Essentials of Marketing

Part V:
Comments on Cases in Basic Marketing

INTRODUCTION
This edition of Basic Marketing includes two different types of marketing cases: 8 video cases (starting on
page 659 of the text) and 5 traditional cases (starting on page 6!5 of the text)" This part of the manual
provides ideas and suggestions for each of the 5 traditional cases" #$uggested cases# are listed at the
end of each chapter in the text" Thus% the chapter&'y&chapter aids in (art )* of this manual also provide
some 'rief supplementary comments a'out using the cases suggested for specific chapters" )n addition%
(art ))) of this manual provides additional ideas a'out using traditional cases and+or video cases in your
class" The separate Instructor's Manual to Accompany the Teaching Videos for Basic Marketing provides
more detailed information (references% ideas for related student pro,ects% etc") a'out the video cases"
Traditional Cases
The 5 traditional cases vary in length% in whether or not they are 'ased on a well known company% in the
amount of numerical information presented% in the type of marketing setting involved% etc" $ome cases
have 'een retained from earlier editions of Basic Marketing 'ecause they have 'een popular with
instructors&&popular 'ecause they are effective vehicles for case analysis and learning" )t does not make
sense for instructors to have to constantly start over in their case preparation&&and therefore not 'e a'le
to take advantage of the experience gained from teaching a case several times" To the contrary% such
experience can often provide ideas for 'etter ways of handling a case and lead to a more effective class
discussion" $ometimes% however% students have access to #assignment files# (for example% through a
fraternity or dorm) that might have copies of write&ups of cases from previous semesters" That is why
cases that have 'een retained from previous editions are sometimes disguised in a variety of ways&&
including changes in the name of the case% some of the circumstances in the case% some of the num'ers%
the dates% etc" -eed'ack from instructors around the country indicates that these changes are effective in
defeating the possi'le effects of the student files&&while preserving the advantages of proven cases"
. caveat is in order here" . case that you have used 'efore may have 'een updated from an earlier
edition and changed in important ways that will affect the #solution# to the case and+or class discussion"
Thus% even when you recogni/e the thrust of a case you liked and used 'efore% you pro'a'ly should re&
read the case and comments 'elow to 'e certain that changes in the case have not invalidated your notes
or introduced important new issues to 'e considered"
Video Cases
.ll of the cases offer students the opportunity to evaluate marketing concepts at work in a variety of real&
world situations" 0owever% the video cases add a multimedia dimension 'ecause we have produced a
special video segment to accompany each of the written cases"
The videos 'ring to life many of the issues considered in each case" 0owever% you can ask students to
read and analy/e the written case descriptions even if there is not the time or opportunity to view the
video" .lternatively% you may want to have students view the video (and+or discuss some of the case
issues) without reading the printed case" 1ither way% you2ll find that the cases are closely tied to the
important concepts in the text"
The set of 3uestions at the end of the video case (printed version in the text) can 'e used to get students
started in thinking a'out the marketing issues in the case" The 3uestions can 'e assigned along with the
case (printed or video form or 'oth) as the 'asis for an individual student written assignment or as
preparation for in&class discussion" The )nstructor4s 5anual for the *ideos and *ideo 6ases provides
some ideas a'out each of the 3uestions as well as other suggestions relevant to teaching with the case"
Instructors Manual to Accompany Basic Marketing V-1
Part V
7ecause a complete discussion of each of the videos is provided in the separate )nstructor4s 5anual for
the *ideos and *ideo 6ases% we will not repeat all of that detail here" 0owever% as an overview% the video
cases include:
1. ChickfilA! "#at Mor Chikin$ %#&cept on 'unday(
). 'u*ur*an +egional 'hopping Malls! Can the Magic Be +estored,
-. Celestial 'easonings
.. Toyota /rius! The /o0er of #&cellence in /roduct Innovation and Marketing
1. /ot*elly 'and0ich 2orks 3ro0s through "4uirky$ Marketing
5. 3irl 'couts
6. The 3M 7ummer! Brand #8uity9 /ositioning9 and :evelopment;
<. 'eg0ay =inds >iche Markets for Its 7uman Transporter
Technology
COMMENTS ON EACH OF THE TRADITIONA CASES
Case !" McDonald#s $Seniors$ Resta%rant
7ridgett 7owen2s strategy is evolving&&at least with respect to her senior citi/en customers" $he is
encouraging a friendlier #product# and her target customers are responding" .s long as this strategy does
not conflict with her other #fast&food# strategies for other customers at other time periods% there seems to
'e no pro'lem" 89T1: 5ost of the seniors do leave 'y :::; am% 'efore the noon crowd" <egarding the
'ingo idea% #parties# are now allowed% so this could 'e considered as a #'ingo party"# 7ingo might cause
some seniors to stay longer% however% and% if the #seniors# come in greater num'ers and+or stay longer
and 'egin to #crowd out# other target markets% then she may have to change her evolving senior citi/en
strategy"
(8ote :: This case is adapted from what did happen in a =etroit% 5ichigan 5c=onald2s restaurant" The
'ingo idea was not used there% however% ,ust the heavy emphasis on seniors") (8ote >: 5c=onald2s and
some other fast&food places are allowing modification of their 'asic strategies to suit local conditions"
5c=onald2s% for example% is even changing its exterior design and interior decoration to meet planning
commission re3uirements and+or to #fit in# to the surrounding area")
This case is placed first in the set of cases to help make the point that market&oriented strategy planning
is not ,ust a 'ig manufacturer activity" -urther% it can 'e used to show that a particular 'usiness may have
to create and implement several strategies at the same time" )t also can 'e used to emphasi/e that
friendly personal service can 'e an important part of a firm2s #(roduct"#
Case &" S%ns'ine Foods( Inc)
$unshine -oods is typical of the many production&oriented (volume&oriented) food processors who can 'e
characteri/ed as #pea&packers"# Their production facilities can only 'e used for a short time each year&&
when the crop is ripe&&and so the natural focus is on producing as much as possi'le and then #getting rid
of it# later" ?hen there are many similar producers% however% this leads them into almost pure
competition where they must take the market price" -urther% if all the other producers are trying to
produce as much as they can% then the only way for a particular producer to increase revenue is to
produce more" 7ut% of course% this can 'e self&defeating if industry demand is inelastic"
$unshine -oods apparently has achieved some 'rand recognition for its various products% 'ut its ma,or
competitors pro'a'ly have also" This suggests monopolistic competition" 7ut given that the middlemen
can and are willing to su'stitute one 'rand for another% it is clear that the market is closer to pure
competition" This helps explain why profits have almost disappeared" @nless $unshine -oods 'ecomes
V-2 Perreault, Cannon, & McCarthy
more market&oriented% it is likely that conditions will worsen 'ecause it appears that several competitors
are a'le to mount more profita'le efforts% and so will have more money for promotion or to a'sor' price
competition" $ome of its competitors2 'etter performance may 'e due to production decisions (such as
vertical integration)" 7ut it is also likely that some of it is due to focusing on more profita'le products&&
such as #gourmet# vegeta'les and fro/en dinners or entrees with vegeta'les&&while $unshine -oods has
'een volume&oriented% hitting all of its ma,or competitors head&on in the #mass market for commodities"#
8ow that $unshine -oods is trying to 'ecome more profit&oriented% it may think seriously a'out
developing profita'le strategies&&rather than ,ust marketing mixes to increase sales volume" This may
lead it to drop some items&&and to place greater emphasis on particular geographic areas where
competition is not as tough" -urther% it might consider new products" .nd perhaps it would want to think
a'out preparing parts of or whole dinners% i"e"% instead of focusing only on packing #commodities"#
(erhaps it ought to put more convenience into its products" (ackaging a variety of T* dinners% for
example% might yield a much greater return on the #peas and carrots# it has 'een selling as
#commodities"# @nfortunately% however% others are doing this already" $o it would not 'e an innovator" )n
fact% these markets may 'e in or close to market maturity already% so $unshine -oods has a tough ,o'
aheadA )t should have 'ecome #market&oriented# many years agoA
Case *" NOCO Soccer Academ+
5any companies have difficulty making the transition from a successful small company with a few
employees to the next level" The case allows the instructor to discuss a variety of different topics
including: target market selection% customer e3uity% lifetime customer value% growth through ac3uiring
customers% retaining customers% and expanding 'usiness with current customers"
The case teaches easily as most students are familiar with sports marketing situations" )n fact to get
students interested% the instructor might start the case 'y asking B0ow many of you participated in youth
sportsCD
The case offers four distinct teaching options" The first option focuses on current customers and seeks to
keep them involved with 8969 longer" )t can 'e easier to retain current customers E as opposed to
ac3uiring new customers" 7ut you might ask% B0ow easy will it 'e for 8969 to keep these customersCD
.s kids enter high school there are more activities competing for their attention" Fou might ask% B?hich of
its current :G&:5 year old customers are most likely to remain interested in soccer trainingCD )t seems
most likely that those kids who are the 'est soccer players% perhaps those seeking college scholarships%
are likely to want to continue" )f that is the case% then the development of a more BeliteD program that
perhaps includes teaching them how to attract the attention of college coaches might appeal to this group"
Fou could discuss (romotion% (rice% and (lace issues E as each of these should 'e adapted to the target
market" . premium product might also 'e a'le to generate 'etter margins" (romotion to this group needs
to 'e highly targeted" 0aving worked with these kids% Hermain could talk to them and their parents directly
or have targeted e&mails" (lace issues might address what times of day and times of year are most
convenient for high school age participants"
The second option targets all current customers and tries to grow 'y increasing their use of and spending
for soccer training" This may lead to a wide ranging discussion a'out what other needs these more
athletically&oriented kids have" 7ut clearly there is a need to 'alance the kids4 soccer needs with 89694s
strengths" ?hile some students may 'ring up ideas like offering training in other sports% this is not likely
to appeal to Hermain or 'uild on 89694s strengths" This allows the instructor to point out that the needs
of 'oth the company and its customers are important in determining a marketing strategy" $till% there may
'e variations on (roduct" -or example% off&season training might differ from in&season training" 9ther
options may include some sort of 3uantity discount price" -or example% 8969 might offer discounts to
people signing up for their third program in a given year" $tudents might suggest other variations on the
loyalty+rewards theme (loyalty cards% other types of 3uantity discounts)"
The third option focuses on customer ac3uisition 'y targeting younger kids (age 6&9)" Iids in this age
group have a longer potential lifetime value% assuming that Hermain can keep most of them active in his
Part V
training programs through age :5 or later" 5any of these kids play in the local recreation leagues% 'ut
some parents are looking for higher 3uality training to give their kids an edge" . 3uestion like% B?hat are
the likely challenges to developing a marketing mix to serve these customersCD will help students focus on
how marketing mixes need to 'e tailored to particular market segments" There might also 'e discussion
a'out family 'uying E the user of the service is likely to have little influence on whether the family initially
signs up for a program" 7ut if the child does not en,oy the program% they are unlikely to return"
The fourth growth opportunity focuses on ac3uiring customers E 'ut in a new geographic location" B0ow
would the marketing mix need to 'e adapted to increase market penetration in near'y Joveland or
KreeleyCD The o'vious answer might 'e offering programs in these towns" 7ut there is also the
challenge of 'uilding awareness" 8969 might rely on word&of&mouth% 'ut there are other methods that
might help to more 3uickly get people interested" B0ow would they identify their target marketCD B?hat
would their message 'eCD
This general overview of the 8969 case shows that it provides an opportunity for discussing a variety of
issues related to marketing strategy" ?e have suggested this case for use in the following chapters:
6hapter >: customer e3uity"
6hapter : market segmentation and targeting"
6hapter 6: consumer 'ehavior"
6hapter 8: marketing research
6hapter 9: service element of a product"
Case ," Al-are. Tec'nolog+ Ser-ices
Iatie .lvare/ failed to develop a uni3ue marketing strategy and instead decided to compete head&on with
a firmly entrenched competitor% Hoe 6arson" 6arson is winning in this competition% and demand is
pro'a'ly not sufficient to support 'oth .lvare/ and 6arson even if she gets a larger share of the 'usiness
that he now has" $o far% she4s not even very successful in taking 'usiness away from him% in spite of the
fact that she thinks she has 'etter technical skills" $he needs to look at this from the customer4s point of
view" )t may 'e that 6arson has 'etter people skills even if he doesn4t have all of .lvare/4s technical
skills" )n this type of market% the service provider is also the salesperson who is in contact with the
customer" <esidential customers may not know or even care who has the B'estD technical skillLif the
person they call for help inspires confidence% can solve the pro'lem% and does it in a pleasant way and at
a reasona'le price" 6arson2s reputation ('rand preference or even 'rand insistence) leaves Iatie .lvare/
with mainly #overflow# ,o's in the residential market"
.lvare/ has not 'een a'le to reach her sales o',ective of M6;%;;; a year% and without changes it is
unlikely that she will" 7ased on the facts in the case% .lvare/ is mainly getting 'usiness that 6arson can4t
handle in a timely 'asis" $ome of that 'usiness involves short&term emergencies and some of it relates to
the seasonal fluctuation in demand (that is a weakness in her (lace decision)" (etoskey is where she
wants to live% 'ut the 'usiness (and strategy) she has chosen is heavily limited 'y the seasonal
population in this resort community% especially given her emphasis on residential customers (rather than
larger companies which might have more consistent needs over time)" This is also a limitation of
6arson4s strategyL'ut she ignored that and ,ust copied what he was doingA
The seasonal nature of demand may not seem like a high&priority pro'lem to 'e solved now since she
doesn4t even have enough work to keep 'usy" 7ut it is a 'asic limitation with her strategy of targeting
consumers who are not there much of the year" 1ven if she 'uilds her 'ase of residential customers
(takes some market share away from 6arson) and develops more repeat 'usiness% the seasonal nature
of demand in (etoskey is a longer&term limitation" This is a service 'usiness and her Bproduction
capacityD is limited 'y how many computers she can service in some period of time" That capacity is not
even stretched now% 'ut if she 'ecomes more successful that will 'e an issue" =emand will 'e
systematically lower during the slow winter months and she will often have little to do" 7ut in the 'usy
summerLand especially during the periods in early summer and early fall as people are moving in and
out she won4t 'e a'le to keep up" <esort town markets often create a B'oom or 'ustD situation for all
kinds of 'usinessesA
The case tells students that .lvare/ is yielding a'out M>;; a week% which is M:;%G;; a year% from the
emergency 'usiness" The seasonal 'usiness might yield M9%;;;&M:>%;;;% 'ased on M:5;&M>;; a day
times 5 days a week times :> weeks (6 weeks in the .pril&5ay period and another 6 weeks in the $ept&
9cto'er period)" )n com'ination that is a'out M>>%;;; a year or roughly a third of her goal"
$tudents will see that there is little that .lvare/ has done to differentiate her offering% and many will also
argue that she pro'a'ly won4t 'e a'le to offer customers a 'etter value than they can get from 6arson"
?hat many students will miss is that even if she is successful (over time) in taking a larger share of the
market away from 6arson% the overall demand that the two of them split is not likely to grow rapidly" Thus%
even in that BoptimisticD outcome% revenue that was sufficient for 6arson would simply 'e divided 'etween
the two of them" )n that sense% while .lvare/4s decision to enter the market may ultimately hurt 6arson
(take away some of his revenue during the slower periods when he doesn4t want to lose it)% it doesn4t
appear that she can really winA This unpleasant outcome isn4t likely to change even if she does a 'etter
,o' of implementing her current strategy (perhaps 'y 'eing more effective in promotion% doing things to
stimulate word of mouth recommendations% giving price 'reaks to repeat customers% offering a service
guarantee% etc") This suggests that she needs to look for some other strategies% perhaps in com'ination
with what she is currently doing so that her overall marketing program is profita'le even if no individual
strategy% 'y itself% is"
)n evaluating alternative opportunities (and strategies) she might set one screening criteria 'ased on the
seasonality of demand" $he would 'e 'etter off if she could BaddD a new target market and marketing mix
that would keep her 'usy during the slower winter months" )t might 'e that some large 'usiness
consulting work would help in that respect" The case doesn4t provide much detail a'out that sort of
opportunity% 'ut one does get the sense that she may have too 3uickly concluded that B'ig companies
have their own experts"D 5any 'usinessesLeven large ones that have a permanent staffLoutsource
some of their work during peak load periods" -or example% peak workloads for a company4s internal
computer staff are likely to occur when they are making 'igger one&time changes in the computer system
(updating the network% installing new versions of software% replacing old computers with new models)"
=uring such times% a company4s internal staff may 'e overloaded and eager for short&term help from a
consultant" .lvare/ might want to research opportunities such as this% and if the demand appears to 'e
there she could make some sales calls on BprospectsD to tell them a'out her capa'ilities" This is not the
sort of 'usiness that she is likely to get 'y simply sending out a flyer or advertising in the newspaper" )t
would re3uire a more aggressive personal promotion effort in the 'eginning% 'ut it pro'a'ly could work
'ecause getting good% dependa*le computer help is not easy and can 'e expensive" $o the su'set of
large companies that go #outside# for extra short&term help could 'e an appealing market"
This is certainly not the only possi'ility" -or example% .lvare/ might look for totally new areas that could
use her skills and where there is more potential for growth (and also less competition)" 6onsider% for
example% her decision to focus on computer service as her (roduct" )n an upscale resort community%
there is likely to 'e interest in and demand for other (roducts like Bhigh&endD home theater systems"
These usually re3uire installation% technical skills that many consumers don4t have% and even occasional
service" )n fact% there is a merging of technologies so that many computer companies are now offering
audio+video accessories and promoting multimedia capa'ilities" )n many home theater and audio
systems a computer actually 'ecomes the Bmedia server"D 7y focusing on these needs% .lvare/ might 'e
a'le to get a large share of a growing target market" 8ote% however% that the case doesn4t tell us much
a'out the competitive situation in that su'&area of the market" .lvare/ would need a 'etter understanding
of 'oth the demand and competition in that service arena 'efore making any decision"
