Marketing Case Studies

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Group A :

Montgomery Ward: The Rise and fall of an American Retailing Icon

On December 28, 2000, some 3,700 people learned they no longer had jobs when their employer, Montgomery Ward, announced it was filing for bankruptcy. This news came as a complete shock because the 128-year-old company had recently emerged from Chapter 11 bankruptcy proceedings and as implementing new strategies to restore its reputation. Indeed the venerable company had essentially originated the concept of mail order shopping in the United States (Montgomery Ward had been publishing a general merchandise catalog for 14 years when its rival, Sears, Roebuck, was founded in 1886). The oldest privately held department store chain in the United States, Montgomery Ward had already updated one fifth of its stores and rung up sales of $ 3.2 billion in 1999. However, according to CEO and chairman Roger Goddu, “Overall the weak holiday sales and a very difficult retail environment simply did not permit us to complete the turnaround that might have been possible in an otherwise thriving economy. Sadly, today’s action is unavoidable.” After announcement, the company began the difficult process of shutting 250 stores and 10 distribution centers. To understand how such a respected company failed requires examining more than a century of retailing history. 

In 1872, Aaron Montgomery Ward was a 28- year- old traveling salesman for a St. Louis dry goods company. Ward had a dream: a business in which customers from across the country sent their hard earned money to him in exchange for goods he advertised in a catalog. Although many people thought Ward’s idea was foolish, Ward was confident he could prosper by simply keeping his promises to customers. He also knew the rapid growth of railroad lines across the country would help him market goods at affordable prices deliver them promptly. This confidence sustained him through the loss of his first batch of goods n the Great Chicago Fire, his two partners quitting, and skepticism from the press.

Working in a room above a stable, Ward sent out his first one page catalog and hired a youngster to help him fill the orders that he knew would come flowing in. Ward promptly answered all customer questions, and by 1875 he began to promote his company with the motto “Satisfaction Guaranteed or Your Money Back,” a truly novel concept in the burgeoning nineteenth- century American retail industry, By 1878, the company achieved $300,000 in sales; by 1887, it realized $ 1 million.

The catalog grew to 500 pages by the turn of the nineteenth century, and more than 1 million customer pores over its pages. Knowing they could count on the company’s money back guarantee. The catalog served as a store without walls or boundaries, stocking just about everything imaginable (except for wives, despite repeated customer requests). Ward’s catalog allowed rural Americans, barred by segregation policies from trying on clothes in stores, quickly became loyal customers. To handle all the orders, Ward built the biggest skyscraper west of New York City on Chicago’s Michigan Avenue in 1899. Aaron Ward retired in 1901 and devoted the rest of his life to philanthropic and environmental endeavors.

Of course, other businesses quickly caught on to Montgomery Ward’s success and opened their own mail order business and, eventually, stores where people could see and try out the goods advertised in catalogs. In the face of this growing competition, Montgomery Ward opened its first stores in the 1920’s. To further distinguish Ward’s from Sears and other general merchandise rivals, executives decided in 1939 to give a coloring book as a Christmas sales promotion. They asked a company copywriter, R. L. May, to create a story to accompany the coloring book. After visiting the Lincoln Park Zoo and consulting his 4-year-old daughter, May wrote a tale about a reindeer with an unusual deformity. Montgomery Ward gave away 2.4 million copies of the coloring book that year, and Rudolph the Red- Nosed- Reindeer became a perennial Christmas favorite of children everywhere.

Based on the precedent established by its founder, the company also gave some of the profits from its success back to the community. When Aaron Ward ran the company in the late nineteenth century, the sight of sprawling shanties and factories outside his window appalled him. Ward began a life- long crusade t keep Chicago’s lakefront open to the public, using his money and power to fight would- be developers of the land. He even sent out company employees to pick up trash along the shore of what eventually became Grant Park. When Ward died in 1913, he left millions of dollars to build what is now the Field Museum of Natural History. Ward money also helped to endow the medical and dental schools at Northwestern University.

