Design the appropriate market entry strategies for ‘Soft & Sweet’

07 Sep

Marketing Management

Q1. Assume that you are going to start a restaurant targeting young customers. What will be the various elements of Marketing Mix with respect to the restaurant? Elucidate.

Q2. Suppose that you are planning to buy a new mobile phone for yourself. What factors are likely to influence your buying behavior while buying a mobile phone? Explain.

Q3. In recent past, teenagers girls in India have become highly beauty conscious. XYZ Limited is planning to introduce a first of its kind beauty cream ‘Soft & Sweet’ targeting teenager girl of affluent class. The cream would be available in different variants as per the skin type such as neutral skin, oily skin, rough skin etc. The product would be sold only from the premium cosmetic stores and through company website across the country. Assume that you are responsible for designing the marketing strategies for ‘Soft & Sweet’.

a) Design a segmentation plan for ‘Soft & Sweet’.

b) Design the appropriate market entry strategies for ‘Soft & Sweet’.

Design a segmentation plan for ‘Soft & Sweet’

07 Sep

Marketing Management

Q1. Assume that you are going to start a restaurant targeting young customers. What will be the various elements of Marketing Mix with respect to the restaurant? Elucidate.

Q2. Suppose that you are planning to buy a new mobile phone for yourself. What factors are likely to influence your buying behavior while buying a mobile phone? Explain.

Q3. In recent past, teenagers girls in India have become highly beauty conscious. XYZ Limited is planning to introduce a first of its kind beauty cream ‘Soft & Sweet’ targeting teenager girl of affluent class. The cream would be available in different variants as per the skin type such as neutral skin, oily skin, rough skin etc. The product would be sold only from the premium cosmetic stores and through company website across the country. Assume that you are responsible for designing the marketing strategies for ‘Soft & Sweet’.\

a) Design a segmentation plan for ‘Soft & Sweet’.

b) Design the appropriate market entry strategies for ‘Soft & Sweet’.

In recent past, teenagers girls in India have become highly beauty conscious

07 Sep

Marketing Management

Q1. Assume that you are going to start a restaurant targeting young customers. What will be the various elements of Marketing Mix with respect to the restaurant? Elucidate.

Q2. Suppose that you are planning to buy a new mobile phone for yourself. What factors are likely to influence your buying behavior while buying a mobile phone? Explain.

Q3. In recent past, teenagers girls in India have become highly beauty conscious. XYZ Limited is planning to introduce a first of its kind beauty cream ‘Soft & Sweet’ targeting teenager girl of affluent class. The cream would be available in different variants as per the skin type such as neutral skin, oily skin, rough skin etc. The product would be sold only from the premium cosmetic stores and through company website across the country. Assume that you are responsible for designing the marketing strategies for ‘Soft & Sweet’.

a) Design a segmentation plan for ‘Soft & Sweet’.

b) Design the appropriate market entry strategies for ‘Soft & Sweet’.

Suppose that you are planning to buy a new mobile phone for yourself

07 Sep

Marketing Management

Q1. Assume that you are going to start a restaurant targeting young customers. What will be the various elements of Marketing Mix with respect to the restaurant? Elucidate.

Q2. Suppose that you are planning to buy a new mobile phone for yourself. What factors are likely to influence your buying behavior while buying a mobile phone? Explain.

Q3. In recent past, teenagers girls in India have become highly beauty conscious. XYZ Limited is planning to introduce a first of its kind beauty cream ‘Soft & Sweet’ targeting teenager girl of affluent class. The cream would be available in different variants as per the skin type such as neutral skin, oily skin, rough skin etc. The product would be sold only from the premium cosmetic stores and through company website across the country. Assume that you are responsible for designing the marketing strategies for ‘Soft & Sweet’.

a) Design a segmentation plan for ‘Soft & Sweet’.

b) Design the appropriate market entry strategies for ‘Soft & Sweet’.

Assume that you are going to start a restaurant targeting young customers

07 Sep

Marketing Management

Q1. Assume that you are going to start a restaurant targeting young customers. What will be the various elements of Marketing Mix with respect to the restaurant? Elucidate.

Q2. Suppose that you are planning to buy a new mobile phone for yourself. What factors are likely to influence your buying behavior while buying a mobile phone? Explain.

Q3. In recent past, teenagers girls in India have become highly beauty conscious. XYZ Limited is planning to introduce a first of its kind beauty cream ‘Soft & Sweet’ targeting teenager girl of affluent class. The cream would be available in different variants as per the skin type such as neutral skin, oily skin, rough skin etc. The product would be sold only from the premium cosmetic stores and through company website across the country. Assume that you are responsible for designing the marketing strategies for ‘Soft & Sweet’.

a) Design a segmentation plan for ‘Soft & Sweet’.

b) Design the appropriate market entry strategies for ‘Soft & Sweet’.

Marketing Management

07 Sep

Marketing Management

Q1. Assume that you are going to start a restaurant targeting young customers. What will be the various elements of Marketing Mix with respect to the restaurant? Elucidate.

Q2. Suppose that you are planning to buy a new mobile phone for yourself. What factors are likely to influence your buying behavior while buying a mobile phone? Explain.

Q3. In recent past, teenagers girls in India have become highly beauty conscious. XYZ Limited is planning to introduce a first of its kind beauty cream ‘Soft & Sweet’ targeting teenager girl of affluent class. The cream would be available in different variants as per the skin type such as neutral skin, oily skin, rough skin etc. The product would be sold only from the premium cosmetic stores and through company website across the country. Assume that you are responsible for designing the marketing strategies for ‘Soft & Sweet’.

a) Design a segmentation plan for ‘Soft & Sweet’.

b) Design the appropriate market entry strategies for ‘Soft & Sweet’.

Marketing Management

02 Sep

Case Study-I

“Waiting in New Delhi

“Richard was a 30 year-old American manager sent by his Chicago-based company to set up a representative office in India. This new office’s main mission was to source consumer products such as cotton piece goods, garments, accessories and shoes as well as certain industrial goods, e.g. tent fabrics and cast iron components.

“India’s Ministry of Foreign Trade had invited his company to pen this office because they knew it would promote exports, brig in badly-needed foreign exchange and provide manufacturing knowhow to Indian factories. This was in fact the first international sourcing office to be located anywhere in South Asia, and the MFT very much wanted it to succeed so that other Western and Japanese companies could be persuaded to establish similar procurement offices.

“Richard decided to set up the office in New Delhi because he knew that he would have to meet very frequently with senior government officials. Since the Indian government closely regulates all trade and industry, Richard often found it necessary to help his suppliers obtain import licenses for the semi-manufactures and components they required to produce finished goods for his company.

“Richard found the government meetings very frustrating. Although he always phoned to make appointments, the bureaucrats almost always kept him waiting for half an hour or more. Not only that, his meetings would be continuously interrupted by phone calls, unannounced visitors and assistants bringing in stacks of letters and documents to be signed. Because of he waiting and the constant interruptions, it regularly took half a day or more to accomplish something that could have been done back home in 20 minutes or less.
“Three months into this assignment, Richard began to think about requesting a transfer to a more congenial part of the world—‘somewhere where things work.’ He just could not understand why the officials here were being so rude. Why did they keep him waiting? Why didn’t they hold incoming calls and sign papers after the meeting so as to avoid the constant interruptions?
“After all, the government of India had actually invited his company to open this office. So didn’t he have the right to expect reasonably courteous treatment from the bureaucrats in the various ministries and agencies he had to deal with (Richard R. Gesteland)?”
What Richard does not realize, Mr. Gesteland explained, is that the Indian way of doing business is vastly different from the American way of doing business. What is acceptable in some cultures, may not be considered acceptable or the standard in others. In India, being a half hour or more late is not unusual and is not considered rude. India has what Mr. Gesteland calls fluid time, in which no times are firmly set. Additionally, it is acceptable to take telephone calls during meetings. It is also considered acceptable to sign papers and have unexpected visitors. Although this may seem to an American to be backwards, a waste of time, and impolite, it is considered the standard and a perfectly acceptable manner of doing business in India.

Questions:

1. Why did Richard not able to jell with local conditions?

2. If you were Richard ,What would you do

 

CASE: II    The Sudkurier

The Sudkurier is a regional daily newspaper in south-western Germany. On average 310,000 people in the area read the newspaper regularly. The great majority of those readers subscribe to its home delivery service, which puts the paper on their doorsteps early in the morning. On the market for the last 35 years, the Sudkurier contains editorial sections on politics, the economy, sports, local news, entertainment and features, as well as advertising. The newspaper is financially independent and its staff is free of any political affiliation. Management at the Sudkurier would like to bring the paper into line with the current needs of its readers. For this purpose, the management team is considering the use of market research.

Management would like to have information about the following.

  1. What newspaper or other media are the Sudkurier’s main competitors?
  2. Do most readers read the Sudkurier for the local news, sports and classified ads, and should these sections therefore be expanded at the expense of the sections on politics and the economy?
  3. Should the Sudkurier’s layout be modernized?
  4. Do mostly lower levels of society read the Sudkurier?
  5. Into what political category do readers and non-readers the Sudkurier?
  6. Which suppliers of products and services consider the Sudkurier especially appropriate for their advertising?

Source: Regional Press Study, Gfk-Medienforschung Contest-Census

Questions:

1. Explain how you will methodically go about compiling the requested information covered in the seven questions for management. Include in your explanation an estimate of the expense involved in obtaining the information.

2. Develop a 10-question questionnaire for the purpose of making a survey.

 

CASE: III    Unilever in Brazil: marketing strategies for low-income customers

After three successful years in the Personal Care division of Unilever in Pakistan, Laercio Cardoso was contemplating attractive leadership positioning China when he received a phone call from Robert Davidson, head of Unilever’s Home Care division in Brazil, his home country. Robert was looking for someone to explore growth opportunities in the marketing of detergents to low-income consumers living in the north-east of Brazil and felt that Laercio had the seniority and skills necessary for the project. Though he had not been involved in the traditional Unilever approach to marketing detergents, his experience in Pakistan had made him acutely aware of the threat posed by local detergent brands targeted at low-income consumers.

At the start of the project—dubbed ‘Everyman’—Laercio assembled an interdisciplinary team and began by conducting extensive field studies to understand the lifestyle, aspirations and shopping habits of low-income consumers. Increasing detergent use by these consumers was crucial for Unilever given that the company already had 81 per cent of the detergent powder market. But some ….esalers had national coverage and economies of scale but did not directly serve the small stores where low-income consumers shopped, necessitating another layer of smaller wholesalers, which increased their cost to US$0.10 per kg. Alternatively, Unilever could contract with dozens of specialize distributors who would get exclusive rights to sell the new Unilever detergent. These specialized distributors would have a better ability to implement point of purchase marketing and would cost less ($0.05 per kg).

Question:

1. Describe the consumer behaviour differences among laundry products’ customers in Brazil. What market segments exists?

2. Should Unilever bring out a new brand or use one of its existing brands to target the north-eastern Brazilian market?

3. How should the brand be positioned in the marketplace and within the Unilever family of brands?

Case 4   Ryanair: the low fares airlines

The year 2004 did not begin well for Ryanair. On 28 January, the airline issued its first profits warning and ended a run of 26 quarters of rising profits. On that day, when the markets opened, the company was worth €5 billion. By close of business, its value had shrunk to worth €3.6 billion, as its share price plunged from worth €6.75 to €4.86. Investors were dismayed by the airline’s admission …..

  • In April 2005, Ryanair abandoned an experiment in paid-for in flight entertainment, after passengers were reluctant to rent the consoles at the £5 required to receive the service. Apparently, market research discovered passengers are unwilling to invest on such short flights, with the ideal being six-hour flights to longer-haul holiday destinations. When the experiment was launched in November 2004, Michael O’Leary hailed the move as ‘the next revolution of the low-fares industry…we expect to make enormous sums of money’.

Questions:

1. How does Ryanair’s pricing strategy account for its successful performance to date? Would you suggest any changes to Ryanair’ pricing approach? Why/why not?

2. Is the ‘no-fares’ strategy a useful approach for Ryanair in the short term? In the long term?

3. Do the issues facing Ryanair threaten its low-fares model?

Case V   LEGO:   the toy industry changes

How times have changed for LEGO. The iconic Danish toy maker, best known for its LEGO brick, was once the must-have toy for every child. However, LEGO has been facing a number of difficulties since the late 1990: falling sales, falling market share, job losses and management reshuffles. Once vote ‘Toy of the Century’ and with a history of uninterrupted sales growth, it appears LEGO has fallen victim to changing market trends. Today’s young clued-up consume is far more likely to be seen surfing the web, texting on their mobile phone, listening to their MP3 player or playing on their Game Boy than enjoying a LEGO set. With intensifying competition in the toy market, the challenge for LEGO is to create aspirational, sophisticated, innovative toys that are relevant to today’s tweens.

History

In 1932 Ole Kirk Christiansen, a Danish carpenter, established a business making wooden toys. He named the company ‘LEGO’ in 1934, which comes from Danish words ‘leg godt’, meaning ‘play well’. Later, coincidentally, it was discovered that in Latin it means, ……
still remaining true to its wholesome ‘play well’ brand values? Will LEGO succeed in its attempts to target young girls and its desire to target a more adult audience? Will it succeed in its attempts to reduce costs and improve efficiencies? Will CEO Jorgen Vig Knudstorp succeed where his predecessors have failed? Only in the fullness of time will these questions be answered but one thing is for sure: no brand, no matter how powerful, can afford to become complacent in an increasingly competitive business environment.
Questions:

1. Why did LEGO encounter serious economic difficulties in the late 1990s?

2. Conduct a SWOT analysis of LEGO and identify the company’s main sources of advantage.

3.Critically evaluate the LEGO turnaround strategy.

Marketing Management

01 Sep

CASE: I    Playing to a new beat: marketing in the music industry

Good old fashioned rock ‘n’ roll could be dead. If a mobile phone ringtone in the shape of the vocalizations of the animated Crazy Frog dominates the billboard charts for months on end, then it could well signal the death knell for the industry, and how it operates. If this ubiquitous amphibian’s aurally annoying song, converted from a mobile phone ringtone, outsold even mainstay acts such as Oasis and Coldplay, why should music companies invest millions in cultivating fresh musical talent, hoping for them to be the next big thing, when their efforts can be beaten by basic synthesizer music? The industry is facing a number of challenges that it has to address, such as strong competition, piracy, changing delivery formats, increasing cost pressures, demanding pri-madonnas and changing customer needs. Gone are the days when music moguls were reliant on sales from albums alone, now the industry trawls for revenue from a variety of sources, such as ringtones, merchandising, concerts, and music DVDs, leveraging extensive back catalogues, and music rights from advertising, movies and TV programming.

The music industry is in a state of flux at the moment. The cornerstone of the industry—the singles chart—has been facing terminal decline since the mid-1990s. Some retailers are now not even stocking singles due to this marked freefall. Some industry commentators blame the Internet as the sole cause, while others point to value differences between the price of an album and the price of a single as too much. Likewise, some commentators criticize the heavy pre-release promotion of new songs, the targeting of ever-younger markets by pop acts, and the explosion of digital television music channels as root causes of the single’s demise. The day when the typical record buyer browses through rows of shelves for a much sought-after band or song on a Saturday afternoon may be thing of the past.

Long-term success stories for the music industry are increasingly difficult to develop. The old tradition of A&R (which stands for ‘Artists & Repertoire’) was to sign, nurture and develop musical talent over a period of years. The industry relied on continually feeding the system with fresh talent that could prove to be the next big thing and capture the public imagination. Now corporate short-term thinking has enveloped business strategies. If an act fails to be an immediate hit, the record label drops them. The industry is now characterized by an endless succession of one-hit wonders and videogenic artist churning out classic cover songs, before vanishing off the celebrity radar. Four large music labels now dominate the industry (see Table 1), and have emerged through years of consolidation.

