Advertising and Promotional Activities of HTC Corporation - Case Study Example

HTC Corp. in 2009 Contents Executive Summary 3 Chapter One 4 Chapter Two 5 Chapter Three 9 Chapter Four 12 Chapter Five 20 References 26 Executive Summary The research is carried out with the objective of analysing the current position of a leading mobile handset manufacturing company, HTC and devising appropriate strategies that can be used by the company to ensure competitive advantage and sustainability in the rapidly changing cell phone manufacturing industry. The research is divided into five main chapters. The first chapter includes an introduction to the case study. The second chapter includes a discussion of the background of the study. The third chapter encompasses an identification of appropriate strategic management tools. The fourth chapter includes the analysis of the current position of the company through the use of the selected strategic management tools. The use of Porter’s five forces tool helps in identifying that the company has an established base of customers which it can capitalize on to strengthen the brand position. The use of BCG matrix indicates that the company is in the question mark stage. The strategic SWOT analysis indicates that the quality of the products is a main strength of the company while the increasing operating cost remains a concern. The use of Porter’s generic strategies analysis indicates that HTC achieves its competitive advantage through the use of the focus differentiation strategy. The analysis and findings include an identification of several strategies that can be implemented by HTC to increase the brand awareness and to position the brand as a differentiated, innovative and globally recognized brand. The fifth chapter includes a selection of the best fit solution among the different available strategic solutions for the company. The best fit solution is chosen on the basis of feasibility, usefulness and effectiveness. It is identified that the company has an immediate need for increasing brand awareness. This can be done through the use of extensive advertising and promotional activities including advertising in different media, celebrity endorsements, events sponsorships etc. Chapter One The study is based on the evolution of HTC, a leading mobile handset manufacturing company. HTC is a Taiwan cellular phone manufacturing company which was earlier only in the business of supplying high quality mobile phones to cellular phone manufacturers. However, in 2006, the company ventured into selling its own manufactured phones in the global market under the brand name of HTC. The company targets the high end customers of the mobile phone market. HTC faces aggressive competition from other leading mobile phone manufacturing companies like Nokia, Research in Motion (RIM), Apple Inc., Samsung Electronics, Sony Corporation and Motorola Mobility. The high level of competition drives the need for product innovation and differentiation for every mobile manufacturing company including HTC (Ball, McCulloch, Geringer, Minor and McNett, 2008). The high end innovations in software like operating systems and applications have made it necessary for HTC to take up new strategies that it can implement to ensure competitive advantage for the brand (Kotler, 2011). The company aims to establish itself as one for the most innovative and exciting categories for mobile phone manufacturers in the world of technology. The objective of the research is to formulate suitable strategies that the company can consider to position itself in a unique and differentiated way in the global cellular phone manufacturing and selling industry. The best fit solution or strategy is chosen in a way such that the ultimate objective of the company to create a strong brand name is achieved while ensuring that the solution is feasible, practically applicable and effective (Ireland, Hoskisson and Hitt, 2010). The problem statement is “how to create a globally recognizable, competitive and innovative image for the brand of HTC so as to ensure competitiveness, profitability and sustainability of the company”. Thus, the main research questions identified for the study are given as follows: How to establish the company as a powerful and recognizable global brand? The secondary research questions considered for the study are given as follows: How to compete with the existing competitive mobile phone brands like Apple, Samsung, and Nokia etc.? How to increase the brand awareness and brand recognition for HTC? How to position the company uniquely in the evolving value chain of the technological industry? How to ensure that the company is associated with a unique and differentiated image in the technological world? The report is prepared with the aim of formulating the future business and corporate strategies for HTC through the identification of the existing strategies used by HTC and the evaluation of the current position of the brand in the cellular phone manufacturing industry The case study is suitably analysed and the current problems and issues faced by the company are identified. Suitable strategic management models used for planning and evaluation are used in the study to formulate implementable solutions to the current problems and issues in HTC. Chapter Two The case study is based on the Taiwan mobile manufacturing company, HTC Corporation. The case discusses the history of HTC Corporation, the evolution of the company, the current brand position of the company as well as the comparisons