Intel- The Component Branding Saga

"What Microsoft is to sq(tware. Intel is to hardware: a marketing and technology monster that is seemingly unstoppable. " - A Houston Chronicle News Article, in 1997.

DANCING ITS WAY TOWARDS LEADERSHIP

What could a computer hardware company manufacturing microprocessors possibly have in common with disco dancing? A lot, if one goes by an advertisement campaign released by the world's largest microprocessor company, the California-based Intel Corporation (Intel), in 1997. The television (TV) commercials designed to promote Intel's MMX technology featured people (referred to as 'bunny people' by the company) dressed in silvery astronaut suits dancing to a pop song, Stayin' Alive] (Refer Exhibit I). One of the highlights of the campaign was Company Chief Executive Craig Barrett (Barrett) going on stage, accompanying the song with tambourine! It was even reported that 'the Bee Gees classic now sounded more like the theme song to Barrett's efforts to restore Intel's glory days.' Posters for the campaign depicted a rainbow emerging from the Intel MMX logo, giving it a colorful, shiny look. The catchy and unusual campaign reportedly went on to become one of the most well remembered ones from Intel. For the company, it was yet another step towards becoming the 'only' brand one could think of when it came to microprocessors. Intel had to its credit the distinction of single-handedly transforming the microprocessor market over the years.
TI\e company had begun operations in days when people were not very aware of the tenn microprocessor and its significance for the computers they were buying (Refer Exhibit II for a note on microprocessors). Even those consumers who were somewhat computer-savvy did not know much about them. But by the early 21st century, customers all over the world were able to recite their processor specifications like a nursery rhyme. Thanks to Intel that made the chip inside the personal computer (PC) so popular.

Intel had been able to bring about this change, primarily due to its focused R&D and product development efforts. However, its biggest success lay perhaps in its welletched and executed marketing strategies devised, over the years, to promote Intel as abrand. ThrOUgllits efforts Intel became synonymous with computer microprocessor chips and the undisputed industry leader. The company had an 80% share of the global microprocessor market - leading not only in terms of sales revenues, but also in tenus of innovation.

BACKGROUND NOTE
Intel was established in 1968, by three engineers, Robert Noyce, Gordon Moore, and Andy Grove. Unhappy with the state of affairs at the company they were working for, Fairchild Semiconductor, the trio decided to start their own company and develop technOlogy for silicon based chips. The result was the fonnation of Intel (an abbreviation for Integrated Electronics) at Mountain View, California. Intel's first commercial product was the '310 1 Schottky bipolar 64-bit static random access memory' (SRAM) chip.
1

The song, Sllllgby the US-based pop music group Bee Gees, was very popular all over the world, and was featured in the successful Hollywood movie Salllrday Night Fever. 53

Brand Management

To meet the requirements of a Japanese company, Busicom. that manufactured calculators, Intel made a microprocessor chip that performed the function of 12 silicon chips put together. Named 40042, the world's first microprocessor chip was released in 1971. This chip could compute as fast as the ENIAC3, the fastest computer available those days. Commenting on this invention, David K Allison, a teclmology historian, at the Smithsonian said, "I think it (the microprocessor) ranks in the same league as the invention of the steam engine, the automobile or the airplane. The microprocessor has had a kind of transforming quality for civilization. Contrast the microprocessor with its predecessor, the ENIAC, which had 18,000 vacuum tubes. Today, we do something far in excess of that - billions of different components - on something the ' size of your fmgernail. The scale changed everything." The invention of the 4004 chip was a major technological achievement, but would anybody other than Busicom be interested in buying it? Could the chip be used for any other product than the calculator? Commenting on this situation, Robert Noyee had said, "The question was whether we could sell it to anybody other than Busicom; the question was whether there were enough applications out there other than the calculator to make it worthwhile." Intel was detennined to find ways in which its chips could be used. To meet this challenge, Intel took up the task of educating the engineering community about the potential of a programmable microprocessor chip that could be used in many commonly used products like traffic light controllers, ovens, phones etc. Intel conducted educational seminars and sold manuals to create awareness among people about the chips possible uses. Intel also started putting ads in the print media. The first advertisement by Intel appeared in the Electronic News magazine (Refer Figure I) and resulted in huge sales of the 4004.

