Mackenzie and Marr Guitars Marketing Strategy - Case Study Example

? Business Marketing Report Table of Contents I. Introduction 3 II. Discussion 3 A. Analysis of the Case Facts 3 B. Funneling the Analysis Results into a Marketing Plan 8 Works Cited 11 I. Introduction The problem at hand for MMG is to find ways to improve revenues and margins, and to strategize properly for the launch of the new dreadnaught model in June. The strategic options for the new product launch are many, and include choice of target market, pricing, sourcing options, manufacturing options, advertising options, viability of target market and alternatives, on whether an endorser is necessary for the new product and why, on the inclusion of accessories or not in the offerings of MMG, the state of the competition and how to strategize based on competition data, what the right promotional plan is and how to justify the increase in promotional budget, and how to spend the budget, and the like. The gist of this is the need for an effective marketing plan that carefully takes into consideration all of the available data, with the end goal of helping MMG achieve its yearly revenues target of $1 million, or a turnover of 100 guitars on a monthly basis (Finnbogason). II. Discussion A. Analysis of the Case Facts The total guitar market in Canada is $59 million, and the revenue targets of MMG accounts for a small fraction of that, indicating a certain amount of realism in the sales targets, given that the MMG play is purely online. The total market is made up of 2.5 million people, while the sales target is 1,200 guitars annually out of total potential sales of 146,000 acoustic guitars. Again this numerical target is realistic, and is just a small fraction of all unit sales in the country. Meanwhile, among age groups, those between 15 and 24 years and over 55 years had the most leisure time, and they are natural potential target markets for guitars, as a leisure product (Finnbogason). China is the traditional manufacturing base for MMG, but given a one percent increase in tariff and rising labor costs and transport logistics costs, there is some concern whether China remains viable moving forward. Scale is a factor in this decision, and given that MMG only moves 1,200 units a year by target, there is the question of whether the scale is significant enough that any upward movements in labor costs, shipping costs, and tariffs would be material increases in the cost structure of MMG, given profit margins exceed 50 percent of costs, as projected for the new dreadnaught product to be launched in June of that year (Finnbogason). That MMG guitars suffer from a quality perception problem over the fact that its guitars are made in China., even though its guitars in actuality are of high quality and are preferred by seasoned musicians even in TV-broadcasted blind tests, is not a deal breaker, and can be assuaged and managed with advertising. In this sense endorsement deals help. Likewise, word of mouth can be a powerful form of endorsement from ordinary players who become customers as well. In other words, this problem of quality perception is not really a major problem, assuming that the right marketing interventions are implemented in the context of a holistic marketing plan for all of MMG (Finnbogason). The table on pricing reveals that the two Summer Wages models have thinner margins than the premium Signature Dreadnaught model, which has a margin of 40 percent. The two basic models sell at $799 for the Tofino model and $899 for the Dionisio model, with margins at 30 percent and 35 percent respectively. In terms of sales contribution currently the premium model accounts for 50 percent of sales, and the latter two models 40 percent and 10 percent respectively. All of the models are substantially cheaper than respective competing models from other makers. On the other hand, the new product launch would make the sales mix different from the above status quo, with the new mahogany-based dreadnaught model taking market share from the premium line and from the Dionisio line, to take up 25 percent of all revenues, assuming that an endorser is used for the new product. On the other hand, given the larger margins for the new product, at 54 percent, the new sales mix is poised to improve overall profit margins while at the same time boosting prospects for increased sales by targeting a larger market segment as well as making the price of each unit more affordable, and even cheaper than the company’s Dionisio and Tofino models (Finnbogason). In terms of the current target market for MMG, they are guitar players over the age of 45, who have more disposable income, are savvier in their purchase decisions, and total about 299,000. This makes for a robust target market that can be reached with more effective marketing campaigns, such as the one that MMG had with the blind test on TV, which was effective in generating new sales. The endorsement deal likewise proved effective in driving sales to this target market, and can prove to be so again, with the potential new target market of younger people with the leisure time and the interest in guitar playing. This new potential target market has been identified to be people between the ages of 15 and 22, who at the high end of the range are new entrants to the workforce, and at the low end of the range are mostly students. They are sensitive to price, and trust the judgment and endorsement of peers. This has implications on the choice of the right endorser to appeal to this potential target market. The total size of this potential market is 235,000, smaller than the original target market, but just as substantial (Finnbogason). Being a pure online play allows MMG to cut the costs of distribution and sales and to realize profits on lower prices compared to the competition, while keeping quality high. The focus on innovative forms of marketing, such as the use of endorsers who are not paid fees up front, and the use of the ingenious blind test in the TV show ‘Dragons’ Den’ in 2010, helped fuel word of mouth and brand recognition, which had a positive effect on sales. The problem moving forward is whether modest online advertising spend is enough relative to the sales targets of the firm, and whether the pure online play is also enough to counteract the brick and mortar plus online strategies of bigger players in the market. Of relevance here is the appropriateness of the original $1,000 monthly budget for advertising, and whether upping that to $4,000 is enough as well to boost revenues for existing products and the new product to be launched in June. Cash flow is important too, because whereas MMG pays cash to the supplier for purchases, deliveries for completed products are made three months after that payment. This has implications on the ability of MMG to finance marketing and other relevant revenue-boosting activities (Finnbogason). Competition is vibrant and strong, and represent large retail chains that have extensive brick and mortar store networks spread all over Canada, and which offer a wide range of products from many makers in the main. There is that segment of the