Hi Kemble! FCB lands the CPQ advertising account. Leigh
Compared with some of its competitors, such as Dell, International Business Machines Corp. (IBM.N) and Sun Microsystems Inc., (SUNW.O) Compaq is late to the Internet fold, according to Stephen and other analysts. While Compaq's management has been preoccupied in recent years with a series of acquisitions and by top executive turnover in 1999, its rivals were formulating and touting their Internet expertise in major advertising efforts.
cnbc.com
Compaq Computer gears up for marketing challenge
By Candace Talmadge
DALLAS, May 4 (Reuters) - Having hired its third advertising agency in as many years, Compaq Computer Corp. (CPQ.N) now faces the daunting challenge of recasting and brightening a formerly lustrous brand that had lost ground to fierce competitors.
Foote, Cone & Belding Worldwide, owned by Chicago-based True North Communications Inc., (TNO.N) was tapped one week ago for the Houston, Texas-based computer company's huge $300 million advertising account. FCB replaces DDB Worldwide, a unit of New York-based Omnicom Group Inc., (OMC.N) and the developer of Compaq's most recent "Non-Stop" ad campaign.
DDB won the account in 1998 only a year after Compaq consolidated its business at Ammirati Puris Lintas, the forerunner to the Lowe Lintas & Partners unit of Interpublic Group.(IPG.N)
Compaq's advertising spending could grow by as much as 30 percent this year, the company's president and chief executive officer, Michael Capellas, has said.
Company executives and industry experts say that, along with increasing its advertising exposure, Compaq must retool its essential marketing message.
"The brand architecture has to be able to house all the elements of Compaq's complete product and service offerings, not just PCs," said Gary Elliott, Compaq's newly named vice president of integrated marketing communications.
Compaq's previous advertising did not achieve this, he said.
Bruce Stephen, group vice president of worldwide PC research for Framingham, Mass.-based technology research firm International Data Corp., agreed. Compaq's past advertising was a message solely about hardware and, as such, did not resonate with retail or industry customers.
Although IDC still ranks Compaq as the top-selling desktop computer brand worldwide, with a first-quarter global market share of 13.1 percent, that represents a decline of a full percentage point over the same period in 1999. According to IDC, Compaq's U.S. first-quarter market share was 16.3 percent, flat with the year-ago period's 16.1 percent.
Compaq is now in second place, behind direct marketer Dell Computer Corp., (DELL.O) of Round Rock, Texas.
"One of Compaq's missing pieces is not having effectively portrayed the company's understanding of the future and its role in the new economy" in its advertising, IDC's Stephen said. "What Compaq really needs is to get an umbrella message out" and have it percolate throughout all the layers of the company, its distribution channels and among current and prospective customers, he added.
"A global brand-building campaign can provide the manifestation of the direction our CEO has set for our company," said Compaq's Elliott. "It can get our employees galvanised and our customers excited."
The new advertising, which Elliott said will include television spots and will debut in the third quarter, will talk about Compaq as more than a desktop computer manufacturer. It will build on the "everything to the Internet" strategy Capellas has outlined, he said.
Compared with some of its competitors, such as Dell, International Business Machines Corp. (IBM.N) and Sun Microsystems Inc., (SUNW.O) Compaq is late to the Internet fold, according to Stephen and other analysts. While Compaq's management has been preoccupied in recent years with a series of acquisitions and by top executive turnover in 1999, its rivals were formulating and touting their Internet expertise in major advertising efforts.
Among its woes, Compaq especially has had trouble developing a workable hybrid distribution model that combines reseller and retailer channels with a direct sales programme, IDC's Stephen said. But he noted that the company has been very aggressive in the retail area through alliances with Radio Shack and more recently Sears, Roebuck & Co., and now seems to have a more streamlined and focused distribution strategy.
However, Charles Smulders, principal analyst for San Jose, Calif.-based technology market research firm Dataquest, said the company has not yet addressed the problem of distribution efficiency. He noted that Compaq's average inventory turnover the past few years has remained level at 14 times a year, while direct-selling powerhouse Dell's inventory turnover averages 60 times a year. In an industry in which inventory loses 2 percent of its value every week and gross margins are less than 10 percent, Smulders said, gross margins evaporate if inventory doesn't sell rapidly.
Compaq's 1999 revenue of $38 billion was up 24 percent over 1998 and its net income was $569 million, compared with a 1998 loss of $2.7 billion. For the first quarter of this year, sales were flat at $9.51 billion, but profits climbed 15.6 percent to $325 million.
On Thursday, FCB resigned from the $70 million Palm Computing account, evidently due to a conflict with the Compaq business, trade magazine Advertising Age's AdAge Daily fax said. A recording at the San Francisco office of FCB, which handled the Palm account, said the office was closed for a staff meeting and officials could not be reached to confirm the report.
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