Figure I: Intel's First Print Advertisement

Source: www.inteJ.com Following the success of the 4004, Intel released the 8008 microprocessor in 1972. This chip was twice as powerful as the 4004 and was used in a computer called the Mark-8, one ofthe world's first home computers. Then CaIne the release of the 8080 in 1974, which became the brains of the first PC, Altair. Tens of thousands of this PC costing $395 were sold.

The 4004 chip was one-sixth inch long and one-eighth inch wide and consisted of 2,300 MOS transistors (Mean Opinion Score). MOS is used mainly in voice communications to detennine the quality of the voice at the destination end of the circuit. The first device used for computing, the Electronic NunIerical Integrator and Computer (ENIAC) was invented in 1946. It weighed 30 tOillIes,occupied 3,000 cubic ft. of space and had 18,000 vacuum tubes.

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Intel - The Component

Branding Saga

In 1978, Intel released the 8086-8088 chip. The 8088 was chosen by IBM's PC di.v'isionfor making new PCs. The chip went on to become a huge success and gave a major boost to Intel's sales and goodwill. Intel was also ranked among the Fortune 500 companies, and Fortune magazine named Intel as one of the 'Business Triwnphs of the Seventies.' Intel emerged as the most widely accepted supplier of microprocessors. Computer manufacturers and operating system suppliers increasingly began building their products with Intel chips. In 1982, Intel released the 80286 microprocessor chip (also known as the 286). It was the first processor that could run programs written for its predecessor. It was a huge success; within six years of its release there were around 15 million 286 based PCs in the world. Intel followed up the 286 with the launch of 386 and the 486 chips in 1985 and 1989 respectively. These chips also went on to become highly successful products (Refer Exhibit III for a timeline of Intel's microprocessor launches and a brief description of each microprocessor). In 1985, Intel entered into an agreement with Microsoft Corporation to form what came to be known as the 'Wintel' monopoly (As per the agreement, every PC that ran on the Windows operating system came with an Intel microprocessor). Intel also licensed the technology of these chips to competitors like Advanced Micro devices (AMD) to make their own versions of the chip. As Intel launched newer and more advanced microprocessors, PC performance improved. Greater processor speeds helped PC's to run quickly, reliably, and smoothly. Intel played a vital role in transfonning the PC from a business management tool to a device that offered infornmtion, entertaimnent, and education in rich multimedia fonnat.

THE NEED FOR A COMPONENT

BRAND

Since the development of PCs in the late-1970s, the marketing of IT related software and . hardware was mainly driven by computer vendors and software publishers. However, Intel relied completely on its computer-vendor customers otherwise known as.Original Equipment Manufacturers (OEMs) to convey to end users the benefits of using an Intel processor. As a result consumers had very little awareness about Intel and its products. Most PC users were not aware of the availability of advanced processors and their cost saving performance. Intel realized that it needed to create more awareness about itself and its products among consumers. This realization was inspired by 'Moore's law,' an industry guiding principle, developed by Gordon Moore. According to this law 'the number of transistors on the microprocessor roughly doubles every 18 months to two years.' This translated into greater processor speed. Thus customers could save costs by upgrading to newer chip versions rather than buying multiple chips- something customers were unaware of. Thus was born the first focused marketing initiative by Intel in 1990 to market the 386SX (a new version of the 386) microprocessor. A small group of marketing personnel interacted with IT managers who came to buy PCs for business purposes and briefed them about the features and advantages of the existing microprocessors as well as the new releases. As a result of the above, customer awareness about the 386SX processor increased and translated into increasing sales. Even as the company initiated marketing activities, it had to deal with certain legal problems. Arch-rival AMD, which had been given the license to manufacture chips by Intel began making use of the latter's processor nwnbers to market its own products. By offering chips at comparatively cheaper prices. AMD captured 52% of the market by 1990. According to Intel sources, the company had 'assumed' that the 386 and 486 processors were protected traderna.rks and that no other company could make use of them. Intel then lllade attempts to protect the teclmology of the 386 and 486 55