with the competing companies in the cell phone manufacturing segment. HTC was founded by two entrepreneurs from Taiwan, Cher Wang and HT Cho in the year 1997. The company initially started manufacturing PDA and other small electronic devices that could function on the same scale as personal computers (Peteraf and Bergen, 2003). The company collaborated with Microsoft to create pocket size computing devices based on the famous Windows operating system of Microsoft. The vision of the founders to manufacture highly functional and powerful electronic devices was constrained by the lack of such advanced technology at that time. Also, sufficiently skilled engineers and technological professionals of such high cadre were not available at that time (Philip and Pervez, 2000). The company at first operated with a small team of engineers and technicians headed by Peter Chou who was the main engineer appointed in HTC. HTC was recognized as an Original Design Manufacturer (ODM) in 2000 for designing the PDAs for Compaq computers and was granted the right to sell its products under the brand name of Compaq. One major breakthrough of the company came in the year 2000 when HTC launched iPaq, a PDA designed for Compaq computers. The PDAs accounted for more than 80% of the total revenues generated in HTC in 2000.The alliance with Microsoft Corporation was a significant corporate strategy used by HTC because it equipped the company to break down the barriers in the way for creating a strong position for itself in the cell phone manufacturing industry (Gleason and Wiggenhorn, 2007). After the year 2000, the company started operating with two main business units. One of these is the ODM in which the company manufactures and supplies smartphones to branded cell phone companies and the other is the mobile operating business units in which HTC designs cell phones for established mobile phone service providers like Vodafone and T-Mobile (Baines, Chris and Kelly, 2008). The shifts in the mobile phone technologies have made it necessary for the company to take up new strategies to ensure competiveness as well as sustainability. The industry has evolved significantly from the middle of 1990s when smartphones were launched by companies like Apple and Nokia. Also, both vertical and horizontal models of value chain have been taken up by different players in the industry (Kothandaraman and Wilson, 2001). The changing value chains of the technology market have created the need for HTC to devise new strategies to position itself suitably in the industry value chain (Paul, 2008). HTC has also identified that it is obligatory to produce mobile handsets using cutting edge technology so as to offset the rapidly increasing competition in the market. HTC is faced by aggressive competition from the contemporary cell phone manufacturing companies like Samsung Electronics, Apple Inc., Motorola and Nokia. HTC had remained a market leader in ODM till 2006. After 2006, both the market and the business scenario changed. The competing ODMs from Taiwan started catching up the sales and production scale of HTC. Also, changes in the internal human resource team of HTC led to major cultural and operational changes in the company (Ghoshal and Westney, 2005). An open work environment was created in HTC under the leadership of Peter Chou which was a new concept among the mobile manufacturing companies. The launch of iPhone in 2007 was a milestone event in the technology industry which rapidly altered the existing landscape of the industry. This invention raised the bars of expectation in the industry which subsequently created the need for upscale innovation and differentiation by companies like HTC which targeted specific group of customers (Anon, 2007). In this era, the company started selling the manufactured mobile phones under its own brand name. The company wanted to shift from the “white brand" so as to tap in the unlimited potential for growth available in the international markets (Grant, 2005). Though HTC employed a new aggressive business model to establish itself as a new independent brand of cell phones, yet the growth of the company was restrained by the stiff competition faced from the existing players in the market (Zhang and Prybutok, 2005). HTC tried to differentiate itself from competition by focusing on a completely new segment of customers known as the "prosumers" (Kim and Mauborgne, 2004). Reward Management Employees are considered to be an integral part of an organization. HTC Corporation considers its employees to be the most essential factor for its future growth and success. Reward management system is strongly embedded in the organization. Its wide base of employees are managed and motivated through incentives and appraisals. These incentives are based on meeting sales target. The employees are even rewarded if they outperform in customer service. As the company provides post sales service so focus is also given towards how effectively executives resolve issues of customers. An appraisal which is a form of reward is given to deserving employees who sets high performance standards in the organization. Monetary rewards are majorly given importance to by HTC Corporation, as this helps in motivating employees to succeed towards the common goal. HTC has always focused extensively on market penetration and differentiation. The company spends considerably on research and development to ensure the production of highly differentiated and innovative products (Hill and Rothaermel, 2003). The high degree of