Ebook Marketing, planning and strategy (6th edition): Part 2

Ebook Marketing, planning and strategy (6th edition): Part 2 presents the following content: Chapter 17 Promotion Strategies; Chapter 18 Global market strategies; Chapter 19 The Gillette Company (A); Chapter 20 The Gillette Company (B); Chapter 21 Dell Computer Corporation; Chapter 22 Kodak vs. Fuji; Chapter 23 – Loblaws; Chapter 24 – CIBC; Chapter 25 The Nottoway Plantation, Restaurant, and Inn: The White Castle of... Đề tài Hoàn thiện công tác quản trị nhân sự tại Công ty TNHH Mộc Khải Tuyên được nghiên cứu nhằm giúp công ty TNHH Mộc Khải Tuyên làm rõ được thực trạng công tác quản trị nhân sự trong công ty như thế nào từ đó đề ra các giải pháp giúp công ty hoàn thiện công tác quản trị nhân sự tốt hơn trong thời gian tới.

33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 17 CHAPTER SEVENTEEN Promotion Strategies Advertisements contain the only truths to be relied on in a newspaper P romotion strategies are concerned with the planning, implementation, and control of persuasive communication with customers These strategies may be designed around advertising, personal selling, sales promotion, or any combination of these The first strategic issue involved here is how much money may be spent on the promotion of a specific product/market The distribution of the total promotional budget among advertising, personal selling, and sales promotion is another strategic matter The formulation of strategies dealing with these two issues determines the role that each type of promotion plays in a particular situation Clear-cut objectives and a sharp focus on target customers are necessary for an effective promotional program In other words, merely undertaking an advertising campaign or hiring a few salespeople to call on customers may not suffice Rather, an integrated communication plan consisting of various promotion methods should be designed to ensure that customers in a product/market cluster get the right message and maintain a long-term cordial relationship with the company Promotional perspectives must also be properly matched with product, price, and distribution perspectives In addition to the strategic issues mentioned above, this chapter discusses strategies in advertising and personal selling The advertising strategies examined are media strategy and copy strategy Strategic matters explored in the area of personal selling are those concerned with designing a selling program and supervising salespeople The formulation of each strategy is illustrated with reference to examples from the literature THOMAS JEFFERSON STRATEGIES FOR DEVELOPING PROMOTIONAL PERSPECTIVES The amount that a company may spend on its total promotional effort, which consists of advertising, personal selling, and sales promotion, is not easy to determine There are no unvarying standards to indicate how much should be spent on promotion in a given product/market situation This is so because decisions about promotion expenditure are influenced by a complex set of circumstances 481 485 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 486 Promotion Strategies 482 PART Marketing Strategies PromotionExpenditure Strategy Promotion expenditure makes up one part of the total marketing budget Thus, the allocation of funds to one department, such as advertising, affects the level of expenditure elsewhere within the marketing function For example, a company may need to choose between additional expenditures on advertising or a new package design In addition, the perspectives of promotion expenditure must be examined in the context of pricing strategy A higher price obviously provides more funds for promotion than does a lower price The amount set aside for promotion is also affected by the sales response to the product, which is very difficult to estimate accurately A related matter is the question of the cumulative effect of promotion The major emphasis of research in this area, even where the issue is far from being resolved, has been on the duration of advertising effects Although it is generally accepted that the effects of advertising and maybe the effects of other forms of promotion as well may last over a long period, there is no certainty about the duration of these benefits The cumulative effect depends on the loyalty of customers, frequency of purchase, and competitive efforts, each of which may be influenced in turn by a different set of variables Promotion expenditures vary from one product/market situation to another Consider the case of McDonald’s It spent $330.8 million on television advertising in 1997, over twice as much as its rival Burger King Yet the research showed that viewers remembered and liked Burger King’s ads better than McDonald’s There is no way to be sure if McDonald’s advertising budget was more than optimum Similarly, the best-known and best-liked television ad in 1997 was for Miller Lite, a commercial showing people arguing whether Miller tasted great or was less filling This campaign performed better than all other beer commercials even though several companies spent more money on their campaigns than Miller did.1 Again, despite the ad’s success, it is difficult to say if Miller’s budget was optimum Promotion, however, is the key to success in many businesses To illustrate this point, take the case of Isordil, a brand of nitrate prescribed to heart patients to prevent severe chest pains Made by the Ives Laboratories division of the American Home Products Corporation, it was introduced in 1959 and has since grown to claim almost 50 percent of a $200-million-a-year market Ives claims that Isordil is longer acting and in certain ways more effective than other nitrate drugs on the market No matter that the Food and Drug Administration has not yet approved all of the manufacturer’s claims, nor that some doctors think that Isordil differs little from competing drugs—Ives has promoted its nitrate so aggressively for so long that many doctors think only of Isordil when they think of nitrates The success of Isordil illustrates the key importance of promotion: Indeed, the very survival of a drug in today’s highly competitive marketplace often depends as much on a company’s promotion talents as it does on the quality of its medicine Promotion induces competitors to react, but there is no way to anticipate competitive response accurately, thus making it difficult to decide on a budget For example, during the decade from 1980 to 1990, the promotional costs of Anheuser-Busch rose by $6 a barrel of beer (from $3 in 1980 to $9 in 1990).2 Although the company has been able to prevent Miller’s inroads into its markets, the question remains if continuing to increase ad budgets is the best strategy 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 487 Promotion Strategies CHAPTER 17 Promotion Strategies 483 Despite the difficulties involved, practitioners have developed rules of thumb for determining promotion expenditures that are strategically sound These rules of thumb are of two types: they either take the form of a breakdown method or they employ the buildup method Breakdown Methods There are a number of breakdown methods that can be helpful in determining promotion expenditures Under the percentage-of-sales approach, promotion expenditure is a specified percentage of the previous year’s or predicted future sales Initially, this percentage is arrived at by hunch Later, historical information is used to decide what percentage of sales should be allocated for promotion expenditure The rationale behind the use of this approach is that expenditure on promotion must be justified by sales This approach is followed by many companies because it is simple, it is easy to understand, and it gives managers the flexibility to cut corners during periods of economic slowdown Among its flaws is the fact that basing promotion appropriation on sales puts the cart before the horse Further, the logic of this approach fails to consider the cumulative effect of promotion In brief, this approach considers promotion a necessary expenditure that must be apportioned from sales revenue without considering the relationship of promotion to competitor’s activities or its influence on sales revenues Another approach for allocating promotion expenditure is to spend as much as can be afforded In this approach, the availability of funds or liquid resources is the main consideration in making a decision about promotion expenditure In other words, even if a company’s sales expectations are high, the level of promotion is kept low if its cash position is tight This approach can be questioned on several grounds It makes promotion expenditures dependent on a company’s liquid resources when the best move for a cash-short company may be to spend more on promotion with the hope of improving sales Further, this approach involves an element of risk At a time when the market is tight and sales are slow, a company may spend more on promotion if it happens to have resources available This approach does, however, consider the fact that