since the mid-1980s (Dhanya Krishnakumar, April 03, 2002). According to the industry body MAIT, (Manufacturer’s Association of Information Technology) PC sales in India during the first half of fiscal 2001-02 showed a decline of 4 percent over the corresponding period in fiscal 2000-01.
What was worse was that MAIT was projecting a decline of 12.5 percent in PC sales this fiscal. (Rajneesh De and Srikanth RP, January 21, 2002).
“It’s terrible” he remarked to his Chief Financial Officer (CFO) and his Manager Marketing (MM). The CFO jumped on the opportunity to score a point declaring assertively “the recessionary trends in the Indian economy are one of the most important causes”. “There is definitely more to it than that”, shot back the MM, annoyed that the CFO hardly ever thought from the customers’ angle. “Even though economic factors cannot be ruled out, an important issue that has to be mooted is whether PC manufacturers are delivering value to their customers. One important aspect of value lies in the way the product is delivered to the customer. I doubt whether the distribution channel for PCs in India is well tuned to the needs of the customers, especially the SOHO (Small Office Home Office) segment. I strongly feel that the performance would have been much better if the SOHO segment had lapped up more PCs” explained the MM.

The Distribution System The business channels that dominate the PC industry are the direct salesforce and the dealer channels, as shown in Fig.1. Certain computer vendors have also taken the lead in establishing themselves as retailers by selling their computers through retail stores.“ The SOHO segment neglected! That is interesting!” the GM cut in - “what is the potential of this segment?”

It was a month ago that the MM had approached his boss with his idea of “the importance of the SOHO segment” and hence the meeting this morning. “Sir”, explained the MM, “according to IDC/Nasscom estimates, around 18 lakh PCs were sold during 2000-01 and of these, approximately one third found their way into homes (NASSCOM : Statistics). However, one of the main reasons as to why the SOHO segment is not growing in India as much as it should, is because there is no channel which will specifically cater to the needs of the SOHO segment. In fact, all the attention of the vendors is on the corporate sector with its huge IS budgets, and the end result is that the SOHO segment is being neglected”.
“I do appreciate your initiative”, remarked the CFO, “ but surely since its your idea that we target this SOHO segment isn’t it important that you point a finger on its needs?” For his part, the MM had done an impressive amount of work developing his idea, conducting surveys and focus groups. Now he began to unveil his thoughts.

The needs of the SOHO segment
“Sir”, began the MM, “most owners of home PCs complain, that in spite of purchasing the annual maintenance contract (AMC), the service engineers don’t respond promptly. Again, even though all computers come with a warranty period, some resellers say that they do not by themselves give the free service during this period and that customers would have to contact the company (which is a big hassle) if anything goes wrong. Reliable after sales service is the most important thing potential SOHO buyers (with usually a single computer at their disposal) have in mind. Even when vendors promise prompt and reliable service, so poor is the track record of vendors that customers wonder whether they will get prompt service in spite of paying extra for it. Again, another unique characteristic of the Indian SOHO segment is the fear of obsolescence. Unlike users in the West who welcome short lifecycle chips because they are always keen on upgrading, Indian users want durable chips that will not be underpowered for the software five years from now. Uncertainty avoidance is so great in the Indian psyche that customers want the vendor to guarantee that he will inform them about all the latest advances in processing power and help the customers to upgrade their machines at a reasonable cost. In fact, in India, the SOHO segment needs a high degree of hand holding, and even the very basic knowledge about operating systems and software has to be imparted. Most vendors give only a very preliminary demonstration of the various parts of the PC and very few are willing to take the effort to constantly inform customers regarding upgradation possibilities”.
“What about price?” quipped the CFO. This time it was the GM who replied. “Price is one of the most important factors hindering the growth of PCs in the SOHO segment”, he explained. “An average branded PC with multimedia costs around Rs. 50000 (minimum) which means for the majority of people, saving up for months. Expensive software is another problem. Many resellers have convenient financing schemes available but the interest rate is usually high, plus there is a service charge. Even during the warranty period, the spare parts are extra and expensive. Even the AMC is quite expensive.

