Potential for HTC One?
In recent weeks there has been considerable discussion focused on the launch and potential for success of HTC One (M8) (see NY Times article by David Segal). While the previous iteration appears to have done well and initial reports on the M8 are positive, observers are still finding it hard to explain why the beautiful, sleek and extremely functional device has had so much difficulty making a breakthrough in a market dominated by Samsung (for Android devices) and Apple (with its iOS devices). Clearly, this is unlike the situation faced by Nick Fury (played by Samuel Jackson) in his badly damaged SUV in the most recent edition of the Captain America series. When told by his Chevy Tahoe that the communications array is inoperative, Fury asks: “Then what’s not broken?” To which the car responds “Air conditioning is fully operational.” Obviously the HTC One (M8) is “fully operational” and not facing a situation where some of its promised functions are not being delivered (Apple maps anyone?). Rather, it is a situation where despite having a good product, the company seems to be having difficulty gaining traction in the market. Cher Wang, the optimistic CEO of HTC, has characterized the company’s problems as marketing related rather than product related. What might she mean by this?
Given where the smartphone market is in its life cycle (with almost a billion devices sold in 2013), it made sense for the HTC One to target the mass market, albeit at the higher price point. With Apple alone selling about 150MM devices at the high end and Samsung, along with other Android manufacturers, chipping in a few hundred million in sales at the top end, this part of the market seems large enough to accommodate another device. However, competition in this segment is actually quite fierce: other than Apple and Samsung, few manufacturers have been able to make headway, and even giants like Sony and LG have only achieved modest success. While HTC has historically produced handsets at the lower end and made devices like the Google Nexus One, targeting the high end of the market was clearly a strategic decision by the firm to establish itself as a branded player in the smartphone market rather than a contract manufacturer or low-end player. The major challenges with implementing such a strategy are the associated tactical imperatives: first, the need to effectively differentiate HTC from the market leaders – Apple and more importantly, Samsung; and second, to build the brand name. This building requires investments not only in the products, but also in their promotions and in the telecom ecosystem in which HTC is one player.
Arguably, it is in the translation of this strategy into the tactical domain where HTC has not been successful. On a feature-by-feature basis, one might be able to demonstrate that the both the HTC One and M8 version are superior to Samsung’s Galaxy offerings – better physical appearance, check; metallic rather than a plastic body, check; dual rear cameras, check; and the list goes on. But how important are these features in ultimately getting consumers to switch platforms (in the case of Apple) or currently favored brand (Samsung)? When incremental improvement along the existing set of attributes is no longer sufficient to interest consumers (like a 13-megapixel camera versus a 12-megapixel one), it is necessary to think of a new benefit for customers that is not currently available in the market alternatives. Given the late stage of the smartphone market’s lifecycle, finding such a benefit may not be easy but is nevertheless a worthwhile objective.
The other direction is that of brand building. HTC has embarked on this journey by increasing spending on advertising, although even here some of its efforts are questionable. While Robert Downey Jr. is undoubtedly enjoying a renaissance with the Ironman franchise, it is unclear whether his efforts on behalf of HTC have helped the firm create an image of a high-tech handset manufacturer. Take, for example, the Brand Asset Valuator’s 4 pillars of a brand: Differentiation, Relevance (to customer), Knowledge (customer’s knowledge of what the brand stands for) and Esteem (holding the brand in high regard). How do HTC’s scores compare to Apple and Samsung? On a scale of 100:
Differentiation HTC: 52, Apple: 100, Samsung: 75
Relevance HTC: 58, Apple: 80, Samsung: 62
Knowledge HTC: 35, Apple: 95, Samsung: 59
Esteem HTC: 22, Apple: 82, Samsung: 60
Without differentiation it is difficult to build the other pillars, bringing us back to my point above regarding benefits. Furthermore, rather than talking about Humungous Tinfoil Catamarans, the company is better off explaining to consumers what exactly they will get in exchange for placing their faith in the HTC brand. In fact, to convince consumers about relevance and knowledge, it is critical to do the exact opposite of what their ad prescribes (“HTC – it’s anything you want it to be”). Specificity is important in order for customers to be knowledgeable about the brand and its purpose, at least in the early stages of brand building. While HTC may not be able to outdo Samsung in terms of ad spending, HTC can certainly make sure that the money spent goes towards helping the company accomplish what it needs to in the marketplace.
An additional important element of brand building is convincing the service providers (like AT&T or Verizon) that the company is committed to continuously introducing a stream of innovative products that will be demanded by consumers, who are drawn to the stores by HTC’s advertising. The nexus between the “pull” of HTC’s design and marketing and the “push” at the service provider is a critical determinant of the company’s long term success. Right now HTC’s situation is not as dire as that articulated by Tony Mendez (Ben Affleck in Argo): “There are only bad options. It’s about finding the best one.” Nevertheless, in the rapidly changing mobile phone business that has consumed giants like Nokia, Motorola and Blackberry, HTC needs to move fast to avoid a similar fate.