promotion outlays have long-term value; that is, advertising has a cumulative effect Also, under conditions of complete uncertainty, this approach is a cautious one Under the return-on-investment approach, promotion expenditures are considered as an investment, the benefits of which are derived over the years Thus, as in the case of any other investment, the appropriate level of promotion expenditure is determined by comparing the expected return with the desired return The expected return on promotion may be computed by using present values of future returns Inasmuch as some promotion is likely to produce immediate results, the total promotion expenditure may be partitioned between current expense and investment Alternatively, the entire promotion expenditure can be considered an investment, in which case the immediate effect of promotion can be conceived as a return in period zero The basic validity and soundness of the return-on-investment approach cannot be disputed But there are several problems in its application First, it may be difficult to determine the outcomes of 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 488 Promotion Strategies 484 PART Marketing Strategies different forms of promotion over time Second, what is the appropriate return to be expected from an advertising investment? These limitations put severe constraints on the practical use of this approach The competitive-parity approach assumes that promotion expenditure is directly related to market share The promotion expenditure of a firm should, therefore, be in proportion to that of competitors in order to maintain its position in the market Thus, if the leader in the industry allocates two percent of its sales revenue for advertising, other members of the industry should spend about the same percentage of their sales on advertising Considering the competitive nature of our economy, this seems a reasonable approach It has, however, a number of limitations First, the approach requires a knowledge of competitors’ perspectives on promotion, and this information may not always be available For example, the market leader may have decided to put its emphasis not on promotion per se but on reducing prices Following this firm’s lead in advertising expenditures without reference to its prices would be an unreliable guide Second, one firm may get more for its promotion dollar through judicious selection of media, timing of advertising, skillful preparation of ads, a good sales supervision program, and so on Thus, it could realize the same results as another firm that has twice as much to spend Because promotion is just one of the variables affecting market performance, simply maintaining promotional parity with competitors may not be enough for a firm to preserve its market share Buildup Method Many companies have advertising, sales, and sales promotion (merchandising) managers who report to the marketing manager The marketing manager specifies the objectives of promotion separately for the advertising, personal selling, and sales promotion of each product line Ideally, the spadework of defining objectives should be done by a committee consisting of executives concerned with product development, pricing distribution, and promotion Committee work helps incorporate inputs from different areas; thus, a decision about promotion expenditure is made in the context of the total marketing mix For example, the committee may decide that promotion should be undertaken to expose at least 100,000 households to the product; institutional customers may be sought through reductions in price In practice, it may not always be easy to pinpoint the separate roles of advertising, personal selling, and sales promotion because these three methods of promotion usually overlap to some degree Each company must work out its own rules for a promotion mix Once the tasks to be performed by each method of promotion have been designated, they may be defined formally as objectives and communicated to the respective managers On the basis of these objectives, each promotion manager probably redefines his or her own goals in more operational terms These redefined objectives then become the modus operandi of each department Once departmental objectives have been defined, each area works out a detailed budget, costing each item required to accomplish the objectives of the program As each department prepares its own budget, the marketing manager 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 489 Promotion Strategies CHAPTER 17 Promotion Strategies 485 may also prepare a summary budget for each of them, simply listing the major expenditures in light of the overall marketing strategy A marketing manager’s budget is primarily a control device When individual departments have arrived at their estimates of necessary allocation, the marketing manager meets with each of them to approve budgets At that time, the marketing manager’s own estimates help assess department budgets Finally, an appropriation is made to each department Needless to say, the emphasis on different tasks is revised and the total budget refigured several times before an acceptable program emerges A committee instead of just the marketing manager may approve the final appropriation for each department The buildup method forces managers to analyze scientifically the role they expect promotion to play and the contribution it can make toward achieving marketing objectives It also helps maintain control over promotion expenditure and avoid the frustrations often faced by promotion managers as a result of cuts in promotion appropriations due to economic slowdown On the other hand, this approach can become overly scientific Sometimes profit opportunities that require additional promotion expenditure may appear unannounced Involvement with the objective and task exercise to decide how much more should be spent on promotion takes time, perhaps leading to the loss of an unexpected opportunity Promotion Mix Strategy Another strategic decision in the area of promotion concerns the allocation of effort among the three different methods of promotion Advertising refers to nonpersonal communication transmitted through the mass media (radio, television, print, outdoors, and mail) The communication is identified with a sponsor who compensates the media for the transmission Personal selling refers to face-toface interaction with the customer Unlike advertising, personal selling involves communication in both directions, from the source to the destination and back All other forms of communication with the customer other than those included in advertising and personal selling constitute sales promotion Thus, coupons, samples, demonstrations, exhibits, premiums, sweepstakes, trade allowances, sales and dealer incentives, cents-off packs, rebates, and point-of-purchase material are all sales promotion devices A variety of new ways have been developed to communicate with customers These include telemarketing (i.e., telephone selling) and demonstration centers (i.e., specially designed showrooms to allow customers to observe and try out complex industrial equipment) The discussion in this chapter will be limited to the three traditional methods of promotion In some cases, the three types of promotion may be largely interchangeable; however, they should be blended judiciously to complement each other for a balanced promotional perspective Illustrated below is the manner in which a chemical company mixed advertising with personal selling and sales promotion to achieve optimum promotional performance: An advertising campaign aimed at customer industries, employees, and plant communities carried the theme, “The little chemical giant.” It appeared in Adhesive Age, 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 490 Promotion Strategies 486 PART Marketing Strategies American Paint & Coating Journal, Chemical & Engineering News, Chemical Marketing Reporter, Chemical Purchasing, Chemical Week, Modern Plastics, and Plastics World Sales promotion and personal selling were supported by publicity Editorial tours of the company’s new plants, programs to develop employee understanding and involvement in the expansion, and briefings for local people in towns and cities where USIC [the company] had facilities provided a catalyst for publicity Personal selling was aggressive and provided direct communication about the firm’s continued service USIC reassured producers of ethyl alcohol, vinyl acetate monomer, and polyethylene that “we will not lose personal touch with our customers.”3 Development of an optimum promotion mix is by no means easy Companies often use haphazard, seat-of-the-pants procedures to determine the respective roles of advertising, personal selling, and sales promotion in a product/market situation Decisions about the promotional mix are often diffused among many decision makers, impeding the formation of a unified promotion strategy Personal selling plans are sometimes divorced from the planning of advertising and sales promotion Frequently, decision makers