For the first half of the twentieth century, Montgomery Ward prospered, ultimately building nine mail- order warehouses to service customer orders. After the Second World War, however, the company seemed to loose its edge. Savvy competitors were quick to open large stores along the nation’s new interstate highway system, but Montgomery Ward failed to follow suit. After several years of floundering, Mobile Corporation acquired the company in 1976, but Montgomery Ward continued to struggle. In 1988, former chairman Bernard F. Brennan engineered a management- led buyout for $ 3.8 billion, but that effort also failed to produce a true turnaround. Besieged by stiff competition from specialty retailers like the Gap, Home Depot, and Best Buy, as well as discount retailers such as Target and Wal- Mart, Montgomery Ward declared bankruptcy in 1997 in an effort to stave off closure. 

By the time Montgomery Ward emerged from Chapter 11 bankruptcy in 1999, it was in the midst of implementing a new strategy to revitalize the firm yet again. The company had updated one-fifth of its stores, closed another 48 stores, and slashed the payroll by 3,800 odd jobs. However, it soon became apparent that even these efforts were simply too little, too late for the venerable retailer to survive in the fiercely competitive U.S. retail market. The company had hoped for 9 percent sales growth during 2000, but never exceeded 2 percent. According to Kurt Barnard, an industry analyst, Montgomery Ward “failed to establish an identity for themselves, a niche, and that makes it difficult to stand out. They never gave shoppers a reason for preferring it to any of its rivals. It was just there, like soaking corn flakes.

Montgomery Ward was not the only retail causality in 2000; Bradlee’s, a discount chain, also filed for Chapter 11 and announced it was shutting down for good. As companies all over the nation began to tighten their belts in response to a slowing economy, layoffs mounted in many industries. This was little consolation for those Montgomery Ward employees who lost their jobs when the company failed. As Sid Doolittle, a 28- year old Ward employee and vice president and head of the catalog division when he left the company, said, “When a company that old that had employed that many people for that many years closes, you feel a sense of loss.”

Questions:

1. Did Aaron Montgomery Ward understand the marketing concept?
2. What other steps might Montgomery Ward executives have taken to turn around the company instead of closing it?

Group B : Coke’s Blunder

On April 23, 1985, Robert C. Goizueta, chairman of Coca- Cola, announced that, “the best has been made even better.” Coke’s 99-year-old formula had been abandoned, and a new, sweeter tasting Coke would replace the old Coke. By July 11, 1985, Coca Cola admitted that it had made a mistake and that it was bringing back the old coke under the name “Coca Cola Classic.” Business schools have dissected this case for years to come and wonder how the Coca- Cola Company (known for years as an astute marketers) could have made such blunder.

But that was then. This is now, and you are part of a marketing team at Coca- Cola charged with taking the company into the twenty first century. Before you make any further discussions, discuss in some depth how the macro environmental forces may affect the marketing of Coca- Cola by the year 2015.

Group C : LIFE SPRING NUTRITION 

Once upon a time, seniors with diabetes or hear disease had no choice but it settle for bland, boring meals. How times change! Now people with chronic heart conditions can order tasty and nutritionally balanced frozen meals, spiced with sound dietary advice, for delivery direct to their doorsteps.

The culinary mastermind behind these special meals is Life Spring Nutrition Solutions, a California based company with financial backing from the Monsanto life sciences division of Pharmacia. At Life Spring- formally known as Life Source- chefs, physicians, gerontologists, and nutritionists collaborate on mouth watering prepared foods to tempt the palates of seniors who have diabetes, congestive heart failure, and heart disease. These ready to heat meals taste good and pack a huge nutritional punch, exceeding the requirements set by the American Heart Association, National Institutes of Health, and American Diabetes Association. A study by Tufts New England Medical Center confirms that the Life Spring program does lower cholesterol and other heart disease risk factors.