“Sir”, the CFO protested, “the SOHO segment seems quite big - so how on earth can we treat it like one homogeneous group?” “Well”, smiled the MM. “I have in mind certain segments that the SOHO segment can be further subdivided into according to the needs of the customers (Fig.2). At present, these 3 segments, even though different in their requirements from the distribution channel, are being catered to by the same distribution channel, that is by the authorized resellers”.
“The first segment “, explained the MM, “consists of people who are not very knowledgeable about computers, and for whom affordability and price are the most important factors. These people need the computer perhaps for their children who are learning computers in school, for home accounting or for some business purpose. What they mostly require by way of services is reliable, prompt, after sales service and some amount of training. They do not need information on say the latest software or ways by which they can upgrade their PC. They feel most comfortable buying the PC from a shop nearby, where they know the dealer personally, where they can immediately go if the PC is giving a problem and where they can keep track of how the repair is going on. Especially in suburbs and small towns, people rely on dealers more because company service centres are located mainly in the metropolitan cities. Also, customers feel that company salespeople are indifferent to their problems. An outlet which can meet their needs is a local consumer electronic store which among TVs, refrigerators and other things can also stock a few good brands of low priced PCs.

Prices can be kept reasonable because the dealer does not have to stack too much fancy software or various configurations of PCs and also due to economies of scope. What the dealer needs is only a few men who are well versed in repairing computers and able to offer a limited amount of training. The second segment constitutes of people who are somewhat knowledgeable about computers and who may want to buy PCs for doing some amount of professional work. Basically, in this segment, customers want availability, broad assortments, multiple brands and prompt and reliable after sales service, and are willing to sacrifice some price benefits to get them. Computer specialty stores should be ideal for servicing these people - the stores should have various brands and all accessories and software under one umbrella. Imparting training to customers is really not essential in this case, because often customers learn how to operate the software from their workplace itself. However, the seller should be able to provide the latest information regarding the various upgradation possibilities and softwares, as well as after-sales service. The third category of the SOHO segment consists of people, who are very well versed about computers and self reliant, but who are price sensitive and therefore buy from the gray market. In the gray market, there is always the fear in customers’ minds about spurious parts, a lack of accountability from the vendors’ side and no resale value. These people know enough about computers to service small faults on their own, or are willing to get repairs done by some third party. A mail order or telephone order system by doing away with distributor margins, should provide these people with a branded, reliable PC and accessories at reasonable prices”. “In fact, the manufacturing company can also set up a centralized telephone support system for all these segment”, suggested the CFO, adding “To be honest, I don’t think we have the resources to target all the three sub-segments at the same time. Again, how do we estimate the demand potential for each of these three segments? “

Rainbow had to grow in order to survive and here was the SOHO segment that had been neglected and that ought to explode in the years to come

“Regarding the estimation of demand”, the MM pondered, “can’t we as a starter, assume that all the three segments have equal potential?” “No” the CFO snapped back. “I suggest that we prepare a macroeconomic forecast projecting inflation, interest rates, consumer spending and other variables. This can be used along with other environmental indicators to forecast sales for each SOHO sub-segment”.
“A survey of buyers’ intentions may help too; or perhaps if we advertise, clearly outlining our positions for each of the three segments and ask prospective customers to respond to us? Or perhaps take demand estimates from our sales representatives, dealers or trade associations? They ought to have good insights into developing trends”, suggested the GM. “In fact, how should we determine which of the three SOHO sub-segments to enter? Is it only the size of the segment, or the ease of serving that segment, or any other factors? We need to research these further.”
Driving back home, the GM’s thoughts continued to race. Rainbow had to grow in order to survive and here was the SOHO segment that had been neglected and that ought to explode in the years to come, with an increasing awareness about PCs, increasing buying power and the advent of the Internet. “We need to think fast”, he thought.

Questions
1. How can the GM decide on which
segment to enter, taking into
account the potential and
capabilities available/to be made
available?
2. Examine and evaluate the
methodology for determining the
segment wise potential.

References
1. Rajneesh De and Srikanth RP (21st January, 2002); Express Computer The
IT Business Weekly, “Desktop sales
travel southwards in H1 2001-02”;
http://www.expresscomputeronline.com/20020121/cover1.shtml
2. Dhanya Krishnakumar (3rd April, 2002), Dataquest “Tumbling to
Ground Zero”; http://www.dqindia.com/content/industrymarket/newsanalysis/102040305.asp
3. NASSCOM (Statistics); http://www.nasscom.org/it_industry/indic_statistics.asp

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