Tier Three

The third tier of HP's strategy is to provide software packages that further integrate HP equipment in order to solve customer problems, productivity networks is the term HP used to describe its integrated software packages. Just as a system represents linked equipment, pro­ductivity networks represent software programs that are linked to pro­vide total business solutions.

Some of these networks are designed to meet the needs of a wide variety of customers. For example, HP's Information Productivity Network allows any organization to effectively use word processing, data base management and electronic mail. Other productivity net­works serve specific kinds of organizations such as manufacturers, retail trade and distribution industries, laboratories, hospitals and edu­cational and financial institutions.

Source: Hewlett-Packard Company Annual Report, pp.5.7.

Questions

1. What is Hewlett-Packard's mission? How does this mission influence the firm's marketing strategy?

2. Evaluate Hewlett-Packard's three-tiered strategy. Could the three tiers be set up as strategic business units?

XVII. Case Study.

MAYTAG CORPORATION: EXPANDING THE APPLIANCE PORTFOLIO

«01 Lonely,» the famous Maytag Company repairman, may not have enough to do, but his employer's parent, Maytag Corporation, has been quite busy. Always one of the most profitable firms in an industry dominated by giant companies, Maytag often earns a higher return on stock­holder's equity (for example, 30 percent in 1997) than any other com­pany in its industry. For the five-year period from 1993 to 1997, May-tag's sales grew at an annual rate of over 5 percent while its net income grew at almost 9 percent. Maytag achieved record sales of $ 1,9 billion in 1997. Facing 2000, Maytag is acquiring new product lines and adjusting its portfolio in response to a changing environment.

Traditionally, Maytag has been a limited-line appliance manufac­turer, and it has always marketed its washers, dryers, and dishwashers under a family name. Its strategy has simply been to make the best products and charge accordingly: thus, the company slogan—»Built to Last Longer.» Maytag's products generally cost more than competi­tors' machines—roughly $ 100 more on average. With its reputation for making trouble-free appliances, Maytag has always targeted the upscale end of the market. In addition, by offering premium-priced products, Maytag has typically catered to second-time buyers. This replacement market slowed in the late 1980s but was strong again starting in 1992—1993: Even Maytag's appliances wear out—typi­cally after 10 to 12 years. Maytag shies away from the cyclical home-builders segment—tough negotiators who, in the past, wanted well-known brands at low prices, and the new-household segment—always price-conscious because of the multitude of products they need to buy in a relatively short time period. Since the early 1990s, however, changing conditions in the appliance market have made Maytag con­sider whether it should change its traditional high-quality, high-priced targeting strategy.

Consumers and retailers have long regarded Maytag's laundry ap­pliances as top-of-the-line. But the premium-quality niche for laundry and kitchen appliances targeted by both Maytag and competitor: KitchenAid (long the market leader in the high-quality, high-price< segment) may be eroding. While there is no solid evidence of this І trend, there is an increasingly frequent feeling in the trade and among consumers that although the quality difference between high-priced and medium-priced laundry and kitchen appliances is becoming smaller, the price difference is becoming larger.

Competition, always a major factor in the appliance industry, has become even keener in recent years. A recent wave of mergers and; acquisitions has dramatically changed the structure of the industry, with a few large full-line companies now producing most of the out put. For example, Whirlpool, the biggest washer maker, increased its share to nearly 50 percent when it acquired KitchenAid dishwashers from Dart & Kraft.

Other trends are also reshaping the industry. First, a significant portion of each large company's output is supplied to other companies for sale under its own brand names. For example, White Consolidated Industries manufactures dryers for General Electric, Montgomery Ward, and Sears. Second, heavy investments in factory automation are being made by two of the largest appliance manufacturers, General Electric and Whirlpool, to bring down costs and increase competitive­ness. Meanwhile, already low-cost producers, such as White Consoli­dated Industries, continue to drive for lower costs through more effi­cient operations. Third, appliance companies have intensified their marketing efforts, with greater emphasis being placed on quick sales stimulants such as factory rebates, special factory-authorized sales, and additional incentives for consumers, dealers, and salespeople. Fi­nally, foreign competition now poses a serious threat.

