Hewlett-Packard's New, Simple Compaq

Back on track with sales of its namesake computer line, HP is reshaping Compaq into a minimalist, no-frills PC brand

From the start, the Compaq personal-computer brand posed a dilemma when Hewlett-Packard (HPQ) acquired it five years ago. Compaq was struggling in the consumer market, as was HP's own brand. Dell (DELL), with its low prices and direct sales over the phone and the Web, was eating HP's lunch. "Some people suggested we drop Compaq," recalls Satjiv Chahil, HP's senior vice-president of marketing for the PC business. "But we said, 'No, it's a valuable brand. We'll position it for the future.'"

That recasting has been a long time coming, as the Compaq brand has been losing market share in the key U.S. consumer market. But now that HP has managed to turn around its core namesake line, the company is rethinking how it defines Compaq. Long marketed as a PC that is merely a good value for the money, HP wants to convey the notion that Compaq also offers, as executives say, "simplicity."

Any company juggling multiple consumer brands must figure out how to position them so that buyers understand they are distinct and appreciate the differences. HP has experienced that problem. As recently as a few years ago, there wasn't much difference between the HP and Compaq product lines. "They both tended to play in the middle market," says Chahil. "Over the years, HP and Compaq had blurred."

Everyday Image

But with an intense design and marketing effort begun in 2005, the company has elevated the HP brand to a premium level. That move has helped drive the company's financial turnaround and propel it to the top spot in market-share rankings, zipping past rival Dell. Now, the challenge is to jump-start Compaq with a brand message that doesn't tread on HP's upscale image (see BusinessWeek.com, 1/29/07, "HP Is Going to the Super Bowl").

HP, through celebrity-laden marketing and souped-up products, presents its namesake line as an "aspirational" brand that offers high-end entertainment and multimedia. It markets the bulk of its notebooks, for instance, as "entertainment" products, ranging in price from $580 to $1,050. A step higher is its "extreme multimedia" notebook priced at $3,000. By contrast, HP wants Compaq to project the image of being "approachable and tangible," says Stacy Wolff, a PC design director at HP. "It's simple, affordable, and meant to appeal to someone who just wants a PC." The company currently markets Compaq products as appropriate for "everyday computing."

Keep the Customer Satisfied

Who is the typical Compaq customer? Among the potential segments are students, women who are ambivalent about having loads of multimedia features, and small businesses. Using a second brand to target slices of the consumer market can be wise, analysts say. "The market demands segmentation," says David Daoud, analyst at industry researcher IDC. "If you have just one brand and can't serve different segments, you could be in trouble. HP recognizes that when you're dealing with a mature and saturated market, you need to go for niche customers and their needs." (See BusinessWeek.com, 12/5/06, "Hewlett-Packard: The Unlikely Game Player.")

And Compaq's market share has been declining for years. In 2006, Compaq held about a 7% share of U.S. desktop sales, down from 12% the prior year. In laptops, its share was 11%, down from 11.6% in 2005 and 12.5% in 2004. While a new marketing message could shore up Compaq's own share, it could also help HP hang on to price-sensitive customers who might otherwise defect to Dell, Toshiba, or other competitors. "HP wants to protect itself from competitors nipping away at the low end," says John Allen, a principal of Highbridge Consulting. A revamped Compaq "could protect the company's total market share without degrading the upper-end HP image."

A Minimalist Approach

Design teams are already working on the next generation of Compaq machines, expected to reach the market next year and geared toward the notion of simple and minimal. For example, current Compaq laptops use multiple shades of gray and black, and the keyboard and monitor areas have many surfaces of varying heights. In the future, internal surfaces will appear monochromatic, smoother, and "less broken up," says HP's Wolff. Even though other PC makers are selling machines in a range of colors, the Compaq brand is likely to stick with shades of gray. By contrast, the HP-brand PCs feature fancy black-lacquer finishes, some decorated with extra touches including a wave-like pattern inspired by a Zen rock garden.

Despite the growing popularity of add-on multimedia features, ranging from cameras to fancy speakers and microphones, Compaq designers will make a conscious effort to hold back. The overriding message: Compaq machines just get the job done. With a Compaq PC, "the audio components are meant to be purposeful, vs. having a testosterone-charged speaker," says Wolff. "HP PCs have gaming features like speakers and lights. You won't see that in Compaq. We'll strive to not put in a lot of extra components and pieces."

Although customers won't see the new minimalist Compaq products for months, the company has already redesigned the most visible element of its marketing: the logo. The old logo spelled out the entire brand name. The new logo, which was introduced a few months ago, is almost square and is a cross between a C and a Q. "It's a line that traces a simple shape," says HP's Chahil, adding that the company drew inspiration from the king of minimalist design: Calvin Klein.

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