competition in the industry, the comparatively narrower consumer segment, a constrained brand image and a perceived vagueness in the brand positioning of HTC are significant challenges that are being faced by the company in its current operations. HTC currently faces the challenge of creating greater brand awareness in a cost effective manner (Xie and White, 2006). Chapter Three According to Bohm (2009), SWOT analysis is regarded as a strategic planning tool that helps to evaluate strengths, weakness, opportunities and threats of a firm or a project. The strength factor of the tool represents the firm’s characteristics that help to gain an advantage over the other players in the industry. The weakness factor states the characteristics of the firm or project that makes it relatively less advantageous in comparison to other players. The opportunities factor states all the possible elements that can be exploited by the firm to seek growth. Lastly threat represents the environmental elements that can cause a major problem for the firm (Bohm, 2009). According to Snelling (2012), the first two factors that are strengths and weakness are internal to the firm whereas the other two factors are external to the firm and are uncontrollable. A strong relation between the opportunities and strengths of a firm would denote a better position and enable aggressive strategy. On the other end a strong relation between threats and weakness would serve as a potential warning and initiate defensive strategy (Snelling, 2012). The analysis is conducted by the use of suitable strategic management models like strategic SWOT, Porter’s five forces model, BCG matrix or growth-share matrix and the Porter’s generic strategies tool. The Porter’s five forces model is a strategic management tool used to analyse the macro environmental factors influencing a business. As per the work of Porter (2008), this model evaluates the position of a business in terms of four major factors which are competitive rivalry, threat of new entrants, threat of substitute products, bargaining power of buyers and bargaining power of suppliers (Porter, 2008). (Source: Porter, 2008). The BCG matrix is a strategic management technique applied for analysing the position of a company with respect to market growth rate and relative market share. The cash cows are those companies which have a high market share in a low growth market. The stars are companies that have high market share in high growth markets. The question marks are those companies which have low market share in a high growth market and the dogs are companies with low market share in low growth markets. (Source: Markman, Gianiodis and Buchholtz, 2009). Porter’s generic strategies include the generic strategies that are used by companies to position themselves in the market. Porter’s generic strategies can be of four main types. The cost leadership strategy involves the creation of competitive advantage by offering products at competitive prices or at cheaper prices than the competing companies. According to the work of Freeman (2010), the product differentiation strategy involves the differentiation of the products of the company along the dimensions of the products which are valued by the consumer groups so that the company becomes able to command higher prices for the products (Freeman, 2010). The focus strategy can be further categorized into two types which are differentiation focus strategy and cost focus strategy. (Source: Bergen and Peteraf, 2002) The analysis is carried out by the use of a secondary research methodology. The research uses a qualitative research approach. The relevant data are collected from the given case study and other secondary sources like journals, articles, books, company reports and other academic literary references. Secondary research is carried out for both the selected company, HTC and the relevant industry of cellular phones through the use of a qualitative research design. Qualitative research is considered to be suitable for the study because the concept of brand is associated with qualitative factors like consumer attitudes and perceptions. Chapter Four Current business of the company HTC Corporation is presently in the telecommunications equipment industry. The focus of its business is towards Android phones and has presently shifted to Windows phones. It markets and manufactures smartphones. The mobile phones are sold under HTC brand. Though HTC group had started on its journey with manufacturing PDAs etc., but in the current scenario its business is aligned towards manufacturing mobile phones. Being a part of the telecommunication industry its business is to process, assemble, manufacture, sell smartphones and even provide post sales service across the globe. HTC offers tablets and smartphones with Windows as well as Android operating system. Growth rate of company The industry in which HTC operates is highly competitive and comprises of some strong players such as Apple, Nokia and Samsung. HTC has set its position on the basis of quality and reliability. Though it offers stylish features in its devices but its specific target market and high prices raises several questions on its sustainability. Performance of this brand can be judged through customer’s preference towards the brand. The below figure states the brand choice in US market. (Source: Yoffie and Kim, 2010) HTC ranks lowest in terms of customer’s choice. This indicates that the brand has not been able to meet expectation of customers. (Source: Gleason and Wiggenhorn, 