Strategies for Growing Customer Value and Profitability - Research Paper Example

Evaluation of Message Firm’s Market Performance I. Findings a. Market Analysis The growth of voice recognition software market was seen as continuously increasing. There are six segments on the market such as students, home-users, assistants, artists, managers and parents. The biggest users are assistants with 25% share. Managers are next with 22% share. Modern students followed with 20% share. Message firm targets the segment on modern students because of its big share with low requirements and product design. The requirements for students in terms of product features are indexed as follows: Harried Assistants Product Features Average Index Special Commands 8.5 Error Protection 3.4 Ease of Learning 3.5 Price Range $ 135 – 165 b. Industry Analysis In any industry, the rules of competition are dictated by five forces; competitive rivalry, ease of entry to market, threat of substitutes, bargaining power of supplier, and bargaining power of buyers. (Porter, Competitive Advantage, 1985) The industry comprises of four competing firms selling multimedia software that operates a yearly product revision cycle. There is no threat of entrants and substitutes. The bargaining power of suppliers is fixed and insignificant. The bargaining power of buyers depends on the market segment. c. Marketing 4Ps i. Product The brand of the product is “Message.” It has high brand recognisability due to it simplicity and direct message. It is also related to the voice recognition software that the firm is distributing. (Clifton & Simmons, 2003) ii. Place Sales efforts are done through distribution channels. The two channels tapped are full-service dealers and discount dealers. Both channels cater to different customers with different preferences. Sales representatives support the dealers by providing technical assistance. Full service dealers provide well trained sales persons for customer contact through information and demonstration practices. Discount dealers utilise the Internet and mail-order catalogue for acquiring purchase orders. They offer lower prices due to low economies of scale. iii. Promotion Advertising mainly used by the company to promote awareness of the product and comprehension of the benefits. Other promotion strategies include sales promotion and personal selling. (Mason and Perreault, 2002) iv. Price The company aims to achieve cost leadership and product would be positioned as the lowest price in the market. II. Discussion a. Period I Message Firm developed new software and decided to compete in the voice recognition software market. At this stage, the marketing strategy of the firm aims to better understand the customer’s buying preferences. The information learned is essential to the delivery of products and services. (McGovern & Quelch, 2004) The positioning strategy of Message is to create a product-price position that is attractive to target customers. The firm pursues a low price as basis for product positioning because price is an important determinant of customer value. (Best, 1997) Sales promotions at the launching stage involve product awareness to potential customers. The benefits of the product are indexed according to special commands, error protection and ease of learning. Initial brand features are moderate special commands, low error protection and ease of learning. Due to lack of knowledge on market response to the products, the company is skeptic and maintains a conservative product development strategy. The advertising dollars invested at Period I is $250,000 which is sufficient to cover awareness campaigns and effectively promote the product benefits. Below is the summary of product features, pricing and advertising dollars invested. Product Features, Pricing and Advertising Report for Period I Brand Special Commands Error Protection Ease of Learning Channel 1 Retail Price Channel 2 Retail Price Advertising Message 8 3 3 $ 190.00 $ 146.15 $ 250,000 Softtech 8 3 3 $ 200.00 $ 153.84 $ 250,000 Speechless 8 3 3 $ 210.00 $ 161.53 $ 250,000 Monicas 8 3 3 $ 200.00 $ 161.53 $ 265,000 The combination of distribution channel and sales effort creates marketing system for Message as a way to attract customers. (Chandra & Kumar, 2000) The number of sales personnel is distributed equally on two channels that the company serves. There are ten sales personnel that serve full-service dealers and another ten representatives that caters to discount dealers. At the end of Period I, the firm has gained 24.9% share of the total industry sales dollars as a result of its marketing strategies. The market share is at par with other competing firms. b. Period II The firm has gained market knowledge on the initial response of consumers. With the success of its initial year of operations, the firm decides to maintain status quo. There are no product modifications implemented. The advertising investment remains at $250,000. The company maintains its low price position. The company followed a product focused marketing strategy where the basis of its marketing activity is centered on the performance of the product (Kotler, 1991). Maintaining status quo shows that the company is confident on its product. In order to increase sales at the full-service channel and take advantage of the market demand, the company hired additional sales representatives. The total sales force is now 30 persons, with 20 representatives assigned to Channel 1 and 10 persons in Channel 2. Developing the sales efforts will reach and penetrate customer markets in order to create new sources of sales growth and profitability. (Siguaw, Brown, & Widing, 1994) At the end of Period II, the results showed that the increase in sales personnel does not signify an increase in market share. Although the number of units sold increased from the previous year, the market share ($ sales) dropped to 23.1% of the total industry sales. Market Share per Competitor Company Period I Period II Softtech 23.7% 24.3% Speechless 26.5% 29.2% Message 24.9% 23.1% Monicas 24.9% 23.4% c. Period III The drop in the market share in the previous period was caused by not properly identifying market signals. Market signals are indirect means of communicating in the marketplace, and most competitor behaviours carry information that can aid in competitor analysis and strategy formulation. (Porter, 1980) The central characteristic of competition is that firms are mutually dependent such that the outcome of a competitive move by one firm depends on the reactions of its rival. (Proctor & Ruocco, 1992) However, the performance of Message in Period II was not dramatic enough to initiate changes in the strategies of the company. They still maintain its low price positioning strategy. There were no changes on the product features. The company did not invest on customer service and the advertising budget is maintained at $250,000. At the end of Period III, the market share dramatically decreased to 19.9% and the sales growth was slow. The number of units sold on both channels totalled to 30,000 which is slightly higher from period II. The customer preference and needs may have changed such that they have opted to purchase competition’s products. (Ang, 2000) Market Share per Competitor Company Period I Period II Period III Softtech 23.7% 24.3% 27.4% Speechless 26.5% 29.2% 27.9% Message 24.9% 23.1% 19.9% Monicas 24.9% 23.4% 24.8% d. Period IV The cost leadership strategy of Message is sustained. Marketing based on cost competitiveness is effective for companies who seek cost economies. Once the economies are achieved, marketing will go on pursuing its strategy until such time that the market conditions demand a review. This approach can lead to failure to recognise significant business growth and opportunities. (Blois, 1986) e. Period V Marketing strategies should be flexible and responsive to the market behaviour. Market research is essential to understand the consumers buying preference. (Gabbott & Hogg, 1994) A company should create a dynamic business strategy that optimises it the value creation of its value chain. (Norman & Ramirez, 1993) In the product life cycle concept, the sales of a product go through distinctive stages from introduction, growth, maturity and decline. (Murray, 1983) However, the product life cycle theory has limitations such as the oversimplification of the market reality where time is the major determinants of the sales curve without considering other variables such as industry, market and environmental factors. (Gardner, 1987) Message Firm responded to changes of the market by changing its product features. The changes in the product features incorporated additional costs of developing the products. The company abandoned its low price position and increased the wholesale price drastically in order to compensate for additional expense. (Waters, 2002) The advertising budget for the year was cut to $38,980 due to overspending. The sales force was reduced to 7 personnel for Channel 1 and 18 personnel for Channel 2 to fit the budget. The company also invested $110,000 on customer services to regain customer confidence. At the end of Period V, the company regained market share but was still the lowest among the four competitors. 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