Student Number: 0708964 Word Count: 2796

8/14/2019 Student Number: 0708964 Word Count: 2796

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Student number: 0708964

Word Count: 2796

The Marketing Analysis of IBM

Introduction

A good marketing strategy can differentiate its company products or services

between its competitors. Marketers use varies of professional methods to analysis the

status of a business, knowing the situation of the business in its market and therefore,

to foresee the tendencies of the customers demands and always plan for the next

tactical moves which can ensure the company to think like the customers (especially

for fast moving consumer goods company) and always one step ahead of them, e.g.

PESTLE (Political, Economic, Social, Technological, Legal and Environmental),

MORTAR (Money, Organization, Research, Training, Assets and Resources), SWOT

(Strengths, Weaknesses, Opportunities and Threats), DPM (Directional Policy

Matrix), STP ( Segmentation, Targeting and Positioning), marketing mix of four Ps

(Product, Price, Promotion and Place), three Vs (Valued customer, Value proposition

and Value network) , The Ansoff Matrix, etc.

I would like to focus on analysing the International Business Machines

Corporation, abbreviated IBM since it has maintained a flexible and adaptable

marketing development which makes the company to become a brilliant model in the

market. During the Second World War, IBM contributed the United States

government by shifting its production line from recording equipments to making


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weapons to meet the country needs. Its punch-card machines for calculations took the

major part for developing the first atomic bombs. The company produced lots of

various remarkable products which were significant during the war, the super

electromechanical calculator; Automatic Sequence Controlled Calculator (Harvard

Mark I), one of the greatest products during the Second World War in history was

invented by IBM for the United States Navy. Long before the end of the war, the

company had had well aware the potential crisis that once the war came to an end, the

heavily military related production plants will be doomed and so it intended to expand

the company to foreign countries and increased foreign operations and international

growths, by meeting the great opportunity of the establishment of the political policy-

World Trade Corporation in 1949, IBM successfully redefined its market and business

to became an electronic computers and programming industry. Its only one of the

examples on demonstrating how IBM fully applied its flexible marketing strategies to

survive and remain to be one of the biggest companies after decades under the

competitive environment in the market.

Financial


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IBM is a perfect model that it has its global visions (The smarter planet project which

will be mentioned in the Positioning section under STP later); it has sufficient

awareness and consistent support to the global developments and R & D, and provide

valuable returned for shareholders.


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The graph above has shown that the sales and marketing expense in growth markets

was very high which made the gross profit of the growth markets was not that

profitable even having a big positive difference in revenue compared with the major

markets. However, it was an inevitable process before the development progress to

reach its saturation point. Exploitation expenditure is necessary for better outcome in

long term.

The company has maintained a positive constant growth in pre-tax income, free cash

flow and earnings per share after the global financial crisis in 2002 and more

importantly, apart from allocating 59% of the cash to share dividends, the remaining

41% has been reinvested for high technological capital expenditures while continuing

to invest more than 50 billion US dollars from 2000 to 2008.


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Profit and Loss Accounts for IBM from 2006-2008:

Apart from the laptop products that we familiar with IBM, it is also a supplier for all

sorts of electronic components to different companies. The PowerPC tri-core

processor for Xbox360, the Cell BE Microprocessor for PlayStation3, seventh-

generation console for Nintendo, Wiis Broadway chip and the smarter planet project

for initiating information technology to make the worlds systems to become more

effective, etc. The revenue of the company is actually from different fields, e.g.

software, services, financing and hardware.

The Gross Profit Margins (GPM: (Revenue- Cost of Sales)*100%/ Revenue) from

2006 to 2008 were 42%, 42% and 44% respectively, the average was 42.7%, and it


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was kept in an excellent level. By calculating at the Net Profit Margins (NPM: (Net

Profit after tax*100%)/ Revenue) for each year, it was in an average of 10.8% (10%,

10.5% and 12%), each million of the revenue was actually providing 100 thousand

US dollars of net profit in 2008. By observing both GPM and NPM figures, the

company was profitable and improving after each financial year. From 2006 to 2007,

both the revenue and expense were increased in roughly the same proportion which

indicated the expanding size of the company whereas in 2008, the company managed

to keep the level of expense while the revenue was increased.


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Balanced Sheets of IBM from 2007-2008:


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Balance Sheets of Microsoft Corporation from 2007-2008:


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Income before tax figures of Microsoft Corporations Profit and Loss Accounts from

2006-2008:

The Return On Capital Employed (ROCE: Earnings before interest tax/ Total assets-

current liabilities) revealed the earnings per capital employed. In this case they were

0.14:1 in 2007 and 0.18:1 in 2008. The numbers themselves can not give us much

information since we do not know about the actual scale or what level should the

figures be to define as normal or excellent, and that is the reason why I attach the

Profit and Loss Accounts and Balance Sheets of Microsoft Corporation, to get a better

idea of the ROCE performance of IBM by comparing to the other similar company.