2007) Above figure illustrates that profit margins of HTC Corporation is negative which outline its poor performance in the industry. There is no significant growth of the company and its revenue margins tend to decrease each financial year. Though the company maintains high quality level in its products but this factor is not being able to trigger sales for the company. Amongst all the players HTC’s performance is weakest. This indicates that there is a great need for the company to focus on product development and building brand identity. Strategic SWOT analysis has been applied on HTC Corporation so as to determine the competitive advantages of the firm and also to identify the probable opportunities or threats that can affect the company. The strengths of the company are diverse in nature. The major strength of the company is that it guarantees high product quality. The US market where the company has been able to establish a strong position states that the brand is known for its high quality. The brand awareness is more in the urban areas as its target market is the upper and middle income class group (Ali and Kaynak, 2012).This brand popularity in certain markets is a competitive advantage for the firm. The company is even known for providing the best overlay of HTC interface with Android OS. The weakness of the firm is that all its products are of higher prices which restrict it to a limited market share (Jeffs, 2008). Most of the HTC products are touch phones and there is lack of innovative product range. The company faces rising operating costs and the revenue percentage is relatively less. This increase in cost limits the budget of the company towards marketing and advertising activities (Franzen and Moriarty, 2008). The major opportunity of the company is the untapped and growing market of Android. HTC can capture this growing market segment with innovative and quality product line. The major threat for the company is growing competition in the industry with players that has strong position and huge customer base. The company is even bound to face tough competition from substitutes that are being offered at cheaper prices (Thompson and Martin, 2010). As per the SWOT analysis the firm can eliminate its weakness through incorporating branding activities. These activities can be done through advertisement campaign along with celebrity endorsements. On the other hand the opportunities can be explored through focusing on innovation (Keller, 2008).The product differentiation strategy would enable the company to sustain in the competitive world and even reduce the threat of rivalry and substitutes. The Porter’s five forces model would help in determining the five competitive forces that are present in the smartphone industry. This analytical tool states that HTC Corporation needs to add value to its products so that it can sustain in the industry. The risk of new entrants is comparatively low in this industry as the firm needs to achieve economies of scale as well as brand loyalty. These factors are well gained by the established players in this industry. HTC spends a considerable amount in its research and development (Simerson, 2011). There are even higher costs associated with production and operations. In order to handle such diverse costs the new entrants need to achieve economies of scale so that they are able to effectively spread overall costs to gain profit margins (Magretta, 2013). There is a strong rivalry amongst all the players in the industry. The demand of the industry is high with more number of established players such as Apple, RIM, Nokia and Samsung. The highly competitive structure of the industry is a matter of concern for HTC (Markides, 2013). The bargaining power of suppliers is low as the companies are less and the range of suppliers is more. There are many hardware vendors in the industry and the software part for the device can be easily delivered by a third party or can be self manufactured. HTC can grab this opportunity by reducing its overall operational costs and entering into a contract with third party. A strong relationship with suppliers would help the firm to be at a cost advantage position (Kapferer, 2008). The bargaining power of buyers is low as there are more brands to choose from and even the industry offers limited differentiation. The customers can easily get information regarding the different brands and even the switching cost is low. This makes it essential for HTC to focus on customer centric devices that would offer value added features at an affordable price. The threat of substitute products is high and they are even offered at cheaper rates. These products include Netbooks, PDAs and laptops (Abell, 2010).The best strategy for the company on the basis of this analysis is to launch new products for different market segments such as middle and upper class segment. The company needs to merge quality and innovation with competitive prices. BCG matrix is considered to be an analytical tool that describes the market share of a company relative to the growth rate of an industry. BCG matrix of HTC has been elaborated below with respect to its operating markets. (Source: Aaker & McLoughlin, 2010) The above given figures states that the company has not been able to achieve desirable market growth in the past years. All the three regions of operations of HTC fall in the question mark quadrant. This clearly states that the company needs to adopt market penetration strategy in order to shift its operations to the star segment