Evaluate integrated seven-P marketing-mix decisions by connecting customer experience, positioning, costs and business objectives in IB Business Management HL.
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.
Matchpoint Tennis Club (MTC)
Matchpoint Tennis Club (MTC) is a famous members-only club. MTC owns tennis courts, changing rooms and a restaurant. The majority of members are between 30 and 50 years old. Most members have high incomes and successful careers. However, MTC faces increasing competition from Best Sports, a multinational provider of sports centres. An economic downturn has also reduced MTC 's profits. Until recently, the restaurant made a valuable contribution to fixed costs but this has fallen significantly in the last 12 months.
Last year, Seb, a former successful tennis player, became the new Managing Director of MTC. With the objective to increase revenue, he wrote a five-year plan with the following strategies:
- double membership of MTC
- open the restaurant to the general public
- open a sports equipment and clothes shop under the family brand "Matchpoint"
- employ professional tennis coaches (teachers).
Tina, the Marketing Director, agreed with Seb about the strategies. In order to achieve the first strategic objective (double membership), she prepared a marketing budget and proposed the following tactics:
- overall reduction in membership fees of 10 %
- discounts for people aged below 18 and over 60 years old
- advertisements in local newspapers and on social networking sites
- a new range of club branded merchandise such as T-shirts and coffee mugs.
Alex, the Human Resources (HR) Manager is concerned about the impact the five-year plan will have on employees. Employees already argue that they work too hard for low pay. An increase in the number of members would increase their workload and responsibilities further. Alex tried to convince Seb that membership of MTC was already at saturation point on the product life cycle and that existing members would not like some of the proposed changes to the club.
Alex also stated that since Seb joined the business last year, the friendly atmosphere at the tennis club has disappeared. That atmosphere has been replaced with a focus solely on profit making. Alex would prefer a focus on providing a good quality service for existing members.
Define the following terms:
family branding
Smith's Foods Ltd (SF)
Charles Smith and seven friends started a private limited company, Smith's Foods Ltd (SF), to produce ready-made healthy meals for people with diabetes*. Using a cost-plus (mark-up) pricing strategy, SF's mission is to make inexpensive, widely available meals that help diabetics manage their carbohydrate intake accurately.
Despite reliance on inexpensive social media marketing, S F grew rapidly. Due to this rapid growth, however, the quality of its products deteriorated, and a number of its meals were found to contain different quantities of carbohydrate than those stated on the packaging. Negative comments appeared on SF's Instagram page. Charles responded quickly to reassure customers and offered refunds. SF's response led to the company receiving an industry award for ethical behaviour.
Charles introduced flow production to reduce the cost of S F 's meals, which changed S F 's scale of operations and increased its gearing ratio. However, Charles had little business experience of using flow production and problems emerged.
External stakeholders began to look into SF's operations. One supermarket chain, Good Foods (GF), contacted Charles and offered to take over SF, keeping Charles on the board of directors. This takeover would allow SF's meals to be produced at a lower cost and reach a wider target market. GF would also finance research and development into new meals with more carefully controlled carbohydrate levels.
However, SF would close. Negative publicity would be considerable. The remaining shareholders have threatened to launch a new business, creating their own brand of meals for people with diabetes in direct competition with GF.
* diabetes: a medical condition that causes a person's blood sugar level to become too high. People with diabetes need to be mindful of the amount of carbohydrates (which includes sugar) they include in their diet.
Define the term cost-plus (mark-up) pricing strategy.
Explain two benefits for S F of using social media marketing.