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Htc Business Model Essay

Executive summary

Using Google’s Andriod platform has given HTC a boost, but now the Taiwanese handset maker are vulnerable to underwhelming sales in America and Europe. Their hope? China.

HTC only entered China in early 2010, much later than its established peers. It is playing catching up with international premium brands, such as Apple, Samsung and LG, where HTC is currently aiming to get a slice of the pie. However, the company is also facing stiff competition from local brands who operate at the lower price market.

In this Global Marketing proposal, we propose several initiatives for HTC to grow its current 1% marketshare in the China mobile phone market, including new products for HTC to tap into the lower price market as well as localized promotion campaigns to sell phones in rural areas.

It is time for HTC to sway away from satisfied with being ‘quietly brilliant’.

Context analysis

Company Background

HTC Corporate, founded in 1997, was a relatively obscure Taiwanese original design manufacturer (ODM). Incorporated as High Technology Computer, HTC focused on manufacturing of computer notebooks. The company created the world’s first pocket size PC in collaboration with Microsoft in 1998[1]; it later developed the iPAQ, one of the earliest PDA for Compaq in 2000.

HTC’s close tie with Microsoft led them to develop XDA[2] in 2002, first ever smartphone operated on Windows. The company remained true to ODM principles when it produced smartphones by efficiently catering for carriers’ specifications and requests. HTC’s ODM smartphones continued to generate profit margin as high as 20% compared to industry average of 5%[3]. According to Harvard Business Review, HTC shipped more than 70% of the world’s Windows smartphones in 2006 at its peak.

HTC won a reputation for excellent smartphones. But it wanted more, and began to invest more in innovation before eventually creating its own brand in 2007. HTC set up a unit called Magic Labs[4], where engineers from various disciplines come up with lots of ideas, even if most were quickly discarded. From this unit bred several ground breaking ideas, including HTC touch, a touch screen device that appeared few weeks before Apple’s first iPhone; and first ever Android phone in collaboration with Google.

Reaping from the Android’s high penetration rate, the company experienced unprecedented growth from 2008 onwards and became the top seller of smartphones in America in 3Q of 2011, according to Canalys Research. HTC has recently eclipsed Nokia in market capacity and has climbed up to the no.3 spot for smartphones sold worldwide, behind Apple and Samsung. In terms of brand equity, the company has invested heavily in developing its own brand and broke into Interbrand’s top 100 Brands 2011[5] (no. 98) .

China: Macro-environmental Factors

Politics

China remained a single party directed country since the founding of People’s Republic of China in October 1949. Putting political ideologies differences aside, efficient decision-making is widely seen as a characteristic of China’s political system. The profound changes that have taken place in various fields of this nation: from Deng Xiaping’s Special Economic Zone in the 80s to the economic leaps in the turn of the century.

Inefficiencies in the political system such as corruption still exist today, but China’s communist party has taken bold steps for reform. The party has embraced market socialist economy to lead China out of poverty and soar to one of the most powerful nations in the world.

Economic

Despite China has mounted new heights in her economy, outshining Japan as the second largest economy in the world, the slowdown in economic growth has not abated. The housing boom in the past decade is now over, implying that growth now weigh on heavy industry and local consumption. In the past, China has offered massive infrastructure stimulus, as it did to prop up growth following SARS and the global financial crisis. However, local governments have learned not to overheat the economy, as evidenced by the late 2011 credit crunch in Wenzhou[6]. Central government is expecting a moderate GDP growth of 6%, but China is due for correction in its property and possibly stock market.

Social

China’s Communist Party maintained its strong foothold in the nation, as the country enjoyed a period of unprecedented prosperity in the past decade. As China’s economy take flight, the number of local billionaires and millionaires grew by leaps and bounds. The wealth gap, at the same time, widened drastically. As a consequence, there have been several localized pro-democracy campaigns since 2011. Termed ‘Jasmine revolution’, citizens used social network site such as microblogs to organize public protests demanding fairness, housing and food – social issues that are often overlooked during economic boom. Such unrests were quickly put to rest as Beijing aims to mitigate any form of dissidents since learning the hard lessons from Tiananmen protests in 1989. Other than localized protests and occasional controversy in human rights, China’s social order have been maintained.

