Colin M MacInnis & Ryan Duggan
Marketing Management
Gerald Schwartz School of Business
St. Francis Xavier University
November 21, 2013
Strategic Marketing Plan
1
Table of Contents
Executive Summary....................................................................................................................................... 3
Industry Situation Analysis............................................................................................................................ 4
Electrolinks© Company Review ................................................................................................................ 4
Where We Are ...................................................................................................................................... 4
Where We Are Going ............................................................................................................................ 4
Where We Want To Be ......................................................................................................................... 4
Analysis of Marketplace ............................................................................................................................ 5
Competitors’ Analysis ........................................................................................................................... 5
SWOT Analysis for Marketplace............................................................................................................ 9
Challenges ............................................................................................................................................. 9
Product 2 Analysis ....................................................................................................................................... 11
Financial Statements ................................................................................................................................... 14
2
Executive Summary
Electrolinks© is a moderate competitor of World C of the Links-Simulation. Our Performance as
well as the marketplace has had major changes over the last few quarters. In recent quarters we
distributed our products to regions 1, 2, and 3. From this, we learned that we had spread ourselves too
thin over the regions and were not offering products that best suited the needs of consumers from each
region. As of recent, we changed our business model to focus specifically on the North American region
as we held a strong market share compared to other firms and were not breaking even in the other
regions were distributed products to. Our sales of each product increased but as of lately began to
decrease. We feel our approach has not been entirely customer-oriented and rather what was
convenient for our profits. Upon our sloppy performance in earlier quarters our fight for sales volume
proved that we need a more educated approach. After making such implementations to our operations
we have increased our market share and currently hold the second largest majority of the marketplace
for region 1. The difficulty we face in the future, along with all other firms, is the decrease in market size
in all regions.
All firms are operating in the North American region but among them stand our main
competitor, Firm 5. Firm 5 has been offering quality products at lower prices than that of other firms.
This has been largely credited to their success. We believed that with our lowest offered price that we
would outperform Firm 5 but due to the drastically low quality of our product compared to all other
firms we are in need to restructure our approach and configure product 2.
As briefly stated above in order to compete successfully in this market, we are required to respond to
customers' priorities. The top 3 customer needs for region 1 are price, packaging, and bandwidth. In the
past, we were also trying to increasing the awareness of the quality of our products by our marketing
mix which was focused on same product quality for a lower price. In past quarters we disregarded the
importance of packaging as it was significantly more expensive than standard premium packaging. Also
supporting our decision not to configure the variable was the reconfiguration cost of $1,000,000; this
seemed like a large price to pay for such a small piece of the product that it would not pay off to do the
adjustment. Looking back our firm should have moved from being cost-oriented to consumer-oriented
as we would have quickly recovered the cost.
With our future decisions in the simulation, we can expect competition to react. They will be
able to try and hold onto market share by lowering price further as the firms in our industry have done
in the past. However, since their focus is on multiple regions that they will realize that a price war will
not be beneficial and that they will not try and create a market where there is zero profitability. It would
be hard to compete on product in the next few quarters as both our firms will have a product
configuration that practically matches the customer preferences identically.
3
Industry Situation Analysis
Electrolinks© Company Review
Where We Are
The Quarter 10 period for Electrolinks© revealed a decline of sales revenue of 21.73%, that is, a
drop from $27,211,418 to $21,298,576. In particular of this decrease was product H37602 (product 2)
that experienced a decline of sales revenue of 28.59%. Also on decline over the quarter was
Electrolinks© earnings per share and dividends per share. Earnings per share fell to $0.37 from the
previous quarter that was $0.56. In addition, dividends per share fell to $0.11 from $0.17. On a brighter
side of performance, Electrolinks© stock price had increased by $7.30 which, brought the overall stock
price to $27.65. Also favourable is the increase of market capacity, which has increased from 50 million
to 69 million.
Where We Are Going
The evidence underlying Research Study #33 gives perspective to the performance of product
H37602 (please refer to RS#33 below). We can draw upon the conclusion that the product is not tailored
to the customers’ preferences. There have never been configurations applied to this unit as
Electrolinks© did not want to sacrifice its experience curve of the current manufactured product. It is
clear that while Electrolinks© saves costs producing this unit, competitors are altering products to the
preferences of consumers and with their customer-oriented efforts, are winning over buyers. If
continuing operations of Product H37602 as they have been in the past, ignoring the concerns of
customers, a hard realization of profit loss will be recognized. To avoid this, a configuration should be
made to this product and Electrolinks© should begin focusing on becoming more customer-orientated.