Table 1  The ‘big four’ music labels

Universal Music Sony BMG
The largest music label, with 26 per cent of  global music market share; artists on its roster include U2, Limp Bizkit, Mariah Carey and No Doubt Merger consolidated its position; artists on its roster include Michael Jackson, Lauryn Hill, Westlife, Dido, Outkast and Christina Aguilera
Warner Music EMI
Third biggest music group; artists on its roster include Madonna, Red Hot Chili Peppers and REM Artists on its roster include the Rolling Stones, Coldplay, Norah Jones, Radiohead, and Robbie Williams

The ‘big four’ labels have the marketing clout and resources to invest heavily in their acts, providing them with expensive videos, publicity tours and PR coverage. This clout allows their acts to get vital airplay and video rotation on dedicated TV music channels. Major record labels have been accused of offering cash inducements of gifts to radio stations and DJs in an effort to get their songs on playlists. This activity is known in the industry as ‘radio payola’.

Consumer have flocked to the Internet, to download, to stream, to ‘rip and burn’ copyrighted music material. The digital music revolution has changed the way people listen, use and obtain their favourite music. The very business model that has worked for decades, buying a single or album from a high-street store, may not survive. Music executives are left questioning whether the Internet will kill the music business model has been fundamentally altered. According to the British Phonographic Industry (BPI), it estimated that 8 million people in the UK are downloading music from the Internet—92 per cent of them doing so illegally. In 2005 alone, sales of CD singles fell by a colossal 23 per cent. To put the change into context, the sales of digital singles increased by 746.6 per cent in 2005. Consumers are buying their music through different channels and also listening to their favourate songs through digital media rather than through standard CD, cassette or vinyl. The emergence of MP3 players, particularly the immensely popular Apple iPod, has transformed the music landscape even further. Consumers are now downloading songs electronically from the Internet, and storing them on these digital devices or burning them onto rewritable CDs.

Glossary of online music jargon

Streaming: Allows the user to listen to or watch a file as it is being simultaneously downloaded. Radio channels utilize this technology to transmit their programming on the Internet.

Rip n burn’: Means downloading a song or audio file from the Internet and then burning them onto rewritable CDs or DVD.

MP3 format: MP3 is a popular digital music file format. The sound quality is similar to that of a CD. The format reduces the size of a song to one-tenth of its original size allowing for it to be transmitted quickly over computer networks.

Apple iPod:  The ‘digital jukebox’ that has transformed the fortunes of the pioneer PC maker. By the end of 2004 Apple is expected to have sold 5 million units of this ultra-hip gadget. It was the ‘must-have item’ for 2003. The standard 20 GB iPod player can hold around 5000 songs. Other hardware companies, such as Dell & Creative Labs, have launched competing devices. These competing brands can retail for less than £75.

Peer-to-peer networks (P2P): These networks allow users to share their music libraries with other net users. There is no central server, rather individual computers on the Internet communicating with one another. A P2P program allows users to search for material, such as music files, on other computers. The program lets users find their desired music files through the use of a central computer server. The system works lime this; a user sends in a request for a song; the system checks where on the Internet that song is located; that song is downloaded directly onto the computer of the user who made the request. The P2P server never actually holds the physical music files—it just facilitates the process.

The Internet offers a number of benefits to music shoppers, such as instant delivery, access to huge music catalogues and provision of other rich multi-media material like concerts or videos, access to samples of tracks, cheaper pricing (buying songs for 99p rather than an expensive single) and, above all, convenience. On the positive side, labels now have access to a wider global audience, possibilities of new revenue streams and leveraging their vast back catalogues. It has diminished the bargaining power of large retailers, it is a cheaper distribution medium than traditional forms and labels can now create value-laden multimedia material for consumers. However, the biggest problem is that of piracy and copyright theft. Millions of songs are being downloaded from the Internet illegally with no payment to the copyright holder. The Internet allows surfers to download songs using a format called ‘MP3’, which doesn’t have inbuilt copyright protection, thus allowing the user to copy and share with other surfers with ease. Peer to peer (P2P) networks such as Kazaa and Grokster have emerged and pose an even deadlier threat to the music industry—they are enemies that are even harder to track and contain. Consumers can easily source and download illegal copyrighted material with considerable ease using P2P networks (see accompanying box).

P2P Networks used for file sharing

Kazaa
Gnutella
Grokster
Morpheus
eDonkey
Imesh
Bearshare
WinMX

 A large number of legal download sites have now been launched, where surfers can either stream their favourite music or download it for future use in their digital libraries. This has been due to the rapid success of small digital medial players such the Apple iPod. The legal downloading of songs has grown exponentially. A la carte download services and subscription-based services are the two main business models. Independent research reveals that the Apple’s iTunes service has over 70 per cent of the market. Highlighting this growing phenomenon of the Internet as an official channel of distribution, new music charts are now being created, such as the ‘Official Download Chart’. Industry sources suggest that out of a typical 99p download, the music label get 65p, while credit card companies get 4p, leaving the online music store with 30p per song download. These services may fundamentally eradicate the concept of an album, with customers selecting only a handful of their favourite songs rather than entire standard 12 tracks. These prices are having knock-on consequences for the pricing of physical formats. Consumers are now looking for a more value-laden music product rather than simply 12 songs with an album cover. Now they are expecting behind the scenes access to their favourite group, live concert footage and other content-rich material.

Big Noise Music is an example of one of the legitimate downloading sites running the OD2 system. The site is different in that for every £1 download, 10p of the revenue goes to the charity Oxfam.

The music industry is ferociously fighting back by issuing lawsuits for breach of copyright to people who are illegally downloading songs from the Internet using P2P software. The recording industry has started to sue thousands of people who illegally share music using P2P. They are issuing warnings to net surfers who are P2P software that their activities are being watched and monitored. Instant Internet messages are being sent to those who are suspected of offering songs illegally. In addition, they have been awarded court orders so that Internet providers must identify people who are heavily involved in such activity. The music industry is also involved heavily in issue advertising campaigns, by promoting anti-piracy websites such as www.pro-music.org to educate people on the industry and the impact of piracy on artists. These types of public awareness campaigns are designed to illustrate the implications of illegal downloading.

Small independent music labels view P2P networks differently, seeing them as vital in achieving publicity and distribution for their acts. These firms simply do not have the promotional resources or distribution clout of the ‘big four’ record labels. They see P2P networks as an excellent viral marketing tool, creating buzz about a song or artist that will ultimately lead to wider mainstream and commercial appeal.  The Internet is used to create communities of fans who are interested in their music, providing them access to free videos and other material. It allows independent acts the opportunity to distribute their music to a wider audience, building up their fan base through word of mouth. Savvy unsigned bands have sophisticated websites showcasing their work, and offering free downloads as well as opportunities for audio-philes to purchase their tunes. Alternatively major labels still see that to gain success one has to get a video on rotation on MTV and that this in turn encourages greater airplay on radio stations, ultimately leading to increased purchases.

Table 2 The major legitimate online music provider

Name Details Pricing
Apple iTunes Huge catalogue of over 750,000 songs; compatible with Apple’s very hip iPod system; offers free single of the week and other  exclusive material 79p per track, £7.99 per album
Napster The now-legitimate website offers over 1,000,000 songs; offers several streaming radio stations too Subscription based—subscribers pay £9.99 a month to stream any of the catalogue, plus another 99p to download on to a CD
Sony Connect over 300,000 songs from the major labels; excellent sound quality but compatible only with Sony products due to proprietary file formats From 80p- £1.20 per track, and £8- £10 per album
Bleep.com Small catalogue of 15,000 songs with a focus on independent music labels; high-quality downloads due to media files used 99p per track, £6.99 per album
Wippit UK-based service; 175,000 songs to download; gives a selection of free tracks every month From 30p to £1 to download; alternatively, users can subscribe to the service for £50 a year to gain access to 60,000 songs
OD2 System, used by: Mycokemusic.com HMV.com

MSN.com

TowerRecord.co.uk

Big Noise Music

These online sites use the OD2 system for music downloads; they look after encryption, hosting, royalty management and the entire e-commerce system; provides access to nearly 350,000 tracks from 12,000 recording artists Varying product bundles, typically 99p for track download, and 1p for streaming

For traditional music retailers the retailing landscape is getting more competitive, with multiple channels of distribution emerging due to the Internet and large supermarket chains now selling music CDs. Supermarkets are becoming one of the main channels of distribution through which consumers buy music. These supermarkets are stocking only a limited number of the best-selling music titles, limiting the number of distribution outlets for new and independent music. Only charts hits and greatest hits collections will make it on to the shelves of such outlets.

Now consumers can buy albums from traditional Internet retailers such as Amazon.com, and also on websites that utilize access to grey markets such as cdwow.co.uk, as well as through legitimate download retailers. This has left traditional music retail operations with a severe conundrum: how can they entice more shoppers into their stores? The accompanying box highlights where typical shoppers source their music at present.

Where do people buy their music?

Music stores (like HMV, Virgin Megastore) 16    per cent
Chains (like Woolworth, WHSmith) 16    per cent
Supermarkets (like Tesco, Asda) 21.6 per cent
Mail order   3.9 per cent
Internet sales (like Amazon.com)                       7   per cent
Downloads                 Not yet measured

The issue of online music retailers using parallel importing, such as CDWOW (www.cdwow.co.uk) is a concern. These retailers are taking advantage of worldwide price discrepancies for legitimate music CDs, sourcing them in low-cost countries like Hong Kong and exporting them into European countries. Prices for music in these markets are considerably lower than the market that they are exporting to, and they don’t even charge for international delivery. Yet technological improvements have led to revenue opportunities for the industry. Development such as online radio, digital rights management, Internet streaming, tethered downloads (locked to PC), downloads (burnable, portable), in-store kiosks, ring-tones, mobile message clips and games soundtracks are great potential revenue sources. In an effort to unlock this potential the major labels have digitized their entire back catalogues. In the wake of these dramatic environmental changes the industry has had to radically adapt. The ‘big four’ music labels are consolidating even further, developing a digital music strategy, and re-evaluating their entire traditional business model. Mobile phones are seen as the next primary channel of distribution for digital music. High penetration levels in the market for mobile phones and the inherent mobility advantages make this the next crucial battlefield for the music industry.

The Internet may emerge as the primary channel of distribution for music, and the music industry is going to have to adapt to these changes. The move towards the online distribution of entertainment is still in its infancy, with more investment into the telecommunications infrastructure, such as greater Internet access, increased access to broadband technology, 3G technology and changing the way people shop for music will undoubtedly take time. The digital revolution will fundamentally change the way people purchase and consume their musical preferences. In forthcoming years the digital format will become more mainstream, leading to a proliferation of channels of distribution for music. However, as with most new channels of technology, catalogue shopping, Internet shopping likewise, and ‘video never really killed the radio star’… but will the Internet kill the record store?

Questions:

1. Discuss the micro and macro forces that are affecting the music industry.

2. Based on this analysis, what strategic options would you recommend for both music publishers and music retailers in the current marketing environment?

3. Discuss the advantages and disadvantages associated with online distribution from a music label’s perspective.

 

CASE: II    The Sudkurier

 The Sudkurier is a regional daily newspaper in south-western Germany. On average 310,000 people in the area read the newspaper regularly. The great majority of those readers subscribe to its home delivery service, which puts the paper on their doorsteps early in the morning. On the market for the last 35 years, the Sudkurier contains editorial sections on politics, the economy, sports, local news, entertainment and features, as well as advertising. The newspaper is financially independent and its staff is free of any political affiliation. Management at the Sudkurier would like to bring the paper into line with the current needs of its readers. For this purpose, the management team is considering the use of market research.

Management would like to have information about the following.

  1. What newspaper or other media are the Sudkurier’s main competitors?
  2. Do most readers read the Sudkurier for the local news, sports and classified ads, and should these sections therefore be expanded at the expense of the sections on politics and the economy?
  3. Should the Sudkurier’s layout be modernized?
  4. Do mostly lower levels of society read the Sudkurier?
  5. Into what political category do readers and non-readers the Sudkurier?
  6. Which suppliers of products and services consider the Sudkurier especially appropriate for their advertising?
  7. What advertising or information dot the readers think is missing from the Sudkurier?

You are an employee of the Sudkurier who has been instructed to obtain the requested information and to prepare your findings for the decision-makers. You are in the fortunate position of receiving regular reports about the people’s media use from the Arbeitsgemeinschaft Media-Analyse e.V. Relevant excerpts from the most recent survey are shown here as Tables 3 and Table 4

Table 3   Media analysis of readership structure

Range in Circulation Area (1) Readers per edition of SUDKURIER National

average

in %

RANGE Total in %
in % Absolute
Total 53.5 310,000 100.0 100.0
Gender Men 55.5 150,000 49.0 47.2
Women 51.6 160,000 51.0 52.8
Age Groups 14-19 years 51.8 20,000 8.0 7.2
20-29  years 41.0 50,000 15.0 19.1
30-39  years 52.1 50,000 16.0 16.4
40-49  years 61.8 50,000 16.0 15.2
50-59  years 61.1 60,000 19.0 16.5
60-69  years 53.6 40,000 13.0 13.5
70  years and older 57.4 40,000 13.0 12.2
Educational

Level

Secondary school without apprenticeship 49.4 60,000 18.0 17.6
Secondary school with apprenticeship 50.8 100,000 31.0 39.6
Continuing education without Abitur 60.8 110,000 36.0 27.0
Abitur, university preparation, university/college 49.7 50,000 15.0 15.8
Occupation Trainee, pupil, student 44.7 40,000 11.0 11.0
Full-time employee 54.6 160,000 50.0 51.7
Retire, pensioner 57.3 70,000 23.0 21.8
Unemployed 52.4 50,000 16.0 15.5
Occupation of main wage earner Self-employed, mid- to large business/Freelancer 63.8 20,000 5.0 3.1
Self-employed, small business,/Farmer 59.9 30,000 10.0 7.1
Managers and civil servants 58.6 30,000 9.0 8.7
Other employees and civil servants 49.3 120,000 40.0 42.9
Skilled staff 57.6 100,000 32.0 32.5
Unskilled staff 38.7 10,000 4.0 5.6
Net Household Income/month 4500 and more 62.7 100,000 31.0 23.9
3500-4500 52.7 60,000 19.0 20.8
2500-3500 54.9 80,000 26.0 25.9
to 2500 44.1 70,000 23.0 29.3
Number of wage earners 1 earner 45.4 100,000 33.0 40.4
2  earner 56.5 130,000 41.0 42.6
3  earner 62.7 80,000 25.0 16.9
Household Size 1 Person 41.8 50,000 14.0 17.9
2 Persons 55.5 90,000 29.0 31.8
3 Persons 59.5 70,000 22.0 22.4
4 Persons and more 54.8 110,000 35.0 27.9
Children in Household Children less than 2 years of age 52.7 10,000 4.0 3.8
2 to less than 4 years 38.4 10,000 4.0 5.4
4 to less than 6 years 45.8 10,000 5.0 5.2
6 to less than 10 years 43.8 20,000 8.0 8.5
10 to less than 14 years 54.1 30,000 10.0 9.2
14 to less than 18 years 57.7 50,000 16.0 13.7
No children under 14 54.9 250,000 79.0 77.4
No children under 18 53.6 210,000 67.0 68.1
Driving Licence yes 55.2 250,000 80.0 73.0
no 47.3 60,000 20.0 27.0
Private Automobile 55.5 270,000 86.0 80.0
Garden own garden 60.4 240,000 76.0 57.0
without garden 39.8 70,000 23.0 43.0
Housing own house 62.1 180,000 58.0 46.0
own apartment 45.9 10,000 3.0 3.0
rent house or apartment 44.7 120,000 38.0 49.0
Electrical Appliances Freezer/Deep freeze 59.6 200,000 62.0 51.0
Last Holiday Journey Within the last 12 months 55.1 190,000 62.0 n.a.
1-2 years ago 51.0 40 ,000 14.0 n.a.
More than two years ago 48.6 50 ,000 16.0 n.a.
Never 55.4 30 ,000 9.0 n.a.
Last Holiday Destination Germany 57.4 70 ,000 23.0 n.a.
Austria, Switzerland, South Tyrol 48.7 60 ,000 20.0 n.a.
Elsewhere in Europe 53.4 130,000 42.0 n.a.
Country outside Europe 51.4 20 ,000 5.0 n.a.
Did not travel 56.4 30 ,000 9.0 n.a.
1) Entire circulation area 310 ,000 readers per edition

 

Example:

53.5% of people older than 14 years in the circulation of the Sudkurier daily

55.5% of all men older than 14 years and 51.6% of women older than 14 read the  Sudkurier daily; that is 150 ,000 men and 160 ,000 women.