are not adequately aware of the objectives and broad strategies of the overall product program that the promotion plan is designed to implement Sales and market share goals tend to be constant, regardless of decreases or increases in promotional expenditures Thus they are unrealistic as guides and directives for planning, as criteria for promotional effectiveness, or even as a fair basis for application of the judgment of decision makers Briefly, the present state of the art in the administration of the promotion function is such that cause-and-effect relationships as well as other basic insights are not sufficiently understood to permit knowledgeable forecasts of what to expect from alternate courses of action Even identifying feasible alternatives can prove difficult A variety of factors should be considered to determine the appropriate promotion mix in a particular product/market situation These factors may be categorized as product factors, market factors, customer factors, budget factors, and marketing mix factors, as outlined in Exhibit 17-1 Product Factors Factors in this category relate principally to the way in which a product is bought, consumed, and perceived by the customer For industrial goods, especially technical products, personal selling is more significant than advertising because these goods usually need to be inspected and compared before being bought Salespeople can explain the workings of a product and provide on-the-spot answers to customer queries For customer goods such as cosmetics and processed foods, advertising is of primary importance In addition, advertising plays a dominant role for products that provide an opportunity for differentiation and for those being purchased with emotional motives The perceived risk of a purchase decision is another variable here Generally speaking, the more risk a buyer perceives to be associated with buying a particular product, the higher the importance of personal selling over advertising A buyer generally desires specific information on a product when the perceived risk 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 491 Promotion Strategies CHAPTER 17 Promotion Strategies 487 EXHIBIT 17-1 Criteria for Determining Promotion Mix Product Factors Nature of product Perceived risk Durable versus nondurable Typical purchase amount Market Factors Position in its life cycle Market share Industry concentration Intensity of competition Demand perspectives Customer Factors Household versus business customers Number of customers Concentration of customers Budget Factors Financial resources of the organization Traditional promotional perspectives Marketing Mix Factors Relative price/relative quality Distribution strategy Brand life cycle Geographic scope of market is high This necessitates an emphasis on personal selling Durable goods are bought less frequently than nondurables and usually require a heavy commitment of resources These characteristics make personal selling of greater significance for durable goods than advertising However, because many durable goods are sold through franchised dealerships, the influence of each type of promotion should be determined in light of the additional push it would provide in moving the product Finally, products purchased in small quantities are presumably purchased frequently and require routine decision making For these products, advertising should be preferable to personal selling Such products are often of low value; therefore, a profitable business in these products can only be conducted on volume This underlines the importance of advertising in this case Market Factors The first market factor is the position of a product in its life cycle The creation of primary demand, hitherto nonexistent, is the primary task during the introductory stage; therefore, a great promotion effort is needed to explain a new product to potential customers For consumer goods in the introductory stage, the major thrust is on heavy advertising supported by missionary 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 492 Promotion Strategies 488 PART Marketing Strategies selling to help distributors move the product In addition, different devices of sales promotion (e.g., sampling, couponing, free demonstrations) are employed to entice the customer to try the product In the case of industrial products, personal selling alone is useful during this period During the growth phase, there is increasing demand, which means enough business for all competitors In the case of consumer goods, however, the promotional effort shifts to reliance on advertising Industrial goods, on the other hand, begin to be advertised as the market broadens However, they continue to require a personal selling effort In the maturity phase, competition becomes intense, and advertising, along with sales promotion, is required to differentiate the product (a consumer good) from competitive brands and to provide an incentive to the customer to buy a particular product Industrial goods during maturity call for intensive personal selling During the decline phase, the promotional effort does not vary much initially from that during the maturity phase except that the intensity of promotion declines Later, as price competition becomes keen and demand continues to decline, overall promotional perspectives are reduced For a given product class, if market share is high, both advertising and personal selling are used If the market share is low, the emphasis is placed on either personal selling or advertising This is because high market share seems to indicate that the company does business in more than one segment and uses multiple channels of distribution Thus, both personal selling and advertising are used to promote the product Where market share is low, the perspectives of the business are limited, and either advertising or personal selling will suffice, depending on the nature of the product If the industry is concentrated among a few firms, advertising has additional significance for two reasons: (a) heavy advertising may help discourage other firms from entering the field, and (b) heavy advertising sustains a desired position for the product in the market Heavy advertising constitutes an implied warranty of product performance and perhaps decreases the uncertainty consumers associate with new products In this way, new competition is discouraged and existing positions are reinforced Intensity of competition tends to affect promotional blending in the same way that market share does When competition is keen, all three types of promotion are needed to sustain a product’s position in the market This is because promotion is needed to inform, remind, and persuade customers to buy the product On the other hand, if competitive activity is limited, the major function of promotion is to inform and perhaps remind customers about the product Thus, either advertising or personal selling is emphasized Hypothetically, advertising is more suited for products that have relatively latent demand This is because advertising investment should open up new opportunities in the long run, and if the carryover effect is counted, expenditure per sales dollar would be more beneficial If demand is limited and new demand is not expected to be created, advertising outlay would be uneconomical Thus, future potential becomes a significant factor in determining the role of advertising 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 493 Promotion Strategies CHAPTER 17 Promotion Strategies 489 Customer Factors One of the major dimensions used to differentiate businesses is whether products are marketed for household consumption or for organizational use There are several significant differences in the way products are marketed to these two customer groups, and these differences exert considerable influence on the type of promotion that should be used In the case of household customers, it is relatively easy to identify the decision maker for a particular product; therefore, advertising is more desirable Also, the self-service nature of many consumer-product sales makes personal selling relatively unimportant Finally, household customers not ordinarily go through a formal buying process using objective criteria as organizational customers This again makes advertising more useful for reaching household customers Essentially the same reasons make personal selling more relevant in promoting a product among organizational customers The number of customers and their geographic concentration also influence promotional blending For a small customer base, especially if it is geographically concentrated, advertising does not make as much sense as it does in cases where customers are widely scattered and represent a significant mass Caution is needed here because some advertising may always be necessary for consumer goods, no matter what the market perspectives are Thus, these statements provide only a conceptual framework and should not be interpreted as exact yes/no criteria Budget Factors Ideally, the budget should be based on the