the most successful and dramatic strategic successes

by a large firm in the last decade or so. Highlighted are some organizational issues.

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?

One approach is to engage in culture building activities around the new strategy; to be a

consistent and vocal advocate and to invest in the strategic imperatives that are implied. Put

2. What are the organizational implications of vertical integration and the

new product program? With respect to vertical integration, how would you

make sure that the component suppliers are incented to become efficient

even though their customer is captive?

Vertical integration means that very different people and cultures need to co-exist in the same

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?

The Samsung group is around $100 billion of which Samsung Electronics is around $34 billion.

It contains construction; real estate, heavy industry and even at one time a disastrous entry into

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?

On one hand you want to be accepted but on the other you want to be a change agent. So being

disruptive might be an acceptable risk. At that meeting Yun made the following remark—“Some

of you may want to put Mr. Kim on top of a tree and then shake him down. If anybody tries that,

What are the problems that you foresee in the global management structure? What changes

would be

6. Do you agree with the logic of the Olympic sponsorship? How would

you get organizational support for it? How would you decide what sports

events to sponsor?

In this case Lee was very keen on sponsoring the Olympics partly because of an ego trip but also

because it matched his strategic vision for the Samsung Group. Another route is to create an

analytical model to evaluate sponsorships. It would start by determining the brand identity—the

7. What was the objective of the AST acquisition? Why did it fail?

The objective was to crack the US market using the marketing savvy and distribution clout of

AST. They overestimated the AST brand and its organizational competitive which was weak.

The problems AST were having should have been a signal. They also were not able to keep the

Strategic Market Management 10th edition

David Aaker Author

TN-SAMSUNG

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?

TM— One approach is to engage in culture building activities around the new strategy; to be a

consistent and vocal advocate and to invest in the strategic imperatives that are implied. Put

2. What are the organizational implications of vertical integration and the new product

program? With respect to vertical integration, how would you make sure that the

component suppliers are incented to become efficient even though their customer is

captive?

TM— Vertical integration firms

Vertical integration means that very different people and cultures need to co-exist in the same

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?

TM— The Samsung group is around $100 billion of which Samsung Electronics is around $34

billion. It contains construction; real estate, heavy industry and even at one time a disastrous

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?

TM— On one hand you want to be accepted but on the other you want to be a change agent. So

being disruptive might be an acceptable risk. At that meeting Yun made the following remark—

“Some of you may want to put Mr. Kim on top of a tree and then shake him down. If anybody

What are the problems that you foresee in the global management structure?

6. Do you agree with the logic of the Olympic sponsorship? How would you get

organizational support for it? How would you decide what sports events to sponsor?

TM— In this case Lee was very keen on sponsoring the Olympics partly because of an ego trip

but also because it matched his strategic vision for the Samsung Group. Another route is to

7. What was the objective of the AST acquisition? Why did it fail?

The objective was to crack the US market using the marketing savvy and distribution

clout of AST. They overestimated the AST brand and its organizational competitive which was

weak. The problems AST were having should have been a signal. They also were not able to

Strategic Market Management 10Cth edition

David Aaker Author

TN—XEROX: FROM THE FIFTIES TO THE EIGHTIES

The case describes Xerox and the copier industry through the mid-eighties. It can rather

easily occupy two days, with the first day on the sixties and the second on the seventies and the

eighties. The objectives are to:

1. Identify the key elements of a business strategy (Xerox and its competitors) and discuss their

implications for the future competitive position.

2. Identify barriers to entry that were developed and see how they were overcome by Kodak,

IBM, and the Japanese firms.

3. See the risks of a strong monopolistic position and of a diversification move.

The following provide an overview of the industry that the students should understand:

1960’s: Xerox dominates and creates barriers.

1970’s: Xerox slept and was diverted. Market share fell from 96% to 46%.