Table 4 
Reader behaviour

What purchasing information is used?

Media purchasing information

for medium and long-term acquisition

(11 product areas; Basis: total population)

 

Daily newspaper                    61%

Posters on the street               9 %

Leaflets                                  36 %

Television                              24%

Radio                                     13%

Magazines                             27 %

Free newspapers                    49%

Credibility of advertising in the media

Advertising in… is generally believable and reliable

(Basis: broadest user group in each case)

 

Regional newspaper                  49%

Television                                  30%

Public radio                                20%

Privately-owned radio                14 %

Magazines                                  15%

Free newspaper                          23%

 

Advertising in… is most informative

(Basis: broadest reading group)

 

Regional newspapers (subscription)    62 %

Television                                            47%

Public Radio                                        29%

Privately-owned radio                         26%

Magazines                                           27 %

Free newspapers                                 36 %

Time spent reading daily newspaper

(Basis: broadest user group)

 

less than 15 minutes                       7 %

15-24 minutes                              21 %

25-34 minutes                              28 %

35-65 minutes                               34 %

more than 65 minutes                   10 %

I often consult/depend on advertising in…

(Basis: broadest user group in each case)

 

Regional newspapers (subscription)         27 %

Television                                                 11%

Public Radio                                             89%

Privately-owned radio                                6%

Magazines                                                   7 %

Free newspapers                                       18 %

Source: Regional Press Study, Gfk-Medienforschung Contest-Census

 Questions:

1. Explain how you will methodically go about compiling the requested information covered in the seven questions for management. Include in your explanation an estimate of the expense involved in obtaining the information.

2. Develop a 10-question questionnaire for the purpose of making a survey.

 

CASE: III    Unilever in Brazil: marketing strategies for low-income customers

After three successful years in the Personal Care division of Unilever in Pakistan, Laercio Cardoso was contemplating attractive leadership positioning China when he received a phone call from Robert Davidson, head of Unilever’s Home Care division in Brazil, his home country. Robert was looking for someone to explore growth opportunities in the marketing of detergents to low-income consumers living in the north-east of Brazil and felt that Laercio had the seniority and skills necessary for the project. Though he had not been involved in the traditional Unilever approach to marketing detergents, his experience in Pakistan had made him acutely aware of the threat posed by local detergent brands targeted at low-income consumers.

At the start of the project—dubbed ‘Everyman’—Laercio assembled an interdisciplinary team and began by conducting extensive field studies to understand the lifestyle, aspirations and shopping habits of low-income consumers. Increasing detergent use by these consumers was crucial for Unilever given that the company already had 81 per cent of the detergent powder market. But some in the company felt that it should not fight in the lower cost structures struggled to break even. How could Laercio justify diverting money from a best-selling brand like Omo to invest in a lower-margin segment?

Consumer behavior

The 48 million people living in the north-east (NE) of Brazil lag behind their south-eastern (SE) counterparts on just about every development indicator. In the NE, 53 per cent of the population live on less than two minimum wages versus 21 per cent inn the SE. In  the NE, only 28 per cent of households own a washing machine versus 67 per cent in the SE. Women in the NE scrub clothes in a washbasin or sink using bars of laundry soap, a process that requires intense and sustained effort. They then add bleach to remove tough stains and only a little detergent powder in the end, primarily to make the clothes smell good. In the SE, the process is similar to European or North American standards. Women  mix powder detergent and softener in a washing machine and use laundry soap and bleach only to remove the toughest stains.

The penetration and usage of detergent powder and laundry soap is the same in the NE and the SE (97 per cent). However, north-easterners use a little less detergent (11.4 kg per years versus 12.9 kg) and a lot more soap (20 kg versus 7 kg) than south-easterners. Many women in the NE view washing clothes as one of the pleasurable routine activities of their week. This is because they often do their washing in a public laundry, river or pond where they meet and chat with their friends. In the SE, in contrast, most women wash clothes alone at home. They perceive washing laundry as a chore and are primarily interested in ways to improve the convenience of the process.

People in the NE and SE differ in the symbolic value they attach to cleanliness. Many poor north-easterners are proud of the fact that they keep themselves and their families clean despite their low income. Because it is so labour intensive, many women see the cleanliness of clothes as an indication of the dedication of the mother to her family, and personal and home cleanliness is a main subject of gossip. In the SE, where most women own a washing machine, it has much lower relevance for self-esteem and social status. Along with price, the primarily low-income consumers of the NE evaluate detergents on six key attributes (Figure 1 provides importance ratings, the range of consumer expectations, and the perceived positioning of key detergent brands on each attribute).

Competition

In 1996 Unilever was a clear leader in the detergent powder category in Brazil, with an 81 per cent market share, achieved with three brands: Omo (one of Brazil’s favourate brands across all categories) Minerva (the only brand to be sold as both detergent powder and laundry soap with a more hedonistic ‘care’ positioning) and Campeiro (Unilever’s cheapest brand). Proctor & Gamble, which had recently entered the Brazilian market, had 15 per cent of the market with three brands (Ace, Bold and the low-price brand Pop). Other competitors were smaller companies (see Figure 2).

The Brazilian fabric wash market consists of two categories: detergent powder and laundry soap. In 1996 detergent was a US$106 million (42,000 tons) market in the NE. In 1996 the NE market for laundry soap bars was as large as the detergent powder market (US$102 million for 81,250 tons). The NE market for laundry soap is much easier to produce than powdered laundry detergent. Laundry soap is a multi-use product that has many home and personal care uses. Table 5 provides key information on all powder and laundry soap brands (packaging, positioning, key historical facts, and financial and market data).

Table 5

Brand Packaging Positioning Key Data
OMO Cardboard pack:

1 kg & 500g.

Removes stains with low quantity of product when used in washing machines, thus reducing the need for soap or bleach. S: 55.20

WP: 3.00

FC: 1.65

PKC: 0.35

PC: 0.35

Minerva Cardboard pack:

1 kg & 500g.

S: 17.60

WP: 2.40

FC: 1.40

PKC: 0.35

PC: 0.30

Campeiro Cardboard pack:

1 kg & 500g.

S: 6.05

WP: 1.70

FC: 0.90

PKC: 0.35

PC: 0.20

Ace Cardboard pack:

1 kg & 500g

Bold Cardboard pack:

1 kg & 500g.

Pop Cardboard pack:

1 kg & 500g.

Invicto Cardboard pack:

1 kg & 500g.

Minerva Plastic pack with 5 bars of 200g.
Bem-te-vi Plastic pack with 5 bars of 200g or single bar of 200g.

Figure 1 & 2  Market Share and wholesale Price of Major Brands in the Laundry Soap and Detergent Powder Categories in the Northeast in 1996

Decisions

Robert Davidson, head of Unilever’s Home Care Division in Brazil, and Laercio Cardoso, head of the ‘Everyman’ research project aided at understanding the low-income consumer segment, must re-examine Unilever’s strategy for low-income consumers in the NE region of Brazil and make three important decisions.

  1. Go/no go. Should Unilever divert money from its premium brands to invest in a lower-margin segment of the market? Does Unilever have the right skills and structure to be profitable in a market in which even small local entrepreneurs struggle to break even? In the long run, what would Unilever gain and what would it risk losing?
  2. Marketing and branding strategy. Unilever already has three detergent brands with distinct positionings.  Does it need to develop a new brand with a new value proposition or can it reposition its existing brands or use a brand extension?
  3. Marketing mix. What price, product, promotion and distribution strategy would allow Unilever to deliver value to low-income consumers without cannibalizing its own premium brands too heavily? Is it just a matter of price?

Product

Unilever could produce a product comparable to Campeiro, its cheapest product, but would it deliver the benefits that low-income consumers wanted? Alternatively, Unilever could use Minerva’s formula but it might be too expensive for low-income consumers. If they could eliminate some ingredients, Unilever’s scientists could develop a third formula that would cost about 10 per cent more than Campeiro’s formula. The difficulty would be in determining which attributes to eliminate, which to retain and which, if any would actually need to be improved relative to both existing brands.

Larger packages would reduce the cost per kilo but could price the product out of the weekly budget range of the poorest consumers. Unilever could use a plastic sachet, which would cost 30 per cent of the price of traditional cardboard boxes, but market research data had shown that low-income consumers were attached to boxes and regarded anything else as good for only second-rate products. One solution might be to launch multiple types and sizes.

Price

Priced significantly above Campeiro and Minerva soap, the product would be out of reach for the target segment. Priced too low, it would increase the cost of the inevitable cannibalization of existing Unilever brands. Should Unilever use coupons or other means to reduce the cost of the product for low-income consumers? Or should it change the price of Omo, Minerva and Campeiro?

 Promotion

In the low-income segment, lower margins meant that volume had to be reached very quickly for the product to break even. It was therefore crucial to find a radical ‘story’, one that would immediately put the new brand on the map. What would be the objective of the communication? What should be the key message? Low-income consumers might be reluctant to buy a product advertised ‘for the low-income people’ especially as products with that kind of message are typically of inferior quality. On the other hand, using the classic aspirational communication of most Brazilian brands could confuse consumers and lead to unwanted cannibalization.

In regular detergent markets Unilever had established that the most effective allocation of communication expenditure was 70 cent above-the-line (media advertising) and 30 per cent below-the-line (trade promotions, events, point- of-purchase marketing). The advantages of using primarily media advertising are its low cost per contact and high reach because almost all Brazilians, irrespective of income, are avid television watchers. One alternative would be to use 70 per cent below-the-line communication. At US$0.05 per kg, this plan would require only one-third of the cost of a traditional Unilever communication plan. On the other hand, it would lower the reach of communication, increase the cost of per contact, and make a simultaneous launch in all north-eastern cities more difficult to organize.

Distribution 

Unilever did not have the ability to distribute to the approximately 75,000 small outlets spread over the NE, yet access to these stores was key because low-income consumers rarely shopped in large supermarkets like Wal-Mart or Carrefour. Unilever could rely on its existing network of generalist wholesalers who supplied its detergents and a wide variety of products to small stores. These wholesalers had national coverage and economies of scale but did not directly serve the small stores where low-income consumers shopped, necessitating another layer of smaller wholesalers, which increased their cost to US$0.10 per kg. Alternatively, Unilever could contract with dozens of specialize distributors who would get exclusive rights to sell the new Unilever detergent. These specialized distributors would have a better ability to implement point of purchase marketing and would cost less ($0.05 per kg).

Question:

1. Describe the consumer behaviour differences among laundry products’ customers in Brazil. What market segments exists?

2. Should Unilever bring out a new brand or use one of its existing brands to target the north-eastern Brazilian market?

3. How should the brand be positioned in the marketplace and within the Unilever family of brands?

 

Case 4   Ryanair: the low fares airlines

The year 2004 did not begin well for Ryanair. On 28 January, the airline issued its first profits warning and ended a run of 26 quarters of rising profits. On that day, when the markets opened, the company was worth €5 billion. By close of business, its value had shrunk to worth €3.6 billion, as its share price plunged from worth €6.75 to €4.86. Investors were dismayed by the airline’s admission that it was facing ‘an enormous and sudden reduction of 25 to 30 per cent in yields’ (i.e. average fare levels) in the first quarter of 2004 (the last fiscal quarter of 2004). This was on top of an earlier fall of 10 to 15 per cent in the first nine months.

In April 2004, Chief Executive Michael O’Leary forecast a ‘bloodbath’, an ‘awful’ 2004/2005 winter for European airlines, amid continuing fare wars, with a shakeout among the many budget airlines. ‘We will be helping to make it awful,’ warned Mr O’Leary, as he announced an 800,000 free seats giveaway. The most difficult markets were predicted to be Germany and the UK regions where many new carriers, which were ‘losing money on an heroic scale’, had entered the arena. O’Leary anticipated that the company’s 2004 profits would decline by 10 per cent, while 2005 profits would increase by up to 20 per cent with a 5 per cent drop in yields. However, if yields were to fall by as much as 20 per cent, the 2005 outcome would be break-even, at best.

Yet, by 31 May 2005, on Ryanair’s 20th birthday, the carrier was able to announce record results for the year ended 31 March 2005. Both passenger volumes and net profits grew year on year by 19 per cent to 27.6 million from 23.1 million and €268.9 from €226.6 million respectively. The all- important passenger yield figure (revenue per passenger) grew by 2 per cent, partially offsetting the 14 per cent yield decline in 2003/2004. Ancillary revenues were 40 per cent higher, rising faster than passenger volumes, which resulted in total revenues rising by 24 per cent to €1.337 billion. Operating costs rose 25 per cent, fractionally more than revenue growth, due principally to higher fuel costs. The 2005 results announcement was followed by a 3.4 per cent jump in the company’s share price, to close to €6.46 on the day.

Ryanair’s adjusted after-tax margin for the full year at 20 per cent compared very to figures for Aer Lingus, British Airways, easyJet, Lufthansa, Southwest and Virgin, with margins of 8, 1, 3, minus 5, 7, .1 per cent respectively (2003/2004 results). Despite the dire warnings and the temporary dip in fiscal 2004, Ryanair had arguably come through its crisis with flying colours. How did it manage this?

Overview of Ryanair 

Ryanair, Europe’s first budget airline, with 229 routes across 20 countries at of May 2005, is one of the world’s most profitable, fastest-growing carriers. Founded in 1985 by the Ryan family as an alternative to the then state monopoly carrier Aer Lingus, Ryanair started out as a full-service airline. After accumulating severe financial losses, finally, in 1990/91, the company came up with a survival plan, spearhead by Michael O’Leary and the Ryans, to transform itself into a low-fares no-frills carrier, based on the model pioneered by Southwest Airlines, the Texas-based operator. Ryanair, first floated on the Dublin Stock Exchange in 1997, is quoted on the Dublin and London Stock exchanges and on NASDAQ, where it was admitted to the NASDAQ-100 in 2002. In June 2005, Ryanair’s market capitalization stood €5 billion, the second highest carrier in the world, next to Southwest Airlines, and ahead of airlines with vastly greater turnover—such as Lufthansa with capitalization at €4.7 billion, British Airways at €4.3 billion and Air France/KLM at €3.5 billion. Its market capitalization was nearly four times that of easyJet, its UK-based budget airline rival. This was despite easyJet’s higher turnover, similar passenger volumes and a slightly larger fleet.

Ryanair’s fares strategy

Ryanair’s core strategy entails offering the lowest fares, and the airline claims that it generally makes its lowest fares widely available by allocating a majority of seat inventory to its two lowest fare categories. In fact, was Ryanair, originally styled as the ‘low-fares airline’, actually becoming a ‘no-fares airline’? Half of Ryanair’s passenger will be flying for free by 2009, pledged Michael O’Leary in an interview with a German newspaper. He said that ticket prices would fall by an average 5 per cent a year over the next five years, as passenger numbers grew by five million annually. One analyst speculated that Ryanair pronouncement on free seats ‘is designed to put the wind up potential competitors in the hotly contested German market. Of course, a balance must be struck between low fares to attract customers and a sufficient yield to ensure viability.

