Group 6

RU Consulting, L.L.CNick MorganLaura Pynn

Jennie RambergBrenna O’ ReganJames Morrison

Tweeter, etc. is an audio/video company that faced pricing strategy problems in

1993 that made the history books for adverse pricing strategies. Sandy Bloomberg formed the

company in 1972 and the company faired well in the 1970’s and 1980’s. It grew to 13 stores

when they implemented the Automatic Price Protection pricing strategy. This strategy nearly

drove the company into bankruptcy. The company still faces unremitting problems which

this paper will address. This is our proposal as RU Consulting, L.L.C.

First, we will examine how the company evolved. Second, an analysis of the

company’s strengths, weaknesses, opportunities and their threats will be considered and an

analysis of their corporate strategies will be given. Third, we have included our solutions and

recommendations for this company. Last, we would like to give our recommendation to you

as the stockholder on what you should do with the stock you are holding.

Tweeter started out as a small retailer of high-end audio/video equipment right

outside of Boston University. This store was a success and soon expanded into 13 stores

through out New England. 1 It began to get a reputation for its excellent service and quality

products and sales soared. However, in the late 1980’s, the bottom fell out of the electronic

market and caused two things: price wars with local competition; and Tweeter then joined the

Progressive Retailers Organization, in 1988. This organization combined the buying power

of small high-end consumer electronic retailers across the United States which allowed them

to negotiate with manufacturers to obtain prices which were competitive with larger retailers.

2 In short this organization kept the retailer’s market from dropping out from under them.

They did this by setting price standards up that nobody who sells certain brands and models

of products can sell them below a given price at which they all agreed to.

1 “Tweeter Home Entertainment Group, Inc- Company History” , http://www.fundinguniverse.com/comany-histories/Tweeter-Home Entertainment-Group, retrieved 02/22/2007.2 “Tweeter,etc”, Marketing Management, Case Analysis by Teams, Mattson, Melvin R, 2005, pg. 133.

In the early 1990’s, Tweeter’s sales were dropping. They conducted focus groups to

figure out where the problem was. Their surveys said the customer understood that they had

excellent service, but they didn’t like the high prices. So Tweeter’s management staff came

up with Automatic Price Protection to combat the perception of high prices. Tweeter would

monitor the weekly sales ads of all the major local papers and cross reference that with sales

within 30 days; and if a customer paid more for a product than the sale price, Tweeter would

refund the difference. At first, this strategy was good, but as larger competition moved in,

Tweeter began writing more and larger checks. By December, 1995, Tweeter in total had

written 29,526 checks to the tune of $783,863. 3 This nearly drove the company into

bankruptcy and later led them to be studied as adverse pricing strategies.

Tweeter began to shift its focus from APP pricing strategy to making money by

acquisition of other small high-end retailers of electronics. Like the APP, this strategy

worked well at first and then failed. Here is a listed breakdown of their acquisitions (listed

only for historical relevance):

“1996 Bryn Mawr -13stores

1997 HiFi Buys- 10 stores

1998 made their first public offering of stock, $40 a share and

changed their name to Tweeter Home entertainment Group, Inc.

1999 Home Entertainment of Texas- 7 stores

1999 DOW Stereo/Video, Inc. – 9 stores”4

“2000 Douglas TV- 4 stores

January,2001 House of Blue Concerts to rename the Lakewood

3 Ibid.4 “Tweeter Home Entertainment Group, Inc- Company History” , http://www.fundinguniverse.com/comany-histories/Tweeter-Home Entertainment-Group, retrieved 02/22/2007.

Amphitheatre to HiFi Buys Amphitheatre

April,2001 E-Center in Camden, NJ to rename it the Tweeter

Center at the Waterfront

May, 2001Big Screen City- 4 stores

June, 2001 Audio-Video Systems – 3 stores

August, 2001 Sound Advice- 33 stores

March 2002 Hillcrest High Fidelity

April, 2003 Coral Sky Amphitheatre to Sound Advice

Amphitheatre

July, 2004 NOW! Audio Video- 6 stores”5

The purpose of listing all the acquisitions is to emphasize how the company has

grown into 154 stores in 13 states6 and it is crucial to know where we have been so we

know where we are going. Each of the companies that they acquired were small retailers

with a reputation for high quality service and installations. This is a rapid evolution in 10

years. It changed its strategy to focus on becoming a national retailer. They were trying to

become a household name through the ‘back door’ of people’s minds.

In the second section of this paper, we would like to focus on the SWOT analysis

and the company’s corporate strategy on how to position itself in the consumer’s mind. The

company honestly has quite a few good things going for them to differentiate themselves

from other competitors in the same market. For one; the vast array of custom installation

services and applications that are offered are simply un-beatable. When you want to have a

home theater built specifically for you in your own home Tweeter definitely has the right

5“ Company Overview”, http://www.tweeter.com Retrieved 2/22/2007

6 Ibid.

people to get the job done the proper way. The products that Tweeter offers are also a

strength that they take full advantage of. Various brands that they carry such as Denon; JL

Audio, and Sennheiser are not carried by any other national retail chain stores, so Tweeter

basically has this small niche market all to itself. Tweeter also does a lot of community-

service type charity drives for children in the local areas surrounding the stores. The

company seems to really care about children by donating money to the Make a Wish

Foundation, and the Children’s Hospital. Tweeter also offers a Music Education

Scholarships for a select few people who have an interest in furthering their education on

the collegiate level of music. They do an excellent job giving back to the communities that

give so much to them.

Unfortunately; you can have an infinite amount of strong points in a company,

however you cannot escape the fact that every company has to have weaknesses as well.