In response to these changing market conditions, cash-rich May­tag has made several acquisitions, gambling that some of its success in washers, dryers, and dishwashers will rub off on products other than those with which it has been traditionally associated. First came the 1991 acquisition of Hardwick Stove Company — a 105-year-old manufacturer of gas and electric ranges and microwave ovens. These products are sold through conventional outlets in the medium- and low-price brackets. The following year, Maytag acquired Jenn-Aire Company, known for its down-draft grill range. The range permits year-round indoor grilling by sucking fumes into a surface ventila­tion system that keeps them out of the house. In 1996, Magic Chef, Inc., the appliance industry's fourth largest firm, joined the Maytag portfolio. With this acquisition came a variety of products, including Magic Chef cooking equipment, Admiral refrigerators, Norge laun­dry equipment, and other appliances such as microwave ovens. The new product lines overlapped with May tag's kitchen ranges, wash­ers, and dryers.

The cooking equipment market differs markedly from the washer and dryer business. The industry is fragmented, with no brand clearly recognized as a premium product. Commenting on the recent acquisi­tions, Maytag Corporation's president explained that although «cooking equipment is a mature market, it is an exciting one because product innovation is changing the traditional way people cook and broadening sales opportunities.»

For example, the microwave oven industry is a relatively new area of the cooking equipment market, and the product is now one of the hottest items in the appliance business. Microwave ovens first caught on in the 1950s, but their growth was slow until the early 1970s. At that time, microwaves had several problems. Cooking was uneven, meats would not brown, foil-wrapped foods could not be put in the oven, few cookbooks were available, and real or imagined radiation dangers were associated with the appliance. When such problems were overcome, sales took off.

By the late 1970s, countertop microwave ovens were no longer considered a luxury. With more and more women working in the 1980s and 1990s, the microwave oven's appeal has become even stronger. Sixty-five percent of U.S. households now contain micro­wave ovens, as compared to a 45-percent penetration for dishwashers. I Industry analysts foresee an eventual penetration by microwaves comparable to that of colour televisions.

Five of the forty or so producers of microwave ovens have well over 50 percent of the consumer market. Samsung, Sanyo, L6, Sharp, and Matsushita are the industry's largest. Meanwhile, long­time market leaders Litton and Amana have fallen behind. Price competition and discounting are heavy, and premium prices are dif­ficult to maintain. The microwave industry differs from Maytag's more familiar business arenas, and the acquisitions of Hardwick and Magic Chef provided only a minor position in the fast-moving mi­crowave market.

As Maytag has continued to assimilate these new but related busi­nesses into its portfolio of strategic business units, a recent merger has signalled a new strategic direction for the company. In 1998, Maytag Corporation merged with Chicago Pacific Corporation, best known for its Hoover vacuum cleaners and Pennsylvania House furniture lines. Hoover is an acknowledged leader in the U.S. vacuum cleaner industry, commanding a 32-percent share of the 10 million vacuum cleaners sold in this country each year. The combined sales of the two companies will exceed $ 3 billion per year.

Maytag, however, had a special interest in Hoover: Sixty-five percent of Hoover's revenues are generated abroad. Globalization in the appliance industry is a concept whose time is just now ar­riving. Prior to its merger with Chicago Pacific, Maytag had almost no presence in overseas appliance markets. Most appliances built by Maytag and other U.S. companies are too large or use too much water for typical international markets. Hoover, however, has for years been producing and distributing washers, dryers, refrigera­tors, dishwashers, and microwave ovens in foreign markets — it now operates 13 plants in eight countries. Thus, through its merger with Chicago Pacific, Maytag Corporation has taken a first major step toward globalization.