promotional tasks to be performed However, intuitively and traditionally, companies place an upper limit on the amount that they spend on promotion Such limits may influence the type of promotion that may be undertaken in two ways First, a financially weak company is constrained in undertaking certain types of promotion For example, television advertising necessitates a heavy commitment of resources Second, in many companies the advertising budget is, by tradition, linked to revenues as a percentage This method of allocation continues to be used so that expected revenues indicate how much may be spent on advertising in the future The allocated funds, then, automatically determine the role of advertising Marketing Mix Factors The promotion decision should be made in the context of other aspects of the marketing mix The price and quality of a product relative to competition affect the nature of its promotional perspectives Higher prices must be justified to the consumer by actual or presumed product superiority Thus, in the case of a product that is priced substantially higher than competing goods, advertising achieves significance in communicating and establishing the product’s superior quality in the minds of customers The promotion mix is also influenced by the distribution structure employed for the product If the product is distributed directly, the sales force can largely be counted on to promote the product Indirect distribution, on the other hand, requires greater emphasis on advertising because the push of a sales force is limited As a matter of fact, the further the manufacturer is from the ultimate user, the greater the need for the advertising effort to stimulate and maintain demand 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 494 Promotion Strategies 490 PART Marketing Strategies The influence of the distribution strategy may be illustrated with reference to two cosmetics companies that deal in similar products, Revlon and Avon Revlon distributes its products through different types of intermediaries and advertises them heavily Avon, on the other hand, distributes primarily directly to end users in their homes and spends less on advertising relative to Revlon Earlier we examined the effect on the promotion mix of a product’s position in its life cycle The position of a brand in its life cycle also influences promotional perspectives Positioning a new brand in the desired slot in the market during its introduction phase requires a higher degree of advertising As a product enters the growth phase, advertising should be blended with personal selling In the growth phase, the overall level of promotion declines in scope When an existing brand reaches the maturity phase in its life cycle, the marketer has three options: to employ life-extension strategies, to harvest the brand for profits, and/or to introduce a new brand that may be targeted at a more specific segment of the market The first two options were discussed in Chapter 13 As far as the third option is concerned, for promotional purposes, the new brand will need to be treated like a new product Finally, the geographic scope of the market to be served is another consideration Advertising, relatively speaking, is more significant for products marketed nationally than for those marketed locally or regionally When the market is geographically limited, one study showed that even spot television advertising proved to be more expensive vis-à-vis the target group exposures gained.4 Thus, because advertising is an expensive proposition, regional marketers should rely less on advertising and more on other forms of promotion, or they should substitute another element of the marketing mix for it For example, a regional marketer may manufacture private label brands Conclusion Although these factors are helpful in establishing roles for different methods of promotion, actual appropriation among them should take into consideration the effect of any changes in the environment For example, in the 1980s soft drink companies frequently used sales promotion (mainly cents off) to vie for customers In the 1990s, however, the markers of soft drinks changed their promotion mix strategy to concentrate more on advertising This is evidenced by the fact that the five largest soft drink makers spent about $500 million on advertising in 1994, 40 percent more than they spent in 1984 One reason for this change in promotional perspective was the realization that price discounting hurt brand loyalties; because Coke and Pepsi had turned their colas into commodities by means of cents-off promotion, the consumer now shopped for price An empirical study on this topic has shown that consumers prefer incentives other than price Price cuts also appear to have little lasting effect on sales volumes For example, consumers exposed to repeated price cuts learn to ignore the “usual” price Instead, they wait for the next discount and then stockpile the product They also tend to become discount junkies, stimulated into buying only by ever-steeper discounts.5 In brief, price promotions not only cut margins, but also leave manufacturers to cope with costly fluctuations in stocks 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 916 Procter & Gamble-Scope 898 CASE 26 Procter & Gamble—Scope EXHIBIT Scope Historical Financials Year 1988 1989 1990 Total Market Size (units) (000) 1,197 1,294 1,358 Scope Market Share 33.0% 33.0% 32.4% Scope Volume (units) (000) 395 427 440 $(000) $/Unit $(000) $(Unit) $(000) $(Unit) Sales 16,767 42.45 17,847 41.80 18,150 41.25 COGS 10,738 27.18 11,316 26.50 11,409 25.93 6,029 15.27 7,299 15.30 6,741 15.32 Gross Margin Scope Marketing Plan Inputs Scope “Going” Marketing Spending Year 1990 1989 1988 Advertising (000) $1,700 – – Promotion (000) 1,460 – – Total (000) 3,160 3,733 2,697 Marketing Input Costs Advertising: Promotion: (See above.) Samples (Including Distribution): $0.45/piece Mailed Couponing $10.00 per 1,000 for printing distribution $0.17 handling per redeemed coupon (beyond face value) redemption rates: 10% to 15% In-store Promotion $200/store (fixed) $0.17 handling per redeemed coupon (beyond face value) redemption rates: 85% + Source: Company records felt that as long as the product did encourage better oral hygiene, it did provide a benefit As further support, they noted that many professionals did recommend Plax Overall, PDD’s preference was to not launch a new product but, instead, to add plaque reduction claims to Scope The basic argument was that it was better to protect the business that P&G was already in than to launch a completely new entity If a line extension was pursued, a product test costing $20,000 would be required SALES The sales people, who had seen the inroads Plax had been making in the marketplace, believed that Scope should respond quickly They had one key concern—as stock-keeping units (SKUs) had begun to proliferate in many categories, the retail industry had become much more stringent regarding what it would accept Now, to be listed on store shelves, a brand must be seen as unique enough from the competition to build incremental 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 917 Procter & Gamble-Scope CASE 26 Procter & Gamble—Scope purchases—otherwise retailers argued that category sales volume would simply be spread over more units When this happened, a retail outlet’s profitability was reduced because inventory costs were higher, but no additional sales revenue was generated When a new brand was viewed as not generating more sales, retailers might still list the brand by replacing units within the existing line (e.g., drop shelf facings of Scope), or the manufacturer would pay approximately $50,000 per SKU in listing fees to add the new brand This fee of $50,000 per SKU would enable a manufacturer to get national distribution with a retail chain such as Shopper’s Drug Mart or Loblaws MARKET RESEARCH (MR) Market research had worked extensively with Hearst to test the options with consumers Their work to date had shown: A plaque reassurance on current Scope (i.e., “Now Scope fights plaque”) did not seem to increase competitive users’ desire to purchase Scope This meant that it was unlikely to generate additional volume but it could prevent current users from switching MR also cautioned that in adding “reassurances” to a product, it often takes time before the consumer accepts the idea and then acts on it The issue in Hearst’s mind was whether the reassurance would ever be enough At best it might stabilize the business, she thought, but would it grow behind such a claim? A “Better Tasting Prebrushing Dental Rinse” product did research well among Plax users, but did not increase purchase intent among people not currently using a dental rinse MR’s estimate was that a brand launched on this positioning, using the Scope name, would likely result in approximately a 6.5 percent share of the total mouthwash and “rinse” market on an ongoing basis Historically, it has taken approximately two years to get to the ongoing level However, there was no way