<egardless of what alternative opportunities .lvare/ decides to pursue% she will pro'a'ly need a
com'ination of different strategies if she wants to stay in (etoskey and wants to keep at least a partial
focus on her BcoreD idea of providing computer services for home offices" 0owever% she may 'e a'le to
achieve her income o',ective if she chooses several targeted strategies at the same time and implements
them well" -or example% she may 'e a'le to count on the #emergency# 'usiness year around% get more of
Part V
the seasonal resort home 'usiness during the :>&:6 week summer season% develop the home theater
'usiness in the early spring (so systems are installed when residents move 'ack to town)% and work to get
some large 'usiness consulting work% especially during the winter months" 7y com'ining these strategies
she may make enough to 'e a'le to reach her o',ective of making a living in (etoskey&&even if she can2t
reach her M6;%;;; o',ective right away"
)n other words% 'y carefully developing several marketing strategies&&rather than ,ust one&&&and then
implementing them alongside each other% she may 'e a'le to stay in the area" )t is important to see that
these strategies do not hit Hoe 6arson head&on% 'ut rather involve 'usiness that he is either not interested
in or una'le to handle" There may 'e room for two #good# technology support firms in this city&&and with
careful planning and implementation% .lvare/ may 'e a'le to 'ecome as invulnera'le to competition as
6arson"
Case /" A00lied 1ol+mer Sciences
. production&oriented research engineer and company anxiously sought a market for the component
materials it could already make (although it is now trying to sell an installation&&note the product class
change at some stage in the discussion% 'ecause this calls for different marketing mixes as long as they
keep selling installations)" 8o consideration was given to the legal environment or to potential customers2
attitudes" )n this case% architects2 opinions should have 'een sought along with the pro'a'le reaction of
'uilding inspectors and fire marshalls&&who are re3uired to enforce 'uilding and fire codes"
7efore any further work is done% a more careful analysis of the pro'a'ility of acceptance in various
markets should 'e done&&including the #glo'al markets# Han Hensen is talking a'out" This would 'e far
less expensive than the trial and error (demonstration) approach suggested 'y Hensen&&the young
engineer who developed the product" Typically% such people like to produce tangi'le evidence of their
effort" 7ut this might add needlessly to costs if architects and 'uilding inspectors will not even 'other to
look at the products" -ollowing some preliminary market research% it might 'e possi'le to develop one or
more profita'le marketing strategies% 'ut this should 'e done only after some potentially attractive target
markets are isolated&&if there are anyA N8ote: aside from a few demonstration domes% this product did not
find a market and is not 'eing offered"O
Case 2" International Steel Com0an+
)nternational is facing oligopoly conditions in the smaller si/es markets" .nd% although price competition
is sometimes avoided in such markets% here price competition from smaller and lower cost producers has
'een pushing prices down" .'ove >G inches% @"$" $teel has had a monopoly% and this is the market
)nternational is aiming at with its #new product"#
@sing a typical production&oriented approach to product development% it has developed a #new#
component material which does not meet standard specifications% so the structural fa'ricators will not 'uy
(unless they are foolishly willing to use non&spec2d materials and assume all the lia'ility which otherwise
would fall on the architects)" Then% it has not worked with architects to get them to write a more general
set of specifications that will cover this #new# product" .s long as sources of supply are ade3uate and
prices are the same% it is likely that the new product will not sell at all" $ales effort should focus on
gaining acceptance for the product among architects who write the specifications that the fa'ricators must
meet"
)t is interesting to note that a couple of years after this #new# product was poorly received% supply 'ecame
3uite tight and )nternational2s product was readily accepted as a su'stitute which met the specificationsA
This is ,ust another illustration of how customers2 needs and attitudes must 'e considered"
Case 3" 4erikeri odge
Ierikeri Jodge is% in some ways% a very targeted operationEit certainly isn4t trying to serve a convenient
local market or some sort of international mass market" )t has 'een developed to serve a very elite% high&
income clientele% with a targeted set of high&end services and experiences"
?hen students address the characteristics of the market segment(s) 'eing targeted 'y the company they
are likely to immediately identify the 'asic characteristics a'ove% especially wealth" )t4s useful to have
students list some of the different types of people that might fall into this group" These might include
politicians or others with high pu'lic visi'ility% corporate executives with high incomes and net worth%
entertainers (from the music% T*% and movie sectors)% high&profile professional athletes% and people from
old well&known families with inherited wealth" $ome needs are similar across these different types of
customers" -or example% they may all 'e seeking privacy% variety% a uni3ue and exciting Blife experience%D
and food and attention of the highest cali'er" They also may 'e seeking status% social connections% and
opportunities to network with Btheir own kind"D That is a potential issue 'ecause some of the people from
one type of group might not 'lend very well with people from another" . rock star might or might not think
it was interesting to 'e thrown in with a group of high&level executives" 9r a professional athlete might not
think that 'eing grouped with a set of political leaders was very ideal" They also might have a different
idea a'out what they would like to do with their leisure timeEand that might make it more difficult for the
firm to really cater to their individual preferences"
1xpectations of the customer group will o'viously 'e very high" Ierikeri Jodge can4t get good word&of&
mouth referrals or satisfy its current customers if everything isn4t exactly the way its customers hope it will
'e" This may 'e a challenge% not only in providing high&level services% 'ut also in not creating
expectations that can4t 'e met" )n the 8ew Pealand wild% it might 'e impossi'le to provide some of the
amenities that this upscale target group might take for granted in other localesElike the 'ig cities where
most of they pro'a'ly live" Ierikeri Jodge pro'a'ly needs to communicate to guestsE'efore they arriveE
what to expect" )t can highlight the lodge4s uni3ue features% including the BescapeD from some of the
things it doesn4t offer" This may 'e a 'it of a positioning challenge% 'ut it is not that different from the
challenges faced 'y other service organi/ations" =isney% for example% focuses on a very different kind of
market 'ut it still must cope with the fact that people who go there don4t find everything they might expect
as normal (such as fast&food places with 99 cent ham'urgers)" =isney tourists may also get things they
don4t want or expectElike a two&hour wait in a line for a popular ride" =isney tries to deal with these
pro'lems 'y using careful communications to manage expectations"
5ost customers are likely to 'e foreigners rather than 8ew Pealanders for the simple reason that Ierikeri
Jodge is more likely to 'e seen as really interesting% exotic% and different 'y someone far away than 'y
someone who already lives in 8ew PealandEeven if the person is 3uite wealthy" )t is in part the fact that
Ierikeri Jodge is so far away and so unreacha'le that makes it attractive to a group of people who
otherwise can have or do anything they want" -urther% the practical matter is that people with the money
to 'e customers are also more likely to 'e in other places% although they may not necessarily 'e
concentrated in certain countries" -or example% they might ,ust as likely come from 6hina% the 5iddle
1ast% or 1urope as from the @"$" or 6anada" This may make it more difficult to BreachD potential
customers except through their personal network of friends" 9n the other hand% to the extent that the
customers come through personal referrals they are more likely to 'e a more homogeneous group and
may even 'e more concentrated in specific locationsEwhether it is from 0ollywood or Tokyo"
)t would 'e difficult for Ierikeri Jodge to do many traditional types of marketing research&&at least if that
means 3uantitative surveys" )ts target customer is not the kind of person who is likely to respond" 9n the
other hand% there is pro'a'ly a good opportunity to make good use of secondary data and+or to do some
informal 3ualitative research with guests who are actually there" -or example% in the domain of secondary
data% Ierikeri Jodge might 'e a'le to research other similar resort facilities in other parts of the world to
see what they offer guests% how they handle promotion% and the like" )n fact% this might lead to some
opportunities for cross&promotion" 9nce a person has 'een to a fantastic and isolated resort in the $wiss
.lps they might 'e interested in a very different experience% like Ierikeri Jodge (or vice&versa)" )nformal
3uestions to guests might not 'e viewed as research 'ut rather as polite conversation" 1ither way it could
Part V
serve the same purpose" -or example% the hotel manager would certainly have the opportunity to ask
guests how they learned a'out the lodge% what services or features were most interesting to them% what
they found lacking% and the like"
Case 5" So0rano6s Ristorante
)t seems dou'tful that $ophie $oprano has a clearly defined marketing strategy" $he picked a location
((lace) near the intersection of ma,or traffic routes 'ecause she felt that: #o'viously the potential is here"#
This would seem to suggest that she was interested in catering to traveling people&&'ut when the
'usiness did not develop as she had hoped% she resorted to some radio and newspaper advertising%
which suggests that she was trying to cater to local people" This promotion was almost in desperation&&
which suggests that originally she was going to rely primarily upon (lace to attract customers" )t seems
likely that the increase in her sales was due to repeat local 'usiness coming for a good product at
perhaps a reasona'le price&&perhaps family 'usiness from the neigh'orhood" (erhaps word&of&mouth
advertising among travelers may account for some of the growth" )n any case% it is clear that she did not
recogni/e the potential power of promotion"
)f $ophie were interested in attracting traveling people% it might have 'een wise for her to offer
complimentary dinners to gas service station owners and attendants in the near'y area&&to ac3uaint them
with her place and service" -urther% some roadside signs might have attracted attention" To attract local
'usiness% she might have used radio or newspaper advertising earlier&&with the idea of #investing# money
in advertising rather than as expenses"
8ote that she had to invest an additional M%;;; for #survival purposes%# which pro'a'ly means to meet
the ongoing expenses which were not met out of gross revenues" This is another case of #having to
spend money to make money%# and production&oriented people are often very reluctant to spend money
on promotion to tell people what a good product they have" 7ut without promotion% $ophie had to wait a
long time 'efore some customers found that she did have an attractive offering"
)t is important to recogni/e% however% that $oprano2s <istorante is not yet a #'ig success"# $ophie is still
not drawing a salary out of the 'usiness" -urther% she is planning to invest the small #surplus# into
improvements that may 'e necessary ,ust to provide ade3uate service" -urther% at MG%>;; gross per
week% she is still a #small 'usiness# grossing only M>:8%G;; per year" . typical fast&food franchise would
'e grossing much more&&without all of the care that $ophie is lavishing on her 'usiness" 5any
5c=onald2s fast&food restaurants gross over M: million% while many less successful fast&food places gross
M5;;%;;;M:%;;;%;;; per year"
$o it should 'e clear that $ophie has created a #small 'usiness# that may re3uire her continued
involvement ,ust to 'reak even" ?ithout a 'ar or at least a li3uor license% he may 'e doomed to working
at her present level ,ust to 'reak even" ?ith hard work% she may 'e a'le to make a living&&'ut it doesn2t
look like she has an outstanding strategy that will cause sales to increase much more" Therefore% she
might 'e wise to consider going with a franchise chain&&to get someone else to do the strategy planning
for her" 7ut it may 'e #too late#&&given that she has #locked# into this place for :; years and has already
invested a lot of money in #improvements# which might have to 'e scrapped" .nother possi'ility is to try
to sell out to some other #innocent# and then go with a franchise chain&&if she can sell for enough% plus
raise ('orrow from friends) some more to have enough to 'e a'le to go with a chain" This might take
M>;;%;;; to M5;;%;;;A )t will also re3uire her to accept that she is 'uying someone else2s strategy&&i"e"%
she will lose some of her #independence#&&something she may not want to doA
This case can 'e used to emphasi/e that it is necessary to have a good strategy to make money" Hust
hard work is not enough" )n other words% it is desira'le to #think smart not ,ust work hard"#
Case 7" Slee0+ Inn Motel
This case descri'es the typical production&oriented 'usinessperson who designs a product to satisfy
himself" .s a traveling 'usinessman% he had 'een in many motels and now has 'ought one that would
have satisfied him as a traveling 'usinessman" @nfortunately% however% most of his potential customers
are tourists and vacationers% and only a few traveling 'usinesspeople"
0is motel is pro'a'ly seen as an emergency product 'y some tourists% and a homogeneous shopping
product 'y others who are ,ust looking for an economical place to stay" 0e is pro'a'ly losing most of
those who think of motels as heterogeneous shopping products (those who drive in and out again) and
those who have advance reservations at preferred locations (specialty products)"
)f 1ng 0uang wants to continue with his present #economical traveler# strategy% he pro'a'ly should
consider raising prices some" There is no point in #giving away# his rooms" This will not increase the
occupancy rate% 'ut it may increase profits" 9r% depending upon his present customer mix% he might
decide to raise prices even higher and count on the #emergency product# 'usiness" ?hether this is a
good alternative depends upon the mix of his present customers" )f most of them come in late in the
evening and stay only one night% then he might want to rely on place convenience to attract enough of
these people at higher rates to make his motel profita'le" To help attract more of this kind of 'usiness% he
might want to invest some money in signs away from his present location" )n fact% this pro'a'ly would 'e
desira'le whether he goes down the emergency product route or stays with his low price&oriented
approach" (eople have to know where you are&&or 'e a'le to find you&&to 'uy&&and his motel is not
located in the heart of the resort area nor ,ust off the new state highway"
.ffiliating with =ays )nn of .merica% )nc" is the #next step# 'eyond the possi'ilities discussed a'ove" The
ma,or advantage of going with =ays )nn is the additional 'usiness which would 'e generated 'y the
reservation service and perhaps people who would pull in 'ecause they recogni/e the =ays )nn 'rand"
7ecause no other =ays )nn is near'y% it is likely that additional 'usiness would 'e o'tained&&'ut not
necessarily the G; percent suggested in the case 'ecause 1ng 0uang may already 'e getting some of
the typical #price&oriented# customers who happen to 'e in the area" .nd given that 0uang would have to
pay 8 percent on the total gross room revenues (not ,ust those generated 'y the reservation service) he
should analy/e the likely profita'ility with and without the reservation service" )n fact% he should do this for
the various alternatives discussed a'ove as well as the two franchise alternatives he is considering" $uch
an analysis would pro'a'ly show that the 0oliday )nn alternative is less attractive than one or more of the
others% 'ecause of the re3uired improvements and the unlikely increase in sales given his poorer location
(away from the resort area)" )n contrast% proximity to the interstate highway may improve the likely results
of going with =ays )nn" 9n the other hand% if 'eing near this intersection is attractive to motel operators%
he should expect to see one or more motels 'eing placed near his motel&&'ut closer to the intersection
with the ma,or highway" Then his slightly poorer location and lack of a national affiliation may turn out to
'e #killers"# That is% he would not 'e in the resort area or #,ust off the highway%# and he would not 'e
affiliated with any national 'rand" 0e might 'e in an #empty 'ox# on the market grid for motel service% and
his losses could grow"
=epending on the instructor4s o',ectives% it is possi'le to push the analysis of the num'ers in the case a
'it further" This doesn4t 'ring some clear resolution to the issues and is not intended to 'e a su'stitute for
a look at the 3ualitative issues% 'ut it can help students reali/e that a Brough cutD at a profita'ility analysis
can sometimes 'e useful even if there is a lot of missing information" -or example% we know that the
motel has 6; rooms and that it has a 55 percent occupancy rate" $o% on average% that means 0uang is
renting a'out "55 x 6; or rooms a night" The rooms rent at a'out MG5 a night% so the average daily
sales revenue is a'out M:%G85" )f you multiply that times 65 days in a year that means the total revenue
at present is a'out M5G>%;>5"
The profit picture with either 0oliday )nn or =ays )nn would depend on a variety of factors% 'ut pro'a'ly
the most significant ones would 'e (:) the interest expense on any loan to make the capital
improvements% (>) the occupancy rate actually reali/ed% () the price per night that would 'e charged% and
the fee earned 'y the chain (which at present is the same for either chain% 8 percent of gross revenue)"
Part V
The case does not explicitly say what price $leepy )nn would charge per night per room if it were part of
the =ays )nn chain nor does it state what occupancy rate might 'e achieved" 0owever% if the occupancy
rate went up to the average level for this type of hotel (68 percent)% that would 'e an increase in
occupancy of a'out >G percent (that is% 68 percent average occupancy minus 55 percent current
occupancy is a : percent increase% and : percent divided 'y the current rate of 55 percent is a'out >G
percent growth)" 5ost of the expenses of running the hotel are pro'a'ly fixed% and the varia'le cost of
renting out a room is not very high (laundry% wear and tear on linens% utilities% and maid service)% so it is
likely that this would result in much higher revenue for $leepy )nn% even after paying the 8 percent
BcommissionD on gross sales" -or example% if the room rate per night stayed the same as it is now and
the occupancy rate only went up to the industry average% $leepy )nn4s revenue (after paying the fee)
would 'e a'out M6:8%G>" This is the result when you increase the current revenue 'y the >G percent
increase in occupancy (which gives you a'out M6!>%:::) and then su'tract 8 percent of that amount in
fees (which is ";8 x M6!>%::: Q M5%!68)" Thus% under this scenario% revenue would increase from a'out
M5G>%;>5 to a'out M6:8%G>% or a change of a'out M!6%:!" That extra revenue would come at a cost
since there would 'e a'out an extra 8 guests per night or a'out 8 x 65 Q >%9>; extra guest nights per
year" 0owever% if you divide the extra revenue 'y the extra Bguest nightsD you get M!6%:! + >%9>; or
a'out M>6 per guest night" $ince it is unlikely that it would cost this much to clean the rooms and keep
them in shape% this looks like it might 'e a more profita'le arrangement than what is happening at
present" )f could 'e 3uite a 'it more attractive if the room rate could 'e higher% the occupancy rate higher%
or 'oth happened at the same time" 8ote that the point here isn4t to 'e precise so much as it is to show
that one can work with what little information is availa'le to Bget a handleD on the financial side of this
issue"
The 0oliday )nn arrangement re3uires more cash up front 'ut that is offset 'y higher room rates" -or
example% if the occupancy rate went up to the industry average (68 percent) and the rooms could rent for
M!5 per night on average% the total revenue would go up to a'out M:%;>!%5G9 (after paying the fee)" This
is the result of multiplying 6; rooms x "68 occupancy rate which is G;"8 rooms (on average) per night or