An integral part of the low fares strategy is revenue enhancement through ancillary activities, increasingly used to subsidize airfares in order to improve Ryanair margins to compensate for falls in fare yields. These include on-board sales, charter flights, travel reservations and insurance, car rentals, in-flight television advertising, and advertising outside its air-craft, whereby a corporate sponsor pays to paint an aircraft, whereby a corporate sponsor pays to paint an aircraft with its logo. Advertising on Ryanair’s popular website also provides ancillary income. Despite the abolition of duty-free sales on intra-EU travel in 1999, Ryanair’s revenue from duty-paid sales and ancillary services has continued to rise. In 2005, ancillary revenues comprised 18.3 per cent of total operating revenue, up from 16.1 per cent the year before, and the ambition is to grow at twice the rate of increase in its passenger traffic. The company has outlined plans to continue raising ancillary revenues through further penetration of existing products and the introduction of new ones, especially on-board entertainment and gaming products/services. Ryanair is also considering entering the highly competitive mobile phone market and has been in talks with various UK operators with a view to forming a joint venture.

Its low fares policy notwithstanding, Ryanair was able to realize a 2 per cent growth in yields in fiscal 2005. This is attributable to a number of favourable factors in the competitive landscape. Underlying passenger growth volumes returned in the industry as a whole, reducing the intensity of competition. Mainstream European operators like British Airways, Lufthansa and Air France/KLM were increasingly abandoning the short-haul sector, preferring to concentrate their growth on more lucrative long-run haul routes. Moreover, these airlines reacted to the massive price rise in the cost of aviation fuel by introducing a fuel surcharge on their fares. For example, the surcharge levied by British Airways equated to 22 per cent of an average Ryanair fare.

Another favourable factor was the failure of the threat of new entrants to materialize. Michael O’Leary’s prophecy of a 2004/2005 winter bloodbath in the European airline industry had been based on the forecast of many new entrants into the budget airlines sector, thus intensifying overcapacity. While new rivals continued to enter the fray, at any one time large numbers were also dying off. Autumn 2004 saw the demise of a number of budget airlines—for example, Volare, an Italian low-fare and charter operator, and V-Bird, a Dutch-owned carrier. Yet, new entrants were still launching. However, it was agreed that the industry could not sustain the some 47low-fares airlines operating as of the end of November 2004, Michael O’Leary predicted that the anticipated shake-out would be accelerated by rising oil prices. ‘Many of our competitor airlines who were losing money heroically when fuel was US$25 a barrel are doomed the longer it stays at US$50. We anticipate there will be further airline casualties as the perfect storm of declining fares and record high oil prices force loss-making carriers out of the industry.

Low fares require cost savings 

To quote Michael O’Leary, ‘Any fool can sell low air fares and lose money. The difficult bit is to sell the lowest air fares and make profits. If you don’t make profits, you can’t lower your air fares or reward your people invest in new aircraft or take on the really big airlines like BA and Lufthansa.’

According to the company, its no-frills service allows it to prioritize features important to its clientele, such as frequent departures, advance reservations, baggage handling and consistent on-time services. Simultaneously, it eliminates non-essential extras that interfere with the reliable, low-cost delivery of its basic flights. The eliminated extras include advance seat assignments, in-flight meals, multi-class seating, access to a frequent-flyer programme, complimentary drinks and amenities. In 1997, Ryanair dropped its cargo services, at an estimated annual cost of IR£400,000 in revenue. Without the need to load and upload cargo, the turnaround time of an aircraft was reduced from 30 to 25 minutes, according to the company. It claims that business travellers, attracted by frequency and punctuality, comprise 40 per cent of its passengers, despite often less conveniently located airports and the absence of pampering.

In conjunction with the elimination of non-essential extras, the organization of its operations enables the airline to minimize costs, based on five main sources.

  1. Fleet commonality (Boeing 737s, like Southwest Airlines): this results in lower maintenance and staff training costs. In 2005, the company negotiated a new Boeing deal that takes down its per-seat costs for all post-January 2005 deliveries to rock-bottom levels. This deal not only establishes a platform for growth; a younger fleet also enables further cost reductions through lower fuel utilization and maintenance costs.
  2. Contracting out of aircraft cleaning, ticketing, baggage handling and other services, other than at Dublin Airport; this is more economical and flexible, while it entails less aggravation in terms of employee relations.
  3. Airport charges and point-to-point route policy: Ryanair uses secondary airports that are less congested, motivated to offer better deals and have fewer delays, resulting in increased punctuality and shorter turnaround times.
  4. Staff costs and productivity: productivity-based pay schemes and non-unionized staff.
  5. Marketing costs; Ryanair was the first airline to reduce and finally eliminate travel agents’ fees. In January 2000, Ryanair launched its www.ryanair.com website. This has had the effect of saving money on staff costs, agents’ commissions and computer reservation charges, while significantly contributing to growth. In 2005, Internet sales accounted for 97 per cent of all bookings. Ryanair supplements its advertising with the use of free publicity to highlight its position as the low fares champion, by attacking various constituencies that threaten its cost structure. These include EU regulators, airport authorities, politicians and trade unions. Its per passenger marketing costs of 60c are considered to be the lowest across the European airline sector.

The year 2005 saw enormous volatility in the price of oil, and the global airline industry faced losses of US$6 billion. Ryanair, which had been unhedged with respect to oil prices since September 2004, announced on 1 June that it was hedging 75 per cent of its fuel needs for the October 2005 to March 2006 period, at a price of US$47 a barrel. At times, in previous weeks, the price had stood at US$53-plus per barrel. At the end of June, the price had hit US$60 and analysts were predicting it would rise to US$70-plus in the coming months.

Low costs contribute to a low break-even load factor of 62 per cent, so the airline can make money even if it fills fewer seats than other budget competitors with higher costs and higher break-even load factors. For example, easyJet’s break-even load factor is 73 per cent, while that of Virgin Express is 83 per cent. Table 6 shows Ryanair’s operating cost structure.

Table 6  Ryanair consolidated profit and loss accounts

 

 

 

 

 

Operating revenues

Scheduled revenues

Ancillary revenues

 

 

 

 

 

 

Year ended 31 March 2005

€000

 

 

 

 

 

 

 

Year ended 31 March 2004

€000

 

 

1,128,116 924,566
   208,470 149,658
Total operating revenues—continuing operations

 

 

1,336,586

 

 

 

 

1,074,224

 

 

 

Operating expenses  

 

 

 

Staff costs   140,997 123,624
Depreciation and amortization     98,703   98,130
Other operating expenses
Fuel and oil  265,276 174,991
Maintenance, materials and repairs        37,934     43,420
Marketing and distribution costs        19,622     16,141
Aircraft rentals     33,471     11,541
Route charges   135,672   110,271
Airport and handling charges   178,384   147,221
other     97,038     78,034
Total operating expenses  1,007,097  803,373
Operating profit before exceptional costs and goodwill     329,489   270,851
Profit for the year    266,741  206,611

Customer service

 The airline’s claims of attention to customer service are encompassed in its Passenger Charter, which embraces a number of doctrines:

  • Sell the lowest fares at all times on all routes and match competitors’ special offers.
  • Allow flight and name changes with requisite fee
  • Strive to deliver on-time performance
  • Provide information to passengers regarding commercial and operational conditions
  • Provide complaint response within seven days
  • Provide prompt refunds
  • Eliminate overbooking and involuntary denial of boarding
  • Publish monthly service statistics
  • eliminate lost or delayed luggage
  • Ryanair will not provide refreshments or meals or accommodation to passengers facing delays; any passenger who wish to avail themselves of such services will be asked to pay for them directly to the service provider
  • Ryanair facilitates wheelchair passengers travelling in their own wheelchair; where passengers require a wheelchair, Ryanair directs those passengers to a third-party wheelchair supplier at the passenger’s own expense; Ryanair is lobbying the handful of airports that do not provide a free wheelchair service to do so.

The company has confirmed that it would introduce a number of cost-cutting new features on its flights. For instance, the Ryanair fleet would heretofore be devoid of reclining seats, window blinds, headrests, seat pockets and other ‘non-essentials’. Leather seats instead of cloth ones would allow faster turnaround times since leather is quicker and easier to clean. More controversially, Michael O’Leary hoped eventually to wean passengers off checked-in luggage, eliminating the need for baggage handling, suitcase holding areas and lost property. In 2004, Ryanair had one of the lowest baggage allowances of any major airline, at 15 kg a person, and charged up to €7 for every additional kilo, one of the highest surcharges in European aviation.

Successive Annual Reports cite-on-time performance (defined as up to 15 minutes after scheduled time in UK Civil Aviation Authority statistics) and baggage handling as of key importance to customers. On punctuality, Ryanair claims to be the most punctual airline between Dublin and London. On baggage handling, Ryanair claims less than one bag lost per 1000 carried, better than even the best US airline, Alaska Airlines, with 3.48 bags per 1000 lost, and considerably better than its role model Southwest Airlines with 5.00 per 1000 lost.

Tables 7and 8, and Figure 3 provide some independent comparisons of Ryanair with other airlines on punctuality and customer perceptions.

Reporting airport/airline Origin/ destination % early to No. of 15minutes Average delay flights
flights late (minutes) unmatched
Birmingham—Ryanair Dublin 180  88     6 0
Birmingham—Aer Lingus Dublin 299  89     7 2
Birmingham—MyTravel Dublin    4  50   20 0
Heathrow—Aer Lingus Dublin 785  71   16 2
Heathrow—bmi British Midland Dublin 432  71   14 0
Stansted—Ryanair Dublin 727  79   11 1
Gatwick—British Airways Dublin 180  82     9 0
Gatwick—Ryanair Dublin 298  87     8 2
Heathrow— bmi British Midland Brussels 354  73   13 1
Heathrow— British Airways Brussels 452  84     9 2
Heathrow— bmi British Midland Palermo    8  25   37 0
Heathrow—Alitalia Milan(Linate) 174  63   15 0
Heathrow— British Airways Milan(Linate) 178  80   10 0
Heathrow— bmi British Midland Milan(Linate) 172  68   13 0
Heathrow—Alitalia Milan (Malpensa) 298  48   24 0
Heathrow— British Airways Milan (Malpensa) 180  80   10 0
Stansted— Ryanair Bergamo 172  76   10 0
Stansted— easyJet Bologna   60  70   14 0
Stansted— easyJet Milan(Linate)   60  42   39 0
Stansted— easyJet Rome (Ciampio) 120  76   12 0
Stansted— Ryanair Rome (Ciampio) 356  79 9 0
Stansted— easyJet Edinburgh 327  60 20 0
Stansted— easyJet Nice 120  70 24 0
Stansted— Virgin Express Nice    1    0 184 0
Stansted— Ryanair Montpellier   59  76 14 2
Stansted— Ryanair Prestwick 562  87 6 4
Stansted— easyJet Glasgow 276  87 8 0
Glasgow—Aer Lingus Dublin 176  80 9 4
Glasgow—bmi British Midland Dublin    2 100 0 0

On punctuality, it must be borne in mind that one is not necessarily comparing like with like when contrasting figures for congested Heathrow with Stansted or Luton, even if all serve London. Also not counted in the statistics were cancelled flights. Ryanair has been known to ‘consolidate’ passengers by transferring them from their original flight to later or alternative routing without any notice, if passengers were unfortunate enough to have originally been booked on a low seat occupancy flight. Ryanair has announced that it would ignore European Commission proposals stipulating that passengers whose flight has been cancelled and who have to wait for an alternative flight should be provided with care while waiting, stating ‘we do not, and never will offer refreshments’.

Clouds on the horizon?

 Despite its winning performance in its 2005 results, a number of issues faced Ryanair

  • While the competitive threat of new budget carriers had not emerged, some of the mainstream carriers were becoming quasi-budget airlines on short-haul routes. An important instance of this was Aer Lingus, the national state-owned airline of Ireland, operating domestic and international services, with a fleet of 30 aircraft. The events of 11 September 2001 were particularly traumatic for Aer Lingus, as the airline teetered on the verge of bankruptcy. In late 2001, the choice was to change, or to be taken over or liquidated. Led by a determined and focused chief executive and senior management team, the company set about cutting costs. By the end of 2002, Aer Lingus had turned a 2001 €125 million loss into a €33 million profit, and it improved still further in 2003 with a net profit of €69.2 million. In essence. Aer Lingus claimed that it had transformed itself into a low-fares airline, and that it matched Ryanair fares on most routes, or that it was only very slightly higher. The airline’s chief operating officer said that “Aer Lingus no longer offers a gold-plated service to customers, but offers a more practical and appropriate service…it clearly differentiates itself from no-frills carriers. We fly to main airports and not 50 miles away. We assign seats for passengers, we beat low fares competitors on punctuality, even though we fly to more congested airports, and we always fulfil our commitment to customers—unlike no frills carrier. While Aer Lingus had been an early adopter, other mainstream airlines like British Airways and Air France/KLM were also converting short-haul intra-European routes to the value model offered by Aer Lingus.
  • Further source of pressure came from the EU. A decision from the EU Commission in February 2004 ruled that had been receiving illegal state subsidies for its base airport at publicly owned Charleroi Airport (styled ‘Brussels South’ by Ryanair). Of course, it was not only the Charleroi decision but also the precedent it could set that was of concern. Other deals with public airports would come under scrutiny, although the vast majority of the airline’s slots were at private airports. Also, it was estimated that Ryanair would have to repay €2.5 million and €7 million to Charleroi’s regional government. Ryanair appealed the decision, but also threatened to initiate state aid cases and complaints against every other airline flying into any state airports offering concessions and discounts. Airport fees comprised 19 per cent of Ryanair’s operating costs and were deemed to be an inherent part of the airline’s low-cost model. Thus, Ryanair warned that there was no mid-cost alternative model. Nevertheless, two months after the Charleroi verdict, Ryanair confirmed that it had agreed a new deal there. It would keep flying all its 11 routes from Charleroi, continuing existing airports and handling charges until the airport, which accommodated 1.8 million passengers a year at the time, reached two million passengers a year. The EU Commission was not readily convinced and initiated an investigation of the new settlement.
    On another regulatory matter, the EU had devised fresh rules to cover overbooking that results in boarding denials to passengers by air-lines. Air travellers bumped off overbooked flights by EU airlines would receive automatic compensation of between €250 and €600. Compensation might also be claimed when flights are cancelled for reasons that are the carrier’s responsibility, provided the passengers have not been given two weeks’ notice or offered alternative flights. Ryanair declared that the new rules would not impact its operations, as it did not overlook its flights, and had the fewest number of cancellations and the best punctuality record in Europe. It suggested that, it the EU is serious, it should just outlaw the practice of over-booking entirely.
    A few days prior to the EU decision on Charleroi, on 30 January 2004, at the Central London County Court, a disabled man won a landmark case against Ryanair after it charged him £18 (€25) for a wheelchair he needed at Stansted to get from the check-in desk to the aircraft. The passenger was awarded £1336 (€2400) in compensation from Ryanair, as the UK-based Disability Commission said it may launch a class action against the airline on behalf of 35 other passengers. Ryanair’s immediate reaction was to levy 70c a flight on all customers using the affected airports. In December 2004, the decision against Ryanair was upheld on appeal, although it was somewhat mitigated when the Court of Appeal decided that Stansted Airport was also answerable and had to pay half of Ryanair’s liability for damages, with interest. In response, Ryanair’s lawyer suggested that the 50:50 split in liability was unclear and unexplained, and ‘could well have been delivered by King Solomon’.

Also in 2004, a disgruntled Ryanair passenger set up a website inviting complaints about the airline. Ryanair moved to have the website shut down in early 2005, on the grounds that it contained material that is ‘untrue, unfounded, malicious and deeply damaging to the good name and trading reputation of Ryanair’, and that the name and appearance of the site, which resembled that of Ryanair’s home website could be construed as ‘abusive registration’. However, the site has reappeared under an ISP provider in Canada, and its number of hits has increased since the incident was reported in the British satirical magazine Private Eye.