Like an upscale version of Meals on Wheels, Life Spring delivers such elegant entrees as Grilled Chicken Broccoli Alfredo, Toast Turkey with Cranberry Wild Rice Pilaf, and Salmon Ravioli with Artichokes, Spinach, and Tomatoes, all in microwave containers. To start the meal, Life Spring offers hearty soups, such as Tortellini Minestrone and Creamy Chicken Soup with spring vegetables. For dessert, it offers “smoothies” (choices include fruit flavors and chocolates) that are both healthy and satisfying. By design, Life Spring foods minimize fat, sodium, and calories while maximizing flavor and nutritional value.

Life Spring’s segmentation strategy is to divide the market using a blend of demographic, geographic, psychographic, and behaviorist variables. The key demographic variables are age (people over 50) and income (affluent seniors able to afford a $5.50 meal). According to the company’s research, some 56 million U.S. seniors have heart disease, and around 14 million have diabetes. By 2005, the U.S. senior population will grow to 85 million, with more than three quarters of those over 65 suffering from serious chronic illness. This fast growing senior segment is also relatively well off, collectively holding about 70 percent of the net worth $525 billion, mostly for chronic health conditions like heart disease, which hints at the enormous potential for sales of health related products such as vitamin- rich prepared foods.

The key geographic variable in Life Spring’s recipe is location. To ensure that its meals arrive without the defrosting and refreezing problems that can damage food quality, Life Spring has uniformed drivers in refrigerated trucks delivering orders to each customer’s home or office. This personal delivery service is available in San Francisco, Los Angeles, southeastern Florida, Cleveland, and Akron. Customers outside those areas can order on the Web and receive meals overnight via FedEx.

Life Spring’s key psychographic variable is lifestyle, which is directly connected to the health of its customers. Seniors with hear conditions or diabetes often have less active lifestyles. Those who lack “the energy or the means to get to a conventional grocery store,” notes John Hale, Life Spring’s chief operating officer, appreciate home delivery of meals.

In addition, the company is segmenting the senior market using the behaviorist variable of benefit expectations. This segmentation strategy allows Life Spring to target seniors who wants what COO Hale calls “diet freedom,” a compelling benefit for those who have medical conditions that dictate certain dietary restrictions. “We’re offering customization diets to reach individuals’ health goals, and if they want to substitute 15, 20 or 50 percent of their diet, it’s up to them,” Hale says.

Life Spring uses a value added approach in that it delivers more than meals: it also delivers easy access to free information and advice about nutrition. When customers call the firm’s toll free number to order meals, they have the option to speak dietary needs, and other concerns. Life Spring’s information systems track each customer’s ordering patterns, thus speeding reorders. Even the product’s packaging has been specially designed for this market segment, with larger type on the heating instructions and a microwavable container that stays cool as the contents heat up.

To gauge interest in its products and develop accurate sales forecasts, Life Spring started test marketing its meals in the San Francisco area. To support this test, the company planned public relations events such as tasting parties in retirement communities. It also used direct response marketing to stimulate demand and encourage trial usage. Once the brand was established in California, the company selected additional markets for home delivery and developed an Internet based order system to reach national markets. The company recently expanded its menu by acquiring McDougall’s Right Foods, which means organic, low fat one-cup meals. With an appetite for growth, Life Spring is using effective targeting to take advantage of demographic trends that suggest higher demand is still ahead.

Questions:

1. What kind of targeting strategy is Life Spring using
2. How can Life Spring use micro marketing to focus on geographical markets?

Group D : Case of Amway and NIVEA prodct

Tale 1:

Amway, is a global company that manufactures and distributes over 450 different consumer products and invests heavily in research and development in order to remain competitive and meet customer needs. For example, after several years of R&D, Amway produced a new range of products called Satinique, which used the “Ceramide infusion system.” The core attribute is that Satinique contains a moisturizing agent, which can restore the nutrients in hair. Once Amway had developed the product they then undertook market research to determine which group of consumers they should target. Having identified a segment made up of professional women, who always want to look their best and who want professional, salon quality products and who rely on recommendations from friends when making hair care purchase decisions, they then developed a marketing strategy and implemented a successful marketing plan.

