IB Business Management HL 4.5.1 Product Question Bank

Columbo Coffee (CC)
Columbo Coffee ( C C ) is a family business that produces four espresso coffee machines. C C 's objective is to provide the highest quality machines, but it is currently unprofitable.

A marketing audit of the four espresso machines had the following results:
- The Ventura was CC's best selling espresso coffee machine. It has the strongest brand loyalty of all four machines, but has been suffering from overseas competition. Many customers of The Ventura want a new, improved version. However, because of its weak financial position, the company has not been able to develop it.
- The Crema is CC's exclusive luxury espresso coffee machine. Considerable publicity for CC was gained when it featured in a recent popular television series. Sales of The Crema are forecasted to grow further despite its high price.
- The Rocket has been very successful. However, technical problems have resulted in many customers returning their machines. Reduced brand loyalty and quality control are significant concerns.
- The Fortuna is the company's newest model. It was developed to replace The Ventura but consumer resistance has forced C C to keep The Ventura in production. The Chief Executive Officer (CEO) of C C sees The Fortuna as a potential market leader, but to achieve brand awareness this would require most of C C 's limited marketing budget.

The CEO of C C is considering reorganizing the four espresso coffee machines into separate cost centres.

However, before any decision is made the CEO receives an offer from its main competitor to work together. As part of a strategic alliance, the competitor will provide funds to allow C C to finance extension strategies or enter new international markets. The only condition is that The Ventura is discontinued. The family is divided. Some family members are worried about the impact of the business losing its most recognizable brand. Others think the competitor's offer will allow CC's other three machines to achieve their full market potential.

Define the following terms:

extension strategy.