  • On another front, Ryanair was in dispute against the British Airports Authority (BAA), as it filed a writ at the High Court in London for alleged ‘monopoly abuse’ at Stansted. Michael O’Leary warned that the action was only the first skirmish in what would become ‘the mother and father of a war’. The Chief Executive of the BAA announced that he did not intend to negotiate further reductions to Ryanair’s deeply discounted deal on landing charges at Stansted, due to finish in March 2007. The average charge per passenger would rise form £3 to £5 at the airport, whose capacity utilization was now so high that it was running out of slots at peak times. Meanwhile, Michael O’Leary was scathing about ‘grandiose plans’ to build a second runway at Stansted at cost of £4 billion, ‘when the cost of a runway and even a terminal should run no more than £400 million.
  • As if these issues were not enough, a number of Dublin-based Ryanair pilots were planning to establish their own association, the Ryanair European Pilots Association with links to the British Airline Pilots Association (BALPA), the Irish Airline Pilots Association (IALPA) and the European Cockpit Association. In November 2004, these pilots, supported by IALPA, took a complaint about victimization against Ryanair to the Irish Labour Court. Ryanair could potentially face a compensation bill of £44 million if 170 victimization claims brought by its Dublin-based pilots were to be upheld. The company had out-lined various consequences to pilots if they joined a trades union: possible redundancy when the existing 737-200 fleet was phased out, no share options or pay increases, non promotions and no payment for future recurrent training. The airline declared its determination to keep out trades unions and to take a case to the High Court to prove that legislation attempting to force companies to negotiate with unions was unconstitutional. A ruling favourable to the pilots in February 2005 by the Irish Labour Relations Commission, ordering that Ryanair had to attend a hearing dealing with the pilot’ complaints, was dismissed by Michael O’Leary: ‘It is no surprise that the brothers have found in favour of the brothers. We will fight them on the beaches, in the fields, and in the valleys,’ he said. Meanwhile, the airline is also fighting a number of legal challenges, including proceedings against IALPA, accusing it of conducting an organized campaign of harassment and intimidation of Ryanair pilots through a website, warning them off flying the airline’s new aircraft. Indeed, the carrier claims that specific threats issued on the website are being investigated by the Irish police. In April 2005, Ryanair abandoned an experiment in paid-for in flight entertainment, after passengers were reluctant to rent the consoles at the £5 required to receive the service. Apparently, market research discovered passengers are unwilling to invest on such short flights, with the ideal being six-hour flights to longer-haul holiday destinations. When the experiment was launched in November 2004, Michael O’Leary hailed the move as ‘the next revolution of the low-fares industry…we expect to make enormous sums of money’.

 

Questions:

1. How does Ryanair’s pricing strategy account for its successful performance to date? Would you suggest any changes to Ryanair’ pricing approach? Why/why not?

2. Is the ‘no-fares’ strategy a useful approach for Ryanair in the short term? In the long term?

3. Do the issues facing Ryanair threaten its low-fares model?

 

Case V   LEGO:   the toy industry changes

 How times have changed for LEGO. The iconic Danish toy maker, best known for its LEGO brick, was once the must-have toy for every child. However, LEGO has been facing a number of difficulties since the late 1990: falling sales, falling market share, job losses and management reshuffles. Once vote ‘Toy of the Century’ and with a history of uninterrupted sales growth, it appears LEGO has fallen victim to changing market trends. Today’s young clued-up consume is far more likely to be seen surfing the web, texting on their mobile phone, listening to their MP3 player or playing on their Game Boy than enjoying a LEGO set. With intensifying competition in the toy market, the challenge for LEGO is to create aspirational, sophisticated, innovative toys that are relevant to today’s tweens.

History

In 1932 Ole Kirk Christiansen, a Danish carpenter, established a business making wooden toys. He named the company ‘LEGO’ in 1934, which comes from Danish words ‘leg godt’, meaning ‘play well’. Later, coincidentally, it was discovered that in Latin it means, ‘I put together’. The LEGO name was chosen to represent company philosophy, where play is seen as integral to a child’s successful growth and development. In 1947 the company began to make plastic products and in 1949 it launched its world-famous automatic building brick. Ole Kirk Christiansen was succeeded by his son Godtfred in 1950, and under this new leadership the LEGO group introduced the revolutionary ‘LEGO System of Play’, which focused on the importance of learning through play. The company began exporting in 1953 and soon developed a strong international reputation.

The LEGO brick, with its new interlocking system, was launched in 1958. During the 1960s LEGO began to use wheels, small motors and gears to give its products the power of motion. LEGOLAND was established in Billund in 1968, as a symbol of LEGO creativity and imagination. Later, in the 1990s, two new parks were opened in Britain and California. LEGO figures were introduced in 1974, giving the LEGO brand a personality. The 1980s saw the beginning of digital development, with LEGO forming a partnership with Media Laboratory at the Massachusetts Institute of Technology in the USA. This resulted in the launch of LEGO TECHNIC Computer and paved the way for LEGO robots. LEGO introduced a constant flow of new products in the 1990s, and placed greater focus on intelligence and behaviour. The new millennium saw LEGO crowned the ‘Toy of the Century’ by Fortune magazine and the British Association of Toy Retailers. LEGO is currently the fourth largest toy manufacturer in the world after Mattel, Hasbro and Bandai, with a presence in over 130 countries.

Challenges for the traditional toy market

A number of environmental shifts have been affecting the toy market over the past decade. Some of these are described below.

  • Kids getting older younger. By the time most kids reach the age of eight they have outgrown the offerings of the traditional toy market. A central factor in children abandoning toys earlier in their lack of free time to play. Children today have a lot more scheduled activities and, with greater emphasis on academic achievement, a lot more time is spent studying. Faced with more media and entertainment choices these sophisticated and technologically savvy consumers are favouring electronic, fashion, make-up and lifestyle products. The most susceptible group to this age compression are ‘tweens’—children between the ages of 8 and 12—a US$5 billion market, accounting for 20 per cent of the US$20.7 billion traditional toy industry.
  • Intensifying competition from the electronic and games market. As noted above, today’s young consumer is far more likely to be seen surfing the web, texting on their mobile phone, listening to their MP3 player or playing on their Game Boy than enjoying a LEGO set. A survey by NPD Funworld, in 2003, found that tween boys who played video game spent approximately 40 per cent less time playing with action figures when compared with the previous year. Handheld toys with a video and gaming element suit the mobile lifestyle of today’s tween. As demand for these more sophisticated toys increases, traditional toy makers are facing more direct competition with the electronic and video games market.
  • Fickleness of young consumers. The toy market today is very fashion-driven, leading to shorter product life cycles. Toy manufacturers are facing increasing pressure to develop a competency in forecasting market changes and improving their speed of response to those changes. In an effort to get a share of the huge revenues generated by the latest hot toy, many toy manufacturers have left themselves more vulnerable to greater earnings volatility.
  • Power of the retail sector. Consolidation in the retail sector and the expansion of many retail chains has placed enormous pressure on the profit margins of traditional toy makers. Major retailers can exert tremendous power over their suppliers because of the vast quantities they buy. Many retailers insert a clause in their supplier contracts that gives them a certain percentage of profit regardless of the retail price.

Traditional toy makers are struggling to keep up with these environmental changes. It appears no one is safe, when even the world-renowned LEGO brand can fall victim to changing market trends. The cracks first began to show in 1998, when LEGO made a loss for the first time in its history. This began a major reversal in the fortunes of a company that had become accustomed to decades of uninterrupted sales growth (see Table 9). Ironically, it is the success of LEGO that may ultimately have paved the way for its downfall.

Table 9 :   LEGO financial information

LEGO financial information (Mdkk) 2004 2003 2002 2001 2000
Income statement
Revenue 6704 7196 10006 9475 8379
Expenses (6601) ( 8257) (9248) (8554) (9000)
Profit/(loss) before special items, financial income and expenses and tax 103 (1061) 868 921 (621)
Impairment of fixed assets ( 723) ( 172)
Restructuring expenses ( 502 ( 283) ( 122) ( 191)
Operating profit/(loss) (1122) (1516) 868 799 ( 812)
Financial income and expenses ( 115) 18 ( 251) ( 278) ( 280)
Profit/(loss) before tax (1237) (1498)  617 521 (1092)
Profit/(loss) on continuing activities (1473) (953 ) 348 420 ( 788)
Profit/(loss) discontinuing activities ( 458) 18 (22) (54) (75)
Net profit/(loss) for the year (1931) (935) 326 366 (863)
Employees:

Average number of employees (full-time), continuing activities

5569 6542 6659 6474 6570
Average number of employees (full-time), discontinuing activities 1725 1756 1657 1184 1328

 What went wrong for LEGO

 According to Kjeld Kirk Kristiansen, owner of the business and grandson of its founder, following many years of success the LEGO culture had become ‘inward looking’ and ‘complacent’ and had failed to keep pace with the changes taking place in the toy market. This lack of environmental sensitivity was evident in the US market in 2003, where LEGO failed to predict demand for its Bionicle figures, resulting in two of its best-selling products from this range being out of stock in the run-up to Christmas. It appeared nothing had been learned from the previous year, when also in the run-up to Christmas the much sought-after Hogwarts Castle sets were out of stock across the UK.

LEGO had also become over-dependent on licences in the 1990s, for products such as Star Wars and Harry Potter, as its main source of growth. This left LEGO vulnerable to the faddishness of these products: the years in which Star Wars and Harry Potter films were released coincided with profitable years for LEGO, while losses were reported in the intervening years.

The diversification of the brand into the manufacture of items such as clothing, bags and accessories was another mistake for LEGO. The company over-complicated its product portfolio and it ran close to over-stretching the LEGO brand. Kristiansen, resumed leadership in 2004 to guide the company out of crisis, is quoted as saying ‘LEGO was so busy chasing the fashion of the day it took its eye off its core brand.’

He phasing-out of its long-established pre-school Duplo brand, to be replaced by LEGO Explore, was another error. Parents were left confused, with many believing the larger-size Duplo brick had been discontinued. This error resulted in a loss of revenues from the pre-school market in 2003. Adult fans of LEGO (AFOLs) were also left disgruntled when LEGO changed the colour of its new building bricks so that they no longer matched the colour of the old bricks.

While other toy manufacturers have moved production to low-cost destinations such as China, LEGO has been reluctant to follow suit. Today it still manufactures the bulk of its product in Billund and Switzerland. The reasons posited for the company’s reluctance to move include a strong sense of loyalty to Billund, where one-quarter of the residents work at the LEGO factory, and concerns that a move would affect its brand image. While its loyalty to these sites is admirable, and brand image worries understandable, the question is whether its long-term future is viable without such a move.

A new direction for LEGO

In an attempt to turn around its fortunes LEGO has developed a number of new marketing strategies. These include the following.

  • A back-to-basics strategy is seeing LEGO refocus on its core brick-based product range and place more emphasis on its key target group—younger children. In 2003, LEGO relaunched its classic range of brick-based products and many new product lines have centred on eternal themes such as Town, Castle, Pirates and Vikings. LEGO has reinstated the Duplo brand and introduced the Quarto brand, which consists of larger bricks for children under two. Other new lines include LEGO Sports, born from strategic alliances with the National Hockey League and US National Basketball Association. While the traditional audience of LEGO has always been young boys it has introduced a new range, ‘Clikits’, a social toy developed specifically for a female audience. Clikits consists of pretty pastel-coloured bricks, which provide numerous options to create jewellery and fashion accessories.
  • LEGO has admitted to over-diversifying its brand. In response to this, LEGO has withdrawn many of its manufacturing lines, instead opting to outsource these to third parties via licensing deals. LEGO is also selling its LEGOLAND parks in a bid to refocus efforts on its core product and improve its financial situation.
  • In an attempt to create a story-based, multi-channel, LEGO has engaged in a number of licensing deals, with varying degrees of success, but more importantly it is now developing its own intellectual property. The Bionicle range, launched in 2001, was the first time LEGO has created a story from the start as the basis for a new product range. The Bionicles combine physical snap-together kits with an online virtual world. This toy brand has also been extended into entertainment in the form of comics, books and a Miramax movie: Bionicle: Mask of light. The range has proved a major success for LEGO and, building on this success, it has developed Knights Kingdom.
  • Sub-brands that LEGO has neglected, including Mindstorms and LEGO TECHNIC, both aimed at older children and enjoyed by some adults, are being given more attention. With so many adult fans of LEGO, efforts are also being made to further engage the adult market. The company is currently considering whether to market its management training tool, entitled LEGO Serious Play, to a wider adult audience.
  • LEGO has overhauled its packaging, and the style and tone of its advertising. The emphasis is now being placed on the LEGO play an educational experience as opposed to product detail. The strap-line ‘play on’ was introduced in January 2003 to accompany the change. The slogan draws its inspiration from the company’s five core values: creativity, imagination, learning, fun and quality. LEGO is also making greater use of more interactive communication tools to promote its products, which it is believed will encourage consumers to interact more with the brand. 2005 has seen LEGO invite fans on a tour of the company. Here they are given the opportunity to meet new product developers, designers and toolmakers, and learn about the company’s history, culture and values.
  • LEGO is also taking steps to reverse its insular culture. In an attempt to build a more market-driven organization, it is spending more time consulting children, parents, retailers and AFOLs. The company established the LEGO Vision Lab in 2002 to examine how the future will look to children and their families. A variety of sources are being used to make assessments of future worldwide family patterns, including anthropology, architecture, consumer patterns and awareness, culture, philosophy, sociology and technology.
  • Plagued by supply-chain inefficiencies LEGO has improved production time from concept to the retailer’s shelf. An example of this is the Duplo Castle, which was developed in nine months.

Conclusion 

Having taken its eye off the ball, LEGO is fighting back with a new customer-focused strategic approach. Continuous improvement, in response to changing market trends, is now key if LEGO is to ward off the many challenges it still faces. It is still involved in many licence agreements, making it vulnerable to this cyclical market. Its back-to-basics strategy has been widely praised but it remains to be seen if LEGO can balance this with its increasing activity in software. With children’s growing appetite for video games with a more violent content, can LEGO satisfy this target group while still remaining true to its wholesome ‘play well’ brand values? Will LEGO succeed in its attempts to target young girls and its desire to target a more adult audience? Will it succeed in its attempts to reduce costs and improve efficiencies? Will CEO Jorgen Vig Knudstorp succeed where his predecessors have failed? Only in the fullness of time will these questions be answered but one thing is for sure: no brand, no matter how powerful, can afford to become complacent in an increasingly competitive business environment.

 

Questions:

1. Why did LEGO encounter serious economic difficulties in the late 1990s?

2. Conduct a SWOT analysis of LEGO and identify the company’s main sources of advantage.

3. Critically evaluate the LEGO turnaround strategy.

 

Marketing Management

01 Sep

Q.1. (a) From a marketing perspective, what has Guinness done to ensure its longevity?

(b) How would you characterize the Guinness brand?

Q.2. (a) What are the strengths and limitations of the Internet as a data collection instrument?

(b) What is meant by a marketing information system? Discuss, using examples, the main         components of such a system.

Q.3. (a) What are the advantages and disadvantages of co-branding? Suggest two co-branding alliances that you think might be successful, explaining why.

(b) The product life cycle is more likely to mislead marketing management than provide useful insights. Discuss.

Q.4. (a)The marketing of services is no different to the marketing of physical goods. Discuss.

(b) Discuss the role of service staff in the creation of a quality service. Can you give examples from your own experiences of good and bad service encounters?

Q.5. (a)How would you justify the price differences for a cup of coffee that you might encounter if you purchase it in a local office shop versus a top-class hotel?

(b) Discuss how a company pursuing a build strategy is likely to react to both price rise and price cuts by competitors.

