Tweeter: Price Competitiveness and Customer Segmentation in the Consumer Electronics Market
1.-It is Tweeter price competitive? Whether or not and why?
If the price is competitive. The quality of items sold tweeter is superior because it is high-end products, this makes them a value above the low end and that the quality of components and customer needs warrant (service and advice).
Tweeter has specialized in that, that was the original essence of your business, however the number of similar shops and the large number of tenders, which were emerging, led him to include low-end products, where prices were competitive deals with the invasion. Annex 13 Tweeter can see that is different from other stores on price, some are a little above, but without being a very big difference in others under the same price difference, this makes the competition is in due proportion, in the same attachment also can be seen that there is a considerable amount of product that has only Tweeter and the other shops, also there are many products that other stores and Tweeter have not, this becomes another reason to be competitive, since it has exclusive products at prices that are not far from others of similar characteristics.
The strategy
Automatic Price Protection (PAP), makes it competitive, because their prices are equal to the lesser value of the product existing in the market, this strategy resulted strengthen its presence in the market and obviously the increase in sales.
2. What is the target segment of Tweeter? Who are your customers? Who are the competitors in this segment? Are these the right customers?
Market: Electronic Equipment
Beginning in 1993, following the search of the strategy change that will help to substantially improve the financial performance of the company, and the conclusions obtained from studies of representative groups, we have:
Segment Target:
Residents of New England with orientation towards product quality and service offered pre and post sale. (People who value personal service and well-trained employees are not very sensitive to price).
Clients:
Tweeter has four customer types in their respective shares (Annex 8):
Clients% share of the customer type Tweeter In total customers
Lower level (better price, lower quality) 5%
Hunter Price (absolute best offer) 20%
Comfortable (comfort in the store of purchase) 5%
Concerned about quality / service 70%
As the table indicates, the Tweeter client portfolio is a mix, with a strong participation of 70% of customers concerned about quality and service, followed by those customers concerned about the price.
“According to the Chairman, Sandy Bloomberg, the average customer is 40 years old with an annual income of $ 70,000. “The main demographic for the business of audio / video business is 18 to 54, said. “Our client is a graduate of the university in 1968, who grew up with The Beatles and the Vietnam War, and has a passion for music. Anyone 57 or 58 years meet with this” (From tweeter’s Recipe For Success: A Heavy Helping Of Service, MAGAZINE TWICE, 9/20/1999.)
Competitors in this segment:
According to Annex 8, the strongest competitors generally Tweeter and Circuit City are Lechmere. Looking at the percentage of participation in the target segment (customers concerned about quality / service) in the total composition of the clientele for these companies represent only 10% and 15% respectively, leaving Tweeter as a leader of the segment a large advantage to keep gaining ground.
Your competitors have less customer-oriented policies and shops with less trained personnel so that characterized Tweeter with experience, expect that, in addition to its strategy of location of stores close to their competitors, many customers of these stores to spend Tweeter, motivated to find better quality products with better service and offer money back guarantee price difference. Since their products are not the cheapest on the market, but competitive, the target segment is targeted, because that is where Tweeter has a competitive advantage.
3. Tweeter’s new strategy is in line with the behavior of buyers of consumer electronics? Will the strategy Price Guarantee (APP) will change buyer behavior? It is this strategy useful in the search for new customers or retaining existing ones?
By classifying the types of customers for electronic products according to their purchase motivator, Tweeter understood that there was a niche which accounted for 70% of their income – Client concerned about the quality and service – was met by its own strategy and different others despite representing only 10% of the entire New England market. The cuts eliminate weekend and implement the strategy Automatic Price Protection (PAP), including return shipping of the difference found by themselves, as well concentrate on television and radio advertising, mail and catalogs, allowed them to be better communicated its message to customers who appreciated his offer of value and which could be sold more profitably. Over 45% of the market for color TV, video cameras and portable audio equipment moves in specialty stores like Tweeter, where customers are looking for purchase advice service and even more money, but even the latter could be Tweeter compared competitively as PAP strategy would be even more valuable and more likely would change their buying behavior. He understood that his competitors were not Circuit City or Best Buy but Cambridge Sound or Bryn Mawr, who buy later in 1996.