a'out M%;6; per night in revenue multiplied 'y 65 nights per year is a'out M:%::6%9;; gross revenue%
from which 8 percent (M89%5>) must 'e su'tracted for the fee" $o% if the average occupancy rate could
'e achieved at the higher price% the increases in revenue in the first year would almost 'e e3ual to the
cost of making the improvements to the motel" 9f course% there might 'e associated increases in other
varia'le costs to meet the 0oliday )nn standards% 'ut it still appears that the 'reak&even on the investment
might not take as long as it might at first appearEand after that profits would 'e 3uite a 'it higher" 7ut% this
is 'ased on the assumption that the occupancy rate would really increase significantly% and that may 'e
unrealistic even with the 0oliday )nn reservation system kicking in" The $leepy )nn location is a 'igger
disadvantage&&and one he can4t easily changeEif he really wants to compete against the other 'etter
3uality motels"
)n net% this rough analysis suggests that either the =ays )nn or 0oliday )nn affiliation might 'e more
profita'le than what 0uang is achieving at present" )t would take a more complete analysis% including
other 3ualitative factors% to clearly determine which might 'e 'etter" 7ut% on the surface% it looks like it
would 'e a B'ig leapD for 0uang to compete effectively against other higher&priced motels in the area" )n
that regard the =ays )nn arrangement looks like a potentially 'etter fit"
Case !8" F%lton6s Ice and
$teve -ulton is facing a very difficult pro'lem which has 'een #solved# 'y most rink operators 'y simply
catering to the #mass market#&&anyone who wants to skate in a pu'lic skating session" .s explained in
the case% this leads to the ice rink catering to a mixed group" $ome people want exercise (physiological
or personal needs)" 9thers see it as a social situation" .nd the younger kids are ,ust there for #fun%#
which includes skating around the other patrons and reducing their pleasure" )n most rinks% ice guards try
to keep some degree of order and slow down the faster skaters"
8ote that as soon as you accept that there are su'markets with different kinds of people% it may not 'e
necessary to offer as many pu'lic sessions as now" 5ay'e the less&attended ones could 'e sold for
#hockey practice#&&to try to 'uild up the more attractive weekend times (some of the weekday people
might come then% anyway% if the weekday times were not availa'le") This might increase profits some"
)t is possi'le that the roller skating rinks have success with their format 'ecause #that is the way it has
always 'een done"# -rom their very first encounter with roller skating% customers have 'een exposed to
some kind of #social# format rather than an #exercise# format" )f this is appealing to them% they return and
if it continues to appeal% they 'ecome regular patrons" )ce skating% on the other hand% has 'een more
exerciseLoriented&&and those who are satisfied with this experience are the ones who return"
$o $teve is trying to change esta'lished customer patterns" This is a 'ig ,o'&&perhaps an impossi'le one%
'ecause ice skating is more difficult to learn" The first experience is typically not the most en,oya'le&&
especially compared to the first experience on roller skates" This is due to a variety of factors including
poor fitting or dull ice skates% no instruction% and perhaps poor physical coordination of patrons" <oller
skating% in contrast% is done on four wheels and% at the very least% the patron can ,ust stand there and 'e
pushed around 'y friends"
$teve will not 'e a'le to make a drastic change in his pu'lic skating format in the short run unless he is
willing to #invest# in a new format" )f he decides to go after the #couples# market% then he will have to
exclude the younger patrons" .t the same time% it pro'a'ly will 'e necessary to promote aggressively to
the new target market" -urther% it might 'e desira'le to offer mini&skating lessons for partners who have
not skated 'efore" -urther% in the transition stage% the #dances# should 'e relatively easy to make it a
pleasura'le experience"
)t is important to recogni/e that -ulton4s would not 'e catering to a strongly felt ice&related need% 'ut
rather to the #generic# need for #recreation"# (resuma'ly% the potential customers are already satisfying
this need in a variety of ways&&including going to movies% dances% high school games% and so on" That is%
they treat ice skating as a heterogeneous shopping product" $o it will 'e necessary to compete against a
variety of competitors&&many offering something which is much easier to do&&i"e"% is less #active"# This
means that it is unrealistic to expect that all young people are potential customers" .nd identifying exactly
who can 'e attracted is not simple&&thus complicating the promotion ,o'" 9'viously% it would 'e desira'le
to use some mass media 'ut% unfortunately% given the potential sales volume% mass media would 'e
expensive" This forces more reliance on word&of&mouth promotion" Therefore% it is imperative that the
customers who are attracted to the new format&&'y whatever means&&have a good experience" This
pro'a'ly means that someone should 'e appointed #social director# to ensure that the proper
environment is created and maintained" This will add another expense% unless $teve can do the ,o'
himself"
(erhaps the marginal gain from switching strategies would not 'e worth the effort" .n initial loss pro'a'ly
would have to 'e incurred while eliminating the younger part of the present market and attracting
#couples"# 7ut if the strategy is successful% then in the long run a loyal group of customers might develop
and make the sessions very profita'le" .s noted in the case% this has happened in some ice skating rinks"
7ut this is pro'a'ly 'ecause of the skill and determination of the manager to make such a session go&&
rather than customers asking for it or ,ust coming to the regular session and making it a social situation"
$o the decision is not clear cut" )s $teve -ulton a'le and willing to work to create a new marketing
strategyC 9r would his time 'e 'etter spent on other possi'ilitiesC .s noted earlier% most rink operators
have not tried to segment their 'road market and create #social# strategies&&preferring instead to try to
make their pu'lic sessions as appealing as possi'le to anyone who comes" Kiven that this is what the
ma,ority of customers have 'een offered and come to expect% this may not 'e such a 'ad decision"
6hanging people2s attitudes is difficult" 7ut staying with the present strategies (especially for -riday and
$aturday nights) does not solve the profita'ility pro'lem eitherA 5ay'e he2ll ,ust have to accept the
present situation as the 'est he can do&&#the grass is not always greener on the other side of the fence"#
Case !!" R%nners S%00l+
Part V
<unners $upply is a #specialty shop# which in the past focused rather narrowly on 8ike running shoes
and some running accessories 'ut has 'egun to 'ranch out trying to find a new way to grow sales and
profits" 7ut% these efforts are not working very well and Hulie Fellowro'e% the owner% faces the classic
pro'lem of trying to retain the loyalty of her traditional customers while changing her marketing mix to try
to appeal to new types of customers% all of which is complicated in a market that is reaching maturity and
is generating increased competition from a num'er of competing channels" $ome of these channels offer
reasona'ly good running shoes and others are pro'a'ly 'etter at fashion and other types of Bsneakers"D
$o the #happy days# of early market growth are over and Hulie is considering what to do" 0er energy and
risk taking motivation of the early days have paled and in many ways she is now ,ust trying to Bhang on to
what she once had"D
The alternatives that she is considering are% for her 'usiness% ma,or changes in strategy and should 'e
carefully considered&&including not only the pros and cons of the alternatives 'ut some rough financial
estimates of the si/e and growth prospects of the alternative strategies and how easily and profita'ly the
present store and its personnel will 'e a'le to implement the proposed strategies"
(ro'a'ly the most 'asic 3uestion is whether it is possi'le for Hulie to adapt what she is doing in such a
way that she would have any sort of competitive advantage" The Bcustom shoeD opportunity on the
surface seems to 'e very consistent with Hulie4s original focus% 'ut it re3uires a focus and investment that
is narrow compared to what she has 'een doing in recent years"
)t is logical to expect that a shoe manufacturer would look for other shoe&market opportunitiesEeven mass
customi/ation opportunities or the move to related sports lines&&when sales fall off" 7ut that doesn2t mean
that there will 'e 'ig successes" <unners $upply is not locked into one manufacturer4s product line% so
Hulie has a wider range of opportunities to consider" 0owever% she is somewhat locked into ,ogging&
oriented retailing and must 'e realistic a'out how well she can implement #non&,ogging# strategies&&
especially ones that take her very far into the Bfashion marketD or other markets that she doesn4t know
much a'out" $he may 'e a'le to learn and apply her skills in new ways% 'ut a key reason for her past
success was that she knew what she was doingA )n the past% she could really add value and help her
customers" That might still 'e true with the custom shoe 'usiness% 'ut if her target market of serious
runners has 'een shrinking% it4s pretty certain that she is likely to see an even smaller num'er of people
interested in very expensive custom made shoes" 0owever% if she has exclusive distri'ution and here
territory is large enough% she may 'e a'le to attract customers from a larger distance% especially if she
can use her we'site effectively" 9n the other hand% promoting the idea of custom shoes on a we'site is
different from doing the 'usiness over the )nternet" $he still has to get the customers into her store to
make the moldLand one has to ask how much demand there will 'e relative to the re3uired investment"
9ne alternative that she should evaluate is 'eing satisfied with her present 'usiness" )t may not 'e a
growth 'usiness% 'ut it might 'e profita'le for several years while some of the other alternatives may not
'e profita'le at allA )t might also 'e possi'le for her to experiment with a variety of smaller changes rather
than trying to shift the strategy all at once" -or example% she might introduce the custom shoe line while
at the same time adding some different types of shoes from other manufacturers in areas where she
thought that 8ike was particularly weak" $he could also 'egin to add fashions or other related products
that are most closely related to her current customers changing interests" Then% the lines that didn4t
perform well could 'e dropped or refined and the ideas that do work could 'e given greater emphasis"
This would still re3uire a strategy% 'ut it would 'e 'ased on the screening criteria that changes should 'e
slow and evolutionary so as to reduce the risk of suddenly losing what she already has"
9n the other hand% it4s not clear that the alternatives that she is considering at present really focus on a
significant unsatisfied need" The firm that was previously supplying her with custom shoes may have
gone out of 'usiness for a variety of reasons% 'ut she needs to at least consider the possi'ility that there
was not enough demand for custom shoes to ,ustify the costsR after all% most peopleLeven serious
runnersLcan find a good 3uality shoe from an off the shelf assortment"
.dmittedly% some of these markets (say% for general athletic shoes) seem to 'e 3uite large% 'ut there are
many other retailers who are already serving them" -urther% many of her competitors are 'etter a'le to
compete with low prices that she pro'a'ly can4t match% at least not easily" .t the extreme% a num'er of
the ideas may simply 'e production&oriented notions that are #logical# 'ut wrong" Hulie2s current
customers may never 'e interested in any of these new lines"
1ven so% to get a 'etter idea a'out the alternatives% Hulie should construct several proforma (SJ
statements to try to estimate the likely profita'ility of the alternative strategies she is considering"
9'viously% this will 'e very difficult given that she has a very poor understanding of the si/e and nature of
some of these markets" 8evertheless% some crude assumptions will help sharpen her thinking a'out how
much new 'usiness she would need to o'tain from her current customers and+or how many new
customers she would need to pull in for the new product lines to ,ustify changing strategies" This analysis
will pro'a'ly show that some of her customers are 3uite fashion&oriented and taking on additional
#3uality# fashion lines of 'oth running and walking shoes might 'e consistent with her present image"
This might ena'le her to keep some of the #fashion# 'usiness that she loses to competing stores and this
might 'e enough to ena'le her to continue in her present location"
?hether she adds more #fashion# merchandise and aims at fashion&oriented shoppers or moves to the
new custom shoe producer% she will need to retrain her salespeople and pro'a'ly move to different
displays and advertising copy thrusts" ?ith care% it may 'e possi'le to promote running and other related
gear and fashions without driving away the original ,ogging customers" .fter all% many of the original
#,ogging# customers pro'a'ly were not that serious a'out ,ogging so they may not see it as a ma,or shift"
.s long as the serious ,oggers are a'le to get what they want from knowledgea'le salespeople% they may
'e satisfied too" )n other words% the store would seek to implement a multiple target market approach&&
aiming at 'oth the serious ,oggers and less serious ,oggers who also happen to 'e interested in fashions"
7ut Hulie pro'a'ly would want to continue positioning her store and its image as #serious# rather than
#pure fashion"# $o retaining the <unners $upply name along with appropriate copy will pro'a'ly 'e
desira'le"
.n alternative that is not mentioned in the case and pro'a'ly should 'e dismissed very 3uickly is shifting
to a sporting goods store" This is far from her present operation and strengths and would re3uire much
more capital" -urther% most areas already have a num'er of well&entrenched sporting goods stores and
discounters fighting it out in market maturity"
$o% more careful analysis of possi'le variations on her present operation would pro'a'ly yield the 'est
results" $he knows a lot a'out her present market and should 'e a'le to make a more informed
#guesstimate# of the si/e of near'y markets and their likely responses to alternative marketing mixes"
-urther% this is more likely to make use of her personnel resources and her own personal strengths" )f she
can2t find something that looks attractive fairly close to what she is doing now% then she pro'a'ly should
consider a much wider range of opportunities&&even starting another 'usiness that moves 'eyond sporting
goods to other areas where she thinks that she can add value 'ased on her skills and experience"
Case !&" DrMarc%s)com
This case offers an opportunity to discuss customer service% customer retention% word&of&mouth% customer
satisfaction% financial analysis in marketing% and possi'ly cross&functional topics in the context of an
)nternet retailer" 6ustomer service has proven to 'e a challenge for many )nternet companies% so the
situation may not 'e unusual" )n fact% an instructor might start the case 'y asking% B0as anyone
experienced pro'lems 'uying onlineCD
This case was inspired 'y a real life incident and BThe 6ase of the 6omplaining 6ustomer%D (7arvard
Business +evie0% 5ay&Hune :99;% pp" 9E>5)" The 7arvard Business +evie0 case includes comments
from four customer service experts" $ome of these comments may 'e useful in the discussion of this
case and interested instructors are encouraged to check this resource"
Part V
)n teaching the case% the instructor might start 'roadly% perhaps asking B?hat is the pro'lem facing =r"
5arcusCD This 3uestion typically results in a 'road variety of responses that include: (a) specific people
like 5rs" 0ester or 5r" $kinnerR (') computer systemsR (c) customer service proceduresR and (d) issues
like whether to compensate 5rs" 0ester and% if so% how much" The instructor should 'e prepared to take
the case in several different directions" )t might make sense to record different answers (to the 3uestions
a'ove) on the 'oard E and then explore each individually" .rguments can 'e made for each:
5rs" 0ester is demanding and seems to have had a hand in the mistake" )s she actually asking
for too muchC
5r" $kinner does not appear to 'e a strong customer advocate" $hould a customer service
manager more strongly advocate the customer E or the companyC
)nternet companies often rely on computer systems to help them manage customer service"
?hat are the strengths and weaknesses of this approachC
7ut a more focused approach% and one we find easier to work with is to ,ump to 5r" $kinner4s suggestion
that some customers may not 'e worth the trou'le" .sk the 3uestion: B)s 5r" $kinner correctC =o you
think =r5arcus"com would 'e 'etter off without a customer like 5rs" 0esterCD The instructor should
sense the feel of the class and 'e prepared to take the devil4s advocate role since most students find it
difficult to get rid of customers" $o the instructor might ask% B.re some customers not worth keepingCD or
B.re we setting precedents hereCD
The discussion can then move on to whether to compensate 5rs" 0ester and% if so% how to compensate
her" 7y the way% another option for teaching this case is to start with the statement and 3uestion: B5rs"
0ester is asking for a free 9;&day supply of vitamins plus a formal apology" $hould the company
compensate 5rs" 0ester for her trou'leC 0ow many of you think she should 'e compensatedC 0ow
many of you think she should not receive compensationCD <ecording student votes on the 'oard helps to
commit students and get them more involved in the discussion"
Then ask of those who feel 5rs" 0ester should receive something: B?hat should she receiveCD .t this
point it is useful to get a wide variety of answers on the 'oard" @sually there is someone who 'elieves
that a simple apology will suffice" .t the other end of the spectrum% there is typically someone who
suggests giving 0ester 3uite a 'it more than she re3uests" .rraying these on the 'oard E from lowest
compensation to highest E can 'e useful" Jeave one option E do nothing E farthest to the left" )f students
fear providing extreme answers% goad them E B6ome on% doesn4t anyone think that we should give her
even more than she is asking forCD (9ften some students feel this way 'ut may 'e afraid to state it
pu'licly)" The instructor can again survey the class and ask how many favor each of the responses
identified a'ove (moving from lower to higher)" The instructor might even write particular student names
next to their suggestions"
Then the instructor can ask students favoring a more modest proposal% B?hy do you think this is the right
optionC ?hy aren4t you advocating something way out there like T$tudent name4CD The instructor can
then choose a student who advocates greater compensation and another with a more extreme proposalC
. variety of issues may surface here" 9ne is that while customers often ask for hard compensation (free
services or cash) E they often react 'est to someone simply showing they care" )n fact% if =r" 5arcus
himself were to call% thank 0ester for her concern% and promise to improve service% 0ester may forget all
a'out compensation" 9n the other hand% a good argument can 'e made for giving 5rs" 0ester financial
compensation% especially when we consider her financial importance to =r5arcus"com" . financial
analysis of the value of 5rs" 0ester helps to make that point"
The instructor might move the discussion along 'y asking% B0ow much is 5rs" 0ester worth to the
companyCD $tudents 3uickly point out that she purchased almost M8;; worth of products last year and%
now that prices are higher% she is likely to spend closer to M:%;;; this coming year" The instructor can 'e
sure students consider actual profits 'y looking at contri'ution margin" B?hat type of contri'ution margin
are vitamins likely to haveCD )f the contri'ution margin on the vitamins is 5;U% the contri'ution might 'e
M5;; per year" (lus% if we talk a'out lifetime customer value we can see that she may 'uy vitamins from
=r5arcus"com for many years to come" )f she 'uys for :; more years% this totals to M5%;;; in
contri'ution" ?e know that her referrals have resulted in at least ! new customers (who noted her name
in the referral program)" (lus% it is likely that even more customers have 'een influenced 'y her positive
word&of&mouth" )f we simply assume that she 'rought ten customers to the company 'y her positive
word&of&mouth% each spent a similar amount as 5rs" 0ester% and stayed an average of five years% then