For the Microsoft Corporation, it had better ROCE ratios, 0.51:1 in 2007 and 0.56:1

in 2008. Under comparison, we realize that the ROCE of IBM can be improved, in

order to achieve a better performance; they can increase the sales and cut down the

expenses, and have a revaluation on whether the capital employed has fully reached

its efficiency and capacity by concerning the economic of scales.

The Acid Test Ratio (Current assets/ Current liabilities) indicated whether the

company can pay off its current liabilities with the current assets that it has and IBM

had a well balanced at this point, 1.2:1 in 2007 and 1.5:1 in 2008.


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The STP (Segmentation, Targeting and Positioning)

Segmentation is crucial for a business to decide an effective marketing mix

which can suit the actual situation of the market precisely. It is a process of

identifying the group of customer, to narrow down the differences in each segment

while making the differences between segments become more explicit.

For the past few years, the IT industry has changed dramatically to a new dimension,

the value was shifting in the industry, driven by a new computing paradigm, the

economies of the developing countries were growing quickly, tapping skills and

capabilities were required for enterprises to integrate the operations globally, new

computing instrumentation, design and invention were required for handling oceans

of data, companies were looking for advanced technology which can enable

innovation and reduce the costs at the same time.

The segments are in different areas: Global technology services, global business

services, software, systems and technology and global financing.

Targeting is about deciding which market segments a company should prioritize

for distributing resources and pursue for sales.


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The IBM focused on the investment of global services in an extent that it involved

57.3% of the total external revenue ($102,827 million) in 2008 which generated

$58892 revenue to the company. Undoubtedly, IBM has targeted its segment in global

aspect.

Positioning is creating an absolute proposition or an image for the target segment or

the target customer minds. Positioning is not about the features of or what is done to


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the products. It is the image of the product which is created in customers minds,

more driven by customer benefits. IBM has positioned itself into a high technological

image and brand, one of the projects that worth mentioning was called The Smarter

Planet and founded in 2008. It is a corporate initiative of IBM, it emphasises the

principle of Instrumented, Interconnected and Intelligent can create a smarter planet.

This project has made a great contribution to humankind and benefits the countries.

Public Safety: IBM has the vision that in the next 15 years, the electronic guiding

system and automatic vehicle control would actually enable so called the automatic

the highway systems where the vehicles will be travelling using the sensing and

control technologies, electronic guidance will be widely deployed for vehicles, not

just for buses, but trucks and cars. IBM has invented this technology and it could

prevent accidents and reduce the air pollution.

By creating the data warehouse in New York City Real Time Crime Centre (RTCC)

and Madrid, Spain for storing over 40 billion of criminal records, it makes

connections of multiple databases which can minimize the time being used for

identifying the suspects in few minutes rather few days in the past. The crime in New

York City has dropped 27 percents since 2001 and the responses crime in Madrid has

been caught by 25 percents.

Green Energy: The city skylines are nice sight to see in the evening but those

illuminated office buildings are also one of the main causes of the climate crisis, the

entire floor of lights does not need to be turned on. IBM has developed a mesh-based

lighting system that can reduce the consumption of electricity inside those buildings

and hence to reduce the costs. The lights are connected using wireless radios, the

radios in the fixture can communicate with the other lights in the building as well as

with the internet and that radio controls switch in the fixture, so by installing this


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device in the fixture will breaking the connection between the wire circuits and

allowing users to control them the way they want remotely. It has been installed in the

University of California, Berkley so the students can control the lighting from their

computers.

Healthcare: IBM technology has been used to assist the injection deliveries for 2

million patients in US that have reduced the cost of therapy by 90%.

According to the United Nations report, global trends indicate alarming rates in

ageing population growth in developed countries. By 2050, an astonishing Japan's

population is estimated to be over 65 years old; Spain, Italy and Germany are the

countries following Japan. When society is aging, it is inevitable that the number of

people with physical disabilities will increase. IBM is developing robots technology

which hopefully, can improve the elderly quality of life in the digital generation.

Cultural: IBM is using gaming technology for spreading nations culture. For

example the Forbidden City which was once, the Chinese Emperor exclusive

property. The importance of the project is not just the art effects but the sense of

people and the society. IBM moves to essentially a gaming technology of virtual

worlds. In the game, as visitors log on, they are able to interacted , not only with the

museum virtual guy, but with each other, trading stories, reacting to the architecture

or exploring the city together, in this way, the virtual forbidden city gives the real

forbidden city a brand new life. The aim of the project is to appreciate one nations

history and uncover the foundation of our common heritage.