of the matrix. The demand towards the company’s products are increasing in the current time period due to Android phones and also because of the fact that their products are more stylish and have more features in comparison to Nokia. The increasing demand has been noticed in the upper segment of the middle class income group (Neil, 2010). Though the company does not possess the expertise or capabilities as that of Apple Inc., but it can plan strategies to target executive class market segment and at the same time can even collaborate with corporate houses so that HTC phones are provided to executive people. In the top level management of corporate sector there is a high preference towards Android phones and this is due to its advanced operating system. This provides a great opportunity to HTC as they can form alliance with multinational companies and even develop effective advertisement campaign that would be appealing to the customers (Daft, 2008). The company faces low cash generation but it has high cash usage so it needs to allocate its cost appropriately in all the units with more of focus on advertisement and promotion. The Porter’s generic strategies states that there are four different strategies that are adopted by a company – differentiation, cost leadership, cost focus and focused differentiation. The strategy that has been implemented by HTC is focused differentiation. The company targets a specific market segment that is high end customers or professionals (Proctor, 2014). The products that the firm designs possess all the features that are needed by the target market segment. The focused differentiation strategy has enabled the firm to develop products that are for a particular market segment (Mcfarlin and Sweeney, 2008). This form of strategy has proved to be beneficial for the firm as well as has certain drawbacks. The major advantage is that it has narrowed the focus of the company and it is able to analyze well the needs and wants of that target market. On the contrary this strategy has limited the scope for HTC in terms of expanding its operations throughout the consumer market (Assael, 2005). The industry in which HTC operates is highly competitive in nature and being focused on a particular customer category reduces the available opportunities. The most appropriate strategy for the company on the basis of analysis would be to shift towards differentiation strategy. The company needs to deliver value to the customers. The higher prices of its products can only be substituted through value addition, developing new software’s and focusing more on quality (Pringle, 2008). Though the industry offers limited differentiation HTC needs to design wide array of products that are innovative and possess certain features that are uncommon in the target market. In order to develop such a strategy the company needs to reduce its operating costs and increase its R&D costs. The highly skilled research team would enable the company to market such products that are competitive in the present scenario. However the differentiation strategy adopted by the company needs to be supported with proper promotional activities (Hoskisson, Hitt, Duane and Harrison, 2007). The brand message needs to be communicated properly to the customers. HTC can even expand on its target market so as to offer different products for different income class. Routes taken to exploit new markets The company needs to set its position in new markets as this would enable the brand to increase sales and revenue. HTC can focus on its existing markets or can capture a completely unknown market. These countries can be European countries or any untapped Asian market. The best route to be followed in such new markets is analyzing the target market segment appropriately and offering products as per demand. HTC needs to set different prices for different products and even should focus on innovative designs rather than standardized ones. The organizational members need to be involved in such strategic implementation process. High motivated team would give rise to innovative ideas which in turn would lead to increased growth rate and sales. Major route that should be adopted is to position the brand appropriately in new markets. This would help customers to easily connect with the brand. Assessment of markets and competition The competition and new markets are assessed on the basis of various factors. Assessment of new markets is carried through analyzing the external environment of those markets. Markets are usually assessed through conducting survey so as to determine demand of consumer market. Before entering into a new market the growth and demand of that market is analyzed with the help of the research and development team. Competition is another factor that is thoroughly assessed by the company. Primary research is usually implemented by the organization so as to determine the position of other players in the market. However in such a scenario the best assessment tool is interacting with customers directly. This helps to analyze the position of the brand with respect to other competitors in the industry. Chapter Five Assumptions for future There are certain assumptions made regarding the future of HTC Corporation. It has been assumed that branding and promotional activities would enhance its brand image and even increase overall revenue. The second assumption that has been made is that during the course of time other competitors would not implement any competitive strategy. Other assumptions are related