Icon Acoustics: Bypassing
Case Study 3 Team D Set J
R e nu B a i ns Ja r e d Ju ng Ja s on La i W i l s on La m Gi ng e r Li u
Tradition
Sa y e d H . R a himi
P R O B L E M
I D E N T I F I C AT I O N
Icon Acoustics is a company striving to produce top-quality products. It specializes in high-end custom-made stereo speakers and wants to take audio engineering to another level. However, owner, Dave Fokos faces one major problem: How to best distribute Icon’s products to the Online and North American markets?
K E Y
FA C T S
A N D
A SS U M P T I O N S
Facts •
Dave is dedicated to bring brand loyalty and top products for his customers
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Products are hand crafted and superiorly designed to compete against the best in the market
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Currently have two models; Lumen $795 and Parsec $1795
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We have a 50% margin with the current selling price
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Clients are offered 30 days in home guarantee
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We are ranked in the top 15 in audio shows and conferences
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Other top 15 brands sell their products at prices between $8000-$18000
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We are increasing prices due to cost
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Delivery done through Fed-Ex. Round trip cost $486 for Parsec
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Our order taking is done through a 1-800 number
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We receive 5 calls a day and it takes 7 calls to make one sale
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Dave’s income was $9500 last year
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Dave would like to have 10% of the market volume and 50% value
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The stereo market is a popular business worth $3 billion
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Dave has a debt of $50,000 from banks and other financers
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Dave only advertises in high-end stereo magazine (Stereophile, Hi-Fi World) and does not have an efficient distribution of his products.
Assumptions Present
Assumptions
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We do not have proper marketing strategies behind our product
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Our low revenue is due to our prices being too low compared to our competitors. We are almost the cheapest for having such superior products.
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Dave hasn’t reached his target market yet, that is the reason for his low sales count per day.
Future
Assumptions
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With the correct distribution strategy, we will see an increase in our customers and gain brand loyalty.
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With brand loyalty and recognition we will capture the market share that Dave requires and hopes for.
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We have the products that the customer wants; we just need to bring it closer to our target market with the right distribution strategy
O U R
C O M P E T I T I O N
Dave Foko’s and Icon Acoustics faces competition for a small portion of the audiophile market, custom-made high-end speakers Triad Speakers is one of the largest custom speaker firms in the US. They offer a large range of high-end speakers where the look can be customized to a customer’s enjoyment all while having superior quality at any level of speakers. At around $3400 for a set, Triad guarantees its quality with their American made speakers. Their website does not contain a address or phone number because they wish for a customer to speak directly to a sales representative who can accurately direct a customer to the appropriate Triad dealer. To order their custom products may take awhile to construct, but customer reviews have described that it had been “well worth the wait”.
The not as well known Minneapolis Speaker Company (MISCO) is a company has been producing custom built speakers for 53 years. MISCO is a large company that not only covers loud speakers and amps, but public address and paging speakers. MISCO only supplies a small percentage of the loudspeaker market.
TA R G E T
A U D I E N C E
Our target audience will consist of “audio addicts,” which Dave describes as people who love to listen to music with stereo equipments that are first rate. We can also target the Generation X customers. These customers all have some sort of job and can afford the stereo equipment Dave produces. Generation Y’s are also potential clients, because they are from our generation and they always want the best out there. The age group for our market will be between the ages of 18-45 or 50. Customers younger than 18 are usually not willing to pay a high price for premium quality products due to their concern over price rather than quality.
