Looking back to the holiday season when retailers make most of their annual sales, HP ran a special offer at Best Buy stores: Get an HP desktop, an HP laptop, and an HP netbook – featuring Intel processors and (two of which) featured Windows 7 – plus a Netgear router all for just $1,199.99. Positioned as a PC Home Makeover, the offer also included home set-up of a secure wireless network by Best Buy’s Geek Squad. Right in time for Christmas, the offer was advertised on television and in-store. How could you refuse? Many consumers didn’t; they rushed in and snatched up a PC for the home and two to give away as gifts to the kids.
On the surface, this was HP coming in with a low price on a bundled offer to maximize sales volume before year end. But much more was actually being signaled to competitors, strategic partners and the retail industry.
First and foremost, HP was sending a signal that they were committed to their relationship with Best Buy. This was arguably the strongest computer offer of the season and it was exclusive to Best Buy (which makes you wonder what type of conversations HP was having with the other national retail organizations at the same time). The bundled pricing offer was a loss leader, so HP’s objective wasn’t to drive profits. HP was seeking to “own” in-store retail space and share of mind in Best Buy through a multi-SKU promotion in order to box out competitive models. Partnering with Windows and Netgear as part of a home installation offer through Geek Squad also showed a coordinated customer-marketing effort to help Best Buy gain in-home penetration of their service offering.
At the same time, what HP was signaling to everyone in the computer industry was their acknowledgement that low PC prices were becoming the norm and that HP was not about to roll over and let themselves be shoved to one side in an industry they largely own. Instead of going head to head on price, HP was using price as a way of signaling value, indeed of capturing value for all of the elements inherent in an HP-enabled home networked computing system. In bringing the various partners together, HP was creating a mutually beneficial exchange of value with consumers. They did this by providing a complete solution and then communicated the value of this solution through Best Buy (it’s called Best Buy for a reason), on TV and at retail using all elements of the marketing mix.
Any time you want to send a signal out to the competition, you want to make sure that you are okay with the risk involved. In HP’s case, there wasn’t much downside. The multiproduct offer with router and networking was acknowledgement of pent-up demand to get online at home. If there’s only one PC in the house and it’s tethered to the wall, family members have to take turns getting online. So the offer itself was soundly based on research and a pretty sure winner for the holidays.
The products HP offered were not high-end, so that gave HP a competitive price platform to start from. The inclusion of added value products (Netgear), brands (Windows 7, Intel), and services (Geek Squad) would have opened doors to co-op funding and third-party cost centers to help defray costs while at the same time adding high perceived value and a complete package. The firesale close-out price of old HP SKUs would no doubt have been agreed on condition that the latest, greatest new HP products (most assuredly featuring Windows 7 and Intel processors) would replace the old ones in all three categories (desktop, laptop and netbook) going into the New Year. This sleight-of-hand deal point served to extend HP’s maximum footprint for a jaw-dropping six months at Best Buy, to the chagrin of HP’s competitors in the marketplace who were seeking to gain share in-store at Best Buy by dropping price. If there’s no room on the shelf or the floor there’s no room – regardless of what price a competitor might be coming in with.
The most interesting thing to note is that the signal was taken a step further by the computer industry. Going into 2010, we see that, yes, extremely low PC prices have indeed become a trend that shows no sign of abating. However, rather than compete at the lowest-price level, manufacturers now appear to be jockeying for leadership position in price-bands such as sub-$500, +$1,000, and everything in between. This has sparked a whole new wave of signals. Differentiation through operating systems, software and applications, and added-value promotional programs such as bundled offers and third party promotions, are becoming increasingly important to gaining share in specific price bands. And we are seeing a parallel paradigm shift happening in the mobile phone industry as they take note of the signals happening in the computing market. The introduction of Google’s Droid OS and added-value applications for mobile such as Skype are mirror images of what was going on in the retail industry just six months ago. Of course this is completely understandable when you consider the crossover that is happening between computers and phones (smartbooks), which is being driven by chipmakers and operating system innovations by the same companies that service the computing industry.
So before you rush in to react to a competitor’s price move or promotional offer, consider what signal they are sending and what signal you want to send back as a response. If it’s a strong signal, such as the one sent by HP’s PC Home Makeover at Best Buy, you’ll find yourself in a totally reactionary position. What you need to do is look and listen for the weak signals, because those are the ones you can take note of in time to come up with your own strong signal to send out to the marketplace.