HTC Corp.'s Differentiation Strategy

 HTC Corp. chose to follow a differentiation strategy.  In 2006, HTC Corp.’s CFO, HM Cheng claimed, “HTC would name the price and they [customers] would take it (Yoffie, 2009).”  HTC was able to charge premium prices for its products, because its products were specifically customized to gratify consumers’ desires.  HTC’s customers were willing to pay a premium since they believed that HTC’s products had characteristics which were worth the higher price.

HTC Corp. decided to discontinue its ODM business and specifically concentrate on building its own brand name by “branding and selling handsets under the company’s own name (Yoffie, 2009).”  HTC believed that self-branding was necessary to differentiate from competitors and strengthen the company’s future (Yoffie, 2009).  HTC began selling branded products that focused on the high-end of the market to build strong consumer value for their product.  According to CMO Wang, HTC concentrated on creating the “BMW of phones, slightly more expensive but still affordable (Yoffie, 2009).”  However, HTC began facing issues with cost control and considered producing mid-priced phones as well.  This was an issue of contention within HTC.  Some executives were worried that following a mid-price phone strategy would confuse consumers’ image of HTC’s products (Yoffie, 2009).

Hill and Jones contend, “It is important to keep costs under control but not to reduce them so far that a company loses the source of its differentiated appeal (2010).” HTC has had difficulty in maintaining its differentiated products while controlling costs.  In order to lower costs, HTC began working towards greater economies of scale.  HTC began to raise the amount of common components within its product portfolio.  HTC also lowered ASP to reduce its reliance on operators’ subsidies.  Labor costs were also minimized by opening a second production factory.  Additionally, HTC transferred production to China which conserved fifteen percent of the company’s total production costs (2009).  Due to these changes, HTC has preserved the uniqueness of its products while lowering costs.

According to Hill and Jones, “Differentiation on the basis of innovation and technology competency depends on the R&D function (2010).”  HTC Corp. spent $293,000,000 on R&D expenses in 2008.  Hill and Jones contend that R&D may assist a company in achieving “greater efficiency and a lower cost structure (2010).”  HTC has reduced the variety of different parts required for creating its products which has likely decreased the assembly time needed for producing its products (Yoffie, 2009).  This can lead to greater productivity and profitability while lowering production costs for HTC. HTC’s choice to open production operations in China has assisted them in maintaining the “close coordination between the production and R&D functions” which Jones and Hill contend is necessary for a company (2010).

HTC Corp. also had to deal with the issue of Apple Inc. releasing the iPhone which used touch-screen technology, something which HTC had been developing as well.  HTC’s John Wang was at first astounded by Apple’s first-move in the touch-screen arena.  On the other hand, HTC’s Chou found the issue stimulating.  He argued, “Steve Jobs did us a great favor by educating end users to understand and accept what the technology could really bring to their lives (Yoffie, 2009).”  HTC was able have their own touch-screen phones hit the market in Asia and Europe before Apple’s iPhone.  HTC speeded up its production strategy to counter that of Apple’s.  Also, HTC’s touch-screen phone maintained a lower consumer cost than the iPhone, and HTC had higher touch-screen phone sales than that of Apple.  HTC Corp. was also able to reap the benefits from Apple spending so much money on the marketing of touch-screen products which educated the public about the technology (Yoffie, 2009)..  By maintaining a flexible strategy, HTC was able to benefit from Apple’s first-mover actions and create strong in-roads with consumers.

According to Yahoo Finance, as of 1:30 p.m. on October 31, 2011, HTC’s stock is trading at the price of $686.  Multiple analysts deem HTC Corp. to be a strong buy.  According to HTC’s 2010 Annual Report, the organizations’ gross profit grew 82% in 2010.  This is very impressive, and may be due in part to HTC’s decision to begin producing mid-price phones.  HTC Corp. decided to continue to make innovative phones for high-end, “prosumer,” consumers, but it also branched out to mid-end consumers as well.  It seems that consumers were not confused about the HTC brand like some executives were afraid of.  I think that by offering a wider-range of prices on its products, HTC was able to appeal to more consumers, thereby increasing profits.  Also, according to HTC’s 2010 Annual Report, HTC developed its own user interface which reduced the company’s reliance on outside organizations.

HTC’s current differentiation strategy seems to be working well.  The company has enforced many changes to reduce cost, and has been able to build the brand image which it set out to do.  However, Hill and Jones explain that the R&D function may also assist a company in achieving a “lower cost structure by pioneering process innovation (2010).”  Yoffie does not mention that HTC Corp.’s R&D has improved production processes for greater production efficiency.  It would likely be beneficial for HTC to direct R&D to concentrate on flexible production technology.  According to Hill and Jones, flexible production technology may allow a “company to produce a wider variety of end products” at a lower unit cost while still allowing for product customization (2010).  HTC is very concerned with maintaining the appeal of its differentiated products while controlling costs, and flexible production technology could be a great way for it to do so.