her referrals would 'ring the company an additional M>5%;;; (:; customers x M5;; contri'ution per year x
5 years)" This 3uickly demonstrates the power of her advocacy"
)f 5rs" 0ester has such a strong positive influence% her anger might result in a strong negative influence"
$he might run around telling potential customers to not use =r5arcus"com" )n fact% studies have shown
that customers are much more likely to tell friends a'out a negative experience than a positive one" 5rs"
0ester4s anger might drive her to posting 'ad reviews of =r5arcus"com at a we'site like 1pinions"com"
Then her reviews could 'e read 'y many )nternet shoppers"
1ven if the contri'ution margin were a very conservative >5U (and the financial analysis totaled half the
num'ers shown here) the num'ers favor doing everything possi'le to save this customer4s 'usiness and
her strong loyalty"
?hile this teaching note emphasi/es the financial issues% and they should not 'e overlooked% it is
important to spend as much or more time talking a'out the softer side of customer service" 6ustomers
need to feel that the company cares" The financial issues show why it is important to keep this customer%
'ut it is likely that the way the issue is handled will determine 5rs" 0ester4s continued loyalty" To return
the discussion to the softer issues% the instructor might ask% B$hould we simply send 5rs" 0ester a checkC
)s there anything else you might suggestCD This allows the instructor to remind students that ultimately
customer service is an interpersonal experience E =r5arcus"com must also appeal to 5rs" 0ester on an
emotional level"
The case may 'e used in a num'er of different chapters:
6hapter >: customer e3uity% customer retention% or customer lifetime value"
6hapter :: online retailing"
6hapter :5: customer service"
6hapter :9: financial issues related to implementation and control"
6hapter >;: cross&functional issues"
Case !*" O99ice Distri:%tors( Inc)
9ffice =istri'utors% )nc" is selling operating supplies and the folder line in 3uestion appears to 'e in market
maturity already (the margins are down to >; percent and the president is worried a'out the #commodity
end of the 'usiness#)" .ssuming that 7usiness 6enter is now determined to get its own line (a
reasona'le assumption) then 9=) must decide among several alternatives: (:) produce a dealer 'rand
for any re3uest% (>) produce dealer 'rands for #commodity# items like the folders% or () don2t produce
dealer 'rands" )deally% some assumptions a'out likely sales% costs% and profits should 'e made for each
alternative&&and the 'est one selected (given 9=)4s long run o',ectives of avoiding dependence on one
customer% selling #3uality# products% and profita'ility)" 0ere% not enough data is presented for this% so the
analysis must 'e su',ective"
This is a #tough# decision given 9=)4s o',ectives" 7ut% it appears that this product&market is already very
competitive (moving toward pure competition) and in market maturity where there will 'e continued price
pressure" .ssuming 7usiness 6enter can and will 'uy these folders somewhere and in volume% it
pro'a'ly will 'e profita'le to take the 'usiness setting volume discounts (:) so the net return to 9=) is
similar or higher (when the normal #promotion and overhead costs# are 'acked out of the costs) and (>)
so that not many other customers will want to 'uy their own dealer 'rands" (8ote: the local stationers
may get a 'uying group together and want a lower price too&&'ut this will come regardless of what 9=)
does here" The market is ,ust getting more competitive for #commodities"#)
Part V
9ne o'vious conclusion is that 9=) should work harder to develop new products% using the short run
profits (if anyA) from dealer 'randing to help it avoid the inevita'le continuing pressure on existing
products% especially the #commodities"# This is a fact of 'usiness life and a rigid #anti&dealer 'randing#
policy will not stop the product life cycle from moving on and profits 'eing s3uee/ed as competitive
pressures increase on increasingly homogeneous #commodities# and (pro'a'ly) production&oriented #old&
fashioned# stationers who will 'e s3uee/ed 'y the new superstore chains" )n fact% 9=) pro'a'ly should
consider selling to these chains" )n the long run% they may dominate this area% ,ust as grocery
supermarkets do in their area"
Case !," Digital De0ot
This company 'asically sells 'usiness products (although it does sell some consumer products to serious
amateurs) and pro'a'ly has 'een pro,ecting the appropriate image" The most recent 6hristmas
promotion% on the other hand% was aimed at amateurs who do not normally 'uy from them" The signs in
the front windows pro'a'ly would not 'e seen 'y these people" .nd the four advertisements in the local
newspaper were certainly not impressive promotion in contrast to the usual 'arrage from discount houses
and other stores at 6hristmas time" -urther% 5ark Hohannson4s prices ,ust met competitive #discount
store# levels"
The old saying: #The grass always looks greener on the other side of the fence# is appropriate here"
5ark seems to know what he is doing in his present markets and would 'e well advised to try to exploit
them more fully rather than #da''ling# in other people2s markets" )f% however% he does want to move into
the amateur market% then he had 'etter study this market more carefully and develop a new strategy or
set of strategies" 0e pro'a'ly would have to carry new lines of products and pro'a'ly would have to train
his salespeople to deal with these much less knowledgea'le customers" .nd he would have to accept
much narrower margins&&'ecause this merchandise is price discounted 'y discount houses" )n fact% he
may not 'e a'le to offer much service or advice if this market is to 'e profita'le" .nd this raises the
3uestion whether his salespeople can 'e trained to work carefully with his present customers and spend
little time with the amateurs" )f they cannot% it is possi'le that his new 'usiness might increase sales
volume% 'ut decrease profits 'y increasing selling costs" 1ven worse% the present serious customers
might 'e driven away if personal service for them declined&&leading to lower sales and profits"
Case !/" Sanc'e. ; Associates
5elita $anche/ is a manufacturers2 agent selling accessories in 6olum'us% 9hio" .gents usually expand
'y adding similar lines that will appeal to the same target customers" )deally% agents should have a large
num'er of lines so they are not too dependent on one producer" $o% typically% they are continually looking
for new complementary lines which need their aggressive sales effort and access to #their# customers"
<e,ecting the lift truck offer pro'a'ly was wise&&not ,ust 'ecause of the low profit potential&&'ut 'ecause
different #customers# would 'e involved% i"e"% production people rather than data processing people"
The 5etal6oat 6ompany offer does not fit with the normal expansion pattern of agents" )t might 'e a very
good offer% 'ut it is not compati'le with what she is doing now" )t involves selling component materials to
(pro'a'ly) new customers" -urther% it pro'a'ly would take more time than is suggested 'ecause 'asically
she will 'e responsi'le for the whole marketing effort" .s a selling agent she would 'ecome their
#marketing manager#&&and here that amounts to almost running the whole 'usiness" .s she spends more
time on the solvents&&in 5id&9hio% not ,ust in 6olum'us&&she pro'a'ly will come to neglect the other
products and the #6; percent# of her 'usiness will 'e in ,eopardy" -urther% she will not have time to
strengthen her manufacturers2 agent 'usiness 'y developing new lines which might 'e needed 'y her
present 6olum'us customers"
7asically% 5elita $anche/ must decide 'etween whether she wants to 'ecome the #marketing manager#
of one firm or stay with the agent 'usiness" $he is at a crossroads and the decision is extremely
important for many years to come" 8ot only potential income% 'ut also her personal preferences for
independence and the kind of ,o' she wants are involved" This is somewhat similar to the decision
students graduating from school must make&&what 'usiness do they want to 'e inC
Case !2" S0ecialt+ Tim:er Com0an+
Hac3ue (atrice is a drop&shipper" 0e sells lum'er to lum'eryards% which sell these component materials
to contractors" $ome pro'a'ly also sell directly to #do&it&yourselfers# who 'uy shopping products&&
perhaps even homogeneous shopping products for some types of lum'er" Hac3ue had a geographic
monopoly until a'out six months ago when an aggressive younger man entered and 'egan occasional
price cutting on the essentially homogeneous products" )n effect% they have an oligopoly situation in the
immediate area% although the 'uyers could 'uy in almost pure competition if they were willing to reach
'eyond the two local salesmen" )t is pro'a'le that everyone is aware of this and competition may
continue to force prices down and put a continuing s3uee/e on profits"
The offer from 0ori/on 5fg" 6ompany seems to offer #a way out%# 'ut Hac3ue is 'eing asked to play a
different role for the windows and accessories" 0e would still not handle the products% 'ut now he would
'e a manufacturer2s agent" -urther% he would 'e selling a #cross&over# product ('esides the more or less
homogeneous windows) which has not 'een accepted 'y all potential contractors% architects% and owners"
)nstead of simply order taking on the phone for homogeneous products that have already 'een
assem'led% he will have to 'ecome an order getter and help pioneer the acceptance of the new concept&&
'oth to lum'eryards and their potential #cross&over# customers and influencers" -or this% he would hope
to o'tain a higher markup% 'ut sales will 'e harder to get at first (at leastA)
There is no #right# answer a'out what Hac3ue should do" The important point to recogni/e is that he is
'eing asked to do something different" Hac3ue should seriously consider what he wants to do and also
whether he is a'le to do it" 0e has not had order getting experience for many years (if ever)" This is a
more taxing kind of work and at age 5; (or more) he may not 'e willing or a'le to take on this new
responsi'ility" 9n the other hand% he may have relatively little to lose&&as he would not have to invest in
inventory" 0e could try the new #opportunity# for a while&&and see how easy it is to handle and whether he
en,oys this kind of work" 6ertainly% the future is not too 'right competing directly with the new competitor"
(erhaps this new opportunity will ena'le him to make some additional income while continuing to
compete directly with the new man" )f Hac3ue gives evidence of staying on% then the new man may move
elsewhere% 'ecause two drop&shippers doing exactly the same thing in this area may not 'e as profita'le
for either one" Hac3ue pro'a'ly should accept this reality and either tighten his 'elt or plan to expand into
new activities"
)t pro'a'ly would not 'e wise to take the new offer and drop lum'er sales completely% however% until he
can see more clearly how successful he will 'e% and how 3uickly" -ortunately% this will not 'e necessary
'ecause there is some direct overlap with customers% i"e"% at the lum'eryard level" 0owever% he will also
have to contact contractors and architects&&something he is not now doing and the lum'eryards pro'a'ly
will not doA&&and this will tend to take him away from close contact with his present customers" .nd%
ultimately% he might lose touch with them" )n the short run% however% increased telephone activity
(perhaps using a telephone answering service and a mo'ile telephone in his car) to communicate with his
present target customers&&as well as all potential #'uying influences#&&might keep the 'usiness coming in
while he is determining whether he can sell enough windows and accessories to make a living"
Case !3" Healt'+ <ater( Inc)
This case can 'e used in a variety of ways: to introduce marketing strategy planning% as a way to highlight
integrative planning later in the course% or as a vehicle for students to practice #working with num'ers# to
support their marketing ideas with financial analysis" )n these teaching notes we2ll focus on using the
case as the 'asis of an integrative analysis (including some work with #marking num'ers#) later in the
course" 0owever% if you use the case earlier in the course the same 'asic ideas&&focused on identifying
what target market(s) to serve and what the marketing mix needs to look like to serve them&&apply"
Part V
The case provides a good opportunity for students to analy/e&&3ualitatively and+or 3uantitatively&&the
current strategy of a small 'ut growing firm and also to evaluate various opportunities for growth" 9n the
surface% some of the opportunities for growth seem to 'e only minor changes in direction from what
0ealthy ?ater% )nc" is currently doing" 0owever% in reality% ,ust a'out any changes that might 'e made in
the target market or one of the four (s would have rather significant #ripple effects# with respect to other
areas" -urther% at present the firm is doing reasona'ly well from a profit standpoint and there is little risk
'ecause there is little financial investment" Jess experienced students may not see this or recogni/e its
advantages" 1ven if they do% they are likely to propose #expensive# plans that might 'e feasi'le (and
even ,ustifia'le in terms of the potential return) 'ut which would in all likelihood re3uire a different way of
funding the growth of the firm" Thus% if the instructor desires% this is a good case for 'ringing in cross&
functional links and constraints" 7y shifting the focus slightly% from what the marketing plan might 'e to
what would 'e re3uired to implement it% students immediately come face&to&face with the 3uestions of
financing and human resources (who is going to do what)" .lternatively% the case can 'e used several
times" (erhaps a first time early in the course to focus on the idea of the target market the G(s% and the
idea of marketing strategy planning" Then% later in the course% after students have developed a deeper
understanding of the marketing decision areas and have 'een introduced to the issues of marketing cost
analysis% 'reakeven% and the like% the case might 'e used again&&perhaps with more focus on the
3uantitative thinking" -inally% the case might 'e used a second or third time to highlight the cross&
functional issues and how they might affect the selection of a plan"
0?) has several potential markets and they are outlined in the case% 'ut at present its de facto target
market seems to 'e individual homeowners" The apartment dwellers are not likely to react the same as
the homeowners% and selling to apartment owners+'uilders will re3uire a very different kind of promotion
effort" The institutional market (perhaps with the exceptions of 'ars+restaurants) will also re3uire a
different kind of selling% different prices% etc" 5oving through retail channels will similarly re3uire a
different approach" )t will pro'a'ly 'e difficult to identify+reach owners of 'oats+rvs without help from
middlemen (i"e"% dealers)% unless secondary data is availa'le to help target some sort of direct response
promotion effort (for example% a mailing 'ased on registration lists for 'oat licenses% etc")" The company
has a current way of doing things that can work&&'ut it does not have a well thought out program for
developing different strategies to target different types of markets"
0ow is the firm doing at presentC )t appears that there is a good opportunity here% at least at the current
prices" 7ut the margins seem very high and one would expect that such large profit margins would attract
other competitors if the demand for filter systems grows very rapidly" 6ompetition would drive down
prices and margins and profits" The o'vious point from the data in the case is that 0?) is in the envia'le
position of having very low fixed costs" 5arginal profits per unit sold are high% and most costs are on the
margin as well"
0ow could the firm expandC ?hat are the 'est opportunitiesC 5anny could go in any num'er of ways"
7ut most approaches will re3uire more investment capital and the risk of front&end costs" )t looks at first
like what he is doing is a 'it hapha/ard 'ecause only a limited type of opportunity is 'eing pursued" 7ut
the profita'ility of its current narrow focus is really very good" .nd expanding its efforts in that domain
(i"e"% with more sales reps and more new territories) 0?) can leverage growth and case flow" ?ith more
income 'eing generated and a 'roader 'ase geographically% 0?) could 'egin to develop marketing mixes
which were 'etter suited to some of its other potential target markets&&and at the same time seek a
'roader product line to protect itself against some pro'lem with its current supplier" )n the context of its
current thrust% it clearly could spend more effort+money on the prospecting side and in the process
hopefully improve the sales rate" 5ore effort to identify good prospects should 'e a high priority"
The material that follows provides some illustrative 3uestions and analysis related to these 'road
assertions" 0ere again% how much you expect from students on these issues might depend not only on
when the case is tackled in the course 'ut also how much preparation you have done with respect to
individual issues"
7o0 does the /?+IT@ II compare 0ith other alternatives, 2hat are its advantages and limitations
relative to customer needs,
9ne approach to this 3uestion is to look at the economic value and+or cost to the customer" 0?) costs
M";5 per gallon% ignoring the initial M95 cost" $ince the filter costs M8; and lasts > years% that means that
an average household uses a'out M8;+";5 Q :6;; gallons of filter water every two years% which translates
to a'out 8;; gallons a year or 8;;+5>Q:5"8 gallons per week or a little over > gallons per day"
<emem'er this is ,ust the drinking water and not water for other purposes like 'athing or washing clothes"
The only alternative on which we have much cost data is 9/arka" .t "6; cents a gallon% it would cost
a'out MG8; a year" .t this rate of consumption% a customer2s initial investment in the (@<)TF )) would 'e
paid 'ack in a'out 95+G8; Q "8> year (i"e"% less than :; months)" Thus% the (@<)TF )) has an economic
as well as a health and taste advantage over its main competitor"
The potential health 'enefits of the (@<)TF )) would pro'a'ly 'e most important to hospitals" The
potential taste advantages would pro'a'ly 'e most important to customers in geographic areas where the
water was the worstR it is pro'a'ly easy to identify areas where the drinking water is worst"
. disadvantage of the (@<)TF )) is that it re3uires the money #up front#" This might eliminate some lower
income consumers who would see it as a luxury" The price would 'e trivial to a 'ar% restaurant% or other
institution that is offering 'everage services" )t would not 'e a lot of money to people who could afford a
'oat or an <*" 0owever% for the current target market% some way to finance the purchase might 'e useful"
.nother disadvantage is that it would re3uire that a hole 'e drilled in the sink" This would pro'a'ly
reduce the market for customers who rent apartments" 1ven if the landlord did not o',ect to the renter
drilling a hole in the sink% most renters do not stay in an apartment for a long time and that would mean
leaving the (@<)TF )) 'ehind" To make effective inroads with apartments would thus pro'a'ly re3uire
selling to the owner of the apartment&&a ,o' that would pro'a'ly 'e easiest while new apartments were
'eing constructed" (i"e"% check 'uilding permits% especially in areas with lousy water")
7o0 much contri*ution to profit comes from the sale of a /?+IT@ II andAor filter, ?hat would happen if
0?) wanted to develop a different type of distri'ution through retailers or dealersC
The markup percent on the (@<)TF )) is (M95&M>;;)+M95 Q "G9!" )f the same markup was used on
filters% the cost of a filter would 'e a'out MG;"5;" Thus the contri'ution to expenses and profit would 'e
a'out M8;";;&MG;"5; Q M9"5;" $ales reps get 'etween 8; and :;; dollars a unit for selling a (@<)TF ))&&
or a'out M9;+M95 Q > percent of the selling price" > percent of the selling price for the filter would 'e "
> x M8; Q M:8"G;" The selling price minus the cost minus the sales commission would leave a'out
M>:":; contri'ution to profit and overhead from the sale of each filter"
)f 0?) sold the (@<)TF )) to retailers% its markup would 'e only (M>!5&M>;;)+M>!5 Q >! percent" .t this
markup% and assuming that the filters cost 0?) a'out MG;"5; (see a'ove)% 0?) would sell the filters to the
retailers for a'out M55"G8" )f the retailers resold them at M8;% they would make a markup of a'out :
percent"
The retailer would need to resell the (@<)TF )) for a'out M98"55 to get a : percent markup on it" That
is close to 0?)2s selling price of M95% 'ut in that case the #product# includes installation service" Thus% it
is unlikely that the retailer could get that high a price"
2hat do 0e kno0 a*out the firm's current costs, A*out its profita*ility.
