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2016-04-29 09:04:43
Niraj Dawar
April 25, 2016
Intel s restructuring announcement last week describes its plans to reduce headcount by 12,000, or 11% of its workforce, and to seek growth in markets such as the Internet of Things (IoT) and Data Center Processing. The personal computer (PC) chip market that the company dominated for over three decades, and which accounted for the bulk of its sales during that period, is now in decline, and accounts for only 50% of revenues, down from 65% in 2012. Tablets and smartphones now outsell PCs, but Intel s chips have lagged in that market, which uses processors designed by ARM and made by companies such as Qualcomm.
As Intel now turns its formidable R&D and manufacturing capabilities to address nascent markets, the company should not forget the marketing lessons from its own long dominance of the PC market, and from having missed the mobile device market. Three lessons stand out lessons that every technology company should heed.
1. Competitive advantage is built not just in the R&D lab and manufacturing fabs, but in the marketplace and in customers minds.
Intel knows that competitive advantage is born not just in the lab or the factory, and comes not just from better products or features. By the early 1990s, Intel had firmly established its technological superiority, and its dominance in the market for PC processors. It was into its third decade of doubling processor speed every couple of years, a pace of change so blistering that it had left all but the most tenacious competitors in the dust. But equally important to Intel s success was customers use of processor speed as practically the sole criterion for measuring computer performance. Intel contentedly gushed today many personal computer users can recite the specification and speed of the processor, just like car owners can tell you if they have a V4, V6 or V8 engine. It was as though Tesla had suddenly found that all car buyers were now using zero-emissions as their sole criterion of purchase. Consumers use of the criterion made processor clock speed a formidable competitive advantage, not just a
technological feat or functional feature.
2. The brand becomes the competitive advantage.
Having established processor chip speed as a critical criterion among computer buyers, starting in 1991, Intel attempted something even more audacious. The intel inside campaign turned its brand into the key criterion of purchase not just for computer chips, but for computers. Unlike so many other markets such as printers, cameras, cars, game consoles, and washing machines where the make and type of processor chip remains obscure for most consumers, Intel chips became the key criterion for PCs. Without intel inside consumers would hesitate to buy, while with the logo they would pay a premium, compelling computer manufacturers to include Intel s chips in their computers.
The value of the intel inside logo on every machine became evident once rivals caught up technologically. By the mid-a990s, competitors such as the K-6 chip from AMD, and the PowerPC chip designed by a consortium that included IBM, Apple, and Motorola, were faster than the fastest Intel chip on the market when they were launched. But they were unable to shake Intel s dominance of the market because by then end-users would not abide computers without intel inside.
3. You don t just build products, you build markets.
Technological advantage may help you build better products, or newer and better features, and while these may or may not be necessary, they are not sufficient to win markets. To win in the markets it has identified for its future growth, Intel will need to create and own customers criteria of purchase not just in the next level of the value chain, but two levels down; not just with makers of IoT devices, but with their end users. To achieve this, it will need to define why its chips uniquely deliver the benefits end users seek in these new markets, and turn those into criteria of purchase that bear its brand.
Intel floundered in the mobile device market not because its products lagged competitors but because it never gained control of the purchase criteria in this market. The company s success in the PC market may have been misattributed to its technological prowess alone, rather than to the power of its marketing. In tomorrow s markets, especially end consumer markets such as IoT, Robotics, and Virtual Reality, Intel and technology firms broadly cannot afford to make the same mistakes.
Niraj Dawar is a professor of marketing at the Ivey Business School, Canada. He is the author of Tilt: Shifting Your Strategy from Products to Customers (Harvard Business Review Press, 2013).