Tweeter etc.

Case AnalysisGroup P Section 2

Group Members

Sumit Kumar JhaSunny ShekharShubhabhSiddarthSaurabh RainaSaurav Narjinary

1

2

Case Background

1972 to 1980s

1980s to 1993 1993 1996

Questions

Analysis

United States Market Consumer Electronics was a $30 Billion Industry in 1995 Compound Annual Growth Rate for the industry was 5.6% Retail Margins averaged around 30% At retail level, it was distributed through various channels 1991 1993 1995

23

22

3

27

20

4

30

57

0

Sales in Million $

43%

28%

11%

4%

14%

SS & ES MM & WC DS MOH Specialty Stores and Boutiques (SS) -- Good facilities & customer service, medium to high end product line, Ex: Tweeter Electronic Superstores (ES) -- Moderate service, high volume selling, diverse product line, Ex: Wiz, Lechmere Department Stores (DS) -- Poor service, moderate selling pressure, limited product line, entry & middle level Mass Merchants (MM) -- No customer service, little selling pressure, focus on value brands, Ex: Wal-Mart Warehouse Clubs (WC) -- No customer service, no selling pressure, price is the USP, limited products Mail Order Houses (MOH) -- No service, no selling pressure, shipping expensive, returns difficult, catalogs present

Source for Graphs: Exhibit 2 and 4

3

Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

The new england Market

Lechmere

Circuit City

Walmart

Tweeter

Others

0 10 20 30 40 50 60 70

33

0

0

2.8

64.2

Market Share 1992

Lechmere

Circuit City

Walmart

Tweeter

Others

0 10 20 30 40 50 60

36

7.4

0

2.7

53.9

Market Share 1994

Lechmere

Circuit City

Walmart

Tweeter

Others

0 5 10 15 20 25 30 35 40 45

35.6

18.6

3.9

3.6

38.3

Market Share 1996

New England represented 5% of the total U.S. consumer electronics market

Lechmere was the most popular retailer of the region

-- Well informed Salesforce, good service, fair pricing -- 28 stores Circuit City, which entered in New England

market in 1993, grew very rapidly -- Knowledgeable Salesforce, good service, wide product range -- 21 stores Cambridge Soundworks had less than 1%

market share -- niche player which grew rapidly in short span of time -- 23 stores In 1996, 8 retailers existed with market share

greater than 2% led by Lechmere (35.6%)

Source for Graphs: Exhibit 5

4

Case Background

1972 to

1980s

1980s to 1993

1993 1996

Questions

Analysis

The Formative years

Came into existence in 1972, located near Boston University

High- end stereo market was developing in U.S.

Tweeter served this audience in their region

Demand for high end audio and video equipment grew in mid 1980s

VCR and CD player were introduced Tweeter strengthened its positioning in

high end audio and video equipment market

By 1986, it grew to 13 stores

Within few years, the stereo components market tripled & led to more retailers entering the market

Major players were Tech Hi-Fi and Lechmere

Tweeter avoided direct confrontation with them and focused on it’s student market with sophisticated tastes

Perceived as a high quality, high end audio and video retailer, with excellent Salesforce and offering best customer service

Customers perceived that they were paying premium price for the products

Value, Quality & Service

ORIGINATION

CUSTOMER PERCEPTION POSITIONIN

G

SEGMENTATION

Bloomberg

5

Case Background

1972 to 1980s

1980s to

19931993 1996

Questions

Analysis

The shake- out years

1. Market growth led to fierce competition especially in lower end of retail market (against Tweeter )

2. Market growth halted because everyone already owned VCRs and home electronics

3. Halt in the U.S. economy in 1987-88 with New England market taking the hardest hit

1. Not all retailers were able to survive and thus filed for bankruptcy

-- Tech Hi-Fi (1985), Highland Superstores (1991) & Fretter (1995) 2. Increased Price promotion by retailers and emergence of ‘Sale’ every weekend -- Customers delayed their purchase & waited for weekend sale

Customers perceived Tweeter as an expensive and high- end retailer charging much more than the competitors

Their print advertisement of quality products was damaging their own image

Result was the severe loss in profitability

Happenin

gs

Consequence

s

Customer

Perceptio

n

6

Case Background

1972 to 1980s

1980s to

19931993 1996

Questions

Analysis

Counter measures by tweeter

Quality &

Service

But Sale?

&Why Counter

Measures?

Change in strategy and played on pricing as well as product quality and customer service -- Began to carry Sherwood audio components which were of lower price to compete against Lechmere and Fretter In 1988, they joined the Progressive Retailers Organization (PRO), a buying consortium of small

high- end retailers in U.S. -- Obtained prices from manufacturers which were comparable to those obtained from its larger competitors

No, the perception still persisted among the customers and still viewed it as expensive when compared to Lechmere

Acknowledged its high level of services but were not willing to take those at the expense of higher priceDid the Customer

Perception

Change?