Tale 2:

NIVEA Sun is a leading sun care brand owned by Beiersdorf. There are thre main usage segments in the sun care market: protection (from harmful rays), after sun (for relief and moisturizing after being in the sun), and self-tan (for those who want an all year round ‘cosmetic’ tan). Beiersdorf have developed their portfolio of NIVEA Sun brands around these usage segments, but unlike Amway have used innovation to develop products to meet customer needs identified through market research and segmentation analysis. For example, market research has shown that awareness of the need for protection from the sun does not necessarily lead to product purchase and usage. It was also found that women enjoy the luxurious nature of sun care products, men prefer convenience, and children don’t enjoy the sun cream application process. As a result NIVEA Sun developed and introduced a spray application device, designed specifically to appeal to men and their preference for convenience. They also introduced a colored formulation for children’s sun products in order to make the application process for fun.

Questions:

1. Which of these two companies use a product differentiation approach and which uses a market segmentation approach? Justify your selection
2. Choose a beauty, fragrance or a grooming product that you like to use and determine likely segments

Group E: Marketing to Women: A lucrative direction for automakers

Automakers are noticing that women are definitely in the driver’s seat when it comes to vehicle purchases. Surveys show that women makes or influence eight out of ten U.S. car or truck purchases. This means American women are spending an estimated $83 billion on cars and trucks every year. Sales of sport utility vehicles (SUVs), minivans, and light trucks make up more than half of all new vehicle purchases, a national craze fueled largely by women’s huge purchasing power. These developments explain why car manufacturers are building up their knowledge of consumer buying behavior to compete more aggressively for a larger share of this lucrative and influential market.

A tremendous buying force is the way one top official of DaimlerChrysler characterizes women’s influence on vehicle purchases, especially vehicles other than cars. He notes that most women “don’t want to return to a car after driving a light truck such as minivan” because they like the higher vantage point, a sharp contrast to the seats in today’s low-slung cars.

Clearly lifestyles and life stages are powerful influence on women’s buying decisions. Women with families find minivans, SUVs, and light trucks roomier and more convenient than cars for ferrying children, pets, and possessions, which is why almost 20 percent of all women own such vehicles. Subaru, for example, is targeting women in an ongoing ad campaign featuring tennis great Martina Navratilova, who previously drove the company’s Outback SUV and now drives its Forester model. “I am the hired gun for the active lifestyle woman,” Navratilova says. “I’m the epitome of it. My car looks like a sporting goods store, throwing things in it.” Acura also targets active women through its sponsorship of the Acura Women’s Cycle Team, women’s tennis tournaments, and other events.

Cindy Hess, vice president of small car platform engineering at DaimlerChrysler, had women’s lifestyles in mind when designing the PT Cruiser, a roomy, nostalgic vehicle that handles like a passenger car. “One of the things we find is that people get to the point where they want to carry a lot of stuff or friends,” she comments. “They’re saying, ‘I don’t want the minivan, I don’t want the look,’ but they need space and a little cargo room. And they see that this is stylish.” So stylish, in fact, that demand has far outstripped supply, creating lengthy waiting lists and inspiring local PT Cruiser clubs as well as an online PT Cruiser Women’s Network.

Another dimension of women’s car- buying behavior is catching the eye of automakers. U.S. women tend to be highly brand loyal, and nearly 75 percent choose American car brands. The story is very different for U.S. men, who are increasingly steering toward purchasing imports. “Vive la difference,” say automakers as they step up their targeting of women with special marketing programs and scholarships. DaimlerChrysler, for example, has begun offering special Women’s Day events at industry showcases such as the North America International Auto Show, Chicago Auto Show, and New York Auto Show. Company experts present DaimlerChrysler’s newest models and lead seminars on off- road driving, vehicle maintenance, child safety seats, and other topics of interest to women.