for MR to accurately assess potential Scope cannibalization “Use your judgment,” MR had said However, MR cautioned that although it was a product for a different usage occasion, it was unlikely to be 100 percent incremental business Hearst’s best rough guess was that this product might cannibalize somewhere between 899 to percent of Scope’s sales An unresolved issue was the product’s name—if it were launched, should it be under the Scope name or not? One fear was that if the Scope name was used it would either “turn off” loyal users who saw Scope as a breath refreshment product or confuse them MR had questioned Hearst as to whether she had really looked at all angles to meet her objective Because much of this work had been done quickly, they wondered whether there weren’t some other benefits Scope could talk about that would interest consumers and hence achieve the same objective They suggested that Hearst look at other alternatives beyond just “a plaque reassurance on Scope” or a “line extension positioned as a ‘Better Tasting Prebrushing Dental Rinse’.” FINANCE The point of view from finance was mixed On the one hand, Plax commanded a higher price/litre and so it made sense that a new rinse might be a profitable option On the other hand, they were concerned about the capital costs and the marketing costs that might be involved to launch a line extension One option would be to source the product from a U.S plant where the necessary equipment already existed If the product was obtained from the U.S., delivery costs would increase by $1.00 per unit Scope’s current financial picture and an estimate of Plax’s financial picture are provided in Exhibits and PURCHASING The purchasing manager had received the formula for the line extension and estimated that the ingredients cost would increase by $2.55 per unit due to the addition of new ingredients However, because one of the ingredients was very new, finance felt that the actual ingredient change might vary by ± 50 percent Packaging costs would be $0.30 per unit higher owing to the fact that the set-up charges would be spread over a smaller base 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 918 Procter & Gamble-Scope 900 CASE 26 Procter & Gamble—Scope EXHIBIT Scope 1990 Financials EXHIBIT Plax Financial Estimates (per unit) $(000) $/Units 18,150 41.25 Ingredients 3,590 8.16 Ingredients 6.50 Packaging 2,244 5.10 Packaging 8.30 Net sales Net sales 65.09 COGS Manufacturing 3,080 7.00 Manufacturing 6.50 Delivery 1,373 3.12 Delivery 3.00 Miscellaneous 1,122 2.55 Miscellaneous 1.06 11,409 25.93 Total 15.32 Source: P&G estimates Notes: General overhead costs estimated at $5.88/unit Cost of Goods Sold Gross Margin 6,741 Source: Company records • Notes: • Net Sales = P&G revenues • Manufacturing: 50% of manufacturing cost is fixed, of which $200M is depreciation 20% of manufacturing cost is labor • Miscellaneous: 75% of miscellaneous cost is fixed • General office overheads are $1,366M • Taxes are 40% • Currently the plant operates on a five-day, one-shift operation • P&G’s weighted average cost of capital is 12% • Total units sold in 1990 were 440,000 ADVERTISING AGENCY The advertising agency felt that making any new claims for Scope was a huge strategic shift for the brand They favored a line extension Scope’s strategy had always been “breath refreshment and good tasting” focused, and they saw the plaque claims as very different, with potentially significant strategic implications The one time they had focused advertising only on taste and didn’t reinforce breath efficacy, market share fell They were concerned that the current Scope consumer could be confused if plaque or any “nonbreath” claims were added and that Scope could actually lose market share if this occurred They also pointed 25.36 out that trying to communicate two different ideas in one commercial was very difficult They believed the line extension was a completely different product than Scope with a different benefit and use occasion In their minds, a line extension would need to be supported on an ongoing basis separately from Scope WHAT TO RECOMMEND? Hearst knew the business team had thought long and hard about the issue She knew that management was depending on the Scope business team to come up with the right long-term plan for P&G— even if that meant not introducing the new product However, she felt there was too much risk associated with P&G’s long-term position in oral rinses if nothing was done There was no easy answer—and compounding the exigencies of the situation was the fact that the business team had differing points of view She was faced with the dilemma of providing recommendations about Scope, but also needed to ensure that there was alignment and commitment from the business team, or senior management would be unlikely to agree to the proposal 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 919 Procter & Gamble-Scope CASE 26 Procter & Gamble—Scope 901 APPENDIX A Plaque Plaque is a soft, sticky film that coats teeth within hours of brushing and may eventually harden into tartar To curb gum disease—from which over 90 percent of Canadians suffer at some time—plaque must be curbed Research has shown that, without brushing, within 24 hours a film (plaque) starts to spread over teeth and gums and, over days, becomes a sticky, gelatinous mat, which the plaque bacteria spin from sugars and starches As the plaque grows, it becomes a home to yet more bacteria—dozens of strains A mature plaque is about 75 percent bacteria; the remainder consists of organic solids from saliva, water, and other cells shed from soft oral tissues As plaque bacteria digest food, they also manufacture irritating malodorous by-products, all of which can harm a tooth’s supporting tissues as they seep into the crevice below the gum line Within 10 to 21 days, depending on the person, signs of gingivitis—the mildest gum disease—first appear; gums deepen in color, swell, and lose their normally tight, arching contour around teeth Such gingivitis is entirely reversible It can disappear within a week after regular brushing and flossing are resumed When plaque isn’t kept under control, gingivitis can be the first step down toward periodontitis, the more advanced gum disease in which bone and other structures that support the teeth become damaged Teeth can loosen and fall out, or require extraction The traditional and still best approach to plaque control is careful and thorough brushing and flossing to scrub teeth clean of plaque Indeed, the anti-plaque claims that toothpastes carry are usually based on the product’s ability to clean teeth mechanically, with brushing Toothpastes contain abrasives, detergent, and foaming agents, all of which help the brush its work Source: “The Plaque Debate,” Canadian Consumer, 1990 No 9, pp 17–23 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 C A S E FedEx and UPS in China— Competing with Contrasting Strategies J ust how “American” should you be when doing business many cultures away from home? Rarely have two rivals offering similar services answered that question so differently as Federal Express Corp and United Parcel Service of America, Inc FedEx was trying to paint China red, white and blue, following the same frontal-assault strategy it employed in the U.S in the 1970s and in Europe in the 1980s While promoting itself with jarring, Western-style advertising, FedEx was pouring out money to acquire its own air routes, fly its own aircraft into and out of China and, in partnership with an aggressive local company, built a huge network of purple and orange trucks and distribution centers “We’re the largest all-cargo carrier in the world and, as a result, we’ve got a pretty good formula for attacking any market,” noted T Michael Glenn, executive vice president for marketing at FedEx’s parent, FDX Corp “Whether it’s China or Japan or Germany, it really doesn’t make any difference.” UPS, by contrast, hopes that Chinese customers won’t even notice that it was made in America Its advertising was understated and old-fashioned even by Chinese standards Its freight lands in China packed into leased space in the underbellies of planes operated by a Hong Kong airline, Dragonair, or other regional carriers To deliver packages on the ground, UPS followed the traditional approach for foreign freight companies in China, piggybacking on the operations of Sinotrans, a vast, labyrinthine, government-owned transportation company 45 “We’re a quiet company,” remarked Charles Adams, UPS’s top executive in Asia “Sometimes we’re the student, and sometimes we’re the teacher.” How the giants of the U.S delivery business were forging ahead in China was more than a case study on differing corporate styles Their strategies, which tracked what they did all across Asia, vividly illustrated two radically different approaches to questions faced by almost any U.S company striving to expand overseas Do we partner with entrenched competitors or tackle them head-on? Do we risk the capital to build our own manufacturing and distribution systems