Technology

China has sparked its technological boom since it gained accession to the world trade organization in 2001. Internally, China has developed a matured internet market which now boost one of the largest internet users in the world. In mobile phones, the market evidenced a dynamic growth due to the rapid development of mobile subscriptions and growing third-generation (3G) networks.

China: Smartphone Market

Industry analysis

After China’s telecommunications operators acquired 3G licenses, they formed several strategic alliances with mobile phone brands. For example, China Unicom has established alliances with Apple’s iPhone and Lenovo’s LePhone, whilst Motorola and HTC and strategic partners with China Telecom.

Customer analysis

According to government statistics in 2012, China has become to first country to top 1 billionThe cell phone users, a soar from 2010’s 787 million users. The number of users is equivalent to 74% of China’s population. That being said, only 14% of users are 3G users. Mobile phones are seen as a necessity, as customers regularly use phones for texting and micro-blogging.

Competitor analysis

Mobile phones are relatively consolidated in China, with the top five brands deriving nearly 72% of total retail volume stales in 2010[7]. Top five brands are Nokia (34.2%) , Samsung (18.1%), LG (6.8%), ZTE (6.3%) and Huawei (6.3%). Apple (1.4%) and HTC (0.7%) are late boomers in the market, with both companies having entered China in 2009 and 2010 respectively.

According to market research by Canalys[8], international brands such as Samsung, Apple and HTC should continue to dominate in the space above RMB2,500 (US$400). Leading local tier-one brands, such as Huawei and ZTE, are diversifying beyond the entry level by launching a number of high-profile, flagship smart phones. As of late, Lenovo has made efforts to penetrate the low cost, rural market by introducing models starting from RMB700 (US$158).

Company Analysis

HTC in China

HTC only entered China in 2009 and occupied a market share below 1% as of figures in 2010. Its strategy is to challenge Samsung and Apple as the biggest smartphone players in Mainland, but it also faces stiff competition from local brands such as Tianyu and ZTE

Despite its geographic proximity in Taiwan, HTC started off late in China than in richer parts of the world largely because the country’s 3G structure was not as matured in 2009 as today.

Targeting & Positioning

HTC’s mission statement is “to become the leading innovative supplier of mobile information and communication devices by providing value-added design, world class manufacturing and logistic and service capabilities.” Whilst this may have been a successful formula over the past 10 years in geographic location, HTC is in danger of falling behind competitors in China.

HTC currently has 10% of the market for smartphones costing more than RMB2,000 (US$320). Its strategy is to target those high-end customers who utilizes 3G network and appreciates international brand. As if HTC’s Magic Lab works tirelessly to come up with numerous innovative products, HTC currently adopts a similar volume approach in its phones. HTC regularly pushes forward phones in the market. In 2011, when Apple had launched one new iPhone, HTC introduced fifteen new models.

HTC’s Challenge

After a meteoric rise which placed it briefly atop the U.S. smartphone sales charts, HTC revenue as a whole in the first two months of 2012 was a staggering 45% down on last year. HTC has run afoul of punitive legal juggernaut Apple, which delayed the availability of HTC’s handsets. Determined to avoid the fate looming over troubled rivals like Research in Motion, HTC saw a big revitalization push in China, championed by several flagship phones such as HTC One X and Evo 4G Lite. Sales in Europe have been dropping but HTC saw better than expected revenue in China.

The rise of HTC in China despite its late entry could be partially attributed to their advanced operating systems with Android and excellent hardware, such as dual core processing units and friendly features where the phone rings louder when in a bag. But with competitors catching up hardware specifications overnight these days, can HTC sustain its China growth?

The challenge of HTC faces is not neither simply in hardware nor software. HTC needs to formulate a marketing and branding strategy for China, as to fend off the fierce challenge by international brands (Apple, Samsung) and local players.

