Tweeter etc case study

8/10/2019 Tweeter etc case study

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Sandy Bloomberg formed the company in 1972 and the company faired wellin the 1970sand 1980s

A specialty retail store of middle and high end audio and video consumerelectronics.

From a 13-store chain with $ 35 million annual sales in 1991, it expanded toa 21-store chain with $ 82 million in annual sales in 1996.

Operates in a highly price-focused competitive market of New England inUSA.

The company had adopted major promotional strategies, which includedAutomatic Price Protection (APP) policy, implemented from 1993. Tweeter isthe only company to ever have adopted APP

Competition

Lechmere, Circuit City, Wiz and Tweeter are the maincompetitors in electronics business. Lechmere is in direct competition forTweeter as its major customers are Tweeters target customers.


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To analyze the viability of the continuation of the Automatic Price Protection(APP) strategy currently employed by Tweeter Inc. in view of the changedenvironment, especially after its ineffectiveness in making a significantimpact on sales of its acquired subsidiary, Bryn Mawr.

What should it do to change the customer perception that it was an

expensive brand ?


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Strength

High end, High quality electronicgoodsKnowledgeable Sales ForceHigh levels of customer serviceMember of PRO to get best retailpricesEDFP strategyAutomatic Price ProtectionPremiere facilities like sound proofaudio room

Weakness

Perceived to be with selective high endgoodsLoyal market is only 10% of overallmarket shareLocal chain of stores with small storespaceLimited selection of Low End productsIncreasing payouts due to APPRPP covered for only 100% as against110% of competitors

Opportunity

Market was growing at CAGR of 5.6%People will come to tweeter if pricewere not an issue as per surveyDecline of competitor- Lechmere30% retail margins

Threat

Increase in price competitionEntry of big playersEffectiveness of APPPrice perception of customerCompeting against lower end productstores


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Retail Level Stores Customer

1. Speciality Stores(tweeter , bryn mawr,cambridge)- good to excellent customer service

- high salesperson knowledge- medium to high end products, smaller size

2. Electronic Superstores (Lechmere, Circuit City, WIZ)- moderate to good customer services- varied sales person knowledge- all major product lines , larger stores

3. Department Stores

- Poor customer service- limited sales person knowledge- limited entry & middle level products

4. Mass Merchants- Little to no customer service- very little sales person knowledge- geared towards value brands only

5. Ware house Clubs- No customer service- Product selection is limited- Good Values on good quality equipments

6. Mail Order Houses- No service , catalogue or ad based- Prices attractive but shipping can be expensive

1. Entry-level customers

- buying the cheapest item in givencategory

- relatively indifferent to product quality- indifferent to customer service.

2. The price biter:- Very Cognizant of price.- concerned with product quality and

customer service also- Focused on best deal.

3. Convenience customer- Shopping convenience most important- Price, product and service quality are

secondary

4. The Quality/Service and customer:- High levels of product quality concerns- customer service was of primary

concern- Price was secondary


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In the late 1980s, the bottom fell out of the electronic market and caused

price wars with local competition.

To aid the price-based competition, Tweeter joined the Progressive Retailersorganization in 1988, a buying consortium founded in 1986. As a result,Tweeter was able to obtain prices from manufacturers that were comparablewith those obtained by it is larger competitors

This organization kept the retailers market from dropping out from underthem. They did this by setting price standards up that nobody who sellscertain brands and models of products can sell them below a given price atwhich they all agreed to.

Tweeter would monitor the weekly sales ads of all the major local papers andcross reference that with sales within 30 days; and if a customer paid more

for a product than the sale price, Tweeter would refund the difference. Atfirst, this strategy was good, but as larger competition moved in, Tweeterbegan writing more and larger checks. By December, 1995, Tweeter in totalhad written 29,526 checks to the tune of $783,863.

This strategy nearly drove the company into bankruptcy. The company stillfaces unremitting problems


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In 1993 , Tweeters sales and profitability began to deteriorate . After asurvey on focus groups which majorly indicated that customers who were

aware of tweeter perceived it to be more expensive than others. Customers indicated that they would consider buying at Tweeter if price was

not an issue.

Three Pronged Attack :

Abandonment of Sale -1. Do away with the weekend sale to stop competing with lower end product

competitors.

