How Are Selling Instruments (hp's Traditional Business) Different from Selling Computer Systems?

How are selling instruments (HP's traditional business) different from selling computer systems?

The test and measurement business (instruments - HP's traditional business) provides standard and customized solutions. In 1999, HP spun off its traditional business and incorporated Agilent. It sells its products through direct sales, distributors, resellers, manufacturer's representatives, telesales, and electronic commerce (Yahoo Finance 2005). While some instruments are seen as commodities it is important to distinguish your products against competitors. You must detail and communicate the important ways your offering differs from your competitors. HP offers related services around their instruments, but in the start they primarily marketed their products on the basis of technological features and acted as a product vendor. Today, instruments and measurements systems are not that different. You measure what you measure and that is it. There are standard ways to measure different things, but as the new measurement systems are getting extremely advanced and specific - you need to customize to a certain degree also. One can provide standards for different sectors i.e. measurement systems for the telecom sector vs. the financial sectors. However, HP sits on substantial technical specific know-how on measuring technologies, but they are the one who knows how to adapt to certain sectors. It is important for them to lock-in the technical core and protect their knowledge. So, we mean that when the technical specs were not as advanced as today, the instruments were "more" commodities, but in the last decades it as increasingly shifted to a solution provider than a plain commodity vendor.

When we look at computer systems - these solutions are highly customized to many customers solving their specific challenges, but here you also find standard solutions that can be used by several customers. HP has also adapted to the market just like it did with the measure instruments. HP's computer system organisation has increasingly defined itself more of a solution and problem solver through its information appliances and strives more now than before to satisfy customer needs. They have also engaged into partnerships and pursued acquisitions to be able to serve all customer needs. Computer systems customers also require to a much larger extent follow-up from HP towards its customers. Emphasis on pre- and after sales are important factors since customising product offerings require HP to know their customer and to fully understand their challenges so it can offer the best solutions. It is used more time on each customer compared to selling plain instruments. Availability from HP if problems occur is necessary and vital for customers if they experience challenges with the computer systems. It is automatically formed a relationship between HP and its customers and hopefully makes them dependent on HP services. This results in higher switching costs for the customers. Since customers are tied to a computer system they can face high switching costs regarding specific investments (Biong 2004). Cancellation penalties, retraining staff to handle a new computer system and search for new suppliers are challenges facing customers if they abandon a project (Biong 2004).

It is also easier to transfer knowledge about the systems to the customer and in this way they become more sufficient to solve potential problems of their own. An instrument is very different in this way since HP is the only one who knows the technological specs if it breaks down. A customer cannot fix it since the know-how solely stays with HP.

Hewlett-Packard markets its products and services directly and indirectly through third party retail locations (Yahoo Finance 2005). The increased competition in the last years and shifts in customers buying patterns that have made value-added resellers (VARs) a very important part of HP's selling strategy. The growing interconnectivity in today's information environment poses new challenges for HP. I.e. the small and mid-sized companies that look for network services; manufacturers rely heavily on their VARs. Some computer firms provides technical and strategic support to a broad base of VARs, others provide increased service (i.e. lead generation, training) and incentives (Dwyer and Tanner 2002). Organizations that involve multiple businesses need to determine the problem of how to allocate resources strategically to its different units and manage the mix of businesses to achieve positive outcomes where it markets its business (Dwyer and Tanner 2002).

Why does HP treat its salesforce as a cost center?

The sales department is organized as a cost center because they also have responsibilities for field marketing and customer service. HP allocates resources to the sale department under the promise of additional promise. The field marketing force brings specification from the customer back into the organization were the manufacturing department can start producing the product. It is hard to decide what the cost is and when a customer is profitable. For the sales force, a sale has a longer time perspective than just the actual purchase situation. Sales department also has responsibility for customer service and that drives costs. First then when the actual delivery takes place HP can account for the sale

What are the strengths and weaknesses of HP-CSO's approach to building relationships with Enterprise customers?

HP seems to have an adaptation approach to building relationships with Enterprise customers. Hallen, Johanson and Mohammed (1991) suggest that adaptation in the relationship must be based on trust. HP's relationship approach demonstrates trustworthiness by their commitment to adapt to their customers. With this approach, management and employees continuously learn from their efforts to create buyer value.

Strengths

HPs price and performance advantage as hardware supplier is a critical element when entering a new "down stream" account. To be successful with this approach to be number 1 is vital for HP, if not this becomes weakness.

If you have won a new customer in the computer system business you will likely have them for a long time, therefore building a long term relationship with Enterprise customers seems appropriate, since 5% of the customers in this segment accounts for more than 40% of CSO's total sales. When you sell medium or large computer systems the customers are generally strongly committed to the vendor, because of the high switching costs (Jackson 1985). Because the customer takes a long time horizon it is evident that HP can also take a long term view

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