The company has 6 sales reps who% we are told% can easily sell a'out >; units a month" That would 'e
:>; units a month% or :%GG; a year" :%GG; units x M95+unit yields M568%8;; in revenue% plus whatever
might come from sales of filters (unlikely to 'e much this early)" The cost of goods sold would 'e :%GG; x
M>;; Q M>88%;;; so the gross margin would 'e M568%8;;&M>88%;;; Q M>8;%8;;" That would need to
cover sales commissions% fixed costs% telemarketing commissions% and any advertising the firm might
want to do" $ales commissions would depend on the mix of sales generated 'y the office and sold
outright% 'ut at the higher commission total commissions would 'e :%GG; x M:;; Q M:GG%;;;" -ixed costs
Part V
are MG%5;;+month x :> month Q M5G%;;; plus investment opportunity cost (which is trivial% say :5 percent
of M>;%;;; capitali/ation Q M%;;;) or a total of a'out M5!%;;;"
That suggests a profit of a'out M5!%;;; a year&&ignoring revenue from sales of filters and any costs of
telemarketing commissions that might 'e greater than what is paid directly to reps if they make their own
appointments"
7o0 much does the firm need to sell to *reak even, $hould the firm expand into other geographic
marketsC
The 'reak&even sales volume is only a'out M5!%;;;+(M95&M>;;&M:;;)Q6;; units a year% or M>!%;;; in
sales" 1ach unit sold contri'utes a'out M95 to profit&&so profits accumulate 3uickly with more sales"
@nder the current situation% capitali/ation costs are very low and almost all expenses are varia'le" Thus%
it looks like it would 'e easy to grow" )t would pro'a'ly make sense to go ahead and start distri'ution in
other regions ('ased% for example% on analysis of where water is worst)" )t would definitely make sense to
speed up hiring of new reps (although this would in all likelihood re3uire adding at least one sales
manager" Jet2s take a closer look at the sales compensation issues"
7o0 much does a typical salesperson make, Is it enough to attract more salespeople,
The typical salesperson can make a'out M>:%;;; a year% less expense" This comes from >; x :> x M9;
(average of M8; and M:;;) Q M>:%6;; a year V filter commissions & expenses" Jooks ok" $hould 'e easy
to recruit this type of salesperson" )n fact% the one unit a day level of sales appears low" )t would make
sense for the company to do a 'etter ,o' of identifying prospects" )t would also make more sense for the
sales reps to spend their time selling and for 0?) to have installers take care of putting the filters in place"
1ven if all >; sales were from office appointments (i"e"% commission Q M8;)% the sales compensation
would 'e M:9%>;;"
)f it costs the company the same whether the product is sold 'ased on an appointment generated 'y the
office or a prospect identified 'y the sales rep% it takes >"5 appointments to generate a sale" )f half
(assumption) of the sales&&!>; units&&were 'ased on leads from the office% the telephone people would 'e
making !>; x :; + > college students working part&time Q M%6;; a year" (eanuts" 5ay'e that2s part of
the reason reps are only selling one unit a day"
2hat 0ould the firm have to do differently if it 0ere to try to sell through retailers andAor dealers %say9
marine dealers(
. completely different strategy would 'e re3uired" 9'viously% the thin margin would not support the
current sales commissions" 9ne or more reps would need to speciali/e 'y retail accounts" They would
pro'a'ly need some salary to start out&&while customers are 'eing identified&&and the commissions would
need to 'e much smaller" )nventory would 'e re3uired" )t is likely that retailers would expect either the
producer or 0?) to do some advertising" 0?) would need to figure out how the installation would take
place" <etailers would pro'a'ly not 'e happy a'out having to compete for 'usiness with their supplier"
Thus% a decision to move into retail distri'ution (i"e"% through hardware stores% plum'ing supply dealers%
'oating and rv supply dealers% etc") would pro'a'ly re3uire that 0?) phase out of direct distri'ution"
<etailers in all likelihood would want 0?) to hold inventory to meet their needs 3uickly% and this might
re3uire increase in inventory space and new transportation arrangements" =ealing with a larger num'er
of retailers would re3uire more sophisticated office procedures&&for 'illing% responding to pro'lems% and
the like&&especially if the num'er of retailers were large" )t would pro'a'ly make sense to move into the
traditional retail channel only if the company expanded to other geographic areas" 5any of the costs of
serving the retailers would likely 'e fixed costs% and would support a larger retailer network" $erving as a
wholesaler to retailers would make more sense if the firm had a 'roader product line to offer&&to help
defray the costs of calling on the retailers in the first place"
'hould 72I target institutional customers rather than final consumers,
Targeting other than final consumers will increase the risks of the 'usiness" .t present% it has very low
fixed cost and high margin" 5ost of the institutional customers would 'e volume purchasers and the
company would 'e orienting toward a higher turnover+smaller margin operation" This could 'e 3uite
profita'le% 'ut the company would need to 'e reorgani/ed" The main pro'lem in the very short term
would 'e cash flow" The company would need to get the resources in place to deal with the institutional
market 'efore there were sales in place to support the effort" )t could 'e done on a phased 'asis%
however" -or example% 5anny could hire one rep on a com'ination salary+commission 'asis to try to sell
large 3uantities of (@<)TF )) to contractors+developers of 'uilding apartments"
2hat are the implications of e&panding into other geographic areas,
1xpanding into other geographic areas would pro'a'ly 'e the fastest way to grow&&'eyond internal
expansion of the sales force (see 'elow)" This could help 0?) lock in other markets where the potential
seemed to 'e high" )t could help provide a 'asis for 'roader market development when+if the company
moved to other target markets"
'hould the firm increase the num*er of sales reps,
$ince sales reps are 'asically a marginal expense% there is very real leverage from increasing the num'er
of sales reps" 7ut at present they do not seem to 'e very effective" They are only selling one unit a day"
=oing a 'etter ,o' of identifying prospects% improving sales presentations% etc" to get a higher unit sales
rate might 'e even more productive" .dding sales reps would pro'a'ly re3uire additional sales
management effort (perhaps a few managers on a salary)" 7ut each sales rep #contri'utes# a'out M95
per unit x :>; units per year or M>>%8;; a year% so the expenses could 'e covered pretty easily" )t would
pro'a'ly make sense to expand promotion of other types" -or example% direct mail promotion in
neigh'orhoods where the (@<)TF )) had sold well (i"e"% toward other people who at least in terms of
geographic area and likely lifestyle% income% etc were homogeneous with current customers)" 0?) could
encourage word of mouth among existing customers 'y offering an incentive for referral sales && such as a
discount on a filter or a free filter or the like" .dvertising could help inform customers and 'ring in
re3uests for more information" 0owever% a large scale advertising effort would increase fixed costs and
so the trade&off would need to 'e considered carefully"
Case !5" Harris:%rg Vol%nteer Fire De0artment
The 0arris'urg *olunteer -ire =epartment case allows students to explore marketing strategy planning%
and more specifically (romotion planning% in a non&traditional context" The case allows for discussion of
a num'er of different issues around (romotion% including promotion o',ectives% integrated marketing
communications% pu'licity% promotion methods% and media" The context of the case allows discussion in a
situation where financial resources are limited"
.n instructor might start the case 'y asking" B)s anyone here a volunteer firefighterCD or B=o any of you
know a volunteer firefighterCD This allows the discussion to 'ecome more personali/ed% and also lets the
instructor know right away if there are students that might have personal experiences relevant to the
case" Typically at least one or two students will know a firefighter E and 'ecause the situation descri'ed
here is 3uite common they may validate the situation descri'ed in the case"
.n instructor wanting to cover the case very 3uickly might skip 3uestions a'out customers% competitors%
company% and context E 'ut these provide a solid foundation for discussing the case and reminding
students that marketing strategy decisions should flow from this analysis" $o we recommend at least a
3uick discussion of these 'ackground topics"
This might 'e handled with a directed 3uestion% B7efore we start into the promotion issues at the heart of
this case% let4s make sure we understand the market situation" .re there any issues in the external
market environmentCD (rompt students to assume the case takes place in the current year E making it
easier for them to relate to the current environment" .ttitudes toward volunteering and community service
Part V
may 'e relevant E as the case notes a surge of interest following the terrorist attacks of >;;:" )n general%
these values have made a 'it of a come'ack among the younger generation" The economy might also
influence how potential recruits feel a'out volunteering as a firefighter"
.sk B?hat competes with volunteer firefightingCD This 3uestion may help students 'etter understand the
nature of competition" The scarce resource might 'e time" $o anything that takes up a potential recruit4s
time E other volunteer activities% school% family% social life% or a ,o' E could 'e a potential competitor"
6ompetition might 'e other activities that fill the same need E serving one4s community% learning a new
profession% or other thrill&providing activities"
The instructor might ask% B?hat do we know a'out our potential customersCD The case does not provide
a lot of detail a'out 0arris'urg4s firefighters E except that they come from a variety of 'ackgrounds"
0*-=4s firefighters include professionals% 'lue collar workers% and students" The conclusion here might
'e that there are many different types of people that could 'e interested" 9'viously% this effects the
choice of target market" $tudents may 'e asked% B?ho do you think would 'e most attracted to volunteer
firefightingCD (erhaps young single people in their >;s might 'e a good target market E if they get
interested they are likely to stick with it for a long time" ?e might also want to find people who have
community&minded values" . lively discussion might center on who these people are and where we might
find them"
B?hat are the demands placed on firefightersC .nd what are the 3ualifications for someone to do this
,o'CD .s noted in the case% there are physical demands to the ,o'% firefighters must live or work near
0arris'urg% 'e :8 years old with a driver4s license% and they have to 'e a'le to attend 0*-=4s 'iweekly
drills (on Tuesday evenings)"
.n instructor might use the following 3uestion to move discussion toward aspects of the company: B.re
there any particular strengths or weaknesses for 0*-=CD 0*-= has 'een around for a long time and has
G8 mem'ers who seem highly devoted to its cause" . couple of weaknesses include not having a long&
term marketing strategy and very limited financial resources for marketing efforts"
To shift the discussion to (romotion% an instructor might ask% B?hat do you think Hesse =elaney should
use as promotion o',ectivesCD The case makes it pretty clear that awareness of 0*-= is 3uite low E
most mem'ers of the community think that the town4s firefighters are full&time paid staff" $o the primary
o',ective may 'e informing E to generate awareness that then leads to interest" B?hat can 0*-= do to
generate awarenessCD ?hile students might ,ump to advertising activities% it should 'e noted that
financial resources are limited"
$ome organi/ations in town might support a good cause like volunteer firefighting" -or example% the
author has found that 5c=onald4s restaurants sometimes allow nonprofit organi/ations to use tray liners
for promotional purposes" .nd males in their >;s are a large market for 5c=onald4s" )nstructors should
'e open to suggestions% 'ut ask the class E B=oes this method work with our target marketCD 0*-= might
'e a'le to get pu'lic service announcements on local radio programs E B?hat types of stations might
work 'estCD
)f the case is used with 6hapter :6% the instructor might ask% B?hat copy thrust should 'e usedCD )t4s
important to gra' recruits4 attention% 'ut it4s also important to set expectations so that they stick around"

8onprofit organi/ations like 0*-= can also 'enefit from pu'licity" 7ut pu'licity can 'e difficult to foster
and control" The instructor should make sure students reali/e that it still takes effort to get a story in the
local newspaper or on a radio programR and that this effort may not yield the desired media coverage" )t
is also difficult to control the message that comes out of pu'licity E though when awareness is the primary
goal any kind of positive coverage could 'e very helpful" )t is also important to remind students that
promotion activities need to provide interested BcustomersD with a way to get in touch with 0*-= (we'site%
phone num'er% contact name)"
.nother option% alluded to in the case% is targeting current firefighters with promotion" They might 'e
reminded that 0*-= needs more recruits E so they will talk to friends% relatives% or co&workers a'out what
they do" $ometimes employees need to 'e reminded a'out how they can generate word&of&mouth or
how they can 'ecome salespeople for the cause" 6urrent firefighters could 'e trained to discuss their
firefighting activities with other people and to sell the idea of firefighting"
The instructor might write the .)=. acronym on the 'oard and ask the class what it stands for" The class
may focus on awareness% 'ut it should 'e noted that (romotion may 'e necessary to move potential
recruits through all stages of the .)=. model E to the action step of filling out an application" Therefore% it
might help to consider all four stages: awareness% interest% desire% and action"
.fter a smaller group of interested recruits have 'een identified% 0*-= should still have a process for
turning interested people into volunteer firefighters" 6urrently these interested people come to one of
0*-=4s Tuesday night drills" )t is not clear if there is an organi/ed process for converting these interested
parties into actual volunteers" Hesse might try to recruit colleagues to take roles in helping interested
parties 'ecome more educated a'out firefighting" (erhaps at one drill per month% there should 'e a focus
on more active recruiting" This may 'ring personal selling into the promotion 'lend E does 0*-= have
people who might 'e 'etter at this activity and can it make sure they are availa'le"
The key here is to let students share ideas E and for the instructor to make sure that students evaluate
options on sound criteria" =o they make sense given what we know a'out customers% competitors% the
external market% and 0*-=C =o they address the promotion o',ectivesC .re all the o',ectives 'eing
addressed with the promotion 'lendC .re 0*-=4s 'udget constraints 'eing consideredC
Case !7" o%r<edding)com
There are a num'er of aspects to this case that capture student interest&&and there are good lessons to
'e learned from analy/ing the situation and coming to grips with what needs to 'e done"
5ost students initially get interested in the case 'ecause:
the central figure in the case% Hessica $tone% is a recent college grad who wants a rewarding
marketing career%
many students dream a'out identifying a great market opportunity and BgrowingD their own company%
'ut most also live in fear of the kind of outcomes that Hessica has had so far%
students immediately understand the needs the 'usiness is supposed to meet% and intuitively BknowD
that there is a market opportunity% and
many students are curious a'out how small 'usinesses Bmake itD on the )nternet"
.s they get more involved in analy/ing (and discussing) the case% however% they also get interested in the
marketing pro'lem" Hessica4s idea seems to have the 3ualities of a B'etter mousetrapD (al'eit a high&tech
one) 'ut customers are most definitely not 'eating a path to Hessica4s door"
Ieen student interest in the situation works to promote good ideas and good discussion% regardless of the
way in which the instructor focuses the discussion" )n that regard% the case is 3uite flexi'le 'ecause it can
'e used for some fruitful discussions of:
what the product is that Hessica is selling%
whether or not Hessica has a good strategy%
reasons why the 'usiness has not taken off% including the need for a 'lend of promotion methods
(yes% even in this Bhigh&techD advertising venture)%
the consumer 'ehavior issues in shopping for wedding presents and in purchases made 'y young
newlyweds%
the challenges of implementing a marketing plan for a new 'usiness% especially on a tight 'udget% and
how 3ualified Hessica is to do what she is trying to do%
and even the issues involved in BsearchingD for the right career in marketing"
Part V
Hessica has done a reasona'ly good ,o' of thinking a'out target markets (perhaps with the exceptions
noted 'elow) and understands the relevant needs 3uite well" ($ome students will not have explicitly
considered the fact that this is primarily 'ecause of her personal experience&&'oth experience in getting
married and also experience in different promotion&related ,o's" )t4s useful to remind students that they
may 'e a'le to gain a competitive advantage in ,o's% in which they have a real interest and relevant
experience% even if it is not necessarily 'usiness experience") 9n the other hand% the marketing mix(es)
seem to falls short" That can lead to a fruitful discussion of whether this 'usiness really involves one
strategy or several strategies that all have to work together as an integrated whole" -or example% a
marketing mix that appeals to engaged couples is not the same as a marketing mix that appeals to the
firms that pay for we' pages"
The target markets are: engaged couples (and perhaps newlyweds) for the gift registry% companies that