Proposed Marketing Campaign

For the proposed marketing campaign, we propose a bi-polar approach to target existing high-end customers of HTC’s and also tap into the basic customers specturum, an area HTC has not entered so far.

High-end customers

HTC is currently focusing on high-end customers who are tech savvy, able and willing to pay for premium mobile phones. These high-end customers are currently up and coming professionals, live a fast moving lifestyle and mostly reside or work in first or second tier cities, such as Beijing, Shanghai and Xi Chuan. All of these customers have subscribed or are going to subscribe 3G network, in order to make the most of out HTC’s smartphones.

In addition to product quality and operating system, high-end customers nowadays also care about brand reputation and image. The proposed marketing campaign for HTC’s high-end customers is therefore to enrich the brand experience and differentiate HTC’s personality.

Basic customers

As mentioned earlier, 3G users accounts to less than 20% of China’s mobile phones market. According to market analysis, local players, best represented by ZTE and Huawei, are more popular amongst price sensitive mass and lower-end customers. These basic customers reside in third tier cities or rural areas, demand basic functions for their phones and also aspires to own a smartphone one day.

Product

Designers collaborations are nothing new. Indeed, they are now a well-established marketing tool – as well as source of income. Standard Hotel Group in America has joined forces with the likes of surfwear brand Quiksilver to provide exclusive trunks and bikinis that guests can purchase in the group’s resorts. H&M, the Swedish fashion behemoth, took rise after asking Karl Lagerfeld, designer for Chanel and owner of Fendi, to come up with a special collection back in 2004.

For mobile phones,it is no different story. RIM collaborated with Porsche design and launched a high-end luxurious blackberry in 2011. LG and Prada started working together in 2006[9] and continued to attract fashionistas for their crossover phones.

For high-end customers, HTC should leverage connection with a renowned brand within the Chinese community and produce collaborate products. Nike would deem to be an appropriate choice, given the brand is held in high regards among Chinese and its innovative brand image aligns with that of HTC’s. Nevertheless, Nike has strong connection with Apple as Nike currently produces Nike+ – a tracking device that connects an athletes’ performance data with iPhones, iPods etc.

If there is a brand for up-and-coming professionals which matches HTC’s pricing and targeting strategy, Adidas would be a great fit. Rather than choosing a luxury brand such as LVMH or Gucci, a partnership with Adidas could not only appeal to the sports lovers, but also be perceived as socially acceptable. Partnering with luxurious goods might risk further alienation as the wealth gap widens in China.

Adidas is actively investing on its mi adidas platform that rivals Nike+. The sports company enjoys a good reputation in China after sponsoring Team China in Beijing Olympics, and its innovative roots in products and designs could enrich the HTC brand experience.

For basic customers, HTC could build 2G or even very basic 3G phones to attract the mass. With much reduced functionality and a lower price point, HTC could attract the 80% users who have not yet subscribe to 3G network. While the simpler handsets should have less fancy functions, embodying the HTC names mean that that the phones should still be innovative. HTC could be more localize with these phones by having local functions such as Chinese keyboard and improved durability that adapts to environment in rural areas. Perhaps basic phones could have a brighter screen for users to view the screen easily in open rural areas, or made in anti-sand materials as desertification is common in northwest China.

Aside from hardware reengineering, HTC needs to redesign its software capabilities. HTC is relatively weak in content when compared to rivals such as Apple. It has no plans to launch its own app store, preferring instead to reply on Android marketplace and its apps. HTC acquired French content provider Abaxia in June 2010[10] to develop innovative apps for its devices. Recently, it has installed digital map apps in HTC Sense interface. Currently, there is a market gap in smartphone manufacturer originated apps in China. Almost all of the apps available on Android/iPhone system are developed by individual software company. HTC could potentially develop operating system with apps linked to popular Chinese social media sites, such as QQ and Sina’s Microblog.