With the introduction of the Automatic Price Protection strategy that the management came

up with nearly drove the company into bankruptcy, never to return. You simply can’t

oblige yourself to pay money back out to the customers, just because a bigger company is

advertising the item for cheaper, especially after the consumer has already purchased the

item. Overall APP was a horrible idea, and was definitely a clue that the management

needed restructuring. The corporate strategy of buying up smaller chains and gaining

market share by acquisition was also not a good idea. This really spread the financial part

of the company really thin, and caused us to get even deeper into price wars with larger

chains such as Best Buy and Circuit City. We thought that acquiring all of these smaller

stores across the United States would in turn help out the problems with the market share

that we are loosing to the bigger companies, but it actually hurt us.

Tweeter’s opportunities include offering high-end audio components that no other

national retailers offer. By continuing their focused differentiation strategy they have the

opportunity to invest in areas that make them different from the bigger retailers. These

differences create value for our customers and serve as our competitive advantages. These

core competencies include unparalleled customer service, high-end installations, and very

high-quality audio components. By consistently focusing on these factors tweeter can

expand in their high-end niche. This expansion isn’t in the number of stores, but in their

consumers’ perceptual maps. Concept stores that include a concierge, interactive

showrooms, and the most knowledgeable sales people are a good way to do this. This is

also a good technique to cultivate future audio/video enthusiasts.

Some threats that loom on the horizon for Tweeter are large chain stores like Circuit

City and Best Buy. If Tweeter doesn’t position their brand name and services correctly

they run the risk of being out-focused or “dwarfed” by larger competitors. Circuit City

recently opened “Firedog”, their home electronics installation division. Firedog is nothing

more then a service that Circuit City provides that has a crew that comes out to your house

and does on-site service for your home theater or personal computer whatever problems

you may be having they can fix it. Another attempt to take market share from Tweeter is

Best Buys’ high-end TV stores, known as “Magnolia”. In these stores they offer premium

televisions with the latest technology along with a staff that is very knowledgeable about

the high end audio/video systems that they sell. Price wars are always a threat to Tweeter’s

small market share. We simply cannot compete with the larger retail chains mainly because

we can not move as much volume as they can. Also as products mature they are no longer

seen as cutting edge by Tweeter’s patrons. Keeping “old” technology could damage their

image as a high-end retailer. The vast majority of our customers tend to be people who are

very involved in the latest technology available and always have to have the newest and

best thing out, whether it’s a new home theater or a brand new plasma television. The

money that they spend is of no significant importance, they are more sensitive to quality

and innovation than they are to price. They have to have the most up to date products that

are on the market. It is our job to stay ahead of the curve and provide our customers with

these constantly evolving products.

With regards to company recommendations, we feel strongly that if Tweeter were

to follow these five suggestions, the company would be able to turn itself around. First, we

think that Tweeter must steer clear of the products that it’s main competition, the larger

discount retailers (i.e. Best Buy and Circuit City), offer because Tweeter holds no strong

competitive advantage against them, and they are only hurting themselves when attempting

to compete against them. Second, we think that they should work on strengthening their

custom installation marketing strategies, because they service they offer is of high quality,

and so are the actual products, but they have not successfully found a marketing strategy in

which to position itself in the market. If they were to work on that, the long-term benefits

would be incredibly advantageous to their image and brand name. Third, Tweeter focuses

heavily on the price, trying to convince its audience that they have the best prices around.

As is evidence from its Automatic Price Protection strategy, Tweeter wants its customers to

perceive their prices as the best in the industry. The truth, however, is that Tweeter’s

competitive advantage does not lie in its prices, in fact in lies in its customer services and

custom installations. This, then, is what needs to be the focus of Tweeter’s marketing and

planning objectives. Customers need to know that Tweeter has competitive prices, but that

the real benefit of choosing Tweeter over Circuit City or Best Buy, is the extensive help

and customer service you receive, which sets them apart from its competitors. Fourth,

Tweeter is trying to serve a common market of consumers looking for audio/ video needs,

but what they must really focus on, and try to position themselves within, is a niche market,

one in which its customers are willing to pay more for the added service and customization.

Tweeter sells to a certain customer, one that is educated about its products and is looking

for innovation, as well as quality, and so it is time for Tweeter to turn its attention to this

specialized consumer and target its market more effectively. And last, there are some areas

in the United States in which Tweeter is not located. We feel that Tweeter should expand

into Denver, Colorado; Seattle, Washington; and Lansing, Michigan because these cities

are the homes of consumers that we feel are part of Tweeter’s target market. There are no

Tweeter stores in any of these states, but we think that it would be highly profitable for

Tweeter to expand there.

Concerning Tweeter’s stock, which is not doing too well at the current time, we

think that stockholders should “hold” their stock. We have come to this conclusion

because the price is so low, approximately $1.46, that is would not be advantageous for

stockholders to sell now, because they would not make any money, and would in fact be

losing the initial capital of what was paid for the stock. With regards to buying, we think

the stock is too volatile to try to add more to your holdings. Stockholders should hold onto

the stock and watch Tweeter, its competitors (Best Buy, Circuit City, and Radio Shack), as

well as the industry as a whole. We are confident in Tweeter’s new three- pronged strategy

and feel that once it is implemented, and time has passed allowing Tweeter’s repositioning

to be recognized by the market, Tweeter’s stock price and valuations will become better.

So our suggestion at the current time is to “hold.”

Tweeter has shown that although it has implemented strategies over the years that

have hurt the company, they are still strong and are still growing. They have endured the

unsuccessful APP strategy, and have suffered from it, but they have also learned from it.

We feel that they have room for continued growth, and if our recommendations to the

company are followed, they have the opportunity to put themselves at the forefront of high-

end video and audio equipment.