target newlyweds (with 'oth goods and services) for the advertising we' pages% as well as the Bfriends
and familyD of the couple to 'e married (whom the advertisers want to reach)" ?hat may or may not 'e
o'vious at first is that there is little a'out this 'usiness that re3uires that it 'e focused only on customers
or advertisers in the same city or metro area" To the contrary% gift&givers who are inclined to get on the
)nternet to check a wedding registry might 'e e3ually willing to order gifts from distant firms (advertisers)%
especially if the firm provides special services such as gift wrap% personali/ed gift cards% and delivery
direct to the recipient" -urther% even for local customers% there may 'e a num'er of mail order% catalog%
and specialty retailers in distant locations who are interested in reaching this target market" $imply
focusing on retailers or service providers in the local area to generate we'site listings and advertising
revenue may not make sense" $imilarly% there is little reason that the registry service should 'e limited to
local couples&&a user of the )nternet usually doesn4t know or care whether the 'ase operation for a
we'site is near'y or far away" To the extent that there are advantages of locali/ing aspects of the service%
Hessica could potentially set up a segmented approach in which different parts of the we'site were
designed to appeal to people from different areas" .s a start% for example% she might think a'out retailers
or advertisers who have facilities or 'ase operations in her own area 'ut who also are targeting
customers in other places"
)t4s useful to think a'out the marketing mix that Hessica offers each of these target markets" -or each
group:
?hat is the specific product (and what are its 'enefits)C
?hat is the price of o'taining those 'enefitsC
0ow are the 'enefits promotedC and (to a lesser extent)
?hat is Hessica4s role in the place arrangements 'etween the advertisers and their customersC
0ow does her current geographic focus come into playC
The 'enefits for engaged couples seem pretty clear" The M>; price to register is not a 'ig investment if it
saves time and leads to the desired gifts rather than things that are not of interest" $o% it is unlikely that
price sensitivity should 'e a 'ig concern unless other services appear that will provide the service (and+or
other superior 'enefits) for free" This is certainly a possi'ility 'ecause revenue from advertisers could
certainly pay for the services providedEif enough advertisers and customers can 'e attracted" )t4s a
chicken and egg situation in that regard"
$o% this is in many ways typical of other new products that are unsought goods" )f the couple doesn4t
know a'out the service and doesn4t know to look for it% they won4t sign up" There is also some evidence
for this diagnosis 'ecause the main flurry of activity came after Hessica finally got some attention with
pu'licity" That attention and interest simply wasn4t forthcoming from her limited advertising" Hessica
should work harder to get more pu'licity" There also seems to 'e a very important role for word&of&mouth
referrals here" -or example% there is no explicit discussion in the case a'out how Bfriends and familyD of
the couple are supposed to learn a'out the we'site% 'ut it would certainly make sense to develop ideas
that could 'e shared with the registered couples a'out how to inform gift givers a'out the we'site% what it
is supposed to do% and how it is supposed to work"
-urther% the relationship with couples who do sign up needs to 'e a close oneEeven if for only a short time
period" 5ost couples are not going to 'e repeat customersA 9n the other hand% couples who are a'out to
get married often know others who are at the same life stage (especially among younger Bfirst&marriedsD)"
Hessica needs to think a'out how to stimulate word&of&mouth referrals so that people who do sign up help
to 'ring in additional customers" $ince she doesn4t have a lot of money% one way to do this is to think in
terms of marginal revenue from new customers and what it might cost her to ac3uire a customer" )t might
'e 'etter and cheaper to offer couples who recommend the service to a friend a M5 or M:; Bre'ateD on the
M>; fee&&or perhaps she could enter them in a 'imonthly drawing for some more su'stantial pri/e&&like a
honeymoon trip"
Hessica has not done a particularly good ,o' of giving advertisers a reason to 'uy into her service" $he is
'asically selling a professional service to them% 'ut most of them can4t evaluate it in advance and they are
unclear a'out its 'enefits" The comparison with the cost of a Fellow (ages ad is interesting 'ecause it
provides a sort of reference price for the advertiser" Fet% the advertiser pro'a'ly sees some sort of Fellow
(ages listing as a Bmust 'uy"D (erhaps this sort of we'site advertising will 'ecome a must 'uy% 'ut
pro'a'ly not until more of these firms4 target customers think of the we' as BtheD place to look for this sort
of information"
Hessica is also 'eing a 'it production&oriented in the way she is thinking a'out her product" $he designs
we' pages in her other ,o'% and so she is thinking a'out potential advertisers who need a we' page" 7ut
firms that already have a good we' page might 'e more interested in something else% like a 'anner ad or
'utton ad at her we'site that would allow a net surfer to BclickD over to get their existing message" -irms
that have already invested in a we'site know that they face the same pro'lem that Hessica doesEthey
want to attract people to the site" $o% for them the value of 'anner ads (perhaps at a lower cost% or even
with the fee 'ased on the num'er of click&throughs from Hessica4s we'site) might 'e easier to see"
Hessica also might think a'out the pricing arrangement for advertisers" $he currently 'undles the price of
the on&time service of preparing the we' page and the ongoing online we' page" $he might want to
charge separately for the preparation of the we' page and+or allow customers to have something more
ela'orate than a single page"
Hessica4s service in many ways operates with the same approach as a maga/ine&&attracting an audience
and advertisers who want to reach that audience" Fet% most firms that sell advertising media time and
space rely on personal selling and+or offer incentives to advertising agencies or others that refer 'usiness"
Hessica hasn4t done much personal selling to advertisers% even after her Bdirect responseD mailing didn4t
work" The case offers several hints why: she didn4t like the ,o' she had doing personal selling% and she is
'usy doing other things" )t is likely that if she is going to need to get help if the personal selling part of her
promotion 'lend is going to 'e handled well" $ince she doesn4t have a 'ig 'udget% she might think a'out
trying to find someone who would sell advertising space on her we'site on a straight commission 'asis"
That way% she would not have much expense until she had revenues" 9f course% the salesperson would
still need to have a good story to tell% and that might depend on having a way to 'etter esta'lish the link
'etween the advertiser4s sales and visits to the we'sites" -or example% if Hessica could convince
advertisers to offer a small discount to customers who purchased 'ecause of the we'site she might 'e
more successful in getting customers to tell the advertisers that B) am a our?eddingD customer"
?hile it is not hard to think a'out different things that Hessica could do% what is perhaps more relevant is
what is she willing to do" The case portrays her as a doer not as a planner" That is in part true" $he had
an idea 'ut doesn4t have a detailed plan for what needs to 'e done" <ather% she hasn4t yet really made
the investment of timeEand moneyEto give her idea a chance to work" Thus% she4s a doer when it comes
to some things 'ut has not really 'een a dedicated doer when it comes to getting this 'usiness started"
$he pro'a'ly wouldn4t have the time to do that unless she gave up her full&time ,o' or really cut 'ack on
her social life&&and she doesn4t seem willing to do either now" This can turn into some good class
discussion on the need for good implementation to help turn strategies (or at least ideasA) into real
opportunities&&and why many small 'usinesses fail early in the process"
Part V
?hile Hessica doesn4t think that there is much competition for her idea% it is an idea that is easy to modify
or copy% and there are few competitive 'arriers to entry" -urther% if she doesn4t make a greater effort soon
and start to 'uild awareness and interest as BtheD place for wedding listings% shopping% and advertising%
she is likely to lose out to another competitor"
Case &8" Recreation Uni-erse
5ike Iidd is in a very competitive&&almost purely competitive&&market situation" $ome of the products he
is selling are in the market growth stage&&'ut most have reached the market maturity stage where there
are relatively small differences among products and all of the producers are trying to out&promote each
other and find more outlets" <ecreation @niverse happens to 'e one of the many outlets that have 'een
#sold# on selling these essentially homogeneous products" (rice cutting is typical in these situations and
5ike is 'eing naWve&&attempting to o'tain the full price markup" 0e may 'e a'le to from some shoppers
who are particularly attracted 'y his own personality% service% or place convenience" 7ut% generally% the
prices in these markets are 3uite competitive&&and most retailers do not attempt to o'tain the full&
suggested markup" Inowledgea'le 'uyers are aware of this and find that it is fruitful to shop around
(perhaps initially treating the particular product type as a heterogeneous shopping product and then
'ecoming more price&conscious and moving into the homogeneous shopping products category)" The
new lawn mower line appears to 'e 'asically like all of the other products that he is carrying and he
pro'a'ly cannot expect significantly different results" The manufacturer2s sales rep may try to encourage
him (that is his ,o'A) and the fact that the manufacturer is willing to continue promotion support indicates
that they are in a very competitive situation and must help the retailers move these essentially
homogeneous products" .s noted a'ove% this is characteristic of the market maturity stage" 1ntry is very
easy into this industry (witness how easy it was for 5ike to get in) and a continual turnover of small
retailers is typical" .nd many manufacturers of such products are continually looking for new outlets"
5any of these manufacturers are very production&oriented and are continually trying to #push# more
goods on their retailers" *ery aggressive sales reps can 'e 3uite #successful#&&'ecause many of the
retailers are relative newcomers and 3uite naive" #0ope springs eternal# in the minds of some new
'usinesspeople and they eagerly take on new lines as long as they have the capital or 'orrowing power"
Then when things do not go well% they have #close&out# sales&&or sell out to optimistic newcomers like
5ike"
The outlook need not 'e all 'lack% however% 'ecause 5ike may 'e a'le to find a new product that is ,ust
going into the market growth stage" $nowmo'iles% for example% helped many such retailers have a few
profita'le years" $imilarly% the recent 'oom in 'icycles was very profita'le for some 'icycle retailers who
had ,ust 'um'led along for years" 7ut in each of these cases% other firms (producers and+or retailers)
inevita'ly enter these markets and price cutting and declining profits follow" This is pro'a'ly the case for
mountain 'ikes% and he is properly concerned a'out taking on mountain 'ikes" )t may 'e #too late# for
him to take on mountain 'ikes and reap 'ig profits&&especially given the service 'eing offered 'y
competitors"
Case &!" =lo:al Materials( Inc)
=aimler6hrysler2s previous approach to designing a car and specifying materials was production&oriented"
7ut it also gave purchasing agents a great deal of power as they asked competing suppliers to 'id on
standard specifications" This 3uickly led to pure competition or oligopoly situations% depending upon how
many competitors could supply the specified homogeneous products" The #program management#
approach is 3uite different in that it expects relia'le suppliers to participate much earlier in the process"
This reduces the num'er of potential suppliers to a few with #serious commitment"# This may result in
oligopoly conditions if all the serious suppliers can meet the same specifications" 7ut the process does
raise the possi'ility of some suppliers developing #monopolies# if they develop superior products (goods
and+or services") 9r monopolistic competition is possi'le if different suppliers develop slightly different
systems or are stronger on some criteria"
<egardless of the nature of competition that develops% it is clear that the 'uying situation has changed"
Kreg =onaldson should develop a different promotion effort&&pro'a'ly a team of order getters and
supporting people who can work with the multiple 'uying influences while products are 'eing designed"
This means that lead times of one to five years will 'ecome more common rather than order&'y&order
'idding in the short run" This also means that Kreg will have to 'uild a team and organi/e Klo'al
5aterials2 efforts so it will 'e seen as having a #serious commitment"# This has already led to more plastic
producers2 people locating in the =etroit area&&for auto&related 'usiness" .nd some firms have created
auto&related research la's to facilitate ongoing commitment to the auto industry" This work may 'e
coordinated out of the =etroit area% 'ut it will re3uire travel to the many #7ig Three# plants across the
country (and worldA) and also to the growing num'er of #foreign# @"$" producers and their influencers"
This is a much 'igger and more complicated promotion ,o'A .nd it may mean that producers like Klo'al
5aterials will have to choose their target customers carefully to 'e #sure# that it will 'e profita'le to serve
them" That is% they will have to estimate the potential sales per customer and their potential share and
match this against the cost of selling and serving each one" $ome may 'e too small and+or too
committed to others% and+or too remote% etc"% to make it worthwhile to treat them as target customers"
Case &&" Brig't ig't Inno-ations
7right Jight )nnovations is a real situation E the names% dates% and plans were correct at the time the case
was written" The case is 'ased on an award winning 'usiness plan created 'y a team of students (mostly
undergraduates) and faculty advisers all of whose names are mentioned in the case" .n instructor should
'e aware that students might do an online search of the company and product and discover its latest
strategy" .s of this writing% such a search only yields information a'out how the 'usiness plan fared in
various competitions"
The case allows a discussion of several important issues" .t a 'road level% the case deals with selling a
relatively technical 'reakthrough that could have tremendous social value in a developing country" )t
shows how marketing principles can 'e used to help a less&fortunate population"
7ut marketing a product in a developing country can 'e a real challenge" 6hannels of distri'ution are
often limited" 6onsumer incomes are low E and the $tarlight $tove might cost one third of the average
per capita income" The selling price on the stove% which has not 'een set% might range from M8; & M:;;
or more" This is a considera'le expense in a country where the gross per capita national income is only
M>6;" The case mentions microfinancing and a >;U interest rate is typical" The 'oxed teaching example
in 6hapter >; (p" 55:) discusses microfinancing" 7roken down to M"68 per week% customers may 'etter
understand costs and 'enefits" The stove offers significant economic 'enefit 'y allowing owners to spend
more time on education or income&generating activities"
The case may work 'est later in the course 'ecause it offers an opportunity to discuss many elements of
the marketing strategy planning process model" Jet4s 'riefly walk through some of these elements and
possi'le discussion points"
#&ternal environment. .n instructor might discuss the impact of cultural values on aid for
developing countries" Traditionally% most aid to impoverished nations was in the form of grants%
government relief% and+or donations" 7ut this approach has its pitfalls E as each form dries up
and tends not to motivate the recipients" 5ore recently% many donor countries and philanthropists
emphasi/e aid that gives people a Bhand upD instead of a Bhand out"D 7right Jight )nnovations
reflects this approach"
Competition" The case provides some information a'out competing technologies E though none
are identical" The lack of a similar technology can make the ,o' of selling the $tarlight $tove 'oth
easier and harder" ?hile the product offers significant advantages to its target market% these
consumers do not have a direct 'asis of comparison and may not understand how they will
'enefit"
:emographics. The customer market in 8epal should 'e discussed" .n instructor might suggest
that students go to the 5ichigan $tate @niversity4s glo'al1dge (descri'ed in the )nternet 1xercise
Part V
on page :> of the text) to gather more information a'out 8epal" .sk students to imagine how
these people might typically learn a'out new technology" The low literacy rate may 'e discussed
E suggesting the need for radio advertising% demonstrations% or personal selling"
Company resources" )t can 'e surmised that the company does not have extensive resources E
and is motivated to make at least some profit" $tudents might rightly 3uestion the company4s
experience E which is very limited"
Marketing strategy" The target market is pretty much defined 'y the case% 'ut the marketing mix
is left wide open"
./s" There can 'e a strategic discussion a'out pricing% margins for distri'utors% and how to
promote more rapid adoption of the product"
Innovation" .n instructor might use the case as an opportunity to expand on a topic only 'riefly
touched on in the text E the diffusion of innovation" $ee the work of 1verett <ogers (:iffusion of
Innovations% G
th
edition% :995)" $ome of these ideas and their relationship to marketing strategy
decisions and the 7right Jight )nnovations case are discussed 'elow"