or lease someone else’s? Who are our customers, the locals or our multinational accounts? How much we risk to build future market share? IS THERE A WINNING STRATEGY? The jury was still out for both FedEx and UPS Neither was discussing market share or disclosing specific financial results in China However, each said its operations were growing and profitable, and each contended that its approach was better In the Spring of 1998, UPS executives, buffered by their lower spending from much of the turmoil in Asia, had been quietly congratulating themselves on the apparent wisdom of their low-risk approach As freight traffic slowed in the region, UPS had simply reduced the space it leased on other companies’ planes “Because of the investment (FedEx) made, they’re almost stuck in that market,” remarked This case was prepared as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation 902 921 922 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 FedEx and UPS in China-Competing with Contrasting Strategies CASE 27 FedEx and UPS in China—Competing with Contrasting Strategies Joseph M Pyne, UPS’s vice president for marketing “That’s the plan they have to live with We’re looking at the market and moving with it in China.” Meanwhile, at FedEx, currency devaluations elsewhere in Asia had cut profits by more than $20 million during the first six months of 1998 On March 25, 1998, the company posted its first quarterly loss on international operations since 1996, largely because of the high costs attributable to its extensive air network in Asia, coupled with declining cargo volume and revenue in the region Nevertheless, FedEx noted China remained “a bright spot.” Air-freight volumes from troubled Asian nations to China declined, but China’s exports were still strong, remarked Michael L Drucker, FedEx’s top executive in Asia FedEx added that, despite the expense, its “build it and they will come” strategy was paying off in the market share Estimates vary, but according to Air Cargo Management Group, a Seattle consultancy, FedEx had captured 13 percent of the express market in China, excluding Hong Kong, while UPS trailed with less than percent “We knew it was risky when we built so much capacity, but we’re staying And that has just got to have a long-term payoff,” noted the FDX’s chief financial officer The payoff was critical for both companies Although both were still small players in China, each with less than half the express-freight market share of at least 30 percent held by DHL International Ltd., a long-established Brussels-based company, both viewed China as the industry’s most important emerging market China’s demand for time-definite express freight—the high-profit sector they crave— was projected to grow as much as 20 percent a year through 2002, far faster than the world-wide airfreight market Currently, China’s air-cargo market was the world’s fifth largest, and its embryonic express sector was valued at $400 million a year “It’s hard to be unmindful of a 1.2 billion-person country that arguably has the most entrepreneurial, merchant-oriented people in the world,” said Frederick W Smith, FDX’s founder, chairman and chief executive officer 903 FEDEX’S CULTURE FedEx’s approach to that market reflected its personality at home The company, and Mr Smith, liked sizzle With $12 billion in annual revenue, FedEx prided itself on having blitzkrieged the U.S freight business by inventing overnight delivery in the 1970s It called itself a “global evangelist” for high-tech, just-in-time deliveries Its U.S ad campaigns had long poked fun at competitors and warned business executives of certain humiliation if they used any other delivery company FedEx pursued that strategy in China, even at the risk of seeming cheeky Last year, it ran a ubiquitous print ad in Asia showing the tail of a FedEx plane parked in front of the Forbidden City— a cherished array of imperial buildings that was off limits to the public for 500 years “Call FedEx,” the ad said “It’s almost forbidden not to.” “I don’t know that I agree that there’s a sort of Chinese way and an American way,” Mr Smith noted “I think there is an establishment way and China at the moment is a country that is very entrepreneurial in nature We are more consonant with the new China.” Nonetheless, the FedEx style seemed to annoy some companies that expected a certain tone in the formal face-to-face sales pitches traditional in China “I know they’re one of the biggest companies in the U.S.A., but that doesn’t matter here,” said Li Ping, an executive at Chinatex Cotton Yarns & Fabrics Import & Export Corp in Beijing “The personal relationship matters most here You have to talk to customers and make them feel good They haven’t sent anyone here; so we don’t business with them.” FedEx was not worried Instead of chasing the established Chinese business clique, it was focusing first on multinational corporations with Chinese operations that already used FedEx elsewhere It also was targeting expanding Chinese entrepreneurs whom FedEx believed would readily adopt its mantra about cutting-edge manufacturing and delivery techniques For those customers, who valued a highly controlled distribution system and constant 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 FedEx and UPS in China-Competing with Contrasting Strategies 904 CASE 27 FedEx and UPS in China—Competing with Contrasting Strategies information about the status of shipments, FedEx’s philosophy was appealing Wang Fazhang, a manager at Siemens Technology Development Corp of Beijing, a unit of Siemens AG of Germany, noted using FedEx cut the delivery time for medicalequipment spare parts from Europe to three days from 28 To achieve such results, FedEx was trying to leapfrog rivals in China and all across Asia by spending millions to build a network much like the one it operated in the U.S That investment started in 1988 with its $880 million acquisition of Flying Tiger Line Inc.; FedEx mostly wanted the cargo carrier’s Asian routes, including a coveted but longunused link between Japan and China In 1995, FedEx paid Evergreen International Aviation Inc $67.5 million according to Evergreens’ regulatory filings, to buy the only operating authority currently permitting a U.S cargo carrier to fly directly into China MUCH CHEAP CARGO Using that authority, FedEx flew an MD-11, laden with up to 170,000 pounds of freight, into Beijing and Shanghai four times a week For now, FedEx filled much of the plane with cheap air cargo, for which it charged as little as $2 a pound and made, at best, a slim profit As more manufacturing operations in China adopted just-in-time manufacturing systems, however, FedEx believed that the bulk freight would shift to highly profitable smallpackage services, for which the company charged up to $30 a pound FedEx promised delivery of packages from the U.S to China in three days, but often they arrived in just two days Deliveries from China to the U.S frequently arrived overnight In more than a dozen major cities in China, FedEx’s operations, trucks and employees looked identical to those in the U.S In scores of other cities, FedEx packages were delivered in aqua-blue trucks and painted with the logos of both FedEx and its Chinese affiliate UPS STYLE The 91-year-old UPS, with its giant, mostly groundbased U.S delivery network and annual revenue of about $22.46 billion, was adhering to its long history of keeping a low profile Until recent years, the company, owned mostly by its managers and retirees, eschewed any marketing at all, even at home Its boldest advertising moves had been sponsorship of the Olympic games in 1996 and 1998 Therefore, in China, UPS was doing as the Chinese Its marketing sought to build relationships discreetly, on Chinese terms—even though it, too felt multinationals were the core of its initial customer base here Monica Yan, an ad executive at China Guoxin Information Corp., switched to UPS from the staterun express-mail service after a UPS account executive came calling at her office in Beijing “She came here and explained to me how UPS could be more convenient and not cost so much money, so I decided to use her company,” Ms Yan noted In promoting itself, UPS emphasized its global network and stability, virtues that ring true for many Chinese It also nurtured a Chinese customer base outside China, sponsoring Chinese New Year celebrations in Toronto and Vancouver, where many recent immigrants lived A six-week UPS television campaign in China showed a motorized three-wheeler moving down a runway, followed by a larger van, a truck, and then a 747 “Their ads show lots of planes and trucks, with a very big world-wide network,” said Chen Bin, a manager of a state-owned logistics company in Beijing “The image is not American” but “more world-wide.” Investing just a fraction of what FedEx had put into Asia, UPS had gradually expanded with demand, trading some market share for morelimited risk Meanwhile, it felt it could catch up whenever the market was ripe Thus, Big Brown operated without a single aircraft in China It offered “total brown” service— 923 924 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 FedEx and UPS in China-Competing with Contrasting Strategies CASE 27 FedEx and UPS in China—Competing with Contrasting Strategies packages were picked up by workers in brown UPS uniforms, driving brown trucks—in Beijing, Shanghai, and only one other Chinese city, Guangzhou Lacking its own air service, UPS could not offer customers in China the range of logistical services that FedEx could However, UPS, while avoiding the cheap air cargo that FedEx depended upon to fill out its aircraft, could still skim from the cream 905 of the business, the lucrative document and smallpackage sector The upshot: UPS could deliver a one-pound package or document from the U.S to major Chinese cities in the same time FedEx promised, three days, at a price of about $47 For now, UPS executives felt that was plenty “If the situation changes in five to 10 years, then maybe we’ll want our own planes in China,” UPS’s Mr Adams noted “But that’s not a priority now.” 