Marketing Decision Making: Honeywell, Inc Spectronics Division - Term Paper Example

Honeywell, Inc. SPECTRONICS DIVISION Case Background The Spectronics Division of Honeywell, Inc. has adopted a strategy for promoting its fiber optics products, namely, project an image of industry leadership. The implementation will comprise a corporate image campaign and a product image campaign. The targeted firms are North American original equipment manufacturers (OEMs) the computer and control systems, and the targeted audience is composed of operating managers, engineering managers and design engineers. Two alternative promotion programs were designed, both primarily depending on advertisement (see Exhibit 1). The $93,960 difference in cost is advertisement in Machine Design, a fortnightly periodical with “…the greatest share of total, electronics, and exclusive advertisers of the design engineering publications…” (cf. Honeywell case). Industry Situation Although the use of fiber optics was already demonstrated in the early 1940s (Wikipedia) the fiber optics industry was in its infancy in 1981 (see Honeywell case), but by this time, most industry forecasters were predicting a high rate of growth - $1.9 billion by 1990 from $100 million in 1981, an average annual growth of over 38%. The perceived use of the fiber optic cable was in computers and control systems. At this time (1981) the principal players are Corning Glass Works, ITT, and AT&T – Western Electric Division, but industrial giants such as General Electric, AMP, Motorola and Amphenol “…pursuing the fiber optics component and system markets…” while IBM, DEC and Sperry-Univac were developing their own fiber optics technologies. Because of the prospects seen by industry, competition was very active, stressing technological advantage and low cost. No firm has laid claim to market leadership. Spectronics’ Position Spectronics, a company producing computer and control systems for information management was acquired by Honeywell, Inc. in 1978, making it a division. It is thus well-positioned for the new technology (fiber optics). Moreover, its marketing manager, Gary Null, is quite innovative as manifested by his concept of selling “solutions” instead of products. He says, “Our people are actually problem solvers in the truest sense… We work closely with design engineers…” The Proposed Promotion Program Spectronics has adopted a strategy of projecting an image of industry leadership. To accomplish this, a promotion program has been proposed, the main component of which is advertising as may be seen from Exhibit 9 of the case. The targeted potential market is the group of North American computer and control systems original equipment manufacturers (OEMs) and the targeted audience comprises operating managers, engineering managers, and design engineers. The objectives of the advertising are: to project fiber optics as the technology of today; and to position Spectronics as the leader. Periodicals chosen are: (1) Business Week/Industrial; (2) Control Engineering; (3) Computer Design; (4) Electronics; and (5) Machine Design. An alternative program proposed deletes the last periodical, Machine Design, from the advertising vehicles. This saves the company $93,960. The advertising will be supplemented by media symposia to promote awareness of fiber optics technology among technical news and trade writers, and people associated with business news, by placing feature stories in “trade, business, and general mass-media publications…” and trade shows. Analysis The area of concern in this case is the implementation of a promotion strategy adopted by Spectronics, its positioning as industry leader. This is one of Kotler’s original 4 Ps (p. 59-60) which apply to physical products. The primary vehicle of promotion for a physical good, whether it is an industrial or a consumer good, is advertising. The possible goals of advertising are: (1) Exposure; (2) Awareness; (3) Attitudes; and (4) Sales (Ibid.). In the instant case, the goals of Spectronics would primarily be awareness and attitudes. The use of fiber optics for transmission of data is not yet widespread and to stimulate more use, people concerned, mainly engineers and business decision makers, should see it as the transmission medium of the future. It would also benefit Spectronics if it takes the lead in rationalizing the industry structure. Where there is a lack of structure, destructive moves such as price competition and advertising battles are likely to occur as competitors jockey for position. In the end, everybody loses (Porter p. 17). This can be done together with its media and publicity programs. One way of rationalizing industry structure is the adoption of standards. Activities in industry as well as professional associations will accomplish this. As an example, participation in the Institute of Electrical and Electronics Engineers proceedings as well as symposia and conferences held provides an avenue for projecting leadership in technology development by its (Spectronics’) contributions to new knowledge. At the same time, the publication of such associations are very good vehicles for addressing members of the industry, the professionals and the academe. Such a move would operationalize majority of Porter’s recommendations to consolidate industry (and thus create barriers to entry). As to the vehicles for the promotion, namely the five (5) periodicals listed in Exhibit 5 of the case, they seem in general to be in consonance with its strategy of addressing engineers and business decision makers. However, it should be noted that the principal use of fiber optic cables is communication of data including voice. Therefore the biggest potential consumer would be telecommunication companies. Directing technology development efforts toward use in telecommunications (telephone systems) and keeping these companies informed would contribute immensely not only to spur demand but also to project the image of Spectronics as the leader in fiber optics. Regarding the budget, a valuation might be called for. The common approaches used by companies in deciding how much expenditure to authorize are (Lilien and Kotler p. 490-492): 1. Affordable Method 2. Percent-of-Sales Method 3. Competitive Parity Method 4. Objective-and-task Method Briefly, the first says, “Let us find out how much we can afford to spend.” The second adopts a rule-of-thumb setting a certain percentage of expected sales, and the third adopts industry practice. The fourth is the most rational but the most difficult to do. It determines the activities and the cost of the activities needed to achieve the objective or objectives. Then the decision maker may see if the expected benefit will justify the expenditure. The quantification is difficult. Lilien (Lilien and Kotler p. 486) offers a quantitative model to value an ad insertion as follows: V(Ea) = f1f2f3Ea, where V(Ea) = effective value of a single advertising insertion f1 = percent of persons exposed to medium who have seen the advertisement (exposure value) f2 = percent of persons seeing advertisement who registered message f3 = percent of persons registering message who were favorably impressed Ea= average number of persons exposed to medium carrying advertisement For more sophisticated quantification, Lilien offers model based approaches to setting the advertising budget (op. cit. p. 492-501). Recommendation Instead of recommending either proposed program, it is recommended that: 1. A review be conducted to ascertain the readership of the periodicals to find out if the targeted audience (engineers and decision-makers in the computer industry as well as in the telecommunications industry) regularly read them and use them in their decision analyses; 2. Membership and participation in activities of professional and industry associations be added to the publicity component of the program; and 3. As members of these associations, take advantage of reduced cost of advertising to reach the engineers and business decision makers. Remarks 1. It may be seen from the discussion above that the proposal cannot be adopted as is for lack of clear justification or basis; 2. The level of expenditure should be based on the tasks needed to achieve the objectives and not just the price of publications; and 3. Beyond the propose activities, it is recommended that industry and professional organizations be used as vehicles for promoting the image of leader in technology development. Bibliography Kotler, Philip. Marketing Management. Englewood Cliffs, New Jersey: Prentice Hall, Inc., 1976. Lilien, Gary L. and Philip Kotler. Marketing Decision Making: A Model Building Approach. New York, NY: Harper & Row, Publishers, Inc., 1983. Porter, Michael E. Competitive Strategy. New York, NY: The Free Press, A Division of MacMillan Publishing Co., Inc., 1980. Wikipedia. 31 March 2010. 2 April 2010 . Read More