<ogers4 framework may help students to think a'out how to market the $tarlight $tove in 8epal" <ogers
notes five characteristics of an innovation that influence its speed of adoption: :) the relative advantage it
offers% >) its compati*ility with existing values and past experiences of adopters% ) the comple&ity or
difficulty of understanding how a new product works or how the consumer will reali/e value% G) tria*ility or
the degree to which adopters can experiment with the product% and 5) o*serva*ility or the extent to which
the results of the innovation can 'e seen 'y others"
.n instructor could 'riefly introduce these five concepts and ask the class% B0ow does the $tarlight $tove
score on each of these factorsCD The product appears to offer a strong relative advantage as compared
to alternatives" .lthough the health 'enefits may 'e difficult for users to immediately appreciate% the
potential economic value generated 'y spending less time collecting fuel and having longer working days
should 'e more apparent" The stove4s features fit with existing values and experiences% 'ut the
production of electricity does not fit well" These closely correlate with complexity" 0ow the product
actually works and the 'enefits it offers may not 'e understood without further explanation" The product
is not something that users can easily experiment with" 9'serva'ility might 'e moderate E possi'ly
depending upon the extent to which 8epalese invite others into their homes"
)nterestingly% using these same criteria% marketing managers may 'e a'le to make the product more
appealing" -or example% they could provide a sample stove in the center of a village E where people
could view and test it E increasing its tria'ility and o'serva'ility" This experience may also reduce
confusion a'out how it could produce electricity" (erhaps guarantees could make it easier for people to
try the product" (ersonal selling may 'e necessary to explain the 'enefits"
.nother way to stimulate discussion would 'e to remind students of the adoption process introduced in
6hapter 6" The six&step process involves:
:) A0areness (?ould demonstrations or a traveling road show help generate awareness and interestC)
>) Interest (0ow could 7J) or its distri'utors stimulate interestC)
) #valuation (?here and how do consumers evaluate how the product might help themC)
G) Trial (see paragraph a'ove)
5) Adoption (?ould explaining microfinancing terms help overcome o',ectionsC)
6) Confirmation (0ow would 'uyers 'e reminded a'out the value of the processC)
$imply putting the steps of the adoption process on the 'oard might help to stimulate discussion a'out
specific marketing activities that could help guide customers through these steps"
Case &*" Valle+ F%rnit%re
This case gives the student an opportunity to analy/e some marketing research data that makes use of
social class" =ora .'ila is o'viously aiming at Kroups 6 and =% while her salespeople are pro'a'ly in
Kroup 7 or even in Kroup .&&'ecause good heterogeneous shopping products salespeople should 'e
more than clerks" )f they are in Kroup . or 7% then it is o'vious that they have different attitudes than their
target markets" )n particular% their target markets pro'a'ly do less informal shopping than they would and%
therefore% might appreciate more sales help" $econdly% these target markets seem to have less interest in
returning to the stores where they shop and% therefore% the salespeople should try to close the sale while
the customer is there" )n other words% more aggressive order getting (than the salespeople would like to
have used on themselves) may 'e needed"
.s usual% a company2s marketing strategy should focus on its target market" 0ere this means that the
salespeople should give the customers what they want" This might even mean pushing a decision
'ecause these customers might prefer to get the shopping task over as soon as possi'le" -or .'ila% it
means that she must get her advertising and personal selling efforts in tune" This means either changing
her 'asic strategy to fit her salespeople2s preferences (pro'a'ly not recommended) or o'taining
salespeople who are willing to implement the strategy she has developed" )f the present salespeople
cannot 'e retrained% then new ones are needed" .nd may'e they need more motivation for aggressive
order getting&&increasing the commission (and cutting the salary)"
Case &," C%stom <ire( Inc)
This company now produces component parts% 'ut it wants to go into the seemingly profita'le consumer
products market after experience with a product that it made for another company" The products they are
considering would pro'a'ly 'e impulse or heterogeneous shopping products" Kood products coupled
with appropriate distri'ution systems might 'e profita'le" 7ut really new items would 'e copied 3uickly
and the product life cycle would move 3uickly to the market maturity stage"
5eggie $tillwater has much more than a pricing pro'lem" $he has not even selected her target
market(s)" .ll she has is a product" $he has no idea a'out the demand for the product" $he has no
patent protection or esta'lished 'rands" Thus% competition can 'e expected if the product is at all
popular&&really the same kind of competition she will give the firm she is copying"
5eggie has not selected and #sold# any channel mem'ers% although some stationery and gift wholesalers
might 'e willing to handle such products" 8o plans have 'een made for promotion% except her own
personal selling efforts" Fet she feels the ma,or concern is with priceA .ctually% a price must take into
consideration the rest of the marketing mix and the nature of the potential target market&&all of which are
still undecided (except for one product)"
The students should pass over the #pricing pro'lem# and suggest (and evaluate) alternative strategies"
The possi'ilities are numerous (including door&to&door% conventional retailers% discounts to the
price&conscious% etc")" The case doesn2t provide any data on these possi'ilities% so the logic and
completeness of alternative strategies should 'e used to evaluate their answers" $implistic price&oriented
(only) answers should 'e #pounced upon"# 7ut% 'reak&even analysis can 'e used to evaluate some
alternatives&&given some assumptions a'out prices% markups% and marketing costs for 6ustom ?ire% )nc"
This company actually had a very profita'le industrial 'usiness and was completely unfamiliar with the
consumer products market" This is a very common situation&&that is% industrial producers wishing to
invade the final consumer market 'ecause of its seeming profita'ility" .fter some experience with the
high cost of operating in such markets and the difficulty of reaching final consumers% such companies
fre3uently 'ecome disillusioned" )n the end% this company gave up its consumer products division&&and
devoted all of its energy to developing uni3ue ways for 'ending wire&&after a more realistic appraisal of
the likely profita'ility of some possi'le alternative strategies (which is what the students should discuss")
Case &/" 1lastiTec' M9g)( Inc)
This manufacturer of very slightly differentiated installations is in close to oligopolistic competition in the
?.'. market" The competitors have tended to use nonprice competition" .ll machines have similar
Part V
prices% 'ut each firm uses -"9"7" shipping point pricing% so this has led to #geographic monopolies#
around the various shipping points% which are dispersed around the country"
(lastiTech is on the ?est 6oast and uses its own sales reps there and manufacturers2 agents nationally"
The agents have not generated much 'usiness&&as would 'e expected% given the nature of the market
situation and -"9"7" shipping point pricing"
)ndustry sales have 'egun to level off&&perhaps indicating a market maturity situation&&and (lastiTech2s
president is not satisfied" 0e is considering more aggressive promotion to expand his (national) market
share" .nd he is also considering a freight a'sorption plan that pro'a'ly would 'e viewed as a price cut
'y some of his national competitors"
Kenerally speaking% price cutting in monopoly situations (with inelastic demand) or oligopoly situations
should 'e avoided&&and this may apply here also" )f (lastiTech 'egan to a'sor' freight and its
competitors followed immediately% then it might find that it had eleven other competitors in its local market
and everywhere else" This might increase the difficulty and cost of the sales ,o' and ultimately lead to
selective price cutting" The more prudent course would 'e to try to expand sales through promotion
effort" 7ut this too may not work if potential customers really do see these products as 'asically
homogeneous and (lastiTech2s delivered price is higher"
Kiven the #oligopoly# situation% (lastiTech pro'a'ly should #leave well enough alone# with its strategy for
present products&&and 'egin working on new&product development and cost cutting in the factory and in
distri'ution (for present products)"
Case &2" National 1ackers( Inc)
. production&oriented manufacturer of staples in market maturity has 'een selling the 'ulk of its output as
dealer 'rands (in almost pure competition) through food 'rokers to wholesalers and retailers outside its
local area" 8ational does use its own 'rand locally% 'ut this is a minor part of total volume" =eclining
profits have led to a #desperation# move&&trying to 'ypass the food 'roker" This move helps reinforce the
,udgment that 8ational is production oriented% 'ecause it did not appreciate one of the important roles
'eing filled 'y the 'rokers&&that is% to com'ine the output of several packers such as 8ational into
sufficient volume to meet the demands of their dealer&'rander customers" These food 'rokers are
ad,usting discrepancies of 3uantity&&a function that 8ational is not trying to handle (really% doesn2t even
understandA)"
)n the short run% they pro'a'ly should return to working through the food 'rokers to 'uy time to determine
whether there is(are) a strategy(ies) which can improve profits" (erhaps they can 'uild their own
#8ational# 'rand outside the local market" (erhaps they can offer price&oriented 'rands to mass&
merchandisers" 9r may'e they can develop a #3uality# la'el" .ny of these moves will re3uire new
marketing personnel% however% 'ecause the present family mem'ers have no competence or interest in
selling or marketing" Therefore% any decision to go 'eyond returning to the former food 'rokers should 'e
taken very seriously" This would 'e a ma,or shift in strategy for the company&&and might re3uire a ma,or
commitment of resources for several years to come" )t might even re3uire new top managementA )f the
company chooses to follow more aggressive market&oriented strategies% then it could consider adding
new 'rands and+or products&&including convenience foods% snacks% etc" )n other words% in many respects%
it is similar to 6ase > a'out $unshine -oods% )nc"
Case &3" 1remier Molding( Inc)
=e' Klendon2s ma,or pro'lem is whether this new company can develop some marketing strategies that
will 'e more profita'le than those now 'eing implemented 'y the company" 0er salary will not rise 'y
changing ,o's% so she must decide whether profits will rise and lead to a 'onus (> percent of profit) and
an attractive return on her investment"
The present management seems to 'e running a production&oriented operation in highly competitive&&
almost purely competitive&&markets" They are producing component parts for others and miscellaneous
consumer products which are convenience&impulse and+or shopping products" They are willing to make
anything that sells" 7ut this seems to 'e the nature of the 'usiness" 5any other small firms do the same
thing" The 'uyers of the component parts re3uest 'ids from several similar producers&&so there is little
hope for much profit in this direction"
9n the proprietary items% there has 'een little 'rand promotion&&so the ma,or hardware% food% and drug
chains% and the large wholesalers are primarily concerned with 'uying at the lowest price" @sually several
firms have similar items or are willing and a'le to copy other firms2 good items" This market situation
comes very close to pure competition&&and as would 'e expected% there is no profit"
$uccess with proprietary products depends upon almost continual successful innovation" (roduct life
cycles (to market maturity) are short new products are copied 3uickly 'y other companies% ,ust as this
company has 'een doing" These competitors can 'e expected to cut price until there is no profit" 9ne
way to 'eat this cutthroat competition is to 'ring out new products continually (at a cost for dies%
promotion% etc"% of course) and command a price premium for a short time"
Herry 8atche/ seems to have some new ideas% 'ut they are untested and (as we noted in the (roduct
chapters) the failure rate on new product ideas is high" .ctually% Herry is placing most of his hope for the
future on improving the production process (which pro'a'ly is already good&&e3uipment is up&to&date and
custom producers must 'e fairly efficient to survive) and hitting on some good new proprietary products"
7ut his knowledge of marketing must 'e 3uestioned when he plans to rely on =e' to handle the
marketing effort" =e'2s 'ackground is primarily in the components 'usiness% which he plans to
deemphasi/e&&not in the consumer products area where they must do well to increase profit"

=e'2s decision must consider the cali'er of the other #new people# as well as Herry2s plans" .fter all% =e'
gets only a 5 percent interest in the 'usiness and thus is not much more than an employee" -urther% a 5
percent share of a #/ero&profit# 'usiness isn2t worth much&&even if it has modern e3uipment" The lawyer
(Herry 8atche/) will pro'a'ly keep a 5: percent interest and thus his thinking will dominate" )f he is
primarily concerned with internal pro'lems rather than with marketing pro'lems% there may 'e little point
in =e' ,oining in this venture to ac3uire a factory" The ma,or pro'lem is marketing" )f this is solved%
perhaps the necessary products can 'e purchased from some factory like this one&&instead of 'uying this
'usinessA This would leave more time and money for profit&making activities"
9ne approach this company could take is to develop a fairly complete line of products&&'uying from others
if necessary&&to offer a complete assortment to wholesalers% especially small ones" .lso% some
companies in this area have made money with direct&to&consumer selling" 7ut again% these approaches
would not necessarily re3uire 'uying plant and e3uipment" This can 'e done when the marketing
pro'lems are solved&&and it is clear what sales volumes they can achieve"
>ote! #9ptimistic# salespeople like =e' Klendon almost always #'ite# on Herry2s offer when this case is
used in executive training seminarsA
Case &5" ACT( Inc)
This manufacturer of operating supplies is facing almost pure competition for its standard items" The
product life cycle for these homogeneous items pro'a'ly has reached the market maturity stage&&and
conditions cannot 'e expected to improve" <ecogni/ing this% the company has sought to develop and sell
#special&purpose# operating supplies" )t has decided to use its regular general merchandise (or single
line) merchant wholesaler to introduce and sell these special&purpose tools" This decision makes some
sense in that customers 'uy only small 3uantities and the market is widespread" @nfortunately% however%
some new specialty merchant wholesalers have developed in this product market&&and also many small
producers are selling direct" The greater sales effort (order getting) that they give these items&&including
technical assistance&&cannot and will not 'e matched 'y .6T2s present merchant wholesaler" )t is in a
different 'usiness entirely&&carrying a large assortment of items% 'ut not aggressively promoting any of
Part V
them" 9rder taking&&not order getting&&is its strong point" (The reference to the large catalog should
support this conclusion")
.6T% )nc" is in a difficult position" Bne general merchandise merchant wholesaler handles 9; percent of
its output" @nfortunately% this merchant wholesaler is not suita'le for the new items" 7ut going direct will
not 'e too practical either&&given the small orders and the widespread market" $ome kind of indirect
system is needed&&'ut one with more aggressive personal selling than will 'e o'tained from the present
merchant wholesaler" 6onverting the present market researchers to supporting sales reps might help to
supplement the efforts of the existing merchant wholesaler2s sales reps" .lternately% .6T could try to sell
some specialty merchant wholesalers% 'ut then the present wholesaler might drop .6T completely" If (a
'ig if) it can find several specialty wholesalers who are willing to work with .6T% however% it may 'e
desira'le to make the switch"
The #right# answer depends on the needs and attitudes of the various cutting tool customers and the si/e
of the various markets" )f some 'uyers will routinely continue 'uying from the present merchant
wholesaler&&no matter what the specialty wholesalers do&&then a su'stantial sales volume may continue to
'e sold through these outlets" The specialty wholesalers may already have switched all those customers
they can serve profita'ly" 9n the other hand% if the #switch# is ,ust starting% then perhaps .6T should
move soon&&'efore all of the good specialty wholesalers have made arrangements with other
manufacturers and .6T must watch its share of the market slowly decline as the market shifts from the
general merchant wholesaler to specialty wholesalers" .ny such shift would not occur overnight% and this
is the dilemma facing a company like .6T% )nc" $hould it give up its esta'lished channel and all of the
volume that flows through the channel to position itself correctly for the futureC )f it makes a move now% it
may lose sales in the short run and 'enefit in the long run" 9n the other hand% if it doesn2t move now% it
may lose in the long run"
Case &7" aser Castings( Inc)
<oger Jansing% the marketing manager% is certainly correct that the proposed hydraulic ,ack line would get
the firm into entirely different strategies" 6urrently% they are selling component parts directly to
manufacturers&&and are relying heavily on their a'ility and willingness to make product changes as