2. Use Every Day Fair Pricing Strategy to set competitive prices

Automatic Price Protection :

1. Tweeter would itself track for lowest prices within 30 days of purchase amongmarket competitors.

2. Tweeter would mail the check of difference if there was lower price to customer.

Change in Marketing Mix :

1. Since moving away from sale strategy , it started focusing away from print media

to radio & TVs

2. Focus on Tweetersprice competitiveness and APP.


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0%

10%

20%

30%

40%

50%

60%

70%

80%

Total Market Tweeter Lechmere Circuit City

Customer Base (Exhibit 8 )

Entry Level

Price-Biter

Convenience

Quality / Service

33.0%

0.0%2.8%

0.0%

64.2%

36.0%

7.4%2.7%

0.0%

53.9%

35.6%

18.6%

3.6%0.6%

41.6%

Lechmere Circuit City Tweeter Cambridge Sound Works Others

Market Share ( Exhibit 5)

1992 1994 1996


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TV's 40" and

under

14%

Camcorders

4%

Video Others

17%

Speakers

14%

CD Players

7%

Audio Others

20%

Car Stereo

14%

Others

10%

Product Mix

3

0

8

3

13

21

4

10

57

23

01

0

Exclusive Better Loser Matched

Product Pricing Comparision of

Tweeter with Market (Exhibit 13)

27" Color Television

Multiple CD Player

Camcorders

- More than 56 % of the items are

exclusive.

- Out of the remaining items

Tweeter is better on only 6.5 % of

products

- Tweeter is costlier on 48 % of thecommon items in market

- On the remaining 45 % items ,

Tweeter is as good or bad as the

market.

Why would the Public Perception

change ??

Maximum Contribution in Video

Category is from color TVs under 40

In Audio Category , Major Contribution

is from Speakers .


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(661)

1,387

2,702

79.46

261.47

442.93

(1,000)

(500)

-

500

1,000

1,500

2,000

2,500

3,000

1993 1994 1995

Net Profit vs APP (Exhibit 7 & 12)

Net Profit

APP

The APP cost has increased substantially over the 3 years !

This will greatly affect the bottom line if we keep continuing at this rate.

If Tweeter was following Fair Pricing , why this increasing APP ??


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APP compensation maximum in Nov-Dec every year

Time of Year End Sale for competitors who are big players or stores playing

on cost margins.

APP is affected by what the competitors are doing to Tweeter

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

$ Value of Checks (Ex-11)

$ Value of Checks


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Tweeters

Price Image

+

+

--

-

-

--

APP

EDFP

(Everyday Fair Price)

High-End Products

Small, Upscale

Stores

Past PriceImage

Superior

Customer Service

No Sales

Limited Advertising

It is easy to change prices but it is difficult to change price perception!


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Eliminate the need for extensive, price-based search: Consumersindicated that if price were not an issue, they would prefer to buyat Tweeter.

Break the wait for a sale buying mentality: Under APP, consumershave less incentives to wait.

Convert potential or free-riding customers: APP eliminates theneed to travel to another location.

Smoothes demand over time: APP eliminates the cyclical buyingpatterns of sale-based retailing.

Creates positive word-of-mouth(since word-of-mouth has asignificant impact on buying behavior).


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As per customer survey , the price efficiency of Tweeter is not recognised/accepted .

Shift from print media to TV & Radio may not have been successful inreaching out customers , who rely mostly on newspaper Adv to assess prices.

Tweeter is not competing on value pricing but is just following Market Based

Pricing.

Also , By competing on price in a sensitive market , it is allowing competitionto do damage to its bottom line because of APP.

With the Failure of APP at big Brawn , it was becoming evident that APP alone

can not guarantee sales increase.

In case of Tweeter , it may be due to increase in no of stores and decline ofother competitors in the market.


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Tweeter should focus on its line of products and should not try to compete

with Circuit City and Lechmere in mass pricing/product segment.

The mass market being very price sensitive will keep driving the margins forTweeter down.

Tweeter should try to advertise its value deal to customer rather than only

APP. It may come up with some value combo to express the cost of serviceand installation at customer site. Buyers guide should have the comparison between the prices of the products in different stores


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As 80 % of the consumers had the misperception that Tweeter was moreexpensive than other stores

It should distribute buyers guide with comparison of competitors price.

It should include overlap products in its portfolio which can demonstrate the

stores price competitiveness.

It should focus on the Specialty/Service and The Price Biter customersegments with improved customer service and high quality, high end audiocomponents and video equipment.

It should continue with the modified APP policy as sales have increased afterintroduction of the marketing strategy.


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Tweeter etc case study

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