With these three strategies Tweeter not only retained its demanding customers but managed to increase their participation in the niche “top” at 28%.
4. Policy (PPP) has served Tweeter something? Which factors considered to be improved to ensure its effectiveness? What factors must be improved to endure over time?
The PPA was effective during the first three years after implementation. Proof of this is that since 1993 their sales grew at rates up to 27% while the market for electronic equipment for the U.S. Alone grew by between 4 and 7% annually. Additionally, net income rose from – $ 661,000 in 1993 to $ 3.6 million in 1996, the highest since 1990.
But after three years and achieving the goal of market penetration “top” of New England, the stage and the actors may have changed. It is possible that customers no longer are in the PPA an important differentiator, and again the price, which remains the spearhead of advertising other channels, has taken its toll. It is also possible that television and radio advertising should focus even further, including Internet and magazines for a target audience of higher income and more discerning tastes, Tweeter common. Increasingly, these products require detailed specifications and profits so that the print media can help them in purchasing decisions.
It is significant that given the increased competition, Tweeter must deliver ever more checks. 29 500 checks are an indicator that many products have a lower value on competition and one must consider the strategy to change this, ie instead of cash back, decrease the value (if the quality permitting) making a assessment of the costs involved in returning the money.
An alternative is to expand its coverage into new areas of the U.S., which is still not present. Remember that New England represents only 5% U.S. Market.
If we consider Tweeter opportunities in terms of high-tech equipment that no other competitor offers, because Tweeter has markings that only they sell, then this should be one of their approaches to work their differentiation strategies, so as to distinguish them large retailers. This type of differentiation can provide Tweeter leadership in this niche market, the development of their facilities with these high-tech equipment can attract and cultivate potential new customers, leaving their PPA strategy as something that while it helps the client shop at Tweeter, and will not impact the prices of Tweeter will not have enough competition in this niche.
Five conclusions that come to mind:
- Campaigns must target the objective sought.
- You must put in place the customer to see its effectiveness
- The pricing policy of competition is key to any company
- Find allies in your customers.
- Reward the information provided
Tweeter
Weaknesses prices as competitive products as part of competition
Threats
New competitors entering the market in New England
Enhanced customer service strengths of the sector
High quality products
Increased market share between stores and specialty stores
Greater Opportunities specialization due to industry trends
Major industry growth
Sales of audio components focusing on shops and superstores
COMPETITION
Tweeter
Company’s competitive position in audio equipment and high-end video.
Increased market share among the shops and specialty stores.
Sales and profits before 1993 fell due to the feeling of higher prices despite its quality
and service.
Lechmere
Lechmere selling TVs and stereos
Loss of level of information of sellers and customer service following the 1994 purchase
by Montgomery Ward. (Supermarket mentality)
Circuit City
Circuit City came in 1993, offering personal computers, appliances, audio tapes,
compact discs, and (60%) audio and video equipment.
Tweeters price competitiveness
From Figure 13 in the case, it is clear that it is Tweeter price competitive in almost the entire range of products and models it sells. In an objective standard for comparison of models (see Appendix 1 for a comparison of the sample) Tweeter parties or competitor but higher prices AOS. Further more when we compare the quality and level of service and price paid tweeter is cheaper than the competition.
However, competitors are cash sales (not announced) and retail, which in point of sale gives the impression that competition is a competitive price. More importantly, say, competition Lechmere, Circuit City and the Wiz all carry lower and lower price range in each category, ie 27 AU Color TV, multi-CD players, camcorders, and speakers of the same size, allowing competition to provide customers with cheaper goods than treble within each category. This creates a reference point for customers to compare against and makes searching Tweeter (subjectively) more expensive to buy.
So in fact Tweeter is competitively priced, however, suffers from an image problem which is generally perceived as more expensive than the competition that probably deters some customers purchase Tweeter and leaves others might feel that have obtained your purchase cheaper somewhere else if they had tried.