General Motors puts the marketing spotlight on women through the Chevrolet Recognizing Excellence of Women in Academics and Rewarding Dynamic Student- athletes (REWARDS) scholarship program. Championship figure skater Michelle Kwan promotes and presents these scholarships, which go to college-bound women who excel academically and are active in sports ranging from basketball and kayaking to track and, of course, figure skating.

As U.S. automakers put new emphasis on women’s buying behavior, their European counterparts are moving more cautiously. For example, a top executive of Peugeot’s European ad agency stresses that corporate fleet buyers and men are the most important targets for many Peugeot models: “We are not going to target a Peugeot 406 directly at women, because the vast majority who buy these cars are men, and are going to be alienated.”

In the United Kingdom, many car commercials show women in small, practical cars rather than larger or more glamorous ones, a custom that, research shows, antagonizes half of all women ages 18 to 44- not a good foundation on which to build customer relationship. Still, women are clearly part of the European marketing plans made by multinational automakers like Ford. “We always ensure women’s views are taken on board and made to count because they are an important audience,” confirms the brand manager for Mondeo, a Ford model sold in Europe. “Whoever is within the buying audience of a car, we will target, and women are counted within every category now.”

Questions:

1. Which of the needs in Maslow’s Hierarchy do women seem to be satisfying when they buy a car or light truck?
2. How do women’s lifestyles influence their vehicle- buying decisions?
3. When planning marketing efforts, why should automakers take into account the various roles women play?

Group F: Schwinn: Reviving a Classic American Brand

For decades American children yearned for Schwinn bicycles, and kids who rode Schwinn Excelsiors, Phantoms and Sting- Rays were the envy of the neighborhoods. Today however, if you ask people under 30 to name a popular brand of bicycle, they will probably mention Trek or Cannonade, but not Schwinn. When customer tastes changed from sturdy, low cost bikes to trendy high priced ones, Schwinn’s sales plummeted. Unwilling to let Schwinns disappear along with Underwood typewriters, the venerable bicycles makes launched an all out effort to bring back the best known brand names on two wheels. With American spending approximately $2 billion a year to buy bicycles, the market for bikes clearly had room to grow.

More than 100 years ago, Iganz Schwinn founded his bicycle company and built it into the most prestigious in the industry. For year Schwinn rules as the number one U.S. bicycle brand, and in the 1970’s the Schwinn brand name ranked number tree in the United States, behind only Coke and United Airlines. In the late 1970s and early 1980s, however, cyclists got serious. To pedal off sidewalks and roads and into mountains and woods they wanted upright handlebars, fat tires, and additional climbing gears. They also wanted the state of the art technology provided by Cannondale, Giant, Waterloo and market leading Trek. Schwinn, however, wasn’t paying attention and continued to focus on the shrinking market for ten speed bikes through most of the 1980s. By 1993 two thirds of all bikes sold were mountain bikes, and the once mighty Schwinn filed for bankruptcy. Believing in Schwinn’s name and reputation, Sam Zell bought the company, moved its headquarters to Boulder, Colorado, and formulated a strategy to take Schwinn back to the top of a crowded bicycle market.

Zell’s goal was to get the Schwinn name on everything from $100 children bicycles to $2,500 mountain bikes. The first step toward achieving that goal was to upgrade Schwinn’s entire product line. To make its bicycles stronger and lighter, for example, Schwinn turned to EMF industries, a company whose new electromagnetic process turns out aluminum that makes bicycle frame much stronger. Schwinn also restyled all of its models to make them attractive to today’s customer.

