Product Life Cycle
Compaq notebooks 1. 0 INTRODUCTION Compaq Computer, based in Houston, Texas, is the world’s largest personal computer manufacturer and the fourth largest information technology (IT) company. From 1992-1997, the company’s aggressive high volume PC strategy propelled it to high growth rates in revenues, while its leadership in PC servers sustained strong margins and drove profit growth.
Starting in 1995, former CEO Eckhard Pfieffer began to transform Compaq from a pure PC company to a full-service IT company, with the goal of becoming a $50 billion company that could compete with the likes of IBM and Hewlett-Packard.
The key strategic moves were the acquisitions of Tandem Computer and Digital Equipment Corporation in 1997 and 1998, giving Compaq a diverse line of technologies and service capabilities. Compaq began revamping its information systems in 1994, building global enterprise information systems to support its globally optimized manufacturing and order fulfillment operations. The systems were built primarily around SAP applications, running on Compaq PC servers and the Windows NT operating system in order to demonstrate that large enterprise systems could run on Compaq hardware.
Compaq’s IT people were forced to distribute the SAP applications across ten interconnected sites around the world and customize extensively in order to run on Windows NT and meet Compaq’s needs. Compaq stumbled badly in 1998 as it faced new challenges in the PC market and tried to assimilate Tandem and Digital. In particular, Compaq struggled to catch up with Dell Computer, whose direct sales; build-to-order model gave it a big advantage in cost and speed over Compaq’s indirect sales, build-to-forecast approach.
When the company disappointed investors with poor results in 1999, the board removed Pfieffer, who had been credited for Compaq’s previously stellar performance. Since Pfieffer’s departure, Compaq has reorganized itself along business lines, streamlined its distribution channels and developed a new electronic commerce strategy called “NonStop eBusiness. ” Compaq has gone through a series of IT reorganizations aimed at giving business units more control over IT decisions and resources. Compaq’s new CEO, Michael Capellas, came to the company in 1998 as CIO and was the force behind this reshaping of the IT organization.
It is likely that newly hired CIO Robert V. Napier will continue the process in order to align IT with the new corporate structure, while also working to implement Compaq’s e-business strategies. Since 2007 till now Compaq Company has many products as follow: in 2007 they provide laptop Compaq Presarios to their customer, in 2008 they improve and developed Aero 4/33c Notebooks, and in 2009 they provide new model E500S Notebooks, 2011 EZ2700 Desktops and LT 486/33 Desktops at the same year. 2. 0 Compaq Cash flow The issues of cash flow for each stage of the product life cycle they are complete each other.
Cash flow for a product as it moves on the life cycle curve will change. It’s very important to know and plan each stage for our product to be success. 2. 1cash flow in the five stages Introduction stage, The introduction of a new product onto the market is typically characterised by very slow sales, which may grow only very slightly over a long period of time. Whilst profits will gradually improve during this stage, it may take until near the completion of the introductory stage in the PLC before the company witness’s positive profitability.
The reason for such low profitability during this stage is not so much the limited success of the product – measured in terms of low, albeit growing, sales – but the high costs of production and promotion that are required to try to develop customer awareness. R&D expenses are really high for Compaq in especially in terms of smart laptop, because now Compaq is moving in a new path of technology and there is no resource for them to use in order to reduce the R&D costs.
Particularly in case of their new product Compaq Notebooks and Compaq Desktops that is already in introduction stage we can see some spectacular features for the first time about the Desktops. For example one of the new technologies that are used in Compaq Desktops is that it has a high quality and high processor. So we can see clearly that all of these new technologies have a heavy cost for producers. That is the reason that Compaq invests at least 13% of its sales revenue into R&D activities every year. For example Compaq spent $45 million on R&D this year compared to its competitor Dell 25 million. Growing stage
The growth stage in the PLC typically involves a rapid growth in sales as early adopters replace pioneers as the main consumer group. Whilst pioneers are characterized as those consumers who purchase products almost immediately when new products are launched, early adopters wait until the price starts to fall and some of the product’s potential weaknesses are ironed out. Compaq sales steadily increased as the product was promoted and became well known. It maintained growth in sales until 2010 through expanding the original product with new developments of quality, style, speed and price the total of cash flow.
Compaq Desktops unit sales in 2009 14. 9 million PCs units and 10 million laptop units. Actually the growth stage for each company is a start point to collect its cash flow by the time, but for Compaq it starts form the first date of the product presentation directly. There are many devices in the market with Compaq product and services, why people prefer Compaq desktop? Quality, brand, price and speed. Maturity stage The maturity stage in the PLC is a key point for a firm because it marks the turning point in the product’s success.
Typically, the growth in sales decreases quite significantly and manufacturer’s over-capacity (that is, larger than required inventories) results in a reaction by the firm and its competitors to slash price. In this stage Compaq desktop has a partner and that is Compaq Notebooks and Compaq Presario. This is the best extension strategy for this stage and it is totally clear that Compaq had planned for these year; Compaq development groups knew that they have to present such a powerful product with the capability of presence in two stages at the same time.