Where We Want To Be
Our long-term goal is to hold the majority of the market share for North America, while
increasing our stock price for the purpose of raising dividends to our shareholders. We will accomplish
this by meeting the preferences of the consumers and performing above the industry average on the
basis of these preferences. In this highly competitive industry we will need to carefully monitor
alterations in consumers’ preferences that occur over time. When a preference begins to unveil itself as
significantly important in the eyes of the consumers, our team will address the importance of the
preference within our marketing plan and make the correct alterations to favour our customers’
perceptions. Through our research we have determined we currently have a market share of 19.6%. We
distribute products through North America exclusively; our market share being the second largest in the
region. North America is where we are strongest and we would like to gain more influence and hold
over the marketplace.
4
Analysis of Marketplace
Competitors’ Analysis
The industry average of stock price for Quarter 10 was $28.47. Electrolinks© stock price had
experienced a growth since Quarter 9 but was still below the industry average. Firm 5’s performance
was the only operating company with a stock price above the industry average but, as shown below,
justifies why the industry average was so high; Firm 5 had a significantly larger stock price compared to
5
competitors. Electrolinks© jump in stock price reflects the appropriate decisions made in previous
quarters that allowed us to recover from intense competition, alteration of customer preferences, and
unnecessary costs. Not all quarters panned out the way Electrolinks© expected but with more educated
decisions such as the ones made in the last few quarters the company could really pull ahead of the
competition.
StockPrice
Shares
EPS
DPS
MarketCap
-----Firm 1
-----18.17
2.5M
0.35
0.10
45M
-----Firm 2
-----17.55
2.5M
-0.30
0.00
43M
-----Firm 3
-----50.80
2.5M
0.66
0.20
126M
------------Electrolinks©
------------27.65
2.5M
0.37
0.11
69M
-----Firm 5
-----28.18
2.5M
0.76
0.23
70M
Regarding the industry net income shows Electrolinks© has been successful in meeting the industry
average and earning more than 2 other firms in the industry. As seen in research study #1,
benchmarking – earnings, Electrolinks© was able to stay just above the industry average for net income
with a net income performance of $921,383 while the industry average was $913,660.80.
=======================================================================
RESEARCH STUDY # 1 (Benchmarking - Earnings
)
=======================================================================
Firm 1
Firm 2
Firm 3
Electrolinks©
Firm 5
Current
Net Income
----------874,027
-758,937
1,640,130
921,383
1,891,701
Cumulative
Net Income
----------10,371,050
5,218,426
20,762,982
11,719,007
10,636,520
Current
Dividends
----------262,208
0
492,039
276,414
567,510
Analyzing market demand was important when looking at sales volumes. Sales dropped due to
some internal factors such as reconfiguration and marketing mix. Industry demand was also crucial in
the calculations since there was a declining demand that can be seen in all regions from quarter 7
through to quarter 10.
6
=======================================================================
RESEARCH STUDY #12 (Market Statistics
)
=======================================================================
--------------INDUSTRY DEMAND
--------------Region 1:
Hyperware Demand
Region 2:
Hyperware Demand
Region 3:
Hyperware Demand
Quarter 7
-----------
Quarter 8
-----------
Quarter 9
-----------
Quarter10
----------
253,027
241,857
253,228
246,687
106,638
120,143
120,975
118,049
253,824
267,092
286,138
281,910
Our analysis of the products sold by competitors was primarily completed through competitors’
specific product configurations and existing market share. According to Research Study #14, Regional
Summary Analysis, with extracted information from Research Study #3, Benchmarking Product
Development, we can see that many of the firms are handling their distribution differently from one
another. Due to our strategy of focusing efforts on specializing in North America (region 1), we will be
analyzing competitors operating in this region.
7
Firm 1 has spread themselves among various regions offering their product 1 to regions 2 and 3,
while product 2 is distributed to regions 1, 2, and 3. For region 1, Firm 1’s market share for their product
2, H55703, is 7.7%. Region 1 customers prefer relatively low alpha variables and higher beta variables.
Firm 1’s decision to push this product to North America can be backed up by the product’s flexibility to
be favoured among region 2 consumers, of which Firm 1 holds 41.0% market share. Consumers of region
1 and 2 have in common their high importance preference of packaging, bandwidth, and product
quality, with less importance for region 1 placed upon the alpha variable of a product compared to
region 2, hence an Alpha of 5 not significantly altering the purchase decision for buyers of Firm 1’s
product.