 

Marketing Management

01 Sep

CASE: 1    Absolut Vodka: creating advertising history

The Absolut advertising campaign was often regarded by advertising experts as one of the most brilliant, innovative, successful and long-running campaigns ever. The several prestigious awards that the campaign has won since its first ad was launched stand as testimony to this fact (See Table) for details of some of the awards).

Table:    A brief list of awards won by Absolut advertisements

Year Award(s)
1989 The Kelly Grand Prize for the ad ‘Absolutla’
1990 Grand EFFIE Award for Absolut advertising campaign
1991 The Kelly Grand Prize for the ad ‘Absolut Glasnost’
1992 Award of Excellence’ for animation on the Internet by the communication Arts magazine
1993 Absolut Advertising Campaign introduced in the ‘Hall of Fame’ by the American Marketing Association
2000 Four Cresta Awards for international Advertising for the ads ‘Absolut Accessory’, ‘Absolut Auckland’, ‘Absolut Voyeur’ and ‘Absolut Space’ from Creative Standards International and the International Advertising Association
2002 Insight Award for Best online advertising
2003 EFFIE Gold Award for sustained success of the Absolut advertising campaign


‘Absolut adventure’: the making of a legend

In early 1979, Absolut vodka launched in the USA at the liquor trade convention held at Fairmont Hotel in New Orleans. Initially, the company concentrated its marketing efforts in and around New York, Los Angeles, San Francisco and Boston because these were the places where new trends were created, media attention was intense and the bar culture prevailed.

V&S had sold around 25,000 cases of Absolut vodka when advertising agency TBWA took over its ad account in late 1979. Two at TBWA, Graham Turner and Geoff Hayes, were assigned the job of creating the ads for the ‘still not so popular Swedish vodka’. The duo began by getting familiar with the product’s  taste and conducting extensive research on different liquor ads of the previous 10 years. They found that most ads were pretentious and pompous, featuring people dressed in expensive attire and living lavish lifestyles with a small liquor bottle tucked in some corner. Moreover, none of the ads was targeted at people below 40.

After extensive research and effort, the admen came up with three different advertisement samples. The first featured a Russian soldier looking through a pair of binoculars with each lens reflecting the Absolut vodka bottle, accompanied by a slogan that read ‘Here’s something that Russians would really love to put behind bars.’ This ad was aimed at challenging the Russian vodka brand Stolichnaya. The second ad featured some of the favourite pastimes of Swedes, with a picture of the bottle; the slogan read ‘There’s nothing the Swedes enjoy more when it’s cold.’ The third ad featured only the Absolut vodka bottle with a halo over it, with a two-word slogan: ‘Absolut Perfection’ (a modified version of one of the ads created at NW Ayer). This ad was designed with the intention of humorously portraying as pure and natural.

The admen had come up with a dozen designs, which depicted the bottle in different ways accompanied by a two-word slogan. It was one of the simplest themes anyone associated with Absolut had created up until then. The ads featured the Absolut bottle, a description of the product and the two-word slogan with one word describing the theme and the other the brand name itself. In early 1980, V&S launched the first advertisement, ‘Absolut Perfection’, along these lines. Since then, the bottle has been retained as the centerpiece for every advertisement of Absolut vodka accompanied by a two-word slogan.

All Absolut ads were published in popular American newspapers and magazines like Newsweek, Time, New York, Los Angeles, New Yorker, New York Times, Interview and GQ. Carillon decided to continue using the same ad concept with a variety of themes. Experts felt that by using the same concept to depict various events, people or things, Absolut ads always gave people something to think about. Soon the ads had become a topic of interest among liquor consumers.

People began drinking Absolut not only because it was a new premium brand available on the market, but also to experience the image that its advertisement had created—that of simplicity and purity. Analysts credited the popularity of Absolut to its advertisements as they involved viewers in a creative process. Within three years, v Absolut vodka was being exported to 16 different markets worldwide as well as its home country, Sweden. In 1984, V&S exported six million litres of Absolut vodka. In the USA, sales were doubling every year (see the table).

Table    V&S: Income statements, 1997-2002 (SEK million)

Particulars/year 1997 1998 1999 2000 2001 2002
Net Sales 3223.6 3,446.9 4028.6 5711.5 6725.1 9092.8
Other operating revenues (10.3) 32.3 43.2 104.3 175.3 149.6
Operating Expenses (2449.8) (2626.8) (2924.9) (4177.4) (4741.2) (6686.6)
Depreciation, amortization and write-downs (105.7) (130.7) (85.6) (235.0) (394.9) (519.2)
Non-recurring items (17.0) 287.3 (143.3) 46.1
Operating Profit 640.8 1009.0 918.0 1449.5 1764.3 2036.6
Financial items, net 31.5 50.6 46.0 (16.2) (292.6) (167.6)
Profit before taxes 672.3 1059.6 964.0 1433.3 1471.7 1869.0
Taxes (175.0) (197.3) (273.5) (437.2) (462.0) (598.5)
Minority share (0.4) (0.8) (0.3) (61.9) (0.5) (5.7)
Net profit for the period 496.9 861.5 690.2 934.2 1009.2 1264.8

In 1985, Michel Roux, President of Carillon and in charge of US distribution, came up with the idea of getting Absolut bottle painted and using it as an ad. Initially, there was opposition to this idea as it was a departure from the central idea of having the bottle photographed. However, Roux went ahead and commissioned celebrated artist Andy Warhol to paint the bottle, marking the beginning of Absolut’s association with art. The painting attracted a lot of accolades and the celebrity association gave the brand a great deal of mileage.

Thereafter, several artists painted their own interpretations of the Absolut bottle. Analysts observed that painting an Absolut bottle had apparently become an issue of pride for many leading artists. Big names such as Keith Haring, Kenny Scharf, Stephen Sprouse, Edward Ruscha, Arman and Britto made their own interpretation of the Absolut bottle (see Table given below for details). The above exercise was not only in the form of painting, but also in sculpture, glasswork, photography, folk art, wood work, computer/digital art and many other media. As Absolut’s association with the world of art gave the brand a lot of media attention and publicity, the company began regularly publishing these art ads along with the regular ads. Analysts noted that what began as an advertising campaign to promote an unknown Swedish vodka brand had become a part of American culture.

Table        Absolut’s association with art and fashion

Year  Name Description
ABSOLUT ART
1990 Absolut Glasnost This art collection featured paintings by 26 Russian artists including Alexander Kosolapov, Evgeny Mitta and Leonid Lamm.
 1993 Absolut Latino This collection featured artwork contributed by 16 artists from South and Central America. This collection showcased the artist’s interpretations of the Absolut bottle in traditional and contemporary Latino themes depicting the relationship between reality and illusion. Some of the artist who contributed to this collection were: Alberto Icaza, Vik Muniz and Monica Castillo.
 1997 Absolut Expressions This collection featured art work contributed by 14 African and America artists. The artists (including Anita Philyaw, Maliaka Favorite and Frank Bowling among others) presented their interpretations of the bottle in traditional African art, early American folk art and in abstract imagery through mediums like canvas, quilts, and sculptures.
 1998-99 Absolut Originals This included paintings contributed by 16 European artists including Damien Hirst, Maurizio Cattelan and Francesco Clemente.
 2000 Absolut Ego (Paris) Absolut Exhibition (New York) Absolut Art  Collections featured paintings contributed by famous artists like Damien Hirst and Nam June Paik.
 Absolut FASHION
 1995 Absolut Newton This campaign featured designer wear created by famous fashion designers John Galliano, Helmut Lang, Anna Molinari and Martine Sitbon. It was first featured as an eight-page insert in Vogue, a popular fashion magazine.
 1997 Absolut Versace This eight-page insert in Vogue featured designer wear created by Gianni Versace, the famous Italian designer. Gianni’s creations were modeled by famous models like Naomi Campbell, Kate Moss, Mark Findley and Marcus Schenkenberg, and photographed by famous fashion photographer Herb Ritts.
 1999 Absolut Tom Ford/ Absolut Gucci This campaign included designer collections created by Tom Ford (of Gucci) a famous American fashion designer. The campaign was shot at a discotheque in Paris and was included as an eight-page insert in Vogue.
 2000 Absolut Gaultier This campaign featured designs by Jean Paul Gaultier, inspired by Absolut and other Swedish legends. It was included as an eight-page insert in Vogue and other popular European fashion magazines.

Roux now began toying with the idea of making ads that were ‘stylish, hip and audacious’. With this began Absolut’s association with the world of fashion. In 1988, Roux commissioned the famous American fashion designer David Cameron to design an advertisement for the bottle. Instead of featuring the Absolut bottle, Cameron designed a dress (with the Absolut Vodka name and the text printed on it) that was modelled by a famous model of the day, Rachel Williams (she ‘represented’ the bottle). This print ad, named ‘Absolut Cameron’, was launched in February 1988 and gained tremendous publicity. On the day of its publication, 5000 women reportedly called TBWA wanting to buy the dress shown in the ad.

This led to the next phase of Absolut’s advertising strategy, wherein the bottle began to be represented in new, innovative ways. By the mid-1990s TBWA ran several ads linked to fashion, like Absolut Fashion (eight pages of coverage in Vogue), Absolut Style and Absolut Menswear, in popular fashion magazines like Vogue, Elle and GQ (see Table for details).

As the themes for the advertisements became more complicated, the cost of producing them went up substantially. For instance, some of the Absolut Christmas ads cost more than US$1 million to produce. Thus, over the years, V&S continually increased its advertising budget. TBWA spent approximately US$25 million on Absolut ads in 1990, an increase from US$750,000 in 1981. In 1997, Absolut also became associated with The Ice Hotel (an entire hotel made from ice) in Jukkasjarvi, Sweden. An ‘Absolut Ice Bar’ was added to the Ice Hotel, where different kinds of drinks made from various Absolut brands were served in glasses also made of ice.

By the end of the 1990s, Absolut ads began targeting not only the sophisticated, upper-class consumers but also sports fans, professionals, artists, intellectuals and even those who could not comprehend subjects like art and literature. Clearly, V&S was now aiming at a broader set of customers as the ads were featured in almost all kinds of magazines: sports, entertainment, art and fashion, business, and so on. By now the company had launched more than 1000 Absolut ads all over the world.

‘Absolut continuity’: the brand marches strongly ahead

By 2ooo, Absolut advertisements were recognized the world over for their stylish, humorous and innovative attributes. As people began collecting the ads, analyst observed that the brand had become an advertising phenomenon. More importantly, sales of Absolut were increasing over the years. Apart from the USA, Absolut was now exported to Russia and many Asian and Latin America countries. The brand generated most of its sales in the USA, Canada, Sweden, Greece, Spain, Germany and Mexico. In 2002, total sales stood at 7.5 million cases, making it the world’s largest premium spirit brands.

In 2002, Absolut was presented with the international advertising industry’s most prestigious awards for its online advertising on its website, www. absolut.com, and the Absolut fashion campaign. Advertising experts regarded the website as ‘a premier online brand and lifestyle destination’.

Commenting on the creativity that Absolut ads stood for, Richard W. Lewis, author of Absolut book: The Absolut Vodka Advertising Story, says, ‘Readers enjoy a relationship with this advertising that they have with few other advertising campaigns, especially in the print media. They are challenged, entertained, tickled, inspired and maybe even befuddled as they try to figure out what is happening inside an Absolut ad.’

In January 2003, the company launched Absolut Vanilia. Unlike the previous variants, Absolut Vanilia was launched in a white bottle. The launch of the new flavour was not only supported by print advertisements, but also with radio and outdoor ad campaigns. These ads were launched in a phased manner, beginning with teaser ads in different magazines in April 2003 followed by interactive online ads. The online ads were featured on websites like Maxim.com, EntertainmentWeekly.com, style.com, and Wired.com. These ads were created specifically to suit the product tag-line ‘a different kind of vanilla’.

In October 2003, in line with its penchant for creativity/innovation, Absolut ventured into the world of music with the launch of the Absolut Three Tracks project. This campaign featured music created by different artists according to their interpretations of the Absolut bottle. Analysts felt that the Absolut Three Tracks project, had opened am entirely new chapter in brand communications, as it enabled users to ‘listen to the Absolut brand.’ Commenting on this, Michael Persson, Director, Market Communications, ASC, said, ‘For years, our consumers have seen interpretations of the brand by some of the world’s most prominent artists and designers. With this new project they will also be able to listen to the brand: this is the voice of Absolut’.

Advertising experts felt that even 25 years after its launch, the Absolut advertising campaign was still going strong, innovatively, without changing the central theme. Even while creating music for Absolut Three Tracks, the bottle was used as the central theme. Aril Brikha, one of the artists who created a music track for Absolut Three Track said, ‘I had scanned the shape into a computer program that turns a picture into a tone—a futuristic way of including a picture without letting the listener know. I find it quite similar to previous Absolut projects where the bottle has been hidden in a picture.’ Industry observers as well as customers agreed on one issue: whatever the mode of expression—be it art, photography, technology, fashion or music—Absolut had until now stood for ‘brilliance in advertising’. Said an analyst, ‘We are surprised each year by the creativity and innovation of the brand. It is successful because it is contemporary. There is no end to the campaign.’

Questions:

1. Discuss the role advertising plays in increasing brand awareness and brand loyalty among consumers, especially for products that have very subtle differentiable attributes. In the above context, examine the impact Absolut advertisements had on its target audience. Do you think the advertisements fulfilled their purpose?

2. ‘The Absolut advertising campaign is successful because it is contemporary.’ How did TBWA maintain the ‘freshness’ of the Absolut campaign? Discuss with respect to the brand’s association with different media: art, fashion, technology and music.

3. Even though Absolut ads have been depicted in different media, the central theme of the campaign has remained unchanged (the bottle and the two-word slogan) over the years. In light of the above statement, do you think that the campaign will manage to hold sway or lose in impact in the near future? Give reasons to support your arguments.

 

CASE: 2       Tesco: the customer relationship management champion

Every three months, millions of people in the UK receive a magazine from the country’s number one retailing company, Tesco. Nothing exceptional about the concept—almost all leading retailing companies across the world send out mailers/magazines to their customers. these initiatives promote the store’s products, introduce promotional schemes and contain discount coupons. However, what sets Tesco apart from such run-of-the-mill initiatives is the fact that it has mass-customized these magazines.

Every magazine has a unique combination of articles, advertisements related to Tesco’s offerings and third-party advertisements. Tesco ensured that all its customers received magazines that contained material suited to their lifestyles. The company had worked out a mechanism for determining the advertisements and promotional coupons that would go in each of the over 150,000 variants of the magazine. This has been made possible by its would-renowned customer relationship management (CRM) strategy framework.

According to Tesco sources, the company’s CRM initiative was not limited to the loyalty card scheme; it was more of a company-wide philosophy. Industry observers felt that Tesco’s CRM initiatives enabled it to develop highly focused marketing strategies. Thanks to its CRM initiatives, the company became UK’s number one retailer in 1995, having struggled at number two behind rival Sainsbury’s for decades. In 2003, the company’s market share was 26.7 per cent, while Sainsbury’s market share was just 16.8 per cent.

CRM the Tesco way

Tesco’s efforts towards offering better services to its customers and meeting their needs can be traced back to the days when it positioned itself as a company that offered good-quality products at extremely competitive prices. Even its decision to offer premium-end merchandise and services in the 1970s was prompted by growing customer demand for the same (see Table 2.A for the company’s ‘core purpose’ and ‘values’, which highlight the importance placed on customer service).

