Download - Strategic marketing management report
STRATEGIC MARKETING MANAGEMENT
WINTER 2014
Market Strategy Report
Team 44
Industry Parrot
Firm Solomon
Instructors: Dr. Barbara Deleersnyder & Max Nohe
Date: 09.03.2014
Team Members: Alex Oschatz, 274379
Andrea Cappozzo, 851826
Catalina Suarez, 907848
Cipriana Baldinazzo, 976917
Laura Wuerz, 340584
Natasha Koppert, 623677
Team Secretary: Alex Oschatz
Email: [email protected]
Phone: +31 612791835
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Strategic Analysis
External Analysis:
The Sonites market is a highly competitive market made of 4 different companies. Each of the firms
started with two products, both having the same characteristics but different levels in them and
different prices correspondingly. A big opportunity is represented by the market growth: the industry
volume has risen from 702 million in period 0 to 1197 million in period 3, growing by 72%. In addition,
this growth level seems to be stable throughout the periods. On the other hand, the market growth
is also known by our competitors, which may become a threat if they decide to develop new
products. Therefore, the fact that the information about the market as a whole is very easy to obtain
throughout affordable research investments, represents both an opportunity and a threat for our
company. The Sonites market segments were identifiable from the beginning and could be summed
up and categorized into two main groups of consumers: customers who are looking for high quality
products, such as the High Earners, Professionals and Explorers, and consumers seeking products
with intermediate or low quality such as Shoppers and Savers, which are expected to become the
largest segments in the coming periods (Appendix 3) and hence might represent an opportunity. The
Savers represent a steady segment with regards to their preferences which is another opportunity in
terms of product positioning. However, the Shoppers have a more unpredictable and unstable
behavior (Appendix 5) and the difficulty to deal with unforeseen changes/turbulence (De Meyer,
Loch & Pich 2002, SMJ, p. 60) is a threat. Moreover there is the risk that Shoppers` and Savers` needs
could overlap, due to the similarity of the two segments. During the 3 periods we could see that
consumers are generally strongly influenced by the prices, though the relative effect differed per
consumer group. As a result the market is very focused on competing for having the ideal price.
In the Sonites market there are three different distribution channels: Specialty Stores, Mass Markets
and Online Stores. All consumers, except Savers, prefer to buy their Sonites products in Specialty
Stores. Savers prefer Mass Merchandisers, which is no surprise since Savers have the largest
emphasize on price.
For our two Sonites products, Soft and Solo, until the end of period 3, we have had the same main
competitors constantly: Move and Most (table 1). Yet in this period we have a new competitor: Root.
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The strategy adopted by our competitors consists of improving the characteristics of their existing
products to fit the needs of a specific sub-segment. To give an overview of the competitive situation
we applied Porter`s 5 forces model in Appendix 12.
To conclude, we are dealing with a stable economic environment, in which iwe have the opportunity
to easily access information about social-cultural settings.
Internal analysis:
Starting from P0 two products compose Solomon’s brand portfolio: Soft and Solo. The physical
attributes of our products, as well as their price and unit cost, are reported in Appendix 2. With the
given attributes, we concluded that our brands are best used to meet the needs of one group only
(Savers and Shoppers respectively) because they are already promisingly close to these consumer
groups. This is a strength. Focusing one product on two consumer groups would be ineffective we
believe. Additionally this is aided by Savers and Shoppers expected to become the largest segments
in the coming periods (Appendix 3).
On the other side, our brands are very similar. This may lead to cannibalization and is certainly a
weakness in our portfolio. On the positive side, according to the MDS, Solo’s positioning does not
require high levels of investments to be modified and better reach its targets expectations. We rely
on these small-moderate investments as our limited budget without a possibility to loan is a
weakness.
Concerning financial assets, several factors indicate that Solomon is financially healthy: First, the
cumulative ROI is 219% and has constantly risen in past periods. Moreover revenues, contribution
before and after marketing have grown constantly (Appendix 6), the earning before taxes increased
by 83%. Most importantly, our SPI grew by 44%, and we are now ranked second in the market by SPI
(Appendix 4). However, our budget has never been - so far - high enough to afford the development
of a Vodites brand without making substantial cuts to our current operation which relates back to the
weakness mentioned in the paragraph above. In terms of brand contribution after the marketing,
Soft currently represents our stronger brand (59% vs. 41% of Solo).
We strongly believe in the effectiveness of the marketing activities and our marketing expenditures
are the highest of the market. Both Solo and Soft have had the highest levels of brand awareness
since P0, which is an important strength and must be maintained. In fact, if two brands are equally
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valued, the brand with the highest awareness will be purchased more often (Rossiter, J.R. and Percy,
L. (1997), Advertising Communication and Promotion Management. Sydney: McGraw-Hill). Also our
distribution coverage has high levels, and the percentages of coverage in the different channels
reflect more or less the shopping habits of our targets (Appendix 7) as we adjusted them accordingly.