competition, and there are also smaller specialty stores that have brick and mortar presences as well, present in the key cities in Canada. Then there are plays like Musician’s Friend or MF, which are online plays, and offer accessories apart from instruments, but whose prices are higher than MMG’s. Competition is relevant, but not so much in an industry where MMG’s sales targets are just a small fraction of the entire industry’s expected revenues and volume shipments. The greater issue here is whether the new marketing strategies and the new product launch is enough to attract purchases from a potentially new target market, and whether the marketing strategy in general and the choice of the target market is wise and effective (Finnbogason). Aside from the choice of target market for the new launch, other decisions on marketing relate to whether or not to expand presence in the lucrative and large US market or not, given that MMG already drives 25 percent of revenues from the US. With regard to the new product, is the pricing right at $699, and should an endorser be used, and what are the right characteristics of the new endorser? This latter decision is tied to the choice of the target market. Should the company sell accessories? What advertising channel is the most effective and relevant given the company’s situation, budget, and sales goals? The answers here are also tied partly to the choice of the target market and the prospects of the new product launch. On the one hand, if the choice of the target market of young people is pursued and finalized, then that will impact the decision on getting an endorser or not and who to choose, and what the best way to reach the target market is, given its characteristics, and media consumption preferences, among other things. Moreover, a decision to choose another focus target market, such as the US, will have the same set of implications on the choice of the right endorsement strategy and the right advertising channels that will yield the most bang for the allocated advertising budget of MMG. A cursory look at the target audiences of the print magazines reveals that most of its readers are above 35, and given that the nominated target for the new product is young people under 23, the magazines offhand may not be the best vehicles for the advertising campaigns. That leaves us with Google and Facebook, online plays that tie well with MMG’s pure online play (Finnbogason). B. Funneling the Analysis Results into a Marketing Plan There is a need to question the fundamental assumptions that MMG have used in coming up with the beginnings of a marketing plan, centering on a new product launch and targeting a new demographic in young people between the ages of 15 and 22. It is easy to see that given the large amounts of leisure time of this demographic, that they would be a natural market for a new product that is priced to be cheaper than even its most basic products while carrying larger margins than even the signature dreadnaught series. This target market, though, as can be gleaned from the case facts, is admittedly smaller than the original target market for MMG, which is the demographic of enthusiasts who are over the age of 55. To compare too, the new proposed target market has a smaller disposable income, in contrast to the original target market, which has a much higher disposable income in contrast and as a group is generally not price sensitive. Moreover, in terms of preference and knowledge of quality, one can argue that the original older target market seems a more natural fit to MMG’s positioning of high quality at a low price. The younger set may also potentially appreciate this value proposition, but there may be other factors that influence purchase decisions for this set, such as preference for cool brands, and the role that their parents play in their purchase decisions. Who gets to pay for the guitar purchases for instance? In other words this target market needs to be examined more intently. As it is what happened is that MMG decided to launch a new product targeted at a demographic that it may not know much about (Finnbogason). Aside from the issue of whether the choice of the target market is right, there is also the issue of how to craft the marketing mix for the new product. Given that it is a dreadnaught product, the pricing is suspect, because the low price may confuse consumers as to the identity of the dreadnaught series as a whole, whether it is basic or premium, and whether the low price is an indication of a lower quality product, when clearly the discussion in the case is that mahogany is not inferior, but different, catering to different tastes. There is a case to be made with regard to challenging the wisdom of the pricing decision, which may redound to MMG reaping even higher margins for the new product, while at the same time increasing the chances that the new product will be taken up by the market in healthy numbers enough to guarantee MMG meeting its revenue and volume goals. Arguably there is a need for MMG to decouple cost from price, because if the product is good and properly positioned the cost does not matter as much as the perception of the target market of the quality of the product, and how much the public and the target market is willing to pay for such quality. Already MMG has established some credibility in the market as evidenced from the somewhat high profile standing it was able to generate from the TV blind test coup, and the use of credible endorsers. MMG has some reputation for making good quality guitars at a reasonable price, even lower than MF and the mainstream brick and mortar players (Finnbogason). There is a case to be made for positioning the new product differently, with a different target market than the one it has chosen for this new product, and in all crafting the marketing mix differently, The price, given that it is a dreadnaught and made with a relatively innovative material with good sound characteristics, can be tweaked upwards and positioned as a premium play. It can be priced along the same lines as the Dionisio, or around $200 dollars more than the current proposed price. The new product can be marketed to the same demographic as its original target market of players over 55. The focus can be intensified for the American market so that a greater share of total sales can be derived from that market. The advantages of this rethinking of the target market and the marketing mix are obvious with regard to large improvement in profit margins, and the fact that MMG already has a decent reputation as a brand with the existing target market of players over 55. Given the reorientation of the target market back to the original target market, and the repricing as proposed here, the company can then make use of the planned $4,000 budget to boost spending for online advertising, and use part of that for the purposes of re-signing the old product endorsers or choose a new endorser that would appeal to the over-55 crowd (Finnbogason). Works Cited Finnbogason, Cole. “Mackenzie & Marr Guitars”. 2003. Richard Ivey School of Business Foundation/Ivey Publishing. Read More