CHALLENGE FOR INTEL: BOOSTING TECH MARKET: MARKETING PLAYS AS BIG A ROLE AS TECHNOLOGY TO BUILD DEMAND FOR ITS CHIPS

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Intel Corp. redefined a market, built one of the world's great brands and has become one of the world's most profitable companies. But the company, whose estimated $900 million budget makes it the world's No. 1 tech advertiser, has mind-boggling challenges ahead to keep up momentum.

Intel's future depends as much on marketing as it does on technology: It simply must boost the overall tech market, and it must continue to create demand for its ever-faster chips. Those are challenges from which Intel-as addicted to growth as PC marketers are to "Intel Inside" co-op cash-is not likely to shy away.

FIRST TRY A FLOP

Intel's first foray into consumer marketing in the 1970s, selling digital watches, was a flop. It re-entered the mass market forcefully in 1989 when it began targeting computer buyers rather than computer marketers.

That year, Intel introduced the 486 chip as the successor to the 386. But many PC makers and buyers were content to stay with the aging 286, so Intel solicited agencies for a project: Move the market to the 386. It bought a brash "Red X" campaign from Shafer & Shafer, a little-known Irvine, Calif., tech agency.

Print ads and outdoor boards from the shop mimicked graffiti by crossing out "286" in red spray paint and inserting "386SX."

In 1990, Intel began a campaign themed "The computer inside" from newly hired agency Dahlin Smith White, Salt Lake City. The campaign shifted the marketing focus from promoting a product name to building the corporate brand.

One year later, the chipmaker launched "Intel Inside," paying PC makers to include the logo in ads.

Since 1989, Intel ad spending has rocketed from the $6 million the company spent on the "Red X" campaign to the $900 million the chipmaker will spend this year. Of that, $150 million will be for Intel's own ads and $750 million for co-op.

CONSISTENT BRAND STRATEGY

But the company has remained true to its brand strategy. Intel again and again has created demand just in time to meet deliveries of 386, 486, Pentium, Pentium Pro and now Pentium II chips.

"They stick with a [strategy] over a period of not just years but decades [while] everybody else abandons things," said Heidi Sinclair, managing director of talent agency International Creative Management and a former executive with Lotus Development Corp. and Borland International.

Intel has remained steadfast despite skepticism and criticism of its every advertising step. The president of an ad agency with a major computer client in 1991 privately called Intel's proposed massive co-op effort "awfully stupid."

"Most people that buy computers don't even know that that chip is in there," the agency chief said. "They care about the performance of the computer. It really doesn't matter what the chip is."

CREATIVE CRITICISMS

Today, tech ad watchers often dismiss Intel's own advertising-such as the disco-dancing chip factory workers that debuted on the 1997 Super Bowl-as not up to the creative standards set by other agencies, such as IBM Corp.'s work from Ogilvy & Mather Worldwide, New York.

Counters John Dahlin, president of what is now Intel global shop Euro RSCG Dahlin Smith White: "Ultimately the success of your work is the success of your client. What we do is produce advertising that works great for the problems that our client has. If it doesn't win a lot of awards . . . as long as a billion people buy Pentiums, I can handle that."

From 1989, when Intel began advertising to PC users, to 1986, Intel's revenues grew from $3.1 billion to $20.8 billion; net income soared from $391 million to $5.2 billion. Intel's share of the world microprocessor market moved from below 60% to 80% during that period.

Intel and PC makers together have spent $3.4 billion overall on ads that include the "Intel Inside" logo, said Jami Dover, Intel director of co-op marketing programs. More than $2 billion of that is believed to have come from Intel.

The marketer early on concluded it could maximize the return on its advertising by steering money into co-op, said Dennis Carter, VP-sales and marketing, and the mastermind behind Intel branding.

BENEFIT FOR ALL

Intel intended its money to benefit both PC makers and computer media, he said, betting proliferation of computer-themed media could only boost the cause of computing.

"Intel and the marketing of the microprocessor I think have had a profound impact positively on the development of the whole worldwide PC industry," Mr. Carter said.

Some 1,500 PC makers now participating-from Compaq Computer Corp. down to tiny clone assemblers-can get a 6% rebate on chip purchases in return for putting the logo on PCs and in ads.

To get the money, PC makers must kick in one-third the cost of a print buy and half the bill for broadcast; Intel pays the rest. There are strings: Stick another logo in the ad, and Intel cuts its payment in half.

In the first half of this year, an "Intel Inside" logo appeared in ads accounting for 80% of the $202.9 million spent on PC advertising in U.S. computer and business publications, said Sheila Craven, president of Adscope, an ad tracking company.

Similarly, computer spending on TV shot up 65%-to $214.3 million-in 1995, the year Intel started subsidizing TV buys, according to the Television Bureau of Advertising's analysis of Competitive Media Reporting data.

MOVING ONTO THE WEB

Now, Intel will move the Web. Starting Sept. 1, Intel is letting PC makers use some co-op money for online advertising. Intel money and matching contributions from PC makers could give the Web at least a $150 million burst next year (AA, July 28).

The Web "is an interesting emerging medium. It's something we feel can really showcase the technology," said Intel's Ms. Dover. "The time is right to get in and get started using it."

Intel's co-op program is not without its detractors.

Two computing giants-Compaq and IBM-quit the program in 1994, but returned two years later. Every major Intel-based PC marketer is now participating.

"The fear [for computermakers] is you become so dependent on the extra money that you build plans around it," said one PC industry marketing veteran. Asked if the company would consider quitting the program, the executive said, "If I could afford it, I would. But unfortunately it's such a support to the budget I can't really afford to do that."

"There's no doubt that the program has been highly successful" for Intel, said Tom Stites, VP-communications at rival chipmaker Advanced Micro Devices. Mr. Stites wonders, however, how good a deal it is for PC makers.

"It's a bit of a strange market," he said, "when the reason that the money is there is because Intel is taking it out of [PC makers'] hide."

But PC buyers and makers will pay a premium for Intel. Mr. Stites said AMD in May began a strategy of pricing its chips 25% below the comparable Intel product to grab share as it moved into volume production of the K6, a late but potent rival to high-end Pentiums.

TWICE THE PRICE OF RIVALS

Dataquest's Mr. Reynolds, however, said chips from AMD and rival Cyrix Corp. typically sell for half the price of a comparable Intel product.

"That's clear indication Intel's branding strategy works," he said.

Mr. Carter said business and home buyers alike seek out Intel. Among home PC buyers, awareness of Intel as a microprocessor supplier grew from 20% in 1992, when "Intel Inside" kicked in, to 80% in 1996, Mr. Carter said. Awareness in the business market is 90%, he said. Globally, 70% of home PC buyers and 85% of business buyers state a preference for Intel and say they will pay a premium, he said.

Dataquest's Mr. Reynolds said a PC maker can charge at least 10% more by having Intel inside.

Intel's main goal remains the production of faster chips with ever-shorter product cycles. Pentium with MMX was only introduced in January, but Intel this fall will start pushing the mass market to Pentium II with MMX, making its last product launch obsolete.

This story is excerpted from an Intel case study in the August issue of

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