Hewlett-Packard Imaging Systems Division: Sonos 100 CF Introduction Harvard Case Solution & Analysis

Marketing Manager Business Unit Imaging Systems (ISY) at HP Medical Group is contemplating about strategies for channel management  and issues raised by the introduction of the new product of cardiac imaging.

ABSTRACT

This paper discusses the Imaging Systems Division of Hewlett-Packard. The offerings in these divisions are: patient monitoring systems, operating room systems, perinatal monitoring devices, clinical information systems and ultrasound devices for cardiologists and vascular surgeons.

This paper discusses the marketing channels in the ISY department and then takes an overview of the marketing strategy followed for Sonos 100 C/F which is an ultrasound device launched for the hospitals and non-hospital settings.

The paper further discusses the product launch, sales channels and distribution channels of the Sonos 100 C/F in a highly competitive market.

Finally, the competitive strategy followed by Imaging Systems Division of HP for these ultrasound devices is assessed.

INTRODUCTION

Hewlett-Packard is a company that  is manufacturing and marketing electronic products and systems for measurement and computation. It has product lines such as patient monitoring systems, operating room systems, perinatal monitoring devices and clinical information systems. ISY is a division within MPG that manufactures diagnostic ultrasound devices for cardiologists and vascular surgeons.

The MPG’s stated goal is “the ultrasound company” on the worldwide basis. Ultrasound imaging uses high-frequency sound waves to create images of the inner parts of the body. In 1992, the diagnostic ultrasound market was over $2 billion.

Until the early 1980s, the ultrasound equipment produced two dimensional, black and white images using mechanical transducers. However in 1982 Hewlett Packard entered the cardiology market with an electronic phased array system.  Over time the improvement in technology has enhanced the quality of the image obtained. Some of the giant corporations worked on new color-flow technologies that allow for even more improved tissue analyses. Three dimensional imaging will become a commercial reality soon, especially in cardiology applications.

MARKETING CHANNELS

Marketing department has four managers:

  • Manager for marketing communications;
  • Manager for technical marketing;
  • Manager for product management; and
  • Manager for business development.

Product management consists of managers for all the major markets and technologies. It guides the product from its development till introduction. This means working with R&Don engineering and manufacturing regarding: product definition, design and specifications with sales and marketing plan for the product.

In business development, the main goal is to be a liaison between sales and marketing and being responsible for: product training, competitive analysis, price exceptions, trade shows, national account support and customer visits to the factory. They mainly provide feedback from the groups in the field of product management. Likewise, product marketing views them as a main party for delivering messages to the sales force.

Sales force at ISY was divided into eight groups which reported to the general manager of MPG and was measured as a cost center. Four sales groups focused on patient monitoring systems; others focused on healthcare information systems, clinical information systems, diagnostic cardiology or ultrasound imaging.

They re-organized the sales department in which a layer in the field was eliminated and a new layer was created between the field and the headquarters. This re-organization was not accepted as roles and responsibilities are still found out as clear in some areas. Metrics also differ between marketing and sales. It seems as sales, support and marketing were united but the reality is many plans were competing for the same resources. At the same time, the increasing breadth and complexity of clinical applications require closer and faster coordination among these groups.

PRODUCT MARKETING

The ultrasound market is divided into three broad groups of product applications:

  1. Radiology;
  2. Cardiology; and
  3. Others (OB/GYN applications)

Internationally, the market leader was Toshiba but in the United States it had 9 percent market share while Acuson had a leading 44 percent share. In cardiology, HP was the international leader with 43 percent share in the United States.

Products can be divided into three categories and on the basis of this division their markets can be determined.

High Performance Products: Full feature system, with color-flow and 96 or 128 channel capabilities providing superior image quality. Prices range from $150000 to $180000 per unit. The major customers of these products are hospitals or imaging clinics.

Mid Performance Products: use either phased-array or older technologies and provide images of lesser quality than high performance systems. Prices range from $90000 to $150000 per unit. The major customers of these products are also hospitals or imaging clinics.

Low Performance Products: these provide images of lesser quality and often lack color flow capabilities. In 1991, low performance radiology products were selling for $130000 and prices of cardiology products ranged from $90000 to $55000 per unit. The major customers of these products are physician offices, out-patient settings and other non-hospital settings.

Target Market

In the United States, 2000 hospitals with more than 100 beds traditionally represented the core market for ultrasound systems. The hospital’s chief of cardiology was the key decision maker but he required budgetary approval from hospital administrators.

Product: Sonos 100 C/F used mechanical arrays to produce two dimensional color flow images. Leapfrogging competition technologically delayed the product’s introduction significantly which added manufacturing costs without contributing greatly to customer satisfaction in this segment.

ISY conducted extensive clinical tests of Sonos 100 C/F against three competing products that currently accounts for more than 90 percent of sales in the target segment. Based on these tests, user needed surveys and personal interviews of each system which was evaluated across categories weighted by its importance in the non-hospital ultrasound market. The categories were:

  • Performance;
  • Price;
  • Usability;
  • Reliability/ uptime;
  • Range of applications;
  • Upgrade potential;
  • Features; and
  • Company image.

Another product Interspec Apogee CX grossed the highest point of 576 while Sonos 100 C/F got three points less. Interspec Apogee CX grossed slightly higher score in image quality and multiple applications. Sonos 100 C/F ranked equal or better as compared to all other systems in color-flow abilities while it scored highest in usability, reliability and company image.

Pricing: Sonos 100 C/F would be priced at $55,000 per unit. Competitors’ comparably equipped systems were sold for: Vingmed CFM 750, $82,000; Interspec Apogee CX $86,000; Biosound Genesis CFM $51,000. They priced their product as the best value in the class. They priced to re-establish themselves in the non-hospital segment.

Promotion: Major forums for ultrasound product introductions were the European College of Cardiology and American Heart Association meetings. Marketing division promoted   Sonos 100 C/F as an affordable color flow ultrasound system that enabled the private office physician or internist to perform comprehensive cardiac as well as general diagnostic imaging conveniently and at low cost.

A direct mail campaign was planned  for the Sonos 100 C/F that installed base of customers and a list of cardiologists was also supplied by the American Medical Association. Other promotional techniques used were:

  • Product literature;
  • Promotional video; and
  • Technical data sheet.

PRODUCT LAUNCH

The Sonos 100 B/W was launched in the year 1987 and targeted at the non-hospital segment of cardiology. It sold well for some months but soon failed because the competitors were offering color flow and annular or phased array capabilities. HP was expected to produce a product with color capabilities and thus it launched Sonos 100 C/F.

Initially, the Sonos 100 C/F was the best in the class, high end product for the high end segment of the market. Since, the sales force was not equipped to tackle the non-hospital customers, the product soon lost its market.
by Frank V. Cespedes, Marie Bell Source: Harvard Business School 20 pages. Publication Date: February 22, 1993. Prod. #: 593080-PDF-ENG

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