Strategy Formulation
We are competing in a Shake-out market, Sonites, which is well-segmented in five consumers group.
At the beginning of the simulation it was clear that with our products we could best satisfy the needs
of two of the five segments: Savers and Shoppers. Accordingly, our long-term strategic goal is to
maintain a strong position in the Sonites markets by giving to the Savers and Shoppers respectively
products as close as possible to their requests and consequently become (market share) leader in
these customers segments. In order to contribute to our competitive advantage we will focus on
competitive and value-based pricing approaches rather than cost-based pricing strategies in order to
set competitive prices and the consumers´ willingness to pay.
Given by the simulation, our ultimate objective is to maximize our Share Price Index. In these graphs
(Appendix 8) the development of the SPI, Revenues, Earnings before Taxes and the Market Share for
the first four periods is displayed. It is already possible to identify constant of growth of our SPI up
until this point. We aim to maximize this, ultimately paying less attention to the other indices like
profit margin or ROI.
On the basis of our SWOT-analysis (Appendix 9) we found that one opportunity is the growing market,
especially the Savers and Shoppers` segments. This allows us to safely invest in this market in the
future. To make-use of the growing market opportunity it is essential to have high brand awareness.
At the moment brand awareness is the best in the entire market (Appendix 10), so consumers can
easily identify our products. Reaching/keeping high brand awareness requires a continuously
constant level investment in advertisement which is in contrast to our low budget available.
The market is relatively mature and the segments are well-defined which implies that consumers’
needs are easy to identify and to consequently offer them the best products. This information can be
also considered as a threat as competitors might buy the same market research information, analyze
similarly and opt to develop a suitable product for each segment or target group as well. Our
products are positioned in particularly competitive segments, for that the characteristics required by
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Shoppers and Savers are very low and subsequently easy and cheap to develop, making the risk of
entrance of new competitors high. The segments in the Sonites market are easy adjustable, therefore
our firm could also enter a new segment with a newly developed Sonites product or modify an
existing one to move to another segment. Due to the fact that this also applies to the other firms in
the market, we should carefully monitor our competitors to prevent further competition in our two
main segments. From the beginning, we only had few direct competitors and hence the opportunity
to build up awareness and position our brand strong in our targeted segment. Therefore the main
threat now is the entrance of new competitors into our segments. In order to defend this threat our
firm can use the strength that it possesses: such as brand awareness and well-positioned brands
along with careful pricing. Nevertheless in a market characterized by increasing competitiveness it is
critical to maintain customers` loyalty by improving our products in order to match perfectly offer
and demand. This requires constant Research and Development investment if customers demand
change.
Another possible threat for our firm is the cannibalization by close positioning and price setting, since
Shoppers and Savers do have relatively similar needs.
On the basis of the SWOT analysis, a confrontation matrix was drawn (Appendix 11) in order to
better determine the company’s position in the market confronting strengths and weaknesses with
opportunities and threats.
After the analysis, using the SWOT and confrontation matrix of the current market and firm`s
situation (Period 3), we made strategic decisions. In order to maintain competitive advantage,
Solomon determined two viable strategies that could be implemented aiming to achieve the long
term goal.
The first strategy is to be the first firm that will enter into the Vodites market, with a high quality
product, in order to achieve the needs of the Innovators and subsequently Early Adopters
requirements. This strategy represents, according to the literature (Miles & Snow, 1978) a Prospector
business strategy. In order to implement this strategy Solomon needs severe adjustments in
marketing mix and brand portfolio. Without any prior knowledge and experience we would have to
invest a large amount into the Research and Development department when entering into the
Vodites market. In order to allow the realization of the project, Solomon would have to drastically
decrease advertisement and sales force for the existing products or alternatively should remove one
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of the two Sonites products from the market, since they would not be profitable anymore without
sufficient advertisement and commercial team. When implementing this strategy, we have to take
into account the significant risk that our firms accepts when entering into the Vodites market - it is a
new, unexplored and unknown market especially in terms of competitors.
Because Shoppers and Savers are segments increasing in volume, the second strategy formulated by
Solomon is to remain in these segments in the Sonites market, trying to match perfectly our existing
products with consumers’ needs along with the Defender business strategy (Miles & Snow, 1978). In
order to obtain this result Solomon should constantly monitor the consumers` behavior through a
massive use of market research reports (i.e. multidimensional scaling, conjoint analysis, etc.) and by
using the R&D department to keep improving the characteristics of the products. Furthermore we
should use our strength, the high brand awareness and continue investing in advertising. However,
Solomon is aware that Savers and Shoppers are high-competitive segments, for this reason the
strategy should not be focused only on market penetration: the risk of an entrance of new
competitors might push Solomon to move from this segments to other, less competitive, segments.
