INTEL Knows Best? A Major Marketing Mistake

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Term Paper Title	INTEL Knows Best? A Major Marketing Mistake
# of Words	1689
# of Pages (250 words per page double spaced)	6.76

INTEL Knows Best? A Major Marketing Mistake

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...

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