Firm 2 sells their product 2, H46703, to regions 1 and 2. Their market share of North America is
6.6%, which is the lowest among the firms. Their current model of the product does not specifically fit
the preferences of North Americans but upon further investigation of why this firm holds such a low
market share, we discovered from Research Study #33, Value Maps, that Firm 2’s product offered to
North America is priced the highest among competing firms. As price is the highest valued preference to
citizens in region 1, we can understand why their product has not been favourable to this market.
Firm 3 distributes their product H26703 exclusively to region 1. This product fits consumers’
preferences of North America very specifically. Although their product is favourable to the region, they
still only hold 17.2% of the market. When we looked to Research Study #33, Value Maps, we concluded
that this product has the highest perceived benefits from all other products in the region but is priced
among the highest. As the case for Firm 2, this firm is facing the hard reality that consumers are price
sensitive.
Firm 5’s performance is the best out of all firms in the industry. Currently they distribute both
their products to region 1. Their first product they distribute is Product H45503 and, second, Product
H277703. Their Product 1 captures 23.1% of the market while Product 2 captures 14.3% of the market.
This gives Firm 5 the total market share for region 1 of 37.4%. This comes off first as odd as their
8
products are not tailored to North American consumers as well as Firm 3’s product. When we looked
into their price we noticed it was lower than firms 1, 2, and 3. This goes to show that competition
weighs heavily around price. Electrolinks© has been able to stand in the marketplace with a product not
of North American preferences but with prices that are favoured by the consumers.
SWOT Analysis for Marketplace
Strengths
- Market share in region 1
- Experience curve for product 2
- Stock price increase $7.30 since quarter 9
- Increased market capacity (69 million)
Opportunities
- Better tailoring our product for region 1
- Better allocation of marketing expenditure
(marketing mix)
Weaknesses
- Decreased sales revenue of product 1 and
2
- Decline in earnings per share and
dividends
- Products tailored to meet preferences of
multiple regions but now since focus is
only on region 1, products are not specific
enough to meet specialized needs
Threats
- Firm 5 large hold on market share
- Firm 5’s prominence in region 1
- Low margins due to further price
competitions
- Potential patent costs for our
reconfiguration
Challenges
The main challenge facing Electrolinks© are the alterations of products to compete with
competitors. On one side of the coin, competitors offer products that are not of the consumers’
preferences but due to their low price have proved successful in marketplace. On the other side of that
coin is that products need to become more developed such that they meet the quality standard that
consumers’ desire, but taking on this option increases the cost of the product hence resulting in a higher
price. This region has proved to value some preferences more than others. According to Research Study
#31, Self-Reported Preferences, we can see what particular aspects of the products offered make the
most impact upon the buying process of consumers.
9
From this Research Study, we can see the results that consumers chose when ranking their different
preferences on a scale from 1 to 7; “1” meaning little-to-no importance while “7” meant of most
importance. Among these results we can derive the top 5 preferences being:
1.
2.
3.
4.
5.
Price (4.40)
Packaging (4.32)
Bandwidth (3.83))
Product Quality (3.72)
Availability (3.53)
Electrolinks© has been attempting to maintain both strong market share and healthy margins with
our products. This became increasingly difficult throughout the time of the simulation. Consumers
proved to be sensitive to price and our firm competed heavily on this aspect. By the nature of the
consumers, the tactic of price cuts increased the demand of competitors to lower their costs. Product
H37602 was significantly cheaper to produce than that of competitors’ products, as we reaped the
benefits of our experience curve, as this product was not reconfigured since its introduction to the
marketplace in Quarter 0. Although Electrolinks© held the advantage of its cost model, we were unable
to effectively compete on the preference of higher quality as taking part in product development would
remove the experience curve.
10
Product 2 Analysis
Currently, Electrolinks© product 2 is configured as H37602. This product has not been
configured throughout the life of the Links-Simulation. Our key strengths with this product are sales
volume, having sold 44,647 units in Quarter 10, our experience curve, removing $18.32 per unit
manufactured. This reduction in cost gives us an advantage to compete on price against competitors but
price is not the only aspect of which we need to compete on. Consumers of region 1 value price and
quality as depicted by Research Study #26, Importance-Performance Analysis.
As we can see, consumers’ purchase decisions are based on primarily price, and secondly,
quality. Our product is not performing at the industry average level and has not adjusted significantly
from Quarter 9. We can denote that competition is tightening up on this product but not significantly.