The total sales units in this year have grown fast for Compaq in 2011 4. 721 thousand units. Declination stage Clearly, at this point, Compaq had to make a key business decision. Sales were falling; the product was in decline and losing its position. Should Compaq let the product ‘die’, i. e. withdraw it from the market and give space for their new product. 2. 2 The Degree of Competition Faced by the Product by Applying Porter’s Five Forces of Competitiveness. The degree of competition between the competitors is very high. Successful products attract other competitor businesses to start selling similar products or service.
This indicates the third stage of the life cycle – maturity. This is the time of maximum profitability, when profits can be used to continue to build the brand. However, competitor brands from both Compaq itself (e. g. dell) and other company (e. g. acre) offered the same benefits and this slowed down sales and chipped away at computers market position. Compaq continued to support the development of the brand but some products (such as quality, price and style), struggled in a crowded market. 3. 0 Improving the Company’s Financial Performance
Recommendations to improve performance will be focused on the product attributes and benefits with the aims to enhance driving experience and build brand personality. 3. 1 Promotion: Sales promotions have a significant effect on the behavior of consumers and trades people. Such promotions can bring in more profits for the manufacturers because they permit price discrimination. 1. Price discrimination: Producers can introduce price discrimination through the use of sales promotions. They can charge different prices to different consumers and trade segments depending on how sensitive each segment is to particular prices.
Coupons, special sales events, clearance sales and discounts are examples to explain the phenomenon. 2. Effect on consumer behaviour: as sales promotions are mostly announced for a short period, customers may feel a sense of urgency and stop comparing the alternatives. They are persuaded to act now rather than later. 3. Effect on trade behaviour: Short-term promotions present an opportunity and encourage dealers to forward buy. This forward buying ensures that retailers won’t to go out of stocks. As dealers have more than the normal stocks, they think it advisable to advertise in ocal media, arranged displays and offer attractive promotion deals to consumers. These actions help in increasing the store traffic. 4- Exterior Design Exterior design is the key product attribute that plays an important role in enhancing the overall product brand image. We will look at compaq exterior design in terms of: •Shape Many feel that the overall design of compaq is not unique enough. compaq must invest in building its creativity and innovative on it to have own characteristic outlook/shape of product brand image. •Color Product color the range offered by compaq generally not attractive or unique.
As one of its core values is customer focus, compaq has to focus to be really customer oriented, knowing what the customers want and offer the range of colors that appeal to different market segment effectively. 5- Interior Design Interior design of the laptop refers to its overall instrument panels such as the keyboard, the dash board, the other accessories and special feature in the laptop which is perceived as not stylish. The materials used are also felt as average low quality. Throughout the years, there is not much improvement in this area which can WOW the consumers.
In fact, all these features will help to create using experience. Interior design with aesthetic features and good sound protection will make the customer feels joy and excited thus creating a strong positive feeling with the laptop using experience. 3. 2 Length of the Product Life Cycle Be Prolonged Compaq Company has many problems and some customers needs when they solve these problems the length of product life cycle will be longer, from improving their product, quality and price and other needs such as style color etc…. Increasing Sales: a promotion can stimulate product sales.
Manufacturers commonly reduce the price of a product to induce customers to make a purchase. In the short term this can increase the number of units sold, which can lead to increased market share in the long run if the customer permanently switches from a competitor’s brand. 4-Brand Loyalty: sales promotions can also be used to increase brand awareness and loyalty. Clubs or special memberships provide consumers discounts or promotions for continued use. 5-Impulse Sales: Sales promotions can generate impulse sales. A customer may not be aware of a product until she enters a store and sees a sign advertising a sale price.
Impulse sales also result from in-store demonstrations. 6- Exterior Design: Exterior design is the key product attribute that plays an important role in enhancing the overall product brand image. We will look at Compaq exterior design in terms of: •Shape Many feel that the overall design of Compaq is not unique enough. Compaq must invest in building its creativity and innovative on it to have own characteristic outlook/shape of product brand image. •Color Product color the range offered by Compaq generally not attractive or unique.
As one of its core values is customer focus, Compaq has to focus to be really customer oriented, knowing what the customers want and offer the range of colors that appeal to different market segment effectively. 4. CONCLUSION Compaq business model has been analyzed in conjunction with the marketing mix that is employed to identify its target Market. They build their brand name with their tagline, Compaq philosophy of low fares is aimed to make computers affordable for everyone. Compaq also aims at making using easy, convenient and fun for its customers.
Their services and their pricing work together to identify their target market, however, their promotional activities and their distributional channel is aggressive developed, planned, and executed to target both foreigners and locals alike. Moreover, more advertising model should be developed and Compaq need to identify more suitable areas for distribution as more and more loss potential target could be captured which will at end generate huge revenue for Compaq. Reference Bliss, J. (1998). “Expense May Thin Ranks Of AAP Plan,” Computer Reseller News, April 13..
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