Brand Management

processors. As a result AMD sued Intel for breach of contract. Intel lost the case and the courts stated that the processor numbers were not trademarks. This opened the doors for other companies to use them. Intel realized the need for a better marketing program that would protect its rights. This episode made the company realize that number-names for microprocessors were ambiguous and unprotected. Intel needed to transfer the brand equity from these numbers to the company fast. This change was expected to correctly communicate the benefits of the new processors to the end users and at the same time create awareness about the company. Intel thus sought to create a strong brand to communicate better with consumers, justify the billions of dollars invested in product development, and highlight the superior performance and reliability of its products. The decision to go in for component branding was also taken because of the company's observation that although a microprocessor was a key component of the PC, it was largely seen as 'just another component.' Intel thus decided to work closely with PC manufacturers. Its marketing team began to study the markets closely and adopted various consumer marketing techniques that had been successfully carried out by well-known companies that were supplying a component or an ingredient of a finished product like Teflon, DolbyTMand NutraSweet. Based on the experiences of these companies, Intel conducted various marketing experiments to find out how a branded component program would work in the PC industry.

MARKETING THE MICROPROCESSORS

The company developed a component branding strategy that aimed at gammg consumer confidence in Intel as a brand. It decided to run campaigns that would demonstrate the value and benefits of buying a processor from a leading company in the industry. The most innovative aspect of this strategy was the decision to communicate directly with end-users. This was a very novel idea for a 'pure technology' company. Intel's decision was eyed with suspicion by industry observers as no other company in the industry had ever done this before. It was reported that even many within the company also had the same opinion. Intel however decided to go ahead with its plans, and with the help of an advertising agency, Dahlin Smith and White, designed a campaign for its products. The company adopted a new tagline -' Intel. The computer inside' - in July 1991. This tagline aimed at emphasizing the important role of a microprocessor in a PC and also highlight the fact that Intel's products were reliable, safe and technologically advanced. Later, the company shortened the tagline to 'Intel Inside.' The tagline was accompanied by a new logo, in which the words :Intel Inside' appeared inside a circle (Refer Figure II). The logo was designed to indicate that a necessary component in the PC had been verified and approved as regarding its quality. This design suggested that the brand had an implicit seal of approval.

Figure II: The Intel Inside Logo

Source: www.intel.com

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Intel - The Component

Branding Saga

The new marketing program consisted mainly of an incentive based cooperative advertising (coop) program. Intel created a cooperative fund wherein 5% of the purchase price of the microprocessors was kept aside for advertising funds and made available to all PC makers. Intel shared the advertising costs with the OEMs for print advertisements that included the Intel logo. This arrangement became very popularly and many OEMs joined the program. As a result of the arrangement OEMs could not only increase their ad spend, they could also be assured that their computers were powered by the latest microprocessor technology. By the end of 1991, around 300 PC OEMs had joined Intel in support of the Intel Inside coop program. After the success of this program, Intel started to advertise in the print media around the world to explain the Intel logo to global customers. Intel released its first TV advertisement in early 1992. This ad was made by Industrial Light Magic4 for the new Intel i486 processor. It stressed on the power, speed and affordability of the chip. The advertisement was designed using state-of-the-art special effects and featured a trip through the inside of a computer. TV provided Intel the right platform to effectively communicate the Intel Inside program's message to consumers. Intel's colorful TV advertisement which displayed the Intel logo, accompanied by a distinctive and catchy jingle which were together known as the signature ill audio-visual logo. With this advertisement, Intel was reportedly able to build a distinctive and positive image in the minds of consumers the world over. Intel had a series of high profile launches for its new chips over the next couple of years. Pentium and Pentium Pro were launched in 1993 and 1994 respectively. The company had now decided to use names instead numbers for its microprocessors (the word Pentium was derived from a Greek word meaning five). In the meantime Intel's investment in marketing seemed to have paid off. A company research revealed that while only 24% of European PC buyers had been familiar with the Intel Inside logo in late-1991, the figure increased to nearly 80% in 1992 and 94% in 1995. Commenting on this, Dennis Carter, Intel's Marketing Manager, said, "I believe that there has been a lot more (industry wide) advertising because of the Intel Inside program than there would have been otherwise. That has helped to create more PC demand. If you believe that advertising works, then more people are getting educated about the benefits of the PC because of the Intel Inside program." Intel's marketing efforts not only increased the demand for chips, they also increased the demand for PCs around the world. This was interesting considering that the demand for PCs was growing sharply in spite of increase in PC prices. The number of people who owned home-PCs was increasing even as the PC emerged as the most viable tool for business, education and entertainment. Intel was the catalyst in this PC revolution that swept the entire world.