needed 'y their customers" ?ith the proposed line% on the other hand% the firm would have to settle on
specific product designs and then go through a variety of middlemen" This would re3uire the
development of several channels of distri'ution" .nd these channels would re3uire fairly high markups&&
more than half of the retail selling price" Therefore% the production manager2s estimate that he could
produce at one half of the current retail price is not very impressive" )n fact% the company may 'e at a
serious cost disadvantage against competitors and this #new product# seems to 'e a profits #loser# from
the start if it must 'e sold at market prices (which is pro'a'ly the situation)" #(roduction costs# should 'e
much lower to allow for sales and overhead costs and to leave some chance for profit"
)t appears that the production manager is 3uite production oriented" 8ote his feelings that he can
produce 'etter products than competitors% although customers pro'a'ly would not notice the differencesA
0e may actually have fairly high costs" 0is production flexi'ility may come from running a #high cost# ,o'
shop rather than a mass production operation"
Iarl 5inelli% the production manager% does not appear to have any new ideas&&preferring instead to try to
develop a whole new 'usiness with #me&too# products" This will make it extremely difficult to o'tain
distri'ution" )t is likely that competitors are already in market maturity and middlemen will not 'e too
excited a'out another #me&too# producer entering the market" )n fact% it might 'e almost impossi'le to
o'tain distri'ution unless something uni3ue is offered% i"e"% 'etter products% and+or lower prices"
The current proposal will pro'a'ly 'e a costly fiasco% and <oger should explain why to the president
rather than ,ust arguing that he is already too 'usy" .n effective way of communicating with a
profit&oriented president would 'e to estimate the total cost of setting up the new distri'ution channels and
the net return (pro'a'ly negative) to Jaser 6astings after the production costs and normal markups
expected 'y middlemen are su'tracted from the current retail prices" This is easy here and will take
some of the excitement out of the proposal" . stronger case would 'e made if he could estimate the
potential in each market and Jaser 6astings2 likely share&&given the strength of entrenched competitors"
This sales estimate could 'e matched against the cost of setting up and maintaining the necessary
distri'ution systems to o'tain the estimated sales" 1ven reasona'le estimates would show how much
would pro'a'ly 'e lost 'y going ahead with the proposal"
The fact that the company has excess capacity is driving this situation" )t will 'e desira'le for the firm to
find a way to make effective use of these resources (or sell them)" 7ut the prospect that the production
manager has discovered should not 'e the only one considered" .nd% given that the marketing manager
shows little interest in new&product planning% the president pro'a'ly should consider assigning someone
else to this effort&&to 'e sure that the firm does consider all its possi'ilities% not ,ust the one uncovered 'y
accident 'y the production manager"
)t is possi'le that the firm does have some uni3ue production capa'ilities% and it is these that should 'e
matched against market opportunities" 6learly% this is a ,o' for a real marketing manager or a
marketing&oriented president" 7ut 'oth may 'e lacking in this case" $o <oger may end up trying to sell
the #new product#&&and his present efforts may suffer"
<oger should try to communicate a marketing&oriented view of the proposal and try to keep the company
from making a 'ad mistake&&'ut he may not succeed unless he assem'les some num'ers that show the
implications of what is 'eing proposed"
This case illustrates the fairly typical situation where there is poor understanding of marketing and the
manager4s drift into decisions 'ecause no one has a clear understanding of where they are going or what
they have 'een doing or could do" This case is placed near the end to provide a convenient way of
showing the importance of marketing strategy planning" 8ot only the marketing manager should
understand what2s going on% 'ut also the other top executives in the company" .nd this case can 'e used
to emphasi/e to all 'usiness school students that it is important for everyone to understand what a firm is
doing&&if nothing else to protect their own ,o'sA
Case *8" Saral+n Mills( td)
This case presents a good opportunity to discuss market segmentation% target marketing% and the three
'asic ways of developing market&oriented strategies discussed in 6hapter &&within an #international#
market&&i"e"% 6anada" The 'asic 3uestion is ,ust how different is the Xue'ec market" . philosophy of this
'ook is that different marketing mixes may 'e needed if there are distinct su'markets within a 'road
market area" 7ut it is not always easy to decide how different is #different enough# to ,ustify developing
different marketing mixes" .nd% treating Xue'ec as the 'asis for a separate strategy may lead to other
su'markets of the 6anadian market 'eing 'etter served 'y separate marketing mixes" 7efore long%
6anada could 'e treated as a 'road product&market with three or more su'markets and marketing mixes"
)n that event% the top management o',ective of achieving a glo'al strategy would 'e frustrated"
Kiven that various people have supported the idea of treating Xue'ec separately over several years
suggests that 8icole *ichon pro'a'ly should reevaluate the company2s current approach to 6anada" This
is not as 'ig a ,o' as it might sound&&although it will take some time and money" 7asically% she ought to
evaluate the profita'ility and return on investment of continuing to treat 6anada as one market versus two
markets% and perhaps three or four markets" This will re3uire defining the alternative strategies fairly
carefully and then estimating likely sales and costs to implement alternative plans" )n other words%
instead of ,ust #arguing# or #discussing# the idea or accepting #dogma# from 5inneapolis% she should
evaluate alternative plans and then select the plan or plans which will ena'le the company to reach its
financial o',ectives&&while accepting top management2s o',ective of achieving standardi/ation whenever
possi'le" The case doesn2t provide enough information to make this kind of analysis% so the discussion
should focus on the right approach to reaching a sound decision" )t can also 'e used to discuss the
practicality of developing one glo'al strategy"
Part V
Case *!" Home Healt'( Inc) >HHI?
$haron ?arren is wrestling with an o',ectives pro'lem" $he would like to spend her time ensuring that
00) does #good things# and retains its professional image&&that would pro'a'ly mean working only with
well&trained nurses and not getting involved with paraprofessionals and relatively unskilled aides to 'e
a'le to offer #care and comfort# services" .t the same time% she is coming to recogni/e that the market
may want more than ,ust nursing services&&and that if she and 00) are to survive they may have to satisfy
these market needs or find themselves losing 'usiness to competitors" @ntil recently% 00) neglected
#profit&oriented matters#&&that accounts for its up and down history" 7ut now it is increasingly clear that a
more 'usiness&like approach will 'e necessary&&although she refers to earning a #surplus# rather than a
#profit"#
$he was trained as a nurse" 8urses have primarily 'een concerned with delivering #professional#
service&&not with covering costs" $o% while one part of her mind is 'eginning to think like a
'usinessperson% the other is thinking like a nurse" To resolve this pro'lem% she must decide what her
o',ectives are" .ssuming that she decides in favor of running 00) like a 'usiness (and using any #profits#
to take care of patients who are not a'le to pay) then the appropriate strategy 'ecomes clear fairly
3uickly" . full line of services&&including nursing services as well as #care and comfort# services&&will
'etter satisfy (:) customers who have varying needs and (>) the referral agencies in hospitals" This more
complete product line is now 'eing offered 'y various competitors and it is only a matter of time 'efore
00) will have to meet this competition&&or face a continuing s3uee/e" 9nce this is accepted% then the
pro'lem is developing and evaluating alternative strategy plans" This will re3uire a more careful analysis
of the demands for home health&care services and the costs of serving them" This is 'asic strategy
planning applied in a nonprofit setting&&and the case can 'e used to show the general applica'ility of the
principles discussed throughout the text"
Case *&" e-er( td)
The regional disparities evident in the 'ar soap market and in Kuard2s regional development often occur
in a country as diverse as 6anada" -rench&1nglish 6anadian differences are the ones most commonly
encountered"
)deally% a #healthy# 'rand should have an even 'usiness development" That is% market shares should 'e
e3ual in every province" This would reflect historic efforts to remedy pro'lems and shore up
underdeveloped areas 'y diagnosing the reasons for underdevelopment and taking appropriate corrective
action"
Typically% however% many 'rands% like Kuard deodorant soap% have severe regional skews" The correct
course of action is to first uncover the cause for an area2s underdevelopment (not suggested 'y either the
Kroup (roduct 5anager or the (roduct 5anager% 'ut hinted at 'y the Kroup (roduct 5anager)" This can
'e accomplished via a consumer usage and attitude study or% in some cases% simply an examination of
historic 'usiness patterns (comparing Kuard2s sales to competitors2 sales over 5&:; years)"
9nce an hypothesis has 'een developed as to why a market is underdeveloped% a corrective course of
action must 'e laid out" This may involve new advertising% higher spending levels or% in rare cases% even
changes to the product or packaging"
)t would 'e imprudent to make any changes% particularly when they involve higher spending% without
testing in small% representative markets first" This reflects two key principles of packaged goods
marketing: (:) don2t spend significant advertising or sales promotion funds on a large scale unless
efficiency has 'een tested in small scale" (>) push success 'efore trying to shore up failures&&if a 'rand
has a high development area and a low development one% there is often more incremental 'usiness to 'e
gotten out of the already high area" 8ever #'orrow# funds from a high development area or try to fix a
pro'lem market&&unless a return on such an investment is assured"
Therefore% test markets would not 'e a waste of time" .lan% the (roduct 5anager% is wrong" ?endy is
right in recommending tests and furthermore should have suggested an investigation of the causes of the
9ntario underdevelopment" This may support her suggestion for a ma,or reallocation of promotion money
'ased on sales volume rather than population" 7ut they 'oth need more information firstA
Case **" Collins ; S%lli-an
6ollins S $ullivan is selling 'usiness products (professional services) to several product markets" )t
appears that the #municipal market# should 'e split into (at least) two markets: according to #in&house#
sophistication which corresponds roughly to si/e" (erhaps they could 'e nicknamed #$mall# and #Jarge#
to avoid offending with #@nsophisticated"#
6$2 current strategy and strengths seem to fit the #$mall 5unicipal# market and pro'a'ly should 'e
continued" )n fact% the staff should pro'a'ly 'e encouraged to pursue this 'usiness as aggressively as
possi'le&&neglecting the #price sensitive large municipals# if necessary" 1ven 'etter% the large ones
pro'a'ly should 'e classified 'y price sensitivity and some should 'e ignored 'ecause the low 'ids
needed to get the 'usiness pro'a'ly lead to unprofita'le ,o's" .ssuming there will 'e enough 'usiness
(and alternative marketing plans should 'e developed and evaluated to determine this) it may 'e
desira'le to 'id high enough to cover all costs and make a profit on all ,o's&&and ignore all product
markets that won2t pay these prices" This will certainly make sense for #high&season# work"
$ince 6$ has full&time staff% however% it may want to (have to) develop different strategies for #off&season#
work" This may include lower prices for 'asic accounting work&&'ecause they will not offer the speciali/ed
advice" 7etter% if they have some #consultants%# they can move more into #consulting# and help the firm
expand the num'er of markets it can serve profita'ly" This could 'e very desira'le&&reducing 6$2
vulnera'ility to attack in its present markets" 7ut it must accept that #consulting# is different from 'asic
accounting and may have to 'e priced and managed differently" .s usual% 'etter understanding of target
markets will lead to 'etter strategy planning" .nd% here% they are dealing with more than one possi'le
strategy&&while some of the partners are seeking one #all&purpose# strategy (a very common mistakeA)
Case *," Al%mco <orld@ide
)n the @"$"% .lumco ?orldwide sells a variety of consumer and 'usiness products through merchant
hardware wholesalers and 'uying groups who have helped .lumco grow (perhaps in spite of itself if its
foreign efforts illustrate its strategy planning a'ilitiesA)"
)n #foreign# markets% .lumco2s strategy in each country is set 'y the first creditworthy firm that orders"
$ome @" $" wholesalers pro'a'ly sell the full line% so .lumco hopes these foreign 'uyers will too"
.lumco doesn2t seem to understand strategy planning or what different kinds of wholesalers can and will
do" )t has 'een opportunistic and illustrates typical #foreign market# export planning 'y @"$" firms"
Hust trying to outline a #glo'al strategy# would 'e useful% 'ecause .lumco would have to get more explicit
a'out what it is doing in the @"$" .nd this could serve as a 'asis for the #'igger# strategy(ies)" )f the
same kinds of wholesalers aren2t availa'le in other counties% then .lumco may have to develop many
strategies&&even a different one for each country% as it is doing" 7ut it should 'e sure that it will offer
satisfying marketing mixes to the various target markets with the wholesalers it selects" )t is likely that its
@"$" middlemen are the channel captains and .lumco is only a production&oriented producer" This is
okay in the @"$" (as long as they keep 'uying from .lumco&&perhaps 'ecause of good 3uality and+or lower
costs and therefore prices)" 7ut these #channel captains# are not always availa'le elsewhere" .nd
.lumco is not even aware of the need for them and the desira'ility of identifying them and trying to get
them to sell more of .lumco2s product line(s)"
This case can 'e used not only to discuss #glo'al# issues% 'ut also the need for developing good
strategies wherever" .nd here% it is vital to get into what different wholesalers and retailers can and will do
Part V
to help a producer create marketing mixes that will 'e more satisfying to its #final consumers"# 0ere% if the
foreign middlemen don2t do what .lumco is used to% then it will have to do more (and it may not 'e a'le to
and+or not 'e a'le to afford to)" .nd if .lumco can2t do this profita'ly% then it may have to drop 'ack to
picking up opportunistic 'usiness&&'ut not count on it for future growth" )n other words% if .lumco isn2t
'uilding a glo'al 'usiness% then may'e it should sell what it can (easily) and plan to 'uild in the @"$" 7ut
it can2t make this decision without more careful evaluation of possi'le strategies and their related plans
(including sales% costs% profits% and <9))" This is a 'ig ,o'&&and seemingly 'eyond .lumco2 managers"
7ut your students should 'e a'le to discuss what is needed 'y now"
Case */" 1e0e6s 1i..a
8ote: some num'ers in Ta'le : are rounded"
The .nn .r'or and $outhfield stores seem to 'e doing well with home and office markets" The -lint
store2s future% however% seems to depend on catering to the #plant market# for delivered pi//a at #lunch#
'reaks" 8o pi//a competition for this market exists now" 7ut there are mo'ile food vendors% so the plant
customers are not dependent on pi//a from the -lint store" (lace is very important&&while price and even
product 3uality may not 'e as important"

6atering to the plant market (alternative :) can 'e profita'le&&see Ta'le : in the text" .nd expanding
capacity (alternative >) or expanding and moving (alternative ) can 'e more profita'le (see 'elow)" .nd
the #potential# estimates are considered #conservative# 'y the managers" 7ut it will 'e important to create
a dependa'le production and delivery system and then promote it to the #plant market"#
(romotion ideas include:
& #9n time or :+> price# offer
& #9n time or free# offer
& )ntroductory discounts&&with or without coupons
& (rinted stickers for in&plant phones or 'ulletin 'oards&giving prices% telephone num'er% and speed
information"
Jonger&term ideas might include:
& =elivering other items with the pi//as (e"g"% su'&sandwiches% ice cream% candy% cookies"
& $etting up at plant locations with pre&prepared pi//as which could 'e warmed&&this would make
fuller use of facilities% 'ut product would not 'e the same"
Exhibit A. Estimates of Possible Revenues Per Day (350 day years!!
Current
:aily
Capacity
/roposed
:aily
Capacity
#stimated
:aily
:emand;
/iCCa units :GG ;; >;
Contri*ution marginApiCCa M!"5; M!"5; M!"5;
Total contri*utionpiCCa M:%;8; M>%>5; M>%G;;
Contri*ution marginA*everage M;"5> M;"5> M;"5>
Total contri*ution*everage M:5; M:> M
Total contri*utionpiCCa D *everage M:%>; M>%56> M>%!
Y ?hich could 'e met with .lternative " YY(lant demand estimates may 'e :;&; percent low% and
therefore% the contri'ution estimates may 'e low"
Exhibit ". Estimates of #ontribution to $verhead and Profit from Plant %ar&et
Alternative
1 ) -
/otential :aily 3ross Margin M:%>; M>%56> M>%!
:aily =i&ed Costs! (;)
:elivery Car (5"!:) (5"!:)
/iCCa Bven (6"G) (6"G)
Incremental Ea*or (8G";;) (8G";;)
Increased lease cost (G"5!)
Bnetime Moving #&pense (G5"!:)
%F159GGG(
1
ZZZZZZ ZZZZZZ ZZZZZZ
'()*30 '*)+,, '*)5-.
:
8ote: .ssumes :;;U of moving expense is deducted from first year profits% i"e"% M:6%;;;+5; days"
Part V

Essentials of Marketing

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Part V:

Comments on Cases in Basic Marketing

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