Zell’s strategy worked. Between 1993 and 1997, Schwinn rose from ninth to second in the market, selling more than 350,000 bicycles and fitness products a year. Stated the owner of a bicycle shop in Boulder, “Two years ago we said, “ There is no way we would ever sell a Schwinn mountain bike.” Now they are responsible for about one-third of our annual sales.” By 2001, Schwinn dominated the independent bike dealer for both mountain and BMX bikes, according to the Sports Marketing Survey.

Schwinn continued to build on its momentum by introducing new products. Ome of its hottest new products is a retro style model: the Cruiser deluxe, a one speed model with a wide seat, chrome fenders, authentic 1950’s pedals, and balloon tires, which sells for about $ 480. For those nostalgic cyclists who don’t mind spending a bit more, there is the Black Phantom. Built from the 1949 blueprints, this model has faux wood grain trim and exact replicas of the original fenders, horn tires, and chrome- and, of course coaster breaks. In fact, the original difference between the original and the reproduction is the price. In the old days, the bike cost about $80; today the price is about $3000.

It wasn’t easy for Schwinn to transform its image from stodgy to stylish. The company launched a $10 million advertising campaign and several creative promotional efforts. Print ads featured Enthusiasts Mountain biking and racking on Schwinn bicycles and Schwinn’s professional mountain bike team raced every weekend between April and September. To generate positive word of mouth about its products, Schwinn developed Project Underground, through which the company began selling its elite models at lower than cost prices to employees of Schwinn dealers before the model’s general release. Thanks to this program, bike store employees could rave about Schwinn bikes based on personal experience.

By 1997, Schwinn’s new products and intense promotions had revived the company. The bicycle maker had not, however, achieved its goal of becoming the number one bicycle company in the world. To continue to work toward that goal, Zell sold Schwinn to Questor’s Partners L.P., an organization with the finances and vision to complete the rebirth in 1993. A year later, Questor acquired rival bike maker GT and consolidated the operations of the two firms. Schwinn/GT focused on building international sales, increasing sales of parts and accessories, and capitalizing on the growing popularity of its retro style 1950s models. Despite the turnaround achieved by Zell, Schwinn/GT again filed for Chapter 11 bankruptcy in 2001, and the cycling division was sold to Pacific Cycle LLC for $86 million. Pacific Cycle, which markets the Mongoose, Pacific and Roadmaster brand bicycles, plans to continue maintaining Schwinn’s strong dealer network as well as the brand’s essence and positioning. According to Chris Hornung, Pacific Cycle’s chief executive officer, “The Schwinn name is an American icon. It is the brand that many Americans grew up with and aspired to own. We feel that we offer the best opportunity in a generation to restore vitality to the Schwinn brand.”

Questions

1. How would Schwinn mountain bikes be classified as a product?
2. Evaluate Schwinn management’s decision to launch the Black Phantom

Group G :

Wal-Mart competes using efficient, low cost physical distribution

How does the world’s largest retailer keeps the shelves stocked at 4,150 stores while keeping prices low enough to attract 100 million shoppers worldwide every week? Physical distribution is the key. Since the first Wal-Mart opened in Rogers, Arkansas, in 1962, management has carefully balanced its inventory levels, delivery schedules, and transportation costs to ensure products arrive at the right stores at the right time and at the right price. Today the company uses information technology to coordinate the movement of products from suppliers to the loading docks of its 62 distribution centers and on to the chain’s Wal-Mart discount stores, Super Center combination food/general merchandise outlets, Sam’s Club warehouse stores, and Neighborhood Market grocery stores.

Through its retail link network, Wal-Mart collaborates with its suppliers to forecast sales, plan future orders and replenish stock automatically. Here’s how the system works. The point of sales scanning equipment in each store captures item-by-item, brand-by-brand sales data. Using sophisticated data base technology, Wal-Mart analyzes the sales patterns and historical results for the previous 65 weeks with all of its suppliers. Next, retailers and suppliers agree on forecasts for future sales. Then they jointly decide on an order and delivery schedule to ensure inventory levels at each distribution center are appropriate for the forecasted store sales.