with strategy formulation of the brand. It is assumed that low sales and profit margins are due to lack of promotional activities. More of branding activities may at times lead to increased demand in consumer market or even can cause no such effect on the market’s demand. The first factor has been assumed in this particular case in terms of future growth of HTC Corporation. There is a specific time frame that has been assumed for getting returns on the overall investment done by the company to retrieve its market position. Company’s position in next 5 years In the next five years HTC Corporation should become one of the strongest players in the industry after Apple Inc. The profit margin of the company has declined in the last few years. It is expected that HTC Corporation through its innovative products and promotional campaign would increase its profit margin by 12% in the next five years. Its brand identity is based on its high quality which can be an effective tool to re-position itself in the market. The company down the five years would be considered to be a premium brand in Taiwan. HTC would be a successful brand in next five years because it possesses an innovative team and good quality management techniques. This would be the supporting pillar for the company for its growth and success in the next 5 years. Resources required There would be a requirement of specific resources by HTC Corporation so as to achieve the targets in next five years. The most important resource is financial resources as this would facilitate development of the set plan. Funds should be managed by the company appropriately as promotional techniques that would be adopted require sufficient funds. Other resources would be team of high talented individuals. Innovation is essential in order to sustain in competitive environment. The products and services can only be innovative or unique if human resource of a company is passionate and talented. These two resources would be a must for achieving goals in five years. Financial resources would be the support and human resource would drive the company towards intended direction. The major problem that has been identified in the case of HTC is its lack in branding activities. There are various solutions that are available to the company in the form of cutting costs, to be focused on innovation, enhancing advertisement and promotional tools or developing brand equity. The major drawback of the company is that it does not have a strong position in the industry. This makes the brand position weak in the consumer market. The branding activities should be the only focus for the company. HTC needs to manage its overhead expenses appropriately so that it can allocate cost towards such activities. The brand promotion enables a firm to create a specific space in the customer’s mind. Amongst all the available options as per the analysis the best fitted solution for the company is to improve on its marketing activities accompanied with product differentiation. The differentiation strategy would serve as a tool for the company to retrieve the market share it has lost in the last few years. The trend of Android phones is evolving in the present scenario and this serves as an opportunity for the firm. The company’s expertise can be utilized to design new software that is aligned with the latest trend of the industry. Brand promotion encompasses wide range of tasks and the management needs to decide on the message it wants to convey to its customers. The company can only achieve the position of a global brand when it markets itself as a brand that stands for quality. HTC would not be able to compete with other players in the industry on the basis of price. This is because the company has set high prices for all its products and sudden changes in its price would make customers feel that they are compromising on quality. In such a scenario the most appropriate strategy is to design new products with different price ranges. This would eliminate any form of questions on quality and improve upon the market growth rate. The branding of the company can be done through celebrity endorsement. This in turn would be appealing to the customers which would increase the market demand towards the brand. Quality management has been the major strength of the company and this need to be utilized in all its branding activities. The first step towards such an activity is to design an advertisement campaign that reflects the characteristics of the brand. The content and look of the campaign should be aligned with the brand offerings. There are major activities that would be associated with branding and promotion such as launching TV commercials, advertising in daily newspapers, promoting new products through online advertisement or internet ad banners, and sponsoring events. The branding activities would be divided into two major slots – one would be before the product launch and the other would be after the product launch. The commercials would be launched before the product enters into the market but its frequency would increase after the new product launch. The total budget for the branding and promotion would be divided into various parts such as 35% of total budget would be allocated for TV commercials, 30% would be for newspaper advertisements, sponsoring events would comprise of 20% and online ad banner promotion would constitute 15% of the estimated budget. The action plan for the various activities that would be implemented by HTC is given below-   Time Period Read More