I
t:.;,;

Intel's advertisement campaigns and coop marketing strategy had become a well known marketing success stories of the 1990s. Each new campaign in the print, electronic or. outdoor media attracted significant attention. How~ver, even those who had accepted Intel as an unconventional marketer were not prepared for the Stayin' Alive campaign in 1997. Commenting on its success, Advertising Age said, "They became nothing less than the whimsical icons of a go-go PC industry." In the same year, Intel started advertising on the Web and also encouraged PC makers to use this media. Intel also allowed them to use the company logo and messages in their advertisements. This helped the company convey to customers the important role its chips played in giving them a good Internet browsing experience.

Of the George Lucas group. George Lucas is the maker of one of the most successful Hollywood movie-series of all times, Star Wars. 57

Brand Management

As the Internet gained in popularity during the late-1990s, consumers began turning to it for gaining information on products and purchasing products online. Consequently, Intel took steps to become a leader in the Internet economy. The company spruced up its Intel Inside Program to promote and support e-Commerce marketing activities undertaken by computer' manufacturers. Intel entered into tie ups with many companies around the world, ranging from experienced vendors in the US to newcomers from countries like Japan and Poland, for innovative web-based marketing and sales deals. This way Intel could successfully market its chips as a component brand during online PC purchases throughout the world To leverage the popularity of the Intel logo, the company even started selling productS like books (for engineers and IT professionals), caps, T-shirts, key chains, pens, coffee mugs and dolls. These products, made available through the company's website, came with the Intel Inside logo printed or embroidered on them. The printed material on the merchandise generally featured the latest product(s) launched by the company. In 200 1, in another innovative move, Intel set up the Intel Inside Online Network .This was essentially a web-based tool, that helped manage business transactions related to the company's coop advertising program. The Intel Inside Online Network, which was available 24 hours a day, provided services in languages other than English (Chinese and Japanese). Intel's emphasis on marketing activities to support the launch of new products continued well into the early 21st century. In 2000-01, the company ran a series of TVCs featuring little 'aliens' enjoying the benefits of its chips. The thrust on product development continued, and R&D expenditure increased from just $780 million in' 1992 to $3.8 billion in 2001. The company focused heavily on marketing its new high-end microprocessors like the Intel Xeon and Intel ltanium that were mostly used for Internet technologies. Intel concentrated on promoting its chips as vital ingredients for building mission critical client server solutions. The company reportedly spent $1.5 billion on coop advertising for the year 2001. Intel's consistent efforts towards providing customer satisfaction through quality services and its innovative efforts at component branding fetched it commensurate results. The company's net income of $7.31 billion in 1999 increased to $10.53 billion in 2000 (Refer Exhibit IV & V). Intel earned 35% of its total revenues from North America, 31% from the Asia Pacific region, 25% from Europe and 9% from Japan. Besides PC manufacturers, the company marketed its products to various other industries such as industrial equipment, military equipment and communications industries.