In the end, this second strategy could belong to Defender business strategy but with the possibility to
move in another, more profitable, segment with a newly developed product that would satisfy the
respective new segment perfectly.
Strategy Evaluation: We are not sure if we can enter in the Vodites market due to two factors: a) the
limited simulation time of 6 periods (hence limited time to earn a sufficient ROI) and b) the
unpredictability of the market as of now. Because of our already gained experience and knowledge in
the Sonites market, improving current Sonites products and even develop new ones does not require
as much investment as developing a Vodites product. In conclusion, first and foremost, we want to
focus on the Sonites market and will choose the second proposed strategy.
Strategy Implementation
SOLO:
With regards to our chosen Defender strategy we are focusing mainly on Shoppers with our Solo
brand. In order to keep our market position, we continuously improve our attributes according to the
Shoppers´ preferences. Since we improved SOLO´s product attributes in period 2, in line with the
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values given in the Conjoint Analysis, we replaced our former brand by the improved one in period 3.
We increased the recommended retail price by 10$ to 309$ due to our improved brand attributes
and the “perfect” price for Shoppers we have seen in the conjoint analysis. We also took into account
that the prices or SOLO and SOFT should have sufficiently large distances in order to prevent
cannibalism. We set our production to 180.000 by multiplying the purchase intensions of the
segments by their predicted sizes in the next period considering our expectations of win or lose in
market share.
We decided to spent a total of 2400 k$ on advertising, whereby the main amount, 2000 k$, was
spent on advertising media and 400 k$ on research. 77% was attributed on the Shopper segment,
10% to our second strongest segment, Explorers and the remaining percentages divided between the
others. We are by far the firm with the most brand awareness in the industry and by continue
spending a large amount on advertising we are trying to keep this position.
The main proportion of our commercial team is divided between specialty stores and mass
merchandisers, since these are the channels most used by Shoppers.
The rest of our budget was spent on forecasts and surveys to make sure that we constantly
understand the Shoppers´ needs that are prone to vary somewhat and to early recognize new
entrants and monitor especially our main competitor Move.
SOFT:
As we chose congruent strategies for both products, we were also Defenders with our Soft product.
Soft’s strength was and is its appeal to Savers. Coming from a strong position with an overall markt
share (unit) of 12,5% in P0, we experienced a slight drop to 12,2% in P1. We believed this was not
due to an increase in price (210$ to 215$) as this was set evaluating the conjoint analysis (with
caution as to how trustworthy it would be), but rather due to our main competitor MOST fitting
Savers’ expectations better. In fact we felt the price was still below optimum and hence increased it
to 223$. While a further drop in market share in P2 to10,1% occurred, we managed to increase our
margin the 2nd period in a row and used P2 to develop SOFT’s attributes to fit the Savers better. As
mentioned before, we set the R&D attributes using the conjoint findings taking into account that our
both products should not steal market share from each other. P3 results would be crucial as to show
the effect of our modifications. We decided not to put the increase in base cost on solely the
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customers’ shoulders but accept a lower margin instead hoping this would pay off with an even
bigger market share. This was supported with an absolute increase in ad spending, a relative increase
in ad R&D spending and increase spending on commercial team. However, none of these actions
were too drastic. We so far benefit from the commercial team reallocation made after P0 and keep
this strategy: ratios according to main customers’ channel habits, constantly monitored and adjusted
for changes. Our strong brand awareness was high from the start and needs to be upheld. Both in
distribution coverage and brand awareness, we remain in top position. Our strategy of adjusting
product features turned out very well in P3. Our modification has led to a great number of customers
shifting from our competitor Most to us. Demand even exceeded our production. For the first time,
we lost potential revenue. Furthermore we noted a new entrant, Root. Some of its features fit the
Savers’ needs better than ours which makes it potentially dangerous despite its currently significantly
higher price. Now that the importance of really fitting product attributes has been proven, we will
start yet another R&D project to make Soft fit the Savers not closely but perfectly. We will also keep
an even more competitive price to Most. With these two actions we hope to take even more
customers from Most and at the same time keep Root from having a significant effect on the Savers
market.
Considering production numbers, advertising spending and commercial team allocation we will keep
to the strategies mentioned regarding Solo which are based on extensive study of market research
connected with predictions of the effect of the changes we initiate every period.