S W O T
A N A LY S I S
Strengths
Weaknesses
O U R
• Each product customized accordingly to user preference • Very fast shipping • Identity defined: • Highly prestigious • Identity defined o Highly prestigious o Carefully crafted and customized speakers o Good quality for reasonable price • Highly valued customers – Brand loyalty • Target Market defined: o Audiophiles o People who love to listen to music • Publicity through entertainment magazines (Stereophile, Hi-Fi World) • Own manufacturing area
• Doesn’t distribute through dealers, in not doing so, it may not get as much exposure to customers • If they wanted to sell through dealers, it would be difficult because dealers only sold products made by well known producers • Product is too customized to enter through the stereo dealer market • By offering a 30 day trial, some people take advantage of the trial and use the speakers and then return it before the trial is up • Not every stereo speaker buyer will know about Dave’s company since he only concentrates on product reviews in the magazines and attending trade shows. •
Opportunities
Threats
• Forming new product lines or possibly an IBU • Positive publicity from highly recognized audio magazines (EQ, Audio Web) • Different target markets for the Micron and the Millennium: o New speakers can also be distributed differently (online, over-sea distributors) o Foreign Markets, North American Market, Online Market • Expanding business internationally in the future • Heavy product advertising • New suppliers
• Approximately 335 stereo speaker makers compete in the north American market • Competition from other manufacturers • Manufacturers offering lower prices • Rising costs of cabinets and components • Can’t compete with manufacturers with bigger budgets • Profit margin is low, may have difficulty maintaining the business • Other manufacturers with more experience in the industry • Doesn’t offer financing and layaway plans • Doesn’t make offer of sample finishes available
A LT E R N AT I V E S
Dave Foko’s of Icon Acoustics’ faces the problem of trying to best distribute his
product and to where. The question remains: How to best distribute Icon’s products to the Online and North American markets?
Alternative 1 | Exclusive Distribution By limiting the number of intermediaries handling their products, Icon Acoustics gains more control over their distribution. Exclusive distribution is a form of market coverage in which a product is distributed through one particular wholesaler or retailer in a given market area. Advantages:
− The technique of exclusive distribution creates a unique experience of the Icon Acoustic product by enhancing its image. Therefore, the customers would be more willing to pay a higher price. − Because there are a limited number of dealers, Dave will have more control over the dealer’s price, promotion, credit, and services. − Fewer distributors allow Dave to focus more on product improvement, instead of having to deal with intermediaries. Disadvantages:
− Exclusive distribution provides less brand exposure and consumer convenience. − Because there are a restricted number of dealers, the total quantity of sales will be low. The supplier will have to bring up the price to meet the break-even. However there are many competitors in the market, setting a high price will encourage the customers to find substitutes. − It would be difficult to expand the market in a short term because producers and intermediaries would need to agree on conditions of sale, territorial rights and etc.
Alternative 2 | Selective Distribution Icon Acoustics can use only a selected number of outlets as their intermediary rather than using all the possible ones that are available. Selective distribution is most often used on products such as speakers, television, and furniture. It can develop good working relationships with selected channel members. Advantages:
− Allows manufacturers to maintain more control over the way their products are sold and discourages price competition among sellers of the products by distributing their products only to those wholesalers and retailers who
follow the manufacturer's guidelines. − Provides a fair exposure to the consumers at an average price and discourages consumers from going to other brands. − Icon Acoustics does not have to spread their effort over many outlets, and therefore will be able to focus on the improvement of their products. Disadvantages:
− Dave can lose control over his product as more intermediaries enter the market. − Dave must make sure that his intermediaries will provide a better-thanaverage selling effort. Because there are many competitors in the market, the intermediaries’ knowledge of the product is very important. − Selective distribution provides limited exposure to the market; therefore, Icon Acoustics might need to introduce some advertising or promotional activities to attract the consumer.
Alternative 3 | Hybrid Marketing System By using the hybrid marketing system, Icon Acoustics can set up two or more channels in order to reach one or more customer segments. They can distribute their product either through direct sale or through intermediaries. Dave can choose to sell his product through many channels to cover consumers with different needs and provide a shopping convenience. Advantages:
− Using the hybrid marketing system provides more flexibility to the company, and maintains the opportunity for price improvements. − It is able to cover a great number of consumer segments and significantly reduce the cost of distribution. − It also provides better customer service and faster access to the product. This method is very helpful in dealing with large and complex markets, which is what Dave wishes to do as he expands his market. Disadvantages:
− A hybrid marketing system is very hard to manage; they generate conflict as more channels compete for customers and sales. − Dave will have less control over the customer service, price, promotion, etc. − Dave will have to face the problem of hiring trusty managers to manage his different channels. It is sometimes a very time and money consuming process.
S O L U T I O N How to best distribute Icon’s products to the Online and North American markets?