WHAT LIES AHEAD?

All was not well with Intel as it moved into the 21st century - in 200 I its profits decreased drastically to $1.29 billion. Though the company felt that the global IT slump and the US economic slowdown were partIy responsible for this decline, the lower average selling prices of microprocessors and a decrease in sales in general were the main culprits. The decline in sales was believed to be caused by the bad publicity. caused by antitrust investigations carried out on the company by the European Commission. This investigation was carried out because of several complaints against Intel for using 'abusive marketing practices.' [A news report (from www.newsfactor.com) stated that Intel gave subsidies to PC vendors for opting for Intel microprocessors and using the 'Intel Inside' logos or tunes in their advertisements.] The issue brought back bitter memories of another similar case that was filed in late-1999, in which Intel and the Federal Trade Commission of the US had made a settlement out of public view in 2000. Intel was also accused of charging exorbitant prices for its chips as it reportedly sold its chips at a profit of about 10,000%! 58

Intel - The Component Branding Saga Intel's bad fortunes continued in the year 2002, when it faced a nationwide (USA) class action suit regarding the perfonnance of the Pentium 4 Processor. The plaintiffs accused Intel of misleading customers about the speed of the Pentium 4 Processor. They stated that the Pentium 4 chips were less powerful than the company's own Pentium III and AMD' s Athlon chips. For AMD, this was one of those rare times that it seemed to be one-up on Intel. Due to the latter's virtual stranglehold on the microprocessor market, AMD (and the 'distant' players, VIA Technologies and Motorola) had remained far behind throughout the 1990s (Refer Table I for Intel and AMD's marketshares and Exhibit VI for a brief note on AMD, VIA and Motorola).

Table I Microprocessor (PC) Industry - Market Shares

"'datafor six months (July- Dee 98. Jan-July 99).

However, by late-2002, AMD had increased its focus on marketing its processors.like never before and launched a multimedia campaign similar to Intel's. These moves along .with the fact that AMD's processors were more reasonably priced than Intel's and the growing public perception that AMD's processors were as good or better than , Intel's, could lead to stiff competition for Intel. Meanwhile, the people who believed that Intel had nothing to worry about seemed to outnumber the skeptics. It still remained the only company in the world that was able to make the PC just a package that came with Intel chips inside it. Intel's market share had climbed back to 87% in 2002. The fact that customers rushed to upgrade their PCs everytime Intel released a new chip spoke volumes about the 'cult of Intel Inside devotees' the company had created and nurtured over the years.

Questions for Discussion:

1. Examine the business environment in which Intel began selling its microprocessors in the early-1980s. Why did Intel decide to intensify its marketing activities in the 1990s? Discuss. 2. Examine Intel's decision to target the PC end-users through its marketing campaigns. Also, comment on the coop marketing strategy and the execution of the Intel Inside campaign. What are the merits and demerits of a component branding strategy? 'Intel has been taking customers for a ride by over-pricing its chips and offering less efficient processors than its competitors.' Critically comment on this statement in light of the fact that Intel' s perfo~ce had declined drastically in the early 21st century. What kind of marketing strategies should Intel adopt now to increase its profit margins?

3.

ICFAI Center for Management Research. All rights reserved.

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Brand Management

Exhibit I The 'Bunny People' Advertisement

Source: ICFAI Center for Management

Research

Exhibit II What's in a Microprocessor

Source: www.whatis.com.

www.intel.com

60

Intel - The Component

Branding Saga

Exhibit

III

61

Brand Management

!Source: www.intel.com

Exhibit IV Intel- Net Revenues & R&D Expenditure (1992-2001)

*(Excluding purchased research and development) Source:www. intel. com

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Intel - The Component

Branding Saga

Exhibit V IntelConsolidated Statements ofIncome (1999-2001)

(in $ million)

Source: ICFAI Center for Management

Research

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