Tweeter, the main customers AM According to the segmentation in the case of Tweeter is a specialty store and its largest customers are the quality / Customer Service (Appendix 3). This group represents 70% of Tweeter, MA clientele. This segment of high-quality care, service, and is a secondary concern lower prices (Appendix 3). In 1992 most of these customers, 47.4%, was shopping at other retail stores ie not acute, Lechmere or Circuit City. Tweeter at the time was only 19.6% of this category of customers (Annex 4). During 1994 and 1996 in this class of customers has increased from 11.30% to 35.60% Other retailers Lechmere, Circuit City, 27.90% and 25.20% Tweeter (Annex 5 and 6). Although this segment of customers is fundamental Tweeters have not been able to attract the majority of this class of customer. In 1996 over 63% of this class of customer is buying Electronic Appliance Superstores.
In 1996, the 1% retention of New England, the official market for entry-level administrative cost increase in Tweeter s property sold by 13.89% and a standard industry markup of 30% would give a margin contribution of more than $ 2 million percent entry-level market share (Annex 7). A difference of 1% of the biter, the customer convenience, quality of customer service or increase in the sold goods Tweeter 4 , 17%, 6.94% and 2.78% respectively. Focusing on the entry level market is apparently the most profitable approach. They will have to work hard to change the perception that the market is more expensive Tweeter competition, and have to stock cheaper items for the full range of products they carry.
Tweeter also have to change its store design or design to accommodate the increased number of SKU, the AM or they may have to rent larger stores to accommodate a larger volume of customers. On the other hand, Tweeter can continue as high-end provider of quality customer service and customers can thrive if they can get more of such customers outside of the Electronics / Appliance Superstores. They can do this through education segment of customers about their service and low prices. If Tweeter continues to focus on high-end customers will be slow growth compared to its competition and will face a greater threat to their long-term survival.
Quality service customer behavior and APP
This kind of client plans three months in advance to buy and usually wait for the item to be advertised in a local newspapers, so you can get the latest information on the availability and price. Abandoning the strategy of advertising sales and the addition of APP tweeter is encouraging this kind of customer to buy now and not worry about the possibility of future lower prices billed as Tweeter actively monitor the advertisements in newspapers and promptly refund the difference. Tweeter seeks to address the price sensitivity of customers for this strategy.
APP has so far succeeded as retention and acquisition strategy. Between 1992 and 1996 from acute, basic AOs customer market share has grown from 19.6% to 25.2% (Appendix 8 Tweeter). By contrast, with the exception of Circuit City (Appendix 10 of the circuit of the city) in the same period the market share for these customers has increased by a smaller percentage (Appendix 9 Lechmere) or even decreased (Appendix 11 Other retailers). Tweeter has been withheld from their customers and have more customers through the years I would say that the strategy is applicable and successful for both roles.
The success of the strategy would be amplified if Tweeter educates its clients on the best APP since according to survey, shows 14 in the case that a large percentage of people are unaware or have errors on APP making it less effective.
Competition reaction
In 1996 the sales of this class of customer in a profit margin of $ 11,975,040 represents 30% margin acute, margin of $ 16,917,120 and $ 13,258,080 Lechmere outside Circuit City. This is an important source of margin for hypermarkets, however, represents only 10% and 15% of its total sales, respectively. So I think we will fight to keep their customers instead of fighting to win customers in this class (to gain new customers in this class add little to the bottom line Superstores Appendix 7).
Your answer will be mainly in some stores do not actively monitor Tweeter. Large areas are likely to have more in store sales promotions because it is such signaling Tweeter stores tweeter is willing to match all advertised sale prices. So this reaction hypermarkets attract no customers outside the Tweeter, Tweeter and will maintain its current customers.
In my opinion tweeter has positioned its strategy of PPP to obtain a large market share of the main class of customer. If they do a better job of educating their main customers will gain greater market share, possibly other retailers (current market share 11.30%). With a margin of 30% this can add up to $ 5,369,760 (11.30 x 475 200) to its bottom line each year.
By educating customers about APP Tweeter must communicate how the program works for the customer and actively provide information on the number of customers that have saved the program, this will help keep existing customers and as more people learn about the program to help Tweeter grow, MApart of its main market.