7

Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Analysis of Customer behavior Tweeter conducted no. of focus groups and came up with two sets of insights:

1. Individuals shopping for consumer electronics displayed the following behavior and traits -- Thought of purchasing the product 1 or 2 months before actually buying it -- 8 out of 10 customers checked newspaper ads for product availability and price information -- Consumers visited 2 to 3 retailers before actually buying it -- their purchase was affected from Newspaper ads, past experience and recommendations from friends & family

2. Individuals familiar or who purchased from Tweeter displayed the following behavior and traits -- 4 out of 5 customers viewed Tweeter as expensive, however if price was not an issue, then they would have favored Tweeter -- Customers who visited Tweeter also visited Lechmere, Fretter and Sears for the product search -- 1 in 3 customer came to Tweeter to check out the product and bought it from Lechmere or Fretter at a better price

Newsp

aper

Exper ience

Recom

mendati

on

70

50

40

Factors

Lechmere Fretter Sears

60

45

20

Retailers

Source for Graphs: Case Page 5 & 6

8

Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Types of electronic consumers

Interested in purchasing the ‘Lowest Priced’ item in each product category

Product quality and customer service did not matter to them

Cognizant about the price but product quality and customer service also mattered to them

Focused on ‘Absolutely Best Deal’ in the product category

Price, product quality and customer service were secondary to ‘Shopping Convenience’ to them

Preferred to shop from ‘Familiar’ stores like Lechmere and Sears

Could purchase products in almost all the product categories on the same shopping trip

High level of product quality and customer service were of utmost importance

Price was of secondary concern to them Also referred to as ‘BBCOs’ i.e. Buy the Best and Cry Once

Entry Level Customers

The Price Biters

The Convenience Customers

TheQuality/Service Customers

H1 Service

H1 Convenience

L1 PriceH1 Service

L1 Price

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Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

‘ Three- pronged attack’ strategy

Eliminated the concept of ‘Sale’ to build the traffic in stores

Big players like Lechmere could sustain this Sale but not Tweeter

Competitors were offering sales on low range products which Tweeter didn’t even stock

Their perceived image of ‘Being Expensive’ was also working against them

Wanted to again focus on its unique selling proposition of ‘High quality and excellent service’

Moved to ‘Everyday Fair Pricing’ (EDFP) Strategy

Had a shift in the Marketing mix away from ‘Print Ads’ towards Television & Radio ads, direct mail and product catalogs

Majority of marketing budget (8% of gross sales) was spent on Newspaper ads for ‘Sale’ announcement

Shift in marketing mix focused on Tweeter’s price competitiveness and APP policy

Released a ‘Buyer’s Guide’ which was released 4 times a year and was available at all it’s retail locations

Buyer’s Guide was also mailed to the customers directly

Change in theMarketing Mix

Abandonment of The ‘Sale’

1993

Print TV RadioDirect Others

1996

Source for Graphs: Exhibit 10

10

Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Automatic price protection policy If a customer purchased a product at one store and later (normally within 30 days) found that

product is available at lower price, the customer can visit the store with the proof and get reimbursed for the difference

Competitors like Lechmere, Circuit City and Fretter all offered 110% of the difference amount for a period of 30 days

Tweeter offered 100% refund for the period of 30 days but then went a step further

Under APP, Tweeter decided to itself track the newspapers and send out the rebates

Tweeter tracked 8 major newspapers of the region for this purpose

APP was applicable for products priced at $50 or more and applied to a price difference of $2 or more

APP was taken care by a special department at their Headquarters

Information was stored in the Tweeter’s database and was cross checked, if the price was less then cheque was automatically generated and mailed with 5 days

Definitio

n

Competito

rs

Tweete

r

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Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Impact of A.P.P. under scanner Sales almost doubled from $43.7 million in 1993 to $82 million (projected) in

1996 Media response was extremely positive with articles in leading newspapers Asst. Attorney General of Consumer Protection praised Tweeter for this

Some observers argued that most of the retailers sell products which are not available at other stores, thus little chance of a product getting eligible for the refund

Some thought that it was more of a perception creating tactic than actual refund policy as Tweeter sells products which were not available with its competitors

By the end of year 1995, Tweeter mailed 29,526 cheque amounting to over $780,000

Created doubts because if Tweeter’s price were competitive, then why was this number so high!

Was Tweeter’s message of Price Competitiveness reaching the potential customers?

Some surveys still indicated that the image of being ‘Expensive’ still persisted among the customers 1993 1994 1995

050000

100000150000200000250000300000350000400000450000500000

0

2000

4000

6000

8000

10000

12000

14000

16000

Refund in $ No. of ChequeSource for Graphs: Exhibit 12

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Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Other causes of concern

Finalized the purchase of Bryn Mawr Stereo & Video, headquartered outside of Philadelphia

Similar high end, high service firm but the battlefield was entirely different

Customers perceived Bryn Mawr as expensive in comparison to the large electronic superstores like Circuit City, Best Buy & the Wiz, who were it’s competitors

Bryn Mawr adopted APP policy but it failed to increase sales for them thus raising questions on effectiveness of APP

Added burden of extracting profits from Bryn Mawr while competing in alien market

Purchase of Bryn Mawr

Entry of ‘Nobody Beats the Wiz’

In 1996, Wiz entered the New England market by opening a 50,000 sq. feet store and major expansion plans

3rd largest consumer electronics retailer chain in U.S.

