Summary
In the fast paced, low margin, short life-cycle world of PCs, giving up control to get control can really work. To that end, HP has wisely taken a page from eMachines, and then Gateway’s, highly successful retail models for partnering for shared success.
Analysis
Long of the mind set that manufacturers should develop, control and dictate product roadmaps to their retail partners, and constantly grind down their ODMs for lower prices, the new model is flipping that approach on it’s head. Actually pioneered by eMachines, and then Gateway in 2003-2005, more progressive OEMs, like HP in this case, are partnering and closely collaborating with their ODMs on the smartest ways to remove complexity and waste, and ultimately cost, in the BOM and manufacturing process. And they’re simultaneously collaborating with their largest retail partners to develop key features and compelling price points, particularly for big promotional buys, known as “burst SKUs” for critical selling periods like Back-To-School and Black Friday.
Working closely with key retail partners and simplifying down non-differentiating components to reduce cost and improve value proposition without negatively affecting quality, is allowing HP to create highly successful burst SKUs like the $298 HP laptop for Walmart’s back- to-school promotion.
Sure HP could have dreamed up a super cheap laptop on their own, but if they traded off the wrong features, like focusing on battery life, when a optical drive was more highly valued by the Walmart back-to-school buyer, they could have ended up with a dog of a SKU that didn’t sell and worse yet hurt HPs reputation for understanding what retailers, and their buyers, need and want.
Ultimately this approach allows the OEM to gain more control of their results by building to retailer's forecasts and commitments, not to inventory, resulting in a much cleaner, predictable supply chain and avoiding very costly, end-of-life price markdowns.
Rather than a sign of weakness, this is most definitely a sign of strength that more PC, and consumer electronics, vendors should aspire to adopt. While clearly not all retailers have the sophistication to work in this manner, for building business with lead retailers - like Best Buy, Walmart and Costco – it’s fast become a must in certain categories.
Cathy Stauffer consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