Furthermore, as of the results of P3, we decided on not launching a new brand in the Sonites market
in order to concentrate on strong market positions in the Savers and Shoppers segments (Appendix 4)
and protect our brand according to our Defender strategy. This includes the use of a large amount of
advertising and the purchase of many surveys and researches in order to properly monitor the
market environment rather than putting ourselves in jeopardy with a new product (considering our
budget).
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Appendix
Appendix 1: Direct and indirect competitors
SOLO Product SOFT Product
Similar Different Similar Different
Customers
Similar Move
Customers
Similar Most
Root
Different
Most Tone
Different
Tone
Soft Rock Move Rock
Root Tops Solo Tops
Roll Roll
Appendix 2
Appendix 3: Market Size broken down by Consumer Segment (in thousands of units)
Appendix 4
Brand Launched in
Features
(1)
Design
(2)
Battery
(3)
Display
(4)
Power
(5) Price Base Cost
Base Cost
(% price)
MOST Period 0 8 5 53 11 10 250 66 26 %
MOVE Period 0 13 4 82 17 29 380 130 34 %
ROCK Period 0 14 9 89 33 76 495 219 44 %
ROLL Period 0 13 4 78 36 91 550 232 42 %
SOFT Period 0 5 3 53 8 10 210 45 21 %
SOLO Period 0 7 6 60 11 38 340 97 29 %
TONE Period 0 16 10 74 24 76 535 244 46 %
TOPS Period 0 10 4 35 38 95 405 173 43 %
(1) . From 5 to 20; (2) . From 3 to 10; (3) . From 24 to 96; (4) . From 4 to 40; (5) . From 5 to
100;
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SEGMENT SHARES - SONITES / SAVERS
SHARE PRICE INDEX
Appendix 5: Ideal Value Evolution (MDS)
Segment Period Economy Performance Convenience
Savers Period 1 12.4 -11.1 -4.5
Savers Period 2 12.6 -10.6 -4.4
Savers Period 3 12.7 -10.2 -4.3
Shoppers Period 1 5.6 -0.1 2.2
Shoppers Period 2 5.8 1.7 1.8
Shoppers Period 3 6.0 2.5 1.8
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Appendix 6 : Company Profit & Loss Statement
Period 0 Period 1 Period 2 Period 3
Revenues 28.266 30.339 36.368 54.171
Cost of goods sold -11.612 -10.735 -12.976 -26.549
Inventory holding costs -130 -60 -1 -7
Inventory selling costs 0 0 0 -4
Contribution before marketing 16.524 19.544 23.390 27.611
Advertising media -3.840 -4.746 -3.800 -3.908
Advertising research -160 -250 -300 -745
Commercial team costs -1.224 -1.770 -1.694 -2.133
Contribution after marketing 11.300 12.778 17.597 20.824
Market research studies -245 -401 -191 -255
Research and development 0 0 -1.332 -329
Interests paid 0 0 0 0
Exceptional costs or profits 0 0 0 0
Earnings before taxes 11.055 12.377 16.074 20.240
Appendix 7: Distribution
SOFT
Sonites
SOLO
Sonites
Specialty stores 34.4 % 48.0 %
Mass Merch. 58.2 % 50.5 %
Online Stores 42.5 % 49.7 %
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Appendix 8: Solomon indeces
Appendix 9: SWOT analysis Solomon
OPPORTUNITIES
- Active in growing and predictable segments
- Well-defined segments, easy to adjust to
- Savers have stable needs
- Few main competitors
STRENGHTS
- Close fitting of customers needs
- High Brand awareness
THREATS
- New main competitors (also b/c growing segments)
- Shoppers needs vary
WEAKNESSES
- Low budget available without the possibility to loan
- Intra-firm cannibalization Solo-Soft (also: portfolio not
diverse)
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Appendix 10: Brand Awareness Period 3
Appendix 11: Confrontation Matrix
Active in growing
and predictable segments
Well-defined segments, easy
to adjust to
Savers have stable
needs
New main competitors
(also b/c growing
segments)
Shoppers needs vary
Close fitting of customers needs
- 3 3 - 3
High Brand awareness
3 3 1 3 2
Intra-firm
Cannibalization
Solo-Soft - 1 - - 3
Low budget
available without
the possibility to
loan
2 1 - 1 2
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Appendix 12: 5 FORCES MODEL OF PORTER
5 FORCES EVALUATION RATIONALE
Rivalry among existing firms Moderate Within the segments the
competition is high but between
the segments is low
Threat of news entrants Very High The market size is growing and
any firm have access to different
informations (expected marked
size, consumers’ preferences,
product characteristics, etc…).
Furthermore, the costs of
developing a new Sonites brand
are moderate.
Supplier power (no information)
Buyer power High Low switching costs between the
brands
Threat of substitutes (no information)