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 C A S E Playboy Enterprises,Inc.(A) I n early 1986, Christie Hefner, president and chief operating officer, Playboy Enterprises, Inc., had been reviewing the company’s strategies to face the changing world Once considered a trendsetter for urban sophisticates, the adult leisure company in recent years has increasingly found its offerings out of step with the times As a writer on social issues put it, “The image of the playboy in a smoking jacket is obsolete People today are more interested in their cars and their careers than they are in sex.” Although that claim may be open to dispute, Playboy has reason to be alarmed The circulation of its flagship magazine has dwindled to just over four million a month from more than seven million in 1972 The number of Playboy Club key holders has fallen steadily The cable television Playboy Channel, once seen as crucial to the company’s future, loses money and has yet to prove that it can survive in its highly competitive field Between 1983 and 1985, Playboy’s revenue fell by nearly 50 percent It earned a profit on operations in only one of four years between 1982 and 1985, when it was forced by old legal problems to give up its lucrative casinos The company was in the black (by $6.7 million) in its 1985 fiscal year only because of returns on $60 million in investments Its auditors qualified their opinion on the financial statement for that year because of uncertainty over whether Playboy could collect all it is owed on one casino sale COMPANY HISTORY Initially, Playboy Enterprises, Inc was established as HMH Publishing Company in 1953 to publish Playboy The present name was adopted in 1971 Today, the company’s businesses, in addition to Playboy and Games magazines, include the 46 development and production of programming principally for pay television and videocassettes and products for direct sale and licensing that feature the Playboy name and trademarks for worldwide distribution In addition, the company owns and franchises Playboy Clubs In the 1970s, the company entered the resort hotel and casino business in different places, including London, Miami, the Bahamas, and Atlantic City However, in 1982 the company discontinued its resort hotel and casino operations ENVIRONMENTAL CHANGES Playboy is a victim of the social changes it helped promote Attitudes toward sex have evolved rapidly since the days when the magazine could shock millions by publishing two photographs of an undraped Marilyn Monroe Today, Playboy must compete, not only with countless far more lurid “skin books,” but also against the popular media Rock songs may have X-rated lyrics and an episode of “Dynasty” may be nearly as titillating as a centerfold As Ms Hefner puts it, “We no longer can contrast ourselves to a gray-flannel Eisenhower society It’s now a lot more difficult for us to offer something unique.” Yet Playboy also finds itself considerably vexed these days by those who consider its business immoral or sexist or both Although its cable television fare isn’t hard-core, for instance, it has repeatedly been challenged in court (so far unsuccessfully) by communities that want it banned After ABC recently broadcast a film based on Gloria Steinem’s critical account of her 1963 stint as a bunny, Playboy President Christie Hefner fired off a memo asking her staff to “ponder what it is Playboy and all of its resources can and should be This case was prepared as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation 906 925 926 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Playboy Enterprises, Inc (A) CASE 28 Playboy Enterprises, Inc (A) doing to counter the misimpression out there that we are not good guys.” Perhaps a tougher problem for Hefner, though, is finding a clear mission for Playboy in the 1990s, one as potent as her father’s former vision for the company In an era of aggressive careerism among both sexes, the company no longer gets much mileage out of the so-called Playboy philosophy, Mr Hefner’s concept of the lifestyle of a man of leisure THE REAL PROBLEM Some company officials believe that one of Playboy’s biggest handicaps may be its association with the public image of its founder, now 59 years old As a Playboy executive put it, “Pajamas just aren’t as fashionable as they used to be.” Though still the best-selling magazine for men, Playboy has fallen far behind arch-rival Penthouse in lucrative newsstand sales According to Penthouse publisher Bob Guccione, “Playboy’s market is older and its readers are passing into oblivion.” Playboy executives say that the readership age difference is minimal However, there are other worrisome signs A Chicago newsstand operator who has sold many copies of Playboy speaks of the typical buyer as “a guy who thinks he’s up-to-date but isn’t.” One woman who posed for a pictorial was surprised when she saw the letters the feature generated: “A whole bunch of them were from guys in prison.” A former public relations executive for Playboy contends that the company “doesn’t want to face reality—that time has passed it by.” NEW STRATEGY Against this background, Playboy Enterprises is undertaking what Hefner calls a “repositioning.” The strategy, she says, is to go after a more upscale audience by being more in tune with current tastes and values “I think we should be on the cutting edge of how people who have changed their behavior to reflect a more liberal lifestyle are going to live.” 907 The October 1985 issue of Playboy, marked “Collector’s Edition,” began what the company calls the magazine’s next generation This included greater coverage of such “life style” subjects as personal finance and home electronics An ad in that issue asked, “What sort of man reads Playboy?” and offered as an example race car driver Danny Sullivan Posing in a black silk evening jacket, he explained that he “grew with the magazine,” learning, for instance, to care about clothes Curiously, elsewhere in the issue was a piece satirizing the consumer society Sensitive to criticism that it portrays women as sex objects, Playboy intends to feature some who are more mature or more accomplished The lead feature in the November 1985 issue was a nod in this direction, but it hardly seemed likely to defuse the moral issue Picturing members of Mensa, the club people can join only if they have high IQs, the feature was entitled “America’s Smartest Girls Pose Nude.” Nevertheless, Hefner says Playboy’s effort to move upscale is working As evidence, she notes that the October 1985 issue carried advertising for Campbell Soup’s Le Menu frozen dinners Covers of the new generation Playboy are to have a glitzier look They are planned in long meetings by a committee of fashion and art experts who try to base their designs as much on the latest fashions as on erotic content The graphics also are slicker and a different printing process binds pages with glue instead of staples, giving a more finished look According to Playboy’s art director, “The magazine is supposed to look a lot more like the kind of thing you’d put on a coffee table.” That goal may be a bit optimistic, however; newsstands say that half of the buyers of Playboy still ask for a paper bag to carry it home The new magazine retains many standard features, like the Playboy Advisor, which intersperses advice about sex with answers to questions about stereos or turbochargers Some editors complain about the uneven quality and occasionally questionable taste of color cartoons Mr Hefner himself 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Playboy Enterprises, Inc (A) 908 CASE 28 Playboy Enterprises, Inc (A) is said to have rejected an editor’s plea to eliminate the Party Jokes feature, which in the October 1985 issue regaled readers with one-liners like, “What’s boffo box office among milkmaids? Pail Rider.” The “repositioning” also applies to the Playboy Clubs, which haven’t had a major updating since they were started a quarter-century ago Even with a recent redecorating, the club