Retail Link works. During a pilot test with the maker of Listerine, Wal-Mart was able to boost its in stock position from 87 percent to 98 percent while cutting the order fulfillment cycle time from 21 to 11 days. The supplier also benefitted because it sold the chain an additional $8.5 million of Listerine and was able to better manage its production and delivery activities. Customers benefitted because they were able to pick up bottles of Listerine from store shelves when they wanted, and they saved money because low costs allow Wal-Mart to set everybody low prices.

Despite a global roster of 10,000 suppliers, the retailer is always looking for ways to improve its supply chain management and gain flexibility, slash costs, and indentify new supply sources. One of its most recent moves was to set up a private procurement website to request and receive supplier bids on contracts, centrally negotiate global purchasing and shipping terms, and increase efficiencies for all participants.

As Wal-Mart has spread farther from its Arkansas base, management has had to plan new distribution centers and arrange truck transportation to bring products to cluster of stores in new areas. The company operates a huge truck fleet to transfer products from distribution centers to stores, but its also contracts with independent trucking firms to transport specialized products, such as food products in certain areas. In the Northeast for example, Wal-Mart receives and warehouses shipments of grocery products at an 868,000 square foot food distribution center in Johnstown, New York. From there, trucks operated by Clarksville Refrigerated Lines fan out to bring orders to Wal-Mart stores across New England, New York, and Pennsylvania. Similarly, a dedicated fleet of refrigerated trucks operated by M.S. Carriers transports perishable food products from Wal-Mart’s giant food distribution center in Monore, Georgia, to Sam’s Club warehouse stores in five surrounding states.

Rather than reinvent the wheel of every distribution center and store in North America, Argentina, Brazil, Germany, the United Kingdom, China, and Korea, the company is encouraging each region to share its best distribution practices. As a result, Wal-Mart’s German stores are benefitting from the U.S. stores’ experience in reducing inventory levels and restocking more rapidly. Its Korean stores are replicating the Mexican operation’s popular and profitable web based grocery delivery program. The world’s largest retailer is not finished expanding, and as it opens hundreds of new stores in the coming years, it will continue to hone its distribution skills and keep store shelves stocked at the lowest possible cost.

Questions:

1. Why is physical distribution so important to Wal-Mart’s marketing strategy?
2. Why should Wal-Mart prefer to deal directly with suppliers rather than buying from whole sellers?
3. How does Retail link help Wal-Mart to better control order processing and inventory management?

Group H : Sales Promotion puts the Fizz into Dr. Pepper

How can a soft-drink company get its message across when its advertising budget is much smaller than the budget of its deep-pocketed competitors? For Dr. Pepper, pitted against Mountain Dew and Sprite in the non-cola soft-drink category, the way to put 1 the fizz into sales is through sales promotion. Dr. Pepper has scored solid market share increases for more than a decade with creative sales promotion efforts targeted at light and occasional users. The purpose is to encourage these customers to purchase more rather than trying to get non- Dr. Pepper drinkers to switch. The company also uses trade sales promotion methods to support both its bottlers and the retailers that carry its products.

Sports play an important role in Dr. Pepper’s sales promotion activities. The company sponsors the Washington Erving Motor sports’ Ford Taurus racecar on the NASCAR circuit. Owned by former NFL great Joe Washington and former NBA star Julius “Dr. J” Erving, the car sports a bold Dr. Pepper logo on its hood, visible to spectators and television viewers throughout each race. For a small fee, local bottlers can park the racecar at key retail sites to generate excitement for the brand.