The biggest customer service initiative (and the first focused CRM drive) came in the form of the loyalty card scheme that was launched in 1995. This initiative was partly inspired by the growing popularity of such schemes in other parts of the world and partly by Tesco’s belief that it would be able to serve its customers in a much better (and more profitable) manner
Table 2 A  Tesco: core purpose and values

CORE PURPOSE

Creating value for customers, to earn their lifetime loyalty

Values

 

1.   No one tries harder for customers:

understand customer better than anyone, be energetic, be innovative and be first for customers, use our strengths to deliver unbeatable value to our customers

look after our people so they can look after our customers

2.   Treat people how we like to be treated:

all retailers, there’s one team—the Tesco Team

trust and respect each other

strive to do our very best

give support to each other and praise more than criticize

ask more than tell and share knowledge so that it can be used

enjoy work, celebrate success and learn from experience

by using such as scheme. Tesco knew that, at any of its outlets, the top 100 customers were worth as much as the bottom 4000 (in terms of sales). While the top 5 per cent of customers accounted for 20 per cent of sales, the bottom 25 per cent accounted for only 2 per cent. The company realized that by giving extra attention to the top customers (measured by the frequency of purchases and the amount spent) it stood to gain a great deal.

To ensure the programme’s success, it was essential that all Tesco employees understood the rationale for it as well as its importance. So, the company distributed over 140,000 educational videos about the programme to its staff at various stores. These videos explained why the initiative was being undertaken, what the company expected to gain from it, and why it was important for employees to participate whole-heartedly in it.

Table 2B:  Tesco: classifying customers

EXPENDITURE SHOPPING FREQUENCY
  Daily Twice weekly Weekly Stop start Now and then Hardly ever
High Spend PREMIUM STANDARD POTENTIAL
Medium Spend STANDARD POTENTIAL UNCOMMITTED
Low Spend POTENTIAL UNCOMMITTED
  FREQUENT INFREQUENT RARE

Impressed with the programme’s results over six months, the company had introduced the scheme in all its stores by February 1995. The stores captured every one of the over 8 million transactions made per week at Tesco stores in a database. All the transactions were linked to individual customer profiles and generated over 50 gigabytes of data every week. Dunnhumby used state-of-the-art data-mining techniques to manage and analyse the database. Initially, it took over a few weeks to analyse the vast amount  of data generated. To overcome this problem, Dunnhumby put in place new software that reduced this time to just a few days. As a result, it became possible to come up with useful and timely insights into customer behaviour  in a much faster way.

Table 2C:  How Tesco used the information generated by its Clubcards

Pricing Discounts were offered on goods that were bought by highly price-conscious customers. While the company kept prices low on often-bought goods/staples, for less familiar lines it adopted a premium pricing policy.
Merchandising The product portfolio was devised based on customer profiles and purchasing behaviour  records. Depending on the loyalty shown by customers towards a particular product, the substitute available for the same, and the seasonality, the product ranges were modified.
Promotion Promotions were aimed at giving special (and more) rewards to loyal customers. Few promotions were targeted at the other customers.
Customer service Extra attention was given to stocking those products that were bought by loyal customers.
Media effectiveness The effectiveness of media campaigns could be evaluated easily by noticing changes in the buying patterns of those customers whom the said campaign was targeted at.
Customer acquisition The launch of new ventures (such as TPF and Tesco.com) went smoothly since Tesco targeted the ‘right’ kinds of customers.
Market research While conducting marketing research, Tesco was able to tap those customers that fitted accurately into the overall research plan.
Customer communication It was possible to mass customize communication campaigns based on individual customer preferences and characteristics. Tesco began holding ‘customer evenings’ for interacting with customers, gathering more information, and gaining new customers through referrals

The analysis of the data collected enabled Tesco to accurately pinpoint the time when purchases were made, the amount the customer spent, and the kinds of products purchased. Based on the amount spent and the frequency of shopping, customers were classified into four broad categories: Premium, Standard, Potential and Uncommitted (see Table 2B). Further, profiles were created for all the customers on the basis of the types of products they purchased. Customers were categorized along dimensions such as Value, Convenience , Frozen, Healthy Eating, Fresh and Kids.

Tesco also identified over 5000 need segments based on the purchasing habits and behaviour patterns of its customers. Each of these segments could be targeted specifically with tailor-made campaigns and advertisements. The company also identified eight ‘primary life stage’ need segments based on the profiles of its customers. These segments included ‘single adults’, ‘pensioners’ and ‘urban professionals’, among others.

Using the information regarding customer classification, Tesco’s marketing department devised customized strategies for each category, Pricing, promotion and product-related decisions were taken after considering the preferences of customers. Also, customers received communication s that were tailored to their buying patterns. The data collected through its Clubcard loyalty card scheme allowed Tesco to modify its strategies on various fronts such as pricing, inventory management, shopping analysis, customer acquisition, new product launches, store management, online customer behaviour and media effectiveness (see Table 2C).

Tesco began giving many special privileges, such as valet parking and personal attention from the store manager, to its high-value customers. special cards were created for students and mothers, discounts were offered on select merchandise, and the financial service venture was included in the card scheme. The data generated were used innovatively (e.g. special attention given to expectant mothers in the form of personal shopping assistants, priority parking and various other facilities). The company also tied up with airline companies and began offering Frequent Flyer Miles to customers in return for the points on their Clubcards.

Reaping the benefits

Commenting on the way the data generated were used, sources at Dunnhumby said that the data allowed Tesco to target individual customers (the rifle-shot approach) instead of targeting them as a group (the carpet-bombing approach). Since the customers received coupons that matched their buying patterns, over 20 per cent of Tesco’s coupons were redeemed—as against the industry average of 0.5 per cent. The number of loyal customers has increased manifold since the loyalty card scheme was launched (see Figure 2A).

The quarterly magazine Tesco sent to its customers was customized based on the segments identified. Customers falling into different categories received magazines that were compiled specifically for them—the articles covered issues that interested them, and the advertisements and discount coupons were about those products/services that they were mostly likely to purchase. This customization attracted third-party advertisers, since it assured them that their products/services would be noticed by those very customers they planned to target. Naturally, Tesco recovered a large part of

Figure 2A:      Tesco increasing number of loyal customers

its investment in this exercise through revenues generated by outside advertisements.

The data collected through the cards helped the company enter the financial services business as well. The company carried out targeted research on the demographic data and zeroed in on those customers who were the most likely to opt for financial services. Due to the captive customer base and the cross-selling opportunity, the cost of acquiring customers for its financial services was 50 per cent less than it would be for a bank or financial services company.

Reportedly, the data generated by the Clubcard initiative played a major role in the way the online grocery retailing business was run. The data helped the company identify the areas in which customers were positively inclined towards online shopping. Accordingly, the areas in which online shopping was to be introduced were decided upon. Since the prospective customers were already favourably disposed, Tesco.com took off to a good start and soon emerged as one of the few profitable dotcom ventures worldwide. By 2003, the website was accessible to 95 per cent of the UK population and generated business of £ 15 million per week.

By sharing the data generated with manufacturers, Tesco was able to offer better services to its customers. It gave purchasing pattern information to manufacturers, but withheld the personal information provided by customers (such as names and addresses). The manufacturers used this information to modify their own product mixes and promotional strategies. In return for this information, they gave Tesco customers subsidies and incentives in the form of discount coupons.

The Clubcards also helped Tesco compete with other retailers. When Tesco found out that around 25 per cent of its customers who belonged to the high-income bracket were defecting to rival Marks & Spencer, it developed a totally new product range, ‘Tesco Finest’, to lure them back. This range was then promoted to affluent customers through personalized promotions. As planned, the defection of customers from this segment slowed down considerably.

In February 2003, Tesco launched a new initiative targeted at its female customers. Named ‘Me Time’, the new loyalty scheme offered ladies free sessions at leading health spas, luxury gyms and beauty saloons, and discounts  on designer clothes, perfumes, and cosmetics. This scheme was rather innovative since it allowed Tesco customers to redeem the points accumulated through their Clubcards at a large number of third-party outlets. Company official Crawford Davidson remarked, ‘Up until now, our customers have used Tesco Clubcard vouchers primarily to buy more shopping for the home. However, from now on, “Me Time” will give customers the options of spending the rewards on themselves.’

As a result of the above strategies, Tesco was able to increase returns even as it reduced promotions. Dunnhumby prepared a profit and loss statement for the activities of the marketing department to help assess the performance of the Clubcards initiative. Dunnhumby claimed that Tesco saved around £300 million every year through reduction in expenditure on promotions. The money saved thus was ploughed back into the business to offer more discounts to customers.

By the end  of the 1990s, over 10 million households in the UK owned around 14 million Tesco Clubcards. This explained why as high as 80 per cent of the company’s in-store transactions and 85 per cent of its revenues were accounted for by the cards. Thanks largely to this initiative, Tesco’s turnover went up by 52 per cent between 1995 and 2000, while floor space during the same period increased by only 15 per cent.

An invincible company? Not exactly…

Tesco’s customer base and the frequency with which each customer visited its stores had increased significantly over the years. However, according to reports, the average purchase per visit had not gone up as much as Tesco would have liked. Analysts said that this was not a very positive sign. They also said that, while it was true that Tesco was the market leader by a wide margin, it was also true Asda and Morrisons were growing rapidly.

Tesco’s growth was based largely on its loyalty card scheme. But in recent years, the very concept of loyalty cards has been criticized on various grounds. Some analysts claimed that the popularity of loyalty cards would decline in the future as all retailing companies would begin offering more or less similar schemes. Critics also commented that the name ‘loyalty card’ as a misnomer since customers were primarily interested in getting the best price for the goods and services they wanted to buy.

Research conducted by Black Sun, a company specializing in loyalty solutions, revealed that though over 50 per cent of UK’s adult population used loyalty cards, over 80 per cent of them said that they were bothered only about making cheaper purchases. Given the fact that many companies in the UK, such as HSBC, Egg and Barclaycard had withdrawn their loyalty cards, industry observers were skeptical of Tesco’s ability to continue reaping the benefits of its Clubcards scheme. Black Sun’s Director (Business Development) David Christopherson, said, ‘Most loyalty companies have a direct marketing background, which is results-driven, and focuses on the short term. This has led to a “points for prizes” loyalty model, which does not necessarily build the long-term foundations for a beneficial relationship with customers.’

Commenting on the philosophy behind Tesco’s CRM efforts, Edwina Dunn said, ‘Companies should be loyal to their customers—not the other way round.’ Taking into consideration the company’s strong performance since these efforts were undertaken, there would perhaps not be many who  would disagree with Edwina.

Questions:

1. Analyse Tesco’s Clubcards scheme in depth and comment on the various customer segmentation models the company developed after studying the data gathered.

2. How did Tesco use the information collected to modify its marketing strategies? What sort of benefits was the company able to derive as a result of such modifications?

3. What measures did Tesco adopt to support the CRM initiatives on the operational and strategic front? Is it enough for a company to implement loyalty card schemes (and CRM tools in general) in isolation? Why?

 

CASE: III   Pret a Manger: passionate about food

Introduction

Pret a Manger (French for ‘ready to eat’) is a chain of coffee shops that sells a range of upmarket, healthy sandwiches and desserts as well as a variety o coffees to an increasingly discerning set of lunchtime customers. Started in London, England, in 1986 by two university graduates, Pret a Manger has more than 120 stores across the UK. In 2002 it sold 25 million sandwiches and 14 million cups of coffee, and had a turnover of over £100 million. Buckingham Palace reportedly orders more than £1000 worth of sandwiches a week and British Prime Minister Tony Blair has had Pret sandwiches delivered  to number 10 Downing Street for working lunches. The company also has ambitious plans to expand further—it already has stores in New York, Hong Kong  and Tokyo, and has set its sights on further international growth.

Background and company history

In 1986, Pret a Manger was founded with one shop, in central London, and a £17,000 loan, by two property law graduates, Julian Metcalf and Sinclair Beecham, who had been students together at the University of Westminster in the early 1980s. At that time the choice of lunchtime eating in London and other British cities was more limited than it is today. Traditionally, some ate in restaurants while many favoured that well-known British institution, the pub, as a choice for lunchtime eating and drinking. There was, however, a growing awareness among many people of the benefits of healthy eating and a healthy lifestyle, and lunchtime habits were changing. There was a general trend towards taking shorter lunch brakes and, among office workers, to take lunch at their desks. For those who wanted food to take away, the choice in fast food was dominated by the large chains such as McDonald’s, Burger King and Kentucky Fried Chicken (now KFC) while other types of carry-out food, such as pizzas, were also available.

Sandwiches also played an important part in British lunchtime eating. Named after its eighteenth-century inventor, the Earl of Sandwich, the humble sandwich had long been a popular British lunch choice, especially for those with little time to spare. Prior to Pret’s arrival on the scene, sandwiches were sold mainly either pre-packed in supermarkets and high-street variety chain stores such as Marks and Spencer and Boots, or in the many small sandwich bars that were to be found in the business districts of large cities like London, Sandwich bars were usually small, independently owned or family run shops that made sandwiches to order for customers who waited in a queue, often out on to the pavement outside.

Dissatisfied with the quality of both the food and service from traditional sandwich bars, Metcalf and Beecham decided that Pret a Manger should offer something different. They wanted Pret’s food to be high quality and healthy, and preservative and additive free. In the beginning, they shopped for the food themselves at local markets and returned to the store where they made the sandwiches each morning. Pret’s offering was based around premium-quality sandwiches and other health-orientated lunches including salads, sushi and a range of desserts, priced higher than at traditional sandwich bars, and sold pre-packed in attractive and convenient packaging ready to go. There was also a choice of different coffees, as well as some healthy alternatives. Service aimed to be fast and friendly go give customers a minimum of queuing time.

Pret a Manger: ‘Passionate about What We do’

Pret a Manger strongly emphasizes the quality of its products. Its promotional material and website claims that it is:

‘passionate about food, rejecting the use of obscure chemicals, additives and preservatives common in so much of the prepared and fast food on the market today…it there’s a secret to our success so far we like to think its determination to focus continually on quality—not just our food, but in every aspect of what we do’.

Great importance is also placed on freshness. Unlike those sold in high-street shops or supermarkets, Pret’s sandwiches are all hand-made by staff in each shop starting at 6.30 every morning, rather than being prepared and delivered by a supplier or from a central location. Metcalf and Beecham believe this gives their sandwiches a freshness and distinctiveness. All food that hasn’t been sold in the shops by the end of the day is given away free to local charities.

Careful sourcing of supplies for quality has also always been important. Genetically modified ingredients are banned and the tuna Pret buys, for example, must be ‘dolphin friendly’. There is also a drive for constant product improvement and innovation—the company claims that its chocolate brownie dessert has been improved 33 times over the last few years—and, on average, a new product is tried out in the stores every four days. Aware that some of its customers are increasingly health conscious, Pret’s website menu carefully lists not only what is available, but also the ingredients and nutritional values in terms of energy, protein, fats and dietary fibre for each item.

The level and quality of service from staff in the shop is a critical factor. The stores are self-service, with customers helping themselves to sandwiches and other products form the supermarket-style refrigerated cabinets. Staff at the counter at the back of the store then serve customers coffee and take payment. Service is friendly, smiling and efficient, in contrast to many retail and restaurant outlets in Britain where, historically, service quality has not always been high. Prêt puts an emphasis on human resource management issues such as effective recruitment and training so as to have frontline staff who can show the necessary enthusiasm and also remain fast and courteous under the pressure of a busy lunchtime sales period. These staff are usually young and enthusiastic, some are students, many are international. The pay they receive is above the fast-food industry average and staff turnover is 98 per cent a year, which sounds high—however, this is against an industry norm of around 150 per cent. In 2001, Pret had 55,000 applications for 1500 advertised vacancies.

Recently, Fortune magazine voted Pret one of the top 10 companies to work for in Europe. According to its own promotional recruitment material, Pret is an attractive and fun place to work: ‘We don’t work nights, we wear jeans, we party!’ Service quality is checked regularly by the use of mystery shoppers: if a shop receives a good report, then the staff there receive a 75p an hour bonus in the week of the visit. Head office managers also visit stores on a regular basis and every three or four months every one of these managers works as a ‘buddy’, where they spend a day making sandwiches and working on the floor in one of the shops to help them keep in touch with what is going on. Store employees work in teams and are briefed daily, often on the basis of customer responses that come in from in-store reply cards, telephone calls and the company website. The website, which, lists the names and phone numbers of its senior executives, actively invites customers to comment or complain about their experience with Pret, and encourages them to contact the company. Great importance is placed on this customer feed-back, both positive and negative, which is discussed at weekly management meetings.