Price

HTC should continue to target upper tier price points for its high end customers. Its currently price point closely resembles Apple’s and Samsung’s, averaging around RMB2,500 (US$400). The high price setting strategy further illustrates HTC’s ambition to compete with the international brands but the company could consider undercutting its price by a fraction, say less than 10%, than the leaders so as to gain stronger market share. Price reduction should not be advertised aggressively, as it might signal a loss in quality.

For products in the lower end market, HTC should try to be a price leader in the arena. Lenovo markets its cheaper line of phones around RMB700, and HTC should try to undercut Lenovo. It is important to capture the basic customers first, with the hope that HTC could persuade basic users to switch to more expensive phones over time.

Place

According to Economists, HTC now as 2,300 authorized retailers in China. Apple has 3,500 – not withstanding its flagship Apple store and website – while Nokia and Samsung have 9,000 each. HTC could open more shops by granting authorized retailers license, but it is easier said than done as brands jostle retailers for shelf spaces.

Rather than investing heavily in opening its own shop, HTC could form a strategic partnership with popular online shop Taobao or Alibaba to reach customers in the second or third tier cities to compliment its e-shop. Further place promotion could been referred in ‘HTC ambassador’ campaign in People section.

In first tier cities, HTC could theoretically leverage on Adidas’s store presence and distribution network. Nonetheless, HTC should adopt a selective approach by opening flagship store that can illustrates its customer experience.

Promotion

In HTC’s incumbent global marketing campaign, the company slogan is ‘quietly brilliant’. HTC commercials do not focus on the precise functionality of their handsets but the way people use them. The concept itself is intuitive, but the campaign is not as much advertised in China as other places – the slogan does not even has a Chinese translation. As a result, HTC’s promotion in China is product focused. HTC One X advertisements were filmed where a photographer takes pictures with HTC phone while skydiving – stressing the superior camera quality of the handset.

To revamp the promotion campaign, HTC should first come up with a better slogan for China or even for its global campaign. Stressing on the way people interact with HTC cell phones is a good idea, but conceptually the slogan could be more straight forward – Nokia’s ‘connecting people’ or LG’s ‘life is good’ are good examples.

For China specifically, HTC needs to build on build on enriching users experience. Yan Siqing, chief operating officer of China Telecom said HTC grew rapidly despite its late start because it provided a “good user experience”. Nationwide promotion campaign should focuses on how HTC helps people to capture their moments in life. Whether is at work, in sporting moments or vacation, a user-friendly HTC handset is always there to make things happen.

People

Simliar to Unilever’s “Shakti Revolution” to help women in rural India to become entrepreneurs[11], HTC could foster partnership with non governmental organisations, banks and local counties, to promote handsets at rural areas through employing ‘HTC ambassadors’. Ambassadors are underpriviledged residents in country sides and they are invited to become direct-to-consumer sales distributors for HTC’s basic handsets for second or third tier cities. Contrary to normal mom-and-pop shops, HTC should provide training in selling, commercial knowledge and bookkeeping to help ambassadors become micro-entrepreneurs. This proposal could not only expand HTC’s reach in the lower tier markets, but also been seen as a socially responsible act of goodwill.

———————–
[1]Kim R. & Yoffie D., HTC Corp. in 1999, 8th Dec 2009, Harvard Business Review [2]Sourced online: http://xda.o2.co.uk/
[3]Kim R. & Yoffie D., HTC Corp. in 1999, 8th Dec 2009, Harvard Business Review [4]HTC: The brand from no where; The Economist, 7th Apr 2012, sourced online from [5]http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-global-brands-2011.aspx [6]Wolfe A, Gurushina N & Gassambe I, China Outlook: The Tao of Hard Landing, 28 May 2012, Roubini Global Economics Report [7]Mobile Phones in China, Category Briefing, 19 Sep 2011; Passport GMID [8]http://www.digitimes.com/news/a20120619PR203.html

[9]http://www.gizmag.com/lg-prada-collaborative-phone/20862/ [10]http://www.ubergizmo.com/2010/06/htc-acquires-abaxia-to-strengthen-its-software-capabilities/ [11]http://www.unilever.com.au/sustainability/casestudies/economic-development/creating-rural-entrepreneurs.aspx


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