In addition, Dr Pepper uses special sales promotion efforts during the annual Southeastern Conference championship football game, putting its logo on everything from T- shirts and cups to coolers and banners. In one recent year, consumers were invited to win free game tickets by checking under the caps of specially marked Dr. Pepper bottles. Ticket winners were then entered into a   drawing for the $ 1 Million Pepper Pass Challenge, which invited a consumer to try throwing a 40-yard pass during halftime (the consolation prize was a check for  $ 10,000). During the championship weekend, the company handed out 100,000 product samples. On the trade side, Dr. Pepper supported this promotion by providing retailers with shelf labels, refrigerator case decorations, and display signs. Among the other sporting events around which Dr Pepper builds sales promotions are college golf tournaments and college football games. Retailers get involved by creating point-of-purchase displays touting the Dr, Pepper promotion. The best displays earn store employees free tickets 
to the events or free merchandise.  

Dr Pepper is a long-time sponsor of the Hispanic Heritage Awards, and it often creates special promotions linked to these awards. In one recent tie-in promotion, called Pinta sus suenos - Paint Your Dreams - the company invited Hispanic teenagers to compete by submitting their artwork. First prize was a trip for four to the Hispanic Heritage Awards ceremony in Washington, DC. Other winners received U.S. savings bonds, and their schools received grants to buy art supplies. In addition, Dr. Pepper displayed the winning works on local billboards and on its websites.

College students are a particular target for Dr pepper. As the purveyor of the official soft drink of the Collegiate Players Tour, Dr pepper can park its colorful van in a prominent place during the 16 golf tournaments played at U.S. colleges and country clubs during the summer months- a peak period for soft drink consumption. In this way, the company reinforces brand awareness and encourages more purchases.

Although soft-drinks companies have traditionally targeted students, sales promotion activities geared toward children have drawn fire in some areas. Critics worry that such promotional efforts encourage youngsters to drink too many soft drinks- and average of three cans daily, according to some studies. Not long ago, Dr. Pepper was criticized for paying the grape vine- Colleyville school district near Dallas to paint the Dr. Pepper logo on two school roof tops that airline passengers could see when passing overhead. The school district also received more than $ 3 million in exchange for making only Dr. Pepper drinks available in schools for the next decade. A spokesperson for the school district explained that such agreements are not new. “We have had a exclusive bottling agreements for about 25 years in the State,” she said. “The things that is new is that instead of having each campus determine what bottler it wants to stock its soda machine, districts are saying, “we will make you a deal for all of our campuses, and in return we get some extra funding.”

Despite this controversy, Dr. Pepper and its bottlers aim to be good corporate citizens, donating free products, logo merchandise, and money for many community events and fund raisers. For e.g., Dr. Pepper bottler recently teamed up with Wal Mart to raise money for the Red Cross by sponsoring a country music charity concert in Nashville. As another example, the company and its bottlers raised more than $ 35,000 for the central Mississippi March of Dimes by sponsoring a gold tournament fundraiser.

Because retailers account for a good chunk of Dr. Pepper’s sale, the company supports its consumer sales promotion activities with a constant stream of trade sales promotion efforts that boast its products’ point- of- purchase visibility. For example, a North Carolina store displays four hundred cases of Dr. Pepper products as part of its Santa’s Workshop Exhibit. Thanks in part of this promotion, holiday sales of Dr. Pepper rose 24% at that outlet.

Dr. Pepper’s web site plays an integral role in the company’s sales promotion efforts. In addition to inviting on line entries to games and sweep stakes, the web site allows visitors to download a variety of personal computer screen savers, each emblazoned with the Dr. Pepper name and logo. The web site provides a means of bringing sales promotion activities directly into the consumers home or office. As Dr. Pepper’s sales increases attest, properly targeted and well- designed sales promotion can help any company compete against much larger rivals.

Questions:

1.      Identify the major sales promotion methods Dr. Pepper uses.

2.      Why does Dr. Pepper uses both trade and consumer sales promotion methods?

3.      How would you recommend that Dr. Pepper respond to those who believe sales promotion efforts should not be targeted at students younger than college age?

4.      Which trade sales promotion methods do you think are most suitable for Dr. Pepper? Explain your answer.