The design of the stores is also distinctive. Prominently featuring the company logo, they are fitted out in a high-tech with metal cladding and interiors in Pret’s own corporate dark red colour. Each store plays music, helping to create a stylish and lively atmosphere. Although the shops mainly sell carry out food and coffee in the morning and through the lunchtime period, many also have tables and seating where customers can drink coffee and eat inside the store or, weather permitting, on the pavement outside.

Growth and competition 

Three years after the first Pret shop was launched another was opened and, after that, the chain began to grow so that, by 1998, there were 65 throughout London. In the late 1990s stores were also opened in other British cities such as Bristol, Cambridge and Manchester. Although growth in the UK has been rapid—between 2000 and 2002 the company opened 40 new outlets and there are over 120 throughout Britain—Pret’s policy has always been to own and manage all its own stores and not to franchise to other operators. In 2002, £1 million was spent in launching an Internet service that enables customers to order sandwiches online.

Plans for international growth have been more cautious. In 2000 the company made its first move overseas when it opened a shop near Wall Street in New York. However, there were problems on several fronts in moving into the USA. Metcalf is quoted saying, ‘As a private company its very difficult to set up abroad. We didn’t know where to begin in New York—we ended up having all the equipment for the shop made here and shipped over.’ There were also staffing and service quality difficulties—Pret reportedly found it difficult to recruit people in New York who had the required friendliness to serve in the stores and had to import British staff. Despite these problems, several other shops in New York have followed and, in 2001, Pret opened its first outlet in Hong Kong.

During the 1990s, coffee shops boomed as the British developed a growing taste for drinking coffee in pavement cafes, and competition for Pret grew as other chains entered the fray. Rivals like Coffee Republic, Caffè Nero, Costa Coffee (now owned by leisure group Whitbread) Aroma (owned by McDonald’s) and American worldwide operator Starbucks all came into the market, as well as a number of smaller independents. All these chains offer a wide range of coffees but with varying product offerings in terms of food, pricing and style (Starbucks, for example, offers comfortable arm-chairs around tables, which encourage people to linger or work in a laptop in the store). In a London shopping street it is not uncommon to see three or four rival outlets next door to or within a few yards of each other. However, it quickly became clear that the sector was overcrowded and, apart from Starbucks, some of the other chains reportedly struggled to make a profit. In 2002 Coffee Republic was taken over by Caffè Nero, which also eventually acquired the ailing Aroma chain from McDonald’s. Costa Coffee was the largest chain overall with over 300 shops throughout Britain, while Starbucks was expanding aggressively and aimed to have an eventual 4000 stores worldwide.

The future

As work and lifestyles get busier, the demand for convenience and fast foods continues to grow. In 2000, some estimates put the total value of the fast-food market in Britain, excluding sandwiches, at over £6 billion and growing about £200-£300 million a year. While the growth in sales of some types of fast food, like burgers, was showing signs of slowing down, sandwiches continued to increase in popularity so that by 2002 sales wee an estimated £3 billion. Customers are also getting more health conscious and choosy about what they eat and, increasingly, want nutritional information about food from labelling and packaging.

In January 2001, in a surprise move, Pret’s two founders sold a 33 per cent stake in the company to fast-food giant McDonald’s for an estimated £25 million. They claim that McDonald’s will not have any influence over what Pret does or the products it sells, but that the investment by McDonald’s will help their plan for future development. According to Metcalf:

‘We’ll still be in charge—we’ll have the majority of shares. Pret will continue as it does… The deal wasn’t about money—we could have sold the shares for much more to other buyers but they wouldn’t have provided the support we need.’

After a long run of success, Pret has ambitious plans for the future. It hopes to open at least 20 new stores a year in the UK. In late 2002 it opened its first store in Tokyo, Japan, in partnership with McDonald’s. The menu there is described as being 75 per cent ‘classic Pret’ with the remaining 25 per cent designed more to please local tastes. In other international markets, the plan is to move cautiously—Pret’s first move will be to open more stores in New York and Hong Kong, where it has already been successful.

Questions

1. How has Pret a Manger positioned its brand?

2. Explain how the different elements of the services marketing mix support and contribute to the positioning of Pret a Manger.

 

CASE: IV    The Sudkurier

The Sudkurier is a regional daily newspaper in south-western Germany. On average 310,000 people in the area read the newspaper regularly. The great majority of those readers subscribe to its home delivery service, which puts the paper on their doorsteps early in the morning. On the market for the last 35 years, the Sudkurier contains editorial sections on politics, the economy, sports, local news, entertainment and features, as well as advertising. The newspaper is financially independent and its staff is free of any political affiliation. Management at the Sudkurier would like to bring the paper into line with the current needs of its readers. For this purpose, the management team is considering the use of market research.

Management would like to have information about the following.

  1. What newspaper or other media are the Sudkurier’s main competitors?
  2. Do most readers read the Sudkurier for the local news, sports and classified ads, and should these sections therefore be expanded at the expense of the sections on politics and the economy?
  3. Should the Sudkurier’s layout be modernized?
  4. Do mostly lower levels of society read the Sudkurier?
  5. Into what political category do readers and non-readers the Sudkurier?
  6. Which suppliers of products and services consider the Sudkurier especially appropriate for their advertising?
  7. What advertising or information dot the readers think is missing from the Sudkurier?

You are an employee of the Sudkurier who has been instructed to obtain the requested information and to prepare your findings for the decision-makers. You are in the fortunate position of receiving regular reports about the people’s media use from the Arbeitsgemeinschaft Media-Analyse e.V. Relevant excerpts from the most recent survey are shown here as Tables 3 and Table 4

Table 3   Media analysis of readership structure

Range in Circulation Area (1) Readers per edition of SUDKURIER National

average

in %

  RANGE Total in %
  in % Absolute
Total   53.5 310,000 100.0 100.0
Gender Men 55.5 150,000 49.0 47.2
  Women 51.6 160,000 51.0 52.8
Age Groups 14-19 years 51.8 20,000 8.0 7.2
  20-29  years 41.0 50,000 15.0 19.1
  30-39  years 52.1 50,000 16.0 16.4
  40-49  years 61.8 50,000 16.0 15.2
  50-59  years 61.1 60,000 19.0 16.5
  60-69  years 53.6 40,000 13.0 13.5
  70  years and older 57.4 40,000 13.0 12.2
Educational

Level

Secondary school without apprenticeship 49.4 60,000 18.0 17.6
  Secondary school with apprenticeship 50.8 100,000 31.0 39.6
  Continuing education without Abitur 60.8 110,000 36.0 27.0
  Abitur, university preparation, university/college 49.7 50,000 15.0 15.8
Occupation Trainee, pupil, student 44.7 40,000 11.0 11.0
  Full-time employee 54.6 160,000 50.0 51.7
  Retire, pensioner 57.3 70,000 23.0 21.8
  Unemployed 52.4 50,000 16.0 15.5
Occupation of main wage earner Self-employed, mid- to large business/Freelancer 63.8 20,000 5.0 3.1
  Self-employed, small business,/Farmer 59.9 30,000 10.0 7.1
  Managers and civil servants 58.6 30,000 9.0 8.7
  Other employees and civil servants 49.3 120,000 40.0 42.9
  Skilled staff 57.6 100,000 32.0 32.5
  Unskilled staff 38.7 10,000 4.0 5.6
Net Household Income/month 4500 and more 62.7 100,000 31.0 23.9
  3500-4500 52.7 60,000 19.0 20.8
  2500-3500 54.9 80,000 26.0 25.9
  to 2500 44.1 70,000 23.0 29.3
Number of wage earners 1 earner 45.4 100,000 33.0 40.4
  2  earner 56.5 130,000 41.0 42.6
  3  earner 62.7 80,000 25.0 16.9
Household Size 1 Person 41.8 50,000 14.0 17.9
  2 Persons 55.5 90,000 29.0 31.8
  3 Persons 59.5 70,000 22.0 22.4
  4 Persons and more 54.8 110,000 35.0 27.9
Children in Household Children less than 2 years of age 52.7 10,000 4.0 3.8
  2 to less than 4 years 38.4 10,000 4.0 5.4
  4 to less than 6 years 45.8 10,000 5.0 5.2
  6 to less than 10 years 43.8 20,000 8.0 8.5
  10 to less than 14 years 54.1 30,000 10.0 9.2
  14 to less than 18 years 57.7 50,000 16.0 13.7
  No children under 14 54.9 250,000 79.0 77.4
  No children under 18 53.6 210,000 67.0 68.1
Driving Licence Yes 55.2 250,000 80.0 73.0
  No 47.3 60,000 20.0 27.0
Private Automobile   55.5 270,000 86.0 80.0
Garden own garden 60.4 240,000 76.0 57.0
  without garden 39.8 70,000 23.0 43.0
Housing own house 62.1 180,000 58.0 46.0
  own apartment 45.9 10,000 3.0 3.0
  rent house or apartment 44.7 120,000 38.0 49.0
Electrical Appliances Freezer/Deep freeze 59.6 200,000 62.0 51.0
Last Holiday Journey Within the last 12 months 55.1 190,000 62.0 n.a.
  1-2 years ago 51.0 40 ,000 14.0 n.a.
  More than two years ago 48.6 50 ,000 16.0 n.a.
  Never 55.4 30 ,000 9.0 n.a.
Last Holiday Destination Germany 57.4 70 ,000 23.0 n.a.
  Austria, Switzerland, South Tyrol 48.7 60 ,000 20.0 n.a.
  Elsewhere in Europe 53.4 130,000 42.0 n.a.
  Country outside Europe 51.4 20 ,000 5.0 n.a.
  Did not travel 56.4 30 ,000 9.0 n.a.
1) Entire circulation area 310 ,000 readers per edition

 

Example:

53.5% of people older than 14 years in the circulation of the Sudkurier daily

55.5% of all men older than 14 years and 51.6% of women older than 14 read the  Sudkurier daily; that is 150 ,000 men and 160 ,000 women.

Table 4  Reader behaviour

What purchasing information is used?

Media purchasing information

for medium and long-term acquisition

(11 product areas; Basis: total population)

 

Daily newspaper                    61%

Posters on the street               9 %

Leaflets                                  36 %

Television                              24%

Radio                                     13%

Magazines                             27 %

Free newspapers                    49%

Credibility of advertising in the media

Advertising in… is generally believable and reliable

(Basis: broadest user group in each case)

 

Regional newspaper                  49%

Television                                  30%

Public radio                                20%

Privately-owned radio                14 %

Magazines                                  15%

Free newspaper                          23%

 

Advertising in… is most informative

(Basis: broadest reading group)

 

Regional newspapers (subscription)    62 %

Television                                            47%

Public Radio                                        29%

Privately-owned radio                         26%

Magazines                                           27 %

Free newspapers                                 36 %

Time spent reading daily newspaper

(Basis: broadest user group)

 

less than 15 minutes                       7 %

15-24 minutes                              21 %

25-34 minutes                              28 %

35-65 minutes                               34 %

more than 65 minutes                   10 %

I often consult/depend on advertising in…

(Basis: broadest user group in each case)

 

Regional newspapers (subscription)         27 %

Television                                                 11%

Public Radio                                             89%

Privately-owned radio                                6%

Magazines                                                   7 %

Free newspapers                                       18 %

 

Source: Regional Press Study, Gfk-Medienforschung Contest-Census

Questions:

1. Explain how you will methodically go about compiling the requested information covered in the seven questions for management. Include in your explanation an estimate of the expense involved in obtaining the information.

2. Develop a 10-question questionnaire for the purpose of making a survey.

 

CASE: V    Marketing Spotlight – Disney

The Walt Disney Company, a $27 billion-a-year global entertainment giant, recognizes what its customer’s value in the Disney brand: a fun experience and homespun entertainment based on old-fashioned family values. Disney responds to these consumer markets. Say a family goes to see a Disney movie together. They have a great time. They want to continue the experience. Disney Consumer Products, a division of the Walt Disney Company, lets them do just that through product lines aimed at specific age groups.

Take the 2004 Home on the Range movie. In addition to the movie, Disney created an accompanying soundtrack album, a line of toys and kid’s clothing featuring the heroine, a theme park attraction, and a series of books. Similarly, Disney’s 2003 Pirates of the Caribbean had a theme park ride, merchandising program, video game, TV series, and comic books. Disney’s strategy is to build consumer segment around each of its characters, from classics like Mickey Mouse and Snow White to new hits like Kim Possible. Each brand is created for a special age group and distribution channel. Baby Mickey & Co. and Disney Babies both target infants, but the former is sold through department stores and specialty gift stores whereas the latter is a lower-priced option sold through mass-market channels. Disney’s Mickey’s Stuff for Kids targets boys and girls, while Mickey Unlimited targets teens and adults.

On TV, the Disney Channel is the top primetime destination for kids age 6 to 14, and Playhouse Disney is Disney’s preschool programming targeting kids age 2 to 6. Other products, like Disney’s co-branded Visa card, target adults. Cardholders earn one Disney “dollar’’ for every $ 100 charged to the card, up to the card, up to $75,000 annually, then redeem the earnings for Disney merchandise or services, including Disney’s theme parks and resorts, Disney Stores, Walt Disney Studios, and Disney stage productions. Disney is even in Home Depot, with a line of licensed kid’s room paint colors with paint swatches in the signature mouse-and-ears shape.

Disney also has licensed food products with character brand tie-ins. For example, Disney Yo-Pals Yogurt features Winnie the Pooh and Friends. The four-ounce yogurt cups are aimed at preschoolers and have an illustrated short story under each lid that encourages reading and discovery. Keebler Disney Holiday Magic Middles are vanilla sandwich cookies that have an individual image of Mickey, Donald Duck, and Goofy imprinted in each cookie.

The integration of all the consumer product lines can be seen with Disney’s “Kim Possible’’ TV program. The series follows the action-adventures of a typical high school girl who, in her spare time, saves the world from evil villains. The number-one-rated cable program in its time slot has spawned a variety of merchandise offered by the seven Disney Consumer Product divisions. The merchandise includes:

  • Disney Hardlines – stationery, lunchboxes, food products, room décor.
  • Disney Softlines – sportswear, sleepwear, daywear, accessories.
  • Disney Toys – action figures, wigglers, beanbags, plush, fashion dolls, poseables.
  • Disney Publishing – diaries, junior novels, comic books.
  • Walt Disney Records – Kim Possible soundtrack.
  • Buena Vista Home Entertainment – DVD/video.
  • Buena Vista Games – Game Boy Advance.

“The success of Kim Possible is driven by action – packed storylines which translate well into merchandise in many categories,’’ said Andy Mooney, chairman, Disney Consumer Products Worldwide. Rich Ross, president of entertainment, Disney Channel, added: “Today’s kids want a deeper experience with their favorite television characters, like Kim Possible. This line of products extends our viewer’s experience with Kim, Rufus, Ron and other show characters, allowing (kids) to touch, see and live the Kim Possible experience.

Walt Disney created Mickey Mouse in 1928 (Walt wanted to call his creation Mortimer until his wife convinced him Mickey Mouse was better). Disney’s first feature-length musical animation, Snow White and the Seven Dwarfs, debuted in 1973. Today, the pervasiveness of Disney product offerings is staggering – all in all, there are over 3 billion entertainment-based impressions of Mickey Mouse received by children every year. But as Walt Disney said. “I only hope that we don’t lose sight of one thing – that it was all started by a mouse.’’

Questions:

1. What have been the key success factors for Disney?

2. Where is Disney vulnerable? What should it watch out for?

3. What recommendations would you make to their senior marketing executives going forward? What should it be sure to do with its marketing?