Questions for Discussion

1. Identify and evaluate Xerox strategy in the 1960’s.

2. What entry barriers did Xerox create in the 1960’s?

3. Identify and evaluate the strategy of IBM, Kodak, Ricoh/Savin, Cannon, and Minolta. How

did each overcome barriers?

1. IDENTIFY AND EVALUATE XEROX STRATEGY IN THE 1960’s

There are seven strategy elements that can be identified and discussed. Each of them

represents a key Xerox strategic choice and was not obvious even in retrospect. For each, the

students can be asked to identify the strategy rationale and to determine if they would have

pursued a similar strategy.

Rented Equipment

The original product was complex and risky to customers, who certainly did not want to

spend a lot of money on buying a machine. The decision to lease was absolutely brilliant and

helped make Xerox what it is today. Who could resist $90 a month and only four cents a copy

after the first free 2,000? What happened was that firms grossly underestimated the usage levels

which averaged 8,000 per month. In 1967, the average Xerox 914 made 100,000 copies per

month. In an original evaluation of the machine in 1960, A.D. Little estimated a total world

market of only 5,000. A key assumption A. D. Little made was that the machine would be sold

instead of leased.

Sales/Service Network

The machines were new to office management and continually broke down. Sales and

service organizations were crucial to the strategy, and Xerox was strong in these areas from the

start. However, these organizations were very costly for a firm that was struggling to finance the

new product and its growth. The use of dealers or third party service organizations was an option

that must have been attractive.

International—Joint Ventures

The commitment to joint ventures can be criticized. First, it sacrificed substantial profits-

-Xerox got only 50% of Europe and Latin America and 25% of the Far East. Second, their

On the other hand, the joint ventures:

– allowed Xerox to move quickly into Europe and Japan, bypassing the organizational,

financial (costs of setting up a service operation and financing the leases), and cultural hurdles.

– provided substantial success that may simply not have occurred any other way. Fuji-

Xerox is often held forth as one of the U.S. success stories in Japan.

– provided autonomous product development.

Technology—Patents

License CPC Technology

The decision to license CPC technology did provide an entry for firms that later became

important competitors. Why? First, it was good money. Second, it may have diffused some of

the anti-trust pressure. Third, the CPC technology was regarded by Xerox as obsolete.

Ignore Low End

Diversification into the Office of the Future

A very reasonable diversification move, the problem is that it diverted attention from the

main product. More on this under Question 4.

2. WHAT BARRIERS WERE CREATED BY XEROX BY 1970?

A market structure analysis (using Porter’s framework) could be quickly done. It would

show that Xerox was in an incredible monopoly position and would demonstrate why they were

making a ton of money. The barriers were:

– Technology—Patents

3. IDENTIFY AND EVALUATE THE STRATEGY OF IBM, KODAK,

RICOH/SAVIN, CANNON AND MINOLTA. HOW DID EACH

OVERCOME BARRIERS?

IBM

The IBM strategy was basically to build a me-too product and rely upon its sales/service

operation and its name. The strategy really did not work. Xerox sued for patent infringement

and basically won. IBM’s inferior product meant that IBM dug itself into a hole from the

beginning.

Kodak

aggressive strategy would have enabled them to gain a much more dominant position. Some

interesting questions to pose:

• What would have happened if IBM had the Kodak machine? (Xerox might have been

killed.)

Savin/Ricoh

The Savin 750, a reliable, 20 cps copier introduced for under $5,000 in 1975 was a

bombshell. In had one-third the parts and weight of its Xerox competition and cost $500 to

build. It had a 17,000 copies PR failure rate as compared to 6,000 for Xerox.

The capital cost and sales/service system barriers were overcome by focusing upon

reliability and cost and thus having a product that could be handled by dealers. The Xerox name

was overcome by having dramatic price-performance superiority and the fact that they really

didn’t compete head-to-head against Xerox. The Savin team had perhaps a superior and more co-

ordinated global presence than Xerox.