As a solution towards distributing Icon Acoustics’ products, we have chosen the hybrid marketing system in order to reach more customer segments. We want to capture a larger market that consists specifically of our target audience, the audio addicts. These customers all have the same wants in a product. The hybrid marketing system is exactly what these customers need by providing them with a faster access and service for the product of their choice. This method is helpful in dealing with complex markets like the audio addicts, as well as providing more flexibility for Icon Acoustics as a company in maintaining the opportunity for price improvements and cost distribution.
I M P L E M E N TAT I O N
P L A N
The Four P’s Price
− We will increase our stereo speakers by 45%, for both the Lumen and Parsec. This strategy will be done through market skimming pricing. Our new prices will be $1152.75 for the Lumen and $2602.75 for the Parsec. − This will increase our gross profits and help us in paying with any the debts. − If we gain 5% of the market share during the first year of bringing in the changes, we will then promote our products overseas.
Promotion
− With the success of gaining 5% market share, we will promote our
products overseas and other potential markets of stereo speakers. − We will use market penetration as our introductory strategy to enter the overseas market. − We will mark down our prices by 10% of the original selling price. Our Lumen will sell for $715.50 and Parsec will sell for $1615.50 overseas. − We can also join our brand names with other promotions such as car dealers. − We can offer discounted prices to car manufacturers to install our speaker as their car audio system. − This will increase our brand recognition with customers and give us a much bigger market share in the industry.
Place
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With the success of gaining market shares overseas, we will move to our third plan of place.
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We will open our specialty shops just for Icon products. This way Dave will have complete control of the products and customers of Icon.
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We will give employees in these shops special training about our products and training in repair services. This will cut down the waiting time for a customer who needs repairs done on their stereo equipment.
Product
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After successfully gaining 10% of the market volume, we will have enough profits to help us increase our product line.
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We can hire more help employees, produce more and better products than the leading brands in the market.
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For the customers that go after design, we can higher designers to give some of our products special designs and packaging to gain the customers trust and build brand recognition.
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Having a larger product line will give our customers more choices over products and increase our sales revenue.
C O U R S E
C O N C E P T S
A N D
R E F E R E N C E S • Exclusive distribution (Chapter 11) - Exclusive distribution is a form of market coverage in which a product is distributed through one particular wholesaler or retailer in a given market area. • Selective distribution (Chapter 11) - Selective distribution is most often used on product such as speakers, television, furniture, etc. It can develop good working relationships with selected channel members. • Market Skimming Pricing (Chapter 10) - Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the makes fewer but more profitable sales. • Market Penetration Pricing (Chapter 10) - Setting a low price for a new product in order to attract a large number of buyers and a large market share. • Marketing Mix (4 P’s) - The set of controllable tactical marketing toolsproduct, price, place, and promotion- that the firm blends to produce the response it wants in the target market.
B I B L I O G R A P H Y
http://www.miscospeakers.com/ http://www.stereophile.com/standloudspeakers/996boston/ http://www.inc.com/magazine/19910501/4587.html http://www.stereo411.com/forum/viewtopic.php?p=4725 http://www.bwspeakers.com/index.cfm/fuseaction/products.ranges/Label/Rang e%20In%20wall%20Series http://www.newformresearch.com/new-to-high-end-audio.htm http://www.triadspeakers.com/ http://canada.axiomaudio.com/faqs.html http://www.audioengineusa.com/tech.htm http://www.miscospeakers.com/
the…
so we can finally get the mark we deserve C H E C K L I S T
1. (highlighted items are finished) Content Problem Identification Key findings (facts, assumptions, research) Competition Target Audience SWOT analysis Alternative 1 ( 3 advantages and 3 disadvantages) Alternative 2 ( 3 advantages and 3 disadvantages) Alternative 3 ( 3 advantages and 3 disadvantages) Solution/Implementation Plan Course concepts and references
PLEASE CHECK OVER THE REPORT for mistakes I might have missed. 2. NOTES Grammar mistakes where I could not determine the independent clause (meaning) or suggestions I could think of are HIGHLIGHTED in report Written Skills Spelling and grammar Clarity Effective use of formatting, style and organization Equal participation from all members, cohesiveness Overall quality With every change you make could you please highlight it or make it easily visible for me to correct. 3. Finally… make sure ALL of your CITATIONS are listed… if not please email me back a list of sites. Having 5 people individually edit the bibliography might make it confusing.
