INTEL Knows Best A Major Marketing Mistake

INTEL Knows Best. A Major Marketing Mistake Essay, Research Paper

INTEL Knows Best. A Major Marketing Mistake

Problem Statement

When Thomas Nicely, a mathematician at Lynchburg College in Virginia, first

went public with the fact that Intel’s new Pentium chip was defective Intel

admitted to the fact that it had sold millions of defective chips, and had known

about the defective chips for over four months. Intel said its reasoning for

not going public was that most people would never encounter any problems with

the chip. Intel said that a spreadsheet user doing random calculations would

only have a problem every 27,000 years, therefore they saw no reason to replace

all of the defective chips. However if a user possessed a defective chip and

could convince Intel that his or her calculations were particularly vulnerable

to the flaw in the defective chip then Intel it would supply those people with a

new chip. This attitude of ‘father knows best’ fostered by Intel created an

uproar among users and owners of the defective chips. Six weeks after Mr.

Nicely went public, IBM, a major purchaser of Pentium chips, stopped all

shipments of computers containing the defective Pentium chips. Intel’s stock

dropped 5% following this bold move by IBM. IBM’s main contention was that it

puts its customers first, and Intel was failing to do this.

Intel’s handling of this defective chip situation gives rise to many

questions. During the course of this paper I will address several of them. The

first of which is how did a company with such a stellar reputation for consumer

satisfaction fall into the trap that the customer does not know best. Secondly,

what made this chip defect more of a public issue than other defective products

manufactured and sold to the public in the past. Finally, how did Intel recover

from such a mistake. How much did it cost them and what lessons can other

companies learn from Intel’s marketing blunder so that they do not make the same

mistake.

Major Findings

Intel is spearheaded by a chief executive named Andrew Grove. Grove is a

“tightly wound engineering Ph.D. who has molded the company in his image. Both

the secret of his success and the source of his current dilemma is an anxious

management philosophy built around the motto ‘Only the paranoid survive’.”

However, even with this type of philosophy the resulting dominance he has

achieved in the computer arena cannot be overlooked. Intel practically

dominates the computer market with $11.5 billion in sales. Intel has over 70%

of the $11 billion microprocessor market, while it’s Pentium and 486 chips

basically control the IBM-compatible PC market. All of these factors have

resulted in an envious 56% profit margin that only Intel can seem to achieve.

So what did Intel do to achieve this sort of profit margin.

In mid-1994 Intel launched a $150m marketing campaign aimed at getting

consumers to recognize the Pentium name and the “Intel Inside” logo. In order

to achieve this goal of brand recognition Intel advertised its own name in

conjunction with the “Intel Inside” logo and stated ‘with Intel Inside, you know

you have got. . . unparalleled quality’. This provided immediate name

recognition for the company and led the consumers to associate Intel with high

quality computers. Then Intel went the extra mile in the marketing world and

spent another $80m to promote its new Pentium chips. The basis for this extra

$80m was to “speed the market’s acceptance of the new chip”. The marketing

campaign was a success. Intel had managed to achieve brand recognition. “Once

the products were branded, companies found that they could generate even higher

sales by advertising the benefits of their products. This advertising led

consumers to regard brands as having very human personality traits, with one

proving fundamental to brand longevity — trustworthiness.” Consumers

readily identified a quality, up to date computer as one with a Pentium chip and

the ‘Intel Inside’ logo stamped on the front. This “push” marketing strategy of

Intel totally dominated the market, thus forcing the Pentium chip to the

forefront of the computer market, all at the expense of the cheaper 486. This

“push strategy” of Intel made it plainly clear to its purchasers that Intel was

looking out for number one first and its purchasers such as Compaq and IBM

second. Making the Pentium chip the mainstay of the computer industry was the

goal of Intel, but a goal that would later come back to haunt them for a brief

period of time.

Throughout the history of the computer industry many manufacturers have

sold defective products. According to Forbes journalist Andrew Kessler, “Every

piece of hardware and software ever shipped had a bug in it. You better get

used to it.” Whether or not ‘every’ piece ever shipped has had a bug is

debatable, but t

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