Was known for its fearsome marketing campaigns offering rock bottom prices

Campaigns included eminent sport stars

Offered 110% price protection within 30 days policy

What Tweeter Said: -- Wiz may have to withdraw soon What It Actually meant: -- Wiz may give them tough time -- Reconsideration of APP policy

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Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

4p and 5c analysis

Product• Offered quality products• High end audio components

and video equipment • Best Customer service

Price • High Price perception among

customers• Comparable to competitors in

actual scenario• Price Sensitive offering

Place• New England Market• Post acquisition of Bryn Mawr

– Philadelphia

Promotion

• Automatic Price Protection• Every Day Fair Pricing• Print, Television, Radio,

Direct Mail, Music Series and Pre-openings

• Audio and Video equipment• Present in the market since a

long time - 21 stores in 1996• EDFP and APP

Company

• Entry level Customers• Price Biter• Quality/Service Customers

Customer Needs

• Lechmere• Circuit City• New Wiz

Competitors

• Bryn MawrCollabor

ators• Bad Economic conditions in

1987-1988• Seasonal Factor• High Bargaining Power of

Consumers

Context

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Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Positioning of tweeter w.r.t. App & edfp

Positioned as a high- end retailer in audio and video customer electronics market In 1980s, because of price wars and stiff competition, it had to widen it’s positioning as a

retailer catering to low- end market also, but the move did not pay off Were still perceived as high- end expensive retailer among the customers

Brought about a change in the marketing strategy in 1993 Restored to its original USP of product quality and customer service Strengthened its positioning in medium to high- end audio and video market conveying its

price competitiveness to the customers Introduced strategies like APP and EDFP and strongly advertised them to gain from these

Before change in Marketing Strategy

After change in Marketing Strategy

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Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Customer behavior in Boston area

Is tweeter trying to change this behavior ?

Detailed analysis of customer behavior is shown in Slide no. 7 Customers focused more on price and waited for weekend sale in every product line

Quality/ Service

Customer V/S

Price biter

Yes, both types of customers behaved differently in terms of pricing For price biters, price was primary concern but for quality/ service

customers, it was still secondary Showed similarity when it came to product quality and customer service

Yes, Tweeter is trying to change this customer behavior through APP and EDFP policies APP policy showcased their ‘Price Competitiveness’ keeping its USP in the main frame It was specially targeted for quality/ service customers and price biters Price biters wanted high service which Tweeter was already providing, by APP they showed that their

products were lowest priced and will be refunded if this was not true, thus using it as a ‘customer acquisition’ strategy

Quality/ service customers were given additional benefit of lowest price and auto refunds, so were given even better service thus using it as a ‘customer retention’ strategy

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Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

How they make money ?

Avoided direct confrontation with big players in the initial years and focused on its student market

Price cut on selected items during weekends in order to boost sales in times of fierce competition

Introduction of new lower end products like Sherwood audio components

Joined PRO, thus getting the prices equivalent to its big competitors for various products, so cost was reduced and chances of higher profitability increased

Incorporating APP and EDFP policies and thus bringing about change in the marketing promotion mix to focus more on its USP of quality and service

Product (Service) -- Offered wide variety of products including PC, home appliances, audio tapes, compact disc, audio and video components -- Knowledgeable staff and offered good customer service

Promotion -- Media- blitz advertisements for promotion was extensively used to create market for themselves in the market -- Promotional strategies focused on the consumer

Price -- Fierce price competitiveness thus providing rock bottom prices to customers

TWEETER

CIRCUIT CITY

17

Case Background

1972 to 1980s

1980s to 1993

1993 1996

Questions

Analysis

Are app & EDFP effective strategies for tweeter?

Yes, both have turned out to be effective strategies for Tweeter in past couple of years

But these alone were not effective, instead ‘Three- Pronged Attack’ strategy was effective for them

APP and EDFP may have not been so effective without the change in marketing mix strategy and its aggressive campaigning

Alternate strategies for tweeter Three- Pronged attack strategy may no longer work for Tweeter in the current structure Reason for this is the entrance of ‘Nobody Beats the Wiz’ in the New England market Wiz is known for it’s rock bottom pricing across different product categories which will

negate APP policy of Tweeter and Tweeter may suffer with heavy losses We suggest that they should modify APP policy and turn it into 110% refund of price

difference in form of ‘Store coupons’ Will increase the frequency of visits by the customers and more chances that customers will

buy products of greater price

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