Program Management: North American Philips Lighting Corporation

Case Overview

The case is about the company North American Lighting Corporation (NAPLC) which failed in introducing the new Norelco light bulb to the grocery trade. Its main aim was

a. To penetrate the grocery segment of the market. b. To improve the division’s overall gross margin by changing Norelco’s product mix.

The program was named as “Project Housing Cart”. The chief supplier of the light bulbs to grocery trade was GE for the last 40 years. The program was officially launched in the year 1978.

Company

NAPLC was:

a. Established in 1968b. 4th largest lighting manufacturer in USA with $30.1 million salesc. Headquartered in Hightstown New Jerseyd. Had 3 manufacturing plants and 6 product distribution centerse. Division of the North Atlantic Philips Corporation (NAPC) & affiliated with Philips of Hollandf. Sales of $2.7 billiong. Was into consumer electronics($408 million), electrical consumer products ($387.9 million) and

an additional consumer products and services ($290.2 million)h. Used to sell 40000 lamp type bulbs through 70 sales organizations in 59 countries

Consumer sales division of NAPLC used to sell incandescent bulb products which included:

a. Type A or general purpose household bulbs (including Norelco bulbs used in Project Shopping Cart)

b. Type B which were the candle type used in candelabrac. Type C which were straight and show window lamp bulbsd. Type D which were bowl reflector silvered top bulbse. Type E which were the tubular special purpose appliance lamp bulbs f. Type F which were bulbs identical to Type A only frosted or colored

Till 1978 NAPLC was the largest U.S. private labeler of household bulbs due to an aggressive private labeling marketing program launched in 1974.

Sales distribution:

a. Private labeling - 40% of consumer group’s light bulb sales b. Total division sales – 40-50% sales

Narelco used Type A bulb under its brand name as a promotional item only. They did 60% of the consumer light bulb business by specially promoting and lowering the prices.

Market

The Grocery stores market segment had seen the downfall in the manufacture’s sales from 1976 to 1981 while there was a rise in rest of the market segments like Discount/ Department/Variety stores, Hardware/ home centers, Drugstores and others.

Competition

Out of the total $141 million grocery market business in 1976:

a. GE – 62.4%b. Westinghouse – 26%c. Sylvania – 10.3%d. Norelco – 1.3%

The main issue with private label business was, in order to maintain economy of scale they were facing obsolescence.

The study showed women were the most frequent purchasers from the supermarkets. Any9time there was a mention of “high quality”, “long lasting” and “better for eyes” the brand recall most of the time was GE. The study too showed that the bulbs were purchased on the basis of need rather than brand preference. Also, it was seen there was no real consumer advertising awareness for light bulbs. So, conclusion was there was a huge lack in terms of advertising.

NAPLC adopted the consumer durables mode of Distribution channel. The sale was mostly from retailers (80%) and rack jobbers (20%). The grocery stores were happy selling the bulbs as they got high margins from the sales. No matter what brand the retailers have the consumer will buy one.

Project shopping cart

Norelco wanted to be the second name to the lighting bulb in the market. According to its studies they thought of coming with the new and different merchandising and packaging of the light bulb. The results indicated a definite preference in the type of packaging and merchandising of the light bulb.

The highest margin they used to gain from soft white plus (SWP) and soft white (SW) rather than standard frost (SF). In order to encourage the sales they designed a rack which would place these products at the line of sight of the customers (LOS) fed with rack gravity. Also they changed the packaging of the bulb with a see through cover which could not be stacked on the shelves other than the rack designed by the NAPLC.

The program was launched in 1978 at Food marketing Institute (FMI). They were instantly into promotion with Jenner an Olympic Gold winner endorsing the brand. Also, they sent direct mail ads in

journals to create trade awareness. They were into in store promotions via posters and “Shelf talkers”. They participated in the Special Olympics via the bulb.

At the same time Norelco was facing challenges from Westinghouse’s Turtle lite which were as cheap as 89 cents and they also invested $7 million in massive advertising.

The pricing strategy for Shopping cart was to stay with the “policy” pricing i.e. to maintain the pricing to 28 cents. 17 cents and 37 cents for their products, along with providing volume rebates, advertising allowances , guaranteed sale and free merchandisers and initial set up.

They also equipped there sales force with brochures, planograms, photos of new packaging, competitive sales plan and consumer sales through plan. Although it was seen after the 9 months of the launch that the sales was not matching the projected sales figures, still there was considerable increase in sales. There was confusion whether the sales were because of the strategy or the buzz creates in the market or extra footage it attained in the market. NAPLC carried on tests with Shophrite Supermarket to but the conclusion remained the same, light bulb sales were elastic with sales increase at least proportionate to the increase in the size of the department.

NAPLC were successful in achieving the two objectives after the program. Form 1979-80 it sold 3.4 million units at $1.1 million and a 29% gross margin. Company lost $630000 not including $500000 worth of inventory and capital expenditure which were to be amortized. Still the top management was committed to gaining distribution in the grocery segment via the Norelco brand bulb.