in Chicago, with its plush red carpeting and black leather bar stools, looks a little like a museum for the jazz age A gift shop upfront peddling Playboy T-shirts, cigarette lighters, and golf putters lends a touristy atmosphere to the place Rather than confront the deteriorating image of its big-city clubs, Playboy several years ago headed for the hinterlands, franchising clubs in places like Lansing, Michigan, and Des Moines, Iowa, where they might still have novelty value However, without a strong big-city base, the whole chain lost its urban gleam The Lansing club began resorting to such decidedly unglamorous promotions as lipsync contests and valet parking for farm tractors THE NEW YORK EXPERIMENT In the fall of 1985, the company reopened its newly done New York club It was a bold experiment The cottontailed bunnies were replaced by hostesses greeting guests wearing long, glittering Jean Harlow-style gowns Some of the waiters were men Absent were the traditional pool table, party balloons, and Leroy Neiman paintings Instead, video effects, stage acts, and music by a 10-piece house orchestra were offered The New York club’s new look was sculpted by Richard Melman, who is noted for elaborate concept restaurants that are as much show-biz productions as eateries He selected bunnies with talent as bodybuilders, astrologists, and jugglers Costumes ranged from a sequined one called the Michael Jackson outfit, to sweater dresses, to a take-off of the current cottontail suit The idea of male waiters (called rabbits) was to help women feel more comfortable in the club It remains to be seen if the company will convert other clubs to the New York style The company has 12 other Playboy Clubs, 10 of which are franchised rather than company owned A section of the club called Cafe Playboy may be tested as a prototype for a chain of franchised bars open to the public (A Playboy key still is needed for admittance to the clubs, though temporary memberships are readily available.) STRATEGY FOR OTHER BUSINESSES Playboy’s products division, too, is working to bolster the company’s image—or at least to stop endangering it The division has sold countless key chains, air fresheners, and the like, even though doing so risked cheapening the company’s trademark Now Playboy is moving away from novelty items and into fashion apparel and branded consumer products One success is Playboy’s men’s underwear, the second-best-selling brand Playboy still has some hard thinking to about its video operation The division, which launched the first sex-oriented cable channel for a mass audience five years ago, had identity problems from the start Unable to decide how racy to be, the channel wound up alienating viewers at both ends of the spectrum Earlier in 1985, for instance, the channel stopped offering erotic programming during prime time and switched to mainstream movies and quasijournalistic specials such as “Omar Sharif Hosts the Prostitutes of Paris.” Viewership dropped and Playboy soon reverted to prime-time prurience Partly because of its turnabouts, the Playboy Channel has had the highest disconnect rate in the industry, 13 percent of viewers each month Its current level of about 762,000 subscribers isn’t enough to pay for the quality programming that might attract a larger audience At $20 million, the channel’s yearly budget is less than a network might spend during a season on a single series As a result, Playboy is de-emphasizing the channel as its main outlet for programming and will 927 928 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Playboy Enterprises, Inc (A) CASE 28 Playboy Enterprises, Inc (A) focus more on cassette sales and a recently launched pay-per-view service It is also weighing a return to producing a late-night variety show or hour-long specials, either of which it would try to sell to one of the networks 909 Still, Playboy’s video operations, like the rest of its empire, is continuing to grope for the right formula for today’s audience As Ms Hefner sums up, “We have to reflect a modern, sophisticated image.” 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 CASE 29 Playboy Enterprises, Inc (B) I n Fall 1998, Christie Hefner, chairman and chief executive officer of Playboy Enterprises was contemplating a new strategy for the company that would most likely put the company on a growth path The strategy called for offering a range of products and services to lure female customers CURRENT SITUATION Back in the 1980s, Playboy Enterprises faces such severe financial problems that it considered going private Ms Hefner, who was named CEO in 1988, has put the company back on solid ground She shuttered Playboy’s faded nightclubs, with their scantily-clad Playboy bunny hostesses, and she got the company out of the profitable, but troublesome, casino business following scrutiny by U.K and U.S regulators over licensing requirements 1997 was Playboy’s most profitable fiscal year in a decade The company reported net income (including a sizable tax benefit) of $21.4 million, or $1.05 a share, on revenue of about $300 million The price of the company’s Class-B nonvoting shares had climbed to around $16 a share from about $4 a share in 1990 However, Playboy still desperately needs a younger and bigger audience, and now the search is on for ways to create new cachet for the brand Ms Hefner would like to reorient the company toward the 18–34-year-old females According to her, these consumers are “pro-sex feminists,” and their age mirrors that of their target male demographic They grew up with the sexual revolution and the womens’ movement behind them They are pro-sex and pro-responsible sex, which is what Playboy stands for in a unique way 47 THE NEW STRATEGY In 1999, the company planned to launch an apparel line for women and men, produced by California Sunshine Activewear Inc., which also manufactured for GUESS? Inc The Line would be sold via the Playboy catalog, Web site, and in collegecampus and specialty gift stores It included dainty, spaghetti-strap tank tops and shorts with the rabbit-head logo Future plans called for sleepwear, sunglasses, and even home furnishings that evoke “Hef’s” Los Angeles mansion Recently, Playboy began handing out rabbithead stickers in nightclubs The famed mansion was seeing a resurgence of young celebrity guests, including heartthrob Leonardo DiCaprio and singer Fiona Apple Playboy believed its timing was ripe The last two years had brought kitsch back in style, from dark denim Sergio Valente jeans to Kiss to “Austin Powers,” the hit movie about a groovy womanizer The craze wasn’t over yet The new movie “Velvet Goldmine” was dredging up David Bowie’s 1970 rock look Given all that, a comeback for the Playboy logo might not be far-fetched The clothes seemed “fun, and sort of antifashion fashion.” An industry observer notes, “They’ve got world-wide recognition with the bunny head There will be some women who find it degrading, but it’s not like 20 years ago I think it’s going to fly on the 18-year old girls.” The resurgence depended in part on Playboy’s assumptions that young men and women today were more open about sexuality, whether discussing Monica Lewinsky at work or sharing unisex fragrances “It’s true that there just aren’t as This case was prepared as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation 910 929 930 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Playboy Enterprises, Inc (B) CASE 29 Playboy Enterprises, Inc (B) many boundaries anymore,” says Heidi Willis, a 26 year-old freelance publicist in New York She says she’d wear the Playboy tops jogging or to clubs, “probably with black cigarette pants.” However, retailers may be a tougher sell Some may question the viability of targeting something that was so blatantly sexist historically to the modern woman Making the magazine appeal more to women might be even trickier Playboy opined it can be done Just look at he success of the October issue, which featured fashion model Cindy Crawford on the cover and in the nude pictorial inside reminiscent of an artsy fashion spread Playboy says the issue was one of its best-sellers, and female readers were a big reason Over the long haul, Playboy was banking on its entertainment division—including cable and pay- 911 per-view channels—and its online operations to tap the female market The company noted couples make up about 70 percent of the audience for its videos and TV programs, including such fare as “Erotic Escapades,” about couples acting out fantasies Several ads for the Playboy TV channel featured women confiding, “I watch it too.” The entertainment unit made twice the profits on half of the revenues of the publishing division last year The company believed the pitch to women might work best online Already on its Web site, Playboy had celebrity chat sessions and personalads, and sold products like martini shakers and jazz guides According to company sources, it was in talks with some women’s Web sites and print publications about possible partnerships, including sites for chatting and perhaps dating