Over the past few quarters we have notice an increase in the customer importance of
availability. To increase availability we have been increasing our marketing expenditure allowances such
that customers are more aware of our product. This has resulted in us performing above the industry
average but, for now, this element does not meet the significance quality on customers’ decisions.
Research suggests that Electrolinks© should take the step to increasing the quality of product 2
and still be mindful of price. We can assume the increase of price to match the increase of cost will not
go over well with customers but we can hope that the increase in quality will offset the disruption a
product configuration may incur.
11
Ideally, we would change our product to a configuration of H16703. With research from study
#23, Concept Test, we can see that a similar configuration would prove favourable in the marketplace.
As illustrated above, a configuration of H26703 shows 99% favourability over the consumers in
the marketplace. As pointed out in Research Study #31 earlier, the Self-Reported Preference report,
consumers valued highest price, packaging, bandwidth, quality, and availability. This purposed
configuration of H26703 meets many of the consumers’ preferences and demands, offering exactly what
they want, or so we thought. Although this configuration suggests 99% favourability our team wanted to
know where the missing 1% was.
12
As you can see above in the continued research of RS #31, we can locate where the
configuration of H26703 can become 1% better. When our team broke down each individual element of
the product we were able to determine that an Alpha of “1” would be more favoured by North
Americans than an Alpha of “2” as suggested by our concept test. We can assume this minor change will
add the additional 1% of our 99% favourable configuration suggested above, hence our proposed
configuration of H16703. This will be a costly move though.
The total cost per unit for this product will change from $241.68 (with 26.32% gross margin per
unit) to $322, plus an additional reconfiguration cost of $1,000,000. This change in cost will still result in
product 2’s cost to be lower than the current price of the unit ($328) but the gross margin will be far too
small to expect to recover the $1,000,000 reconfiguration and new marketing/creative expenses. We
will need to increase this price and by considering the price our competitors are offering, we feel an
increase of price to $569.69 will be preferred by consumers as our key competitor, Firm 5, offers their
non-customer-oriented product for $580 (please reference RS #33 on page 6 of this report). This price
will raise our gross margin per unit to 30%, which is larger than our current gross margin, and be priced
lower than competitors drawing the most attention to our product.
We will leave our marketing expenditure for this product at $600,000 as it is behaving to our
desire by increasing availability, a raising concern of customers, and will keep our marketing mix as 40%
to advertising, 20% to promotion, and 40% to sales force as these are, once again, of our customers’
preferences depicted by RS #31.
Collectively, this configuration should succeed in the marketplace and give our competitors a
run for their money. In a longer term scope we should increase market share and dominate the North
American Region, at which point we will carefully consider expansion to similar regions.
13
Financial Statements
14
15
16
SFC4 Corporate P&L Statement: Pro-Forma Financial Projections, Quarter 11
[Previous Quarter's Key P&L Values (e.g., Sales Volume, Gross Margin, and Net Income) Are Shown For Reference Purposes]
All Products
Product 4-1
Product 4-2
H23202
$127.88/unit
H37602
$241.68/unit
88,000
30,000
58,000
73,579
28,932
44,647
295
230
328
289
230
328
Revenues
25,924,000
6,900,000
19,024,000
- Product Costs
17,853,840
3,836,400
14,017,440
352,000
120,000
232,000
Current Configuration
Estimated Future Per-Unit Product
Costs
Sales Volume
Sales Volume [Q10]
Price
Price [Q10]
- Order Processing
- Transport Costs
1,030,106
- Duties & Tariffs
0
0
0
6,688,054
2,943,600
4,774,560
5,484,044
2,838,808
3,675,342
600,000
300,000
300,000
1,200,000
600,000
600,000
Marketing Creative
0
0
0
Price Changes
0
0
0
Reconfiguration
0
Gross Margin
Gross Margin [Q10]
Fixed & Other Costs:
Administrative O/H
Consulting Fees
Corporate O/H
Forecast Inaccuracy
Information Technology
-300,000
1,500,000
100,797
15,000
Introductions
Marketing
0
17
Research Studies
297,500
Service Outsourcing
318,768
123,906
194,862
3,732,065
1,034,980
1,184,585
3,705,565
1,034,980
1,184,585
2,955,989
1,908,620
3,589,975
1,778,479
1,803,828
2,490,757
Total Fixed & Other
Total Fixed & Other [Q10]
Operating Income
Operating Income [Q10]
Non-Operating Income
64,287
Patent Royalties
Taxes
Net Income
Net Income [Q10]
0
-1,510,138
1,510,138
921,383
18