Canon

Most of the Savin strategy applies to Canon. There are some differences. Canon did not

use joint ventures and they marketed under the Canon name everywhere. The results are

instructive. They introduced a good product in the early 1970’s which languished until the NP–

200 came out in 1980. Their decision not to joint venture or otherwise use an established

Minolta

Minolta was forced by Ricoh and Canon to enter the PPC market in the late 1970s. They

took a technology approach and attempted to create a better machine. Contrast that with the

IBM me-too strategy.

4. WHY DID XEROX LOSE POSITION IN THE SEVENTIES?

Diverted by Office of the Future

Xerox rather logically felt in the sixties that they had no more worlds to conquer in

copiers, so they looked for new growth directions. Building from the copier base they chose

However, the firm was not able to keep the excitement and attention on copiers. The

action was in the office product systems. Further, the office products and all the computer

entries were disappointing or failures. Thus, the organization diverted resources to build/save

this area of the future.

Diverted by Anti-Trust Cases

The case documents how the firm got bogged down. The cost was not only the money

and the time of the executives, but strategy options. Xerox had a tendency to be much less

aggressive in pricing and product options. Prices were kept high which provided extra margins,

but made it easier for the competition to come in.

Breakdown in Product Delivery System

Second, the communication was terrible. Even though the PARC group could have

provided key breakthroughs in microprocessor communication, they were not consulted.

Instead, competing firms like Kodak and Minolta, solved the multiple microprocessor linkage

problem in copiers. Xerox did not exploit what should have been substantial synergy.

The third was a preoccupation with speed and sophistication. Xerox wanted only to be

fast, state of the art. Attributes of reliability and cost were not of any concern. Why? They were

not close to either the customer or the competitors.

Arrogance about Xerox Technology

Xerox seemed to believe that they were the only ones that could make a copier that was

sophisticated. The patents were the ultimate protection. There are several partial explanations:

• They had a perception that the technology was extremely complex. They tended to

use specially-made parts even for simple items such as screws. In contrast, the

Japanese used as many standard parts as possible.

Turned Back On Low End

The President of Canon, replying to a question about what he would have done in 1970 to

forestall the competition, said that it was easy: he would have entered the low end. Xerox saw

that the very early Japanese machines didn’t work well and wrote them off. They turned their

back on some viable Fuji-Xerox options. Their own efforts were not successful.

5. WHAT WERE STRENGTHS AND WEAKNESSES OF XEROX IN

1980?

Strengths—

– Strong position in high-volume segment

– Large installed base

– Name

– Sales/service network

– Global presence

6. WHAT SHOULD XEROX DO TO COME BACK IN THE 1980’s?

There are a variety of things that Xerox did starting in 1979 to turn things around and

become competitive. They included the following seven strategies:

1. Competitive benchmarking. Xerox became serious about competitor analysis.

2. Low cost goals. Xerox developed cost goals so that it would be competitive with the

Japanese. That meant in part that reliability and cost increased in their priorities. One

aspect of cost control was a reduction of staff so that the overhead was reduced. By

3. Product quality goals. Xerox developed quantitative quality goals and dramatically

improved quality. Their defects per machine in the 10-series were 65% of former

products. A total organizational commitment to quality was initiated.

5. Market research. Paying much closer attention to the customer was evidenced by

formal marketing research, more concept tests, use tests, customer observations,

surveys, etc.

6. Internationalization. Xerox attempted to turn the international presence into more

of an asset by improving the co-ordination between the Xerox, Fuji-Xerox and Rank-

Xerox and using world-wide sourcing.

7. A new product line, the 10 series, which was first shipped in volume in 1983, was a

key to the turnaround. It provided a technological advance that finally regained the

technology position for Xerox. It used nine microprocessor brains to control quality

CONCLUSION

In summary, the case brings home a number of points—

1. The long-term importance of the strategic decisions to lease, to avoid the low end, to

go for product sophistication, and to use joint ventures.

2. The arrogance of success/monopoly and the risk of diversification.

4. The importance of organizational communication and structure.

5. The variety of ways of approaching global competition.