These are some of the parts of the IBM services and products that totally considering

the customers benefits and can create a high technology proposition to the customer.


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Arguments

The IBM has a great achievement in global technology development for

countries specifically indeed, but has IBM concerned the production and goodwill of

its products in other segments while busying at expanding its business into a macro

scale? If IBM could realise this issue carefully, its PC Company Division probably

did not have to be acquired by the Lenovo Group Limited back on May1, 2005. We

can argue that maybe the IBM treated the acquisition as an investment, but then if it

did, then the action of IBM to lowered its shareholding from 18.9% (The Year 2005)

of Lenovo to below 5 % (The Year 2008) would not make any sense. Besides, the

IBM PC Company Division could be developed better before the acquisition and

might be sold to Lenovo for better value (It was $1.25 billion in total, $650 million in

cash and $600 million in Lenovo Group common shares). The three main problems

were about the Price, Product and Promotion in the marketing 4Ps.

The price of the IBM laptop was too high compare to the other companies; it should

be more based on market-based pricing instead of cost-plus pricing because even the

IBM installed its high-tech valuable electrical material components into their laptop

products, were the majority of customers willing to pay the high price for buying such

a hi-tech laptop which they didnt really need that level of technology requirements

for most of the people back before the 2005?

The products needed a more modern and fashionable outlook, the appearance of all

the IBM laptops was exactly the same, even in different model series. There was not

enough stimulation for buyers to actually purchase the product.

There were lack of effective promotion activities and this should be what the IBM

should have learnt from the history. Even in nowadays, when people talk about IBM,

most of them only think of the laptops, knowing that it used to be a strong PC


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company without knowing the fact that it is actually taking parts in developing better

information systems for the countries and the world. When I was doing the research

for IBM, I was truly amazed by the qualities and the scales of the projects that this

company has involved. Apart from the public safety, green energy and healthcare

developments, IBM also concentrates on energy, government, cloud computing, oil,

new intelligence, dynamic infrastructure, smart cites, food, banking, water, buildings,

retail, traffic, power grids, better food system, biological research, and

communications projects.

Conclusion

As a conclusion, IBM has achieved superior performance; it generates and

maintains its positive and growing profits which then put 41% of the revenue on

researching and development bases for meeting its vision for providing future

technologies in advanced that people will need in the future. The superior point that

makes IBM to become so successful and stands out among the companies is that it

does not produce products after the market has shown its needs, but researched,

developed and engineered the products before the customer actually realize they want

it. This can be only achieved if a company has the vision. IBM employs different

professionals in different countries from all walks of lives, to combine different

dimensional thoughts that can help the company to expand its business to a more

macro and international aspects for maximizing the profits which can attract more

investors to invest in the company, to become the shareholders and brining more

capital into IBM. The substantial dividends per share in each financial year have

accumulated the investing confidence for the investors. Even though the PC Company

Division has been acquired by the Lenovo, it still had the multi year agreement with


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Lenovo that IBM will take its fully obligation for providing software solutions,

financing and hardware maintenance services to those who have bought the products.

This announcement has certainly saved and enhanced the goodwill without losing

loyalty customers. As I mentioned in the introduction about the background of the

IBM during the Second World War, that was not the only time that IBM has shown its

adaptability and capability to remixed the businesses, and if IBM want to focus on

and strengthened the position in highly profitable segments like global technology

service, green solutions and business intelligence, divesting the hardware computer

business is the right decision making in order to centralize the resources to meet the

tremendous needs.

The reason that I use the STP but not 4Ps to analyse IBM as a whole and used the 4Ps

to analyse its computer sector is that the more research that I have done about IBM,

the more I realized the IBM operations are too huge that using 4Ps will limit the

differentiation in strategic segments, so instead of relying to heavily on 4Ps, I chose to

use the STP to make sure I have stated out the big picture more clearly whereas to

narrow and be more specific while mentioning about the IBM computer sector.

References:

1. Cheverton, P, Marketing Skills, Kogan Page Limited, 2001, page 12,36-48

2. Dibb, S., Simkin, L., Pride, W.M., Ferrell, O.C., Marketing Concepts and

Strategies, Houghton Mifflin Boston New York Abingdon, 2006, page 623,

220

3. Geruson, R.J., A Theory Of Market Strategy, Oxford University Press, 1992,

page 77


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4. Cheverton, P, Key Marketing Skills, Kogan Page Limited, 2000, Page 221

5. Graphs and all the financial data were from the IBM and Microsoft annual

reports.

Student Number: 0708964 Word Count: 2796

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