|
AN EXAMPLE OF A MARKETING PLAN |
SPREE
WATCH
MARKETING
PLAN SUMMARY
Based on an evaluation of
the watch market and our strengths, General will introduce the Spree watch.
SITUATION ANALYSIS
Half the buyers of branded
fashion watches are between 18 and 34 years of age. This group, which purchases
more watches per capita than those older, is our primary market segment. Watch
purchases are more likely by consumers in the northeast and Midwest. Many
purchases are expected to be impulse, requiring strong point-of-purchase
support. Seventy percent of the market is concentrated with strong competition
from Swatch, Fossil, Guess?, and Anne Kline. We have extensive experience in the
manufacture of innovative, high quality, precision plastics and timing devices
permitting us to offer the consumer value in a branded fashion watch.
Additionally, we have experience distributing products into 75 percent of the
outlets for branded fashion watches.
OBJECTIVES
The combination of a unique,
cost-effective design allows us to establish a three percent market share in the
first year. The Spree watch project will break-even in 1998.
MARKETING STRATEGIES
General will introduce a new
product, the innovative Spree watch, using penetration pricing, extensive
advertising, and expanded distribution in order to increase our revenues and
growth rate.
ACTION PLAN
The Spree watch has strong
product benefits compared to current market offerings. To achieve our objectives
we will offer our unique watch in a variety of designs at a suggested retail
price of $45. Our current distribution covers 75 percent of the market. At this
time we will not expand our distribution to access the jewelry store retail
channel. We will increase our sales force by 5 persons and add a sales trainer
to support for our market plan. Advertising of one million dollars will emphasis
the unique design of the watch and is weighted toward print and
point-of-purchase displays. This and television advertising will be scheduled
two-thirds in the first six months of the campaign. To achieve consumer
awareness in the first year, our advertising voice share will be considerably
higher than that of the four market leaders.
FINANCIAL ANALYSIS AND EXPECTED
RESULTS
We expect first
year sales of 8.5 million dollars and project break-even for the project in the
first year.
CONTINGENCY PLANS
If the competition
increases advertising or our sales are less than expected, we are prepared to
add as much $500,000 to our advertising budget.
SPREE -
THE MARKET PLAN
SITUATION ANALYSIS
General's core business is industrial timing devices and consumer clocks, based on skills in manufacturing high quality timing movements and plastic casings. This market plan is based on providing consumers with a high quality, innovative watch. It will be offered in a variety of styles for both men and women. The casing and movement has other potential applications not discussed in this plan.
Our 1995 profits of 30 million dollars represent 7.5 percent of total sales. Sales growth has slowed to a current level of 5 percent annually. Growth in current markets is expected to be limited. The Spree watch is one of several projects with the potential to improve General's growth rate.
Market Analysis
The Spree watch will compete directly with several other branded fashion watches. The market size for branded fashion watches is forecast to be $524 million retail dollars in 1998, growing to $721 million by 2002. Annual market growth is expected to exceed six percent through 2002, exceeding our current annual sales growth.
Market
Segments
Table 1: Market Segments by
Age
|
AGE |
PERCENT OF WATCH BUYERS |
PERCENT OF POPULATION OVER 17 |
RELATIVE PURCHASE INDEX |
|
18-24 |
19% |
13% |
1.46 |
|
25-34 |
33 |
19 |
1.74 |
|
35-54 |
35 |
40 |
0.88 |
|
55+ |
13 |
29 |
0.45 |
Those under 35 years of age purchase slightly over 50 percent of all branded fashion watches as shown in the Table 1. The highest purchase prevalence is those from 25 to 34 who purchase 74 percent more watches per capita than those the average consumer. Purchase behavior is expected to differ among age segments and by gender. Young females [18-24 years of age] are expected to be intense purchasers. This group is likely to be very styling conscious. Women in the 25 to 34 age group will be our second significant segment, expected to buy more watches than any other age-sex segment.
Consumer purchases of branded fashion watches also vary by region as shown in Table 2. An index of relative watch sales by regions shows that sales are above average in the east north central, west north central, north central, and midatlantic states. Product introduction is likely to be more successful in the states in these regions.
Table 2: Watch Sales by
Region
|
REGION |
WATCH SALES |
POPULATION % |
INDEX OF WATCH SALES |
|
ENC |
20% |
15% |
1.33 |
|
SA |
16 |
17 |
0.94 |
|
MA |
15 |
13 |
1.15 |
|
WEST |
15 |
21 |
0.71 |
|
WSC |
10 |
10 |
1.00 |
|
WNC |
8 |
7 |
1.14 |
|
NE |
6 |
5 |
1.20 |
|
ESC |
5 |
6 |
0.83 |
|
MOUNT |
5 |
6 |
0.83 |
Consumer
Behavior
Swatch has changed watch buying habits by encouraging ownership of multiple low-priced, carefully designed branded fashion watches. Brand switching and experimentation by consumers is easy for low priced watches, assuming availability. Consumers are very design oriented when buying branded fashion watches. Watch attributes that we consider most important include watch and band design, packaging, price, and durability. Distribution and display are very important in this market and can encourage impulse purchases for both personal use and as gifts.
Consumers are reached through five types of outlets.. We currently have access to four of these channels, representing 75 percent of watch sales. Channel development is necessary to reach the total watch market. A majority of branded fashion watches are currently purchased at department stores. We will take advantage of our strong distribution through department, discount, and drug stores to assure widespread availability of Spree watches. Jewelry store channel development will be deferred until we are established in our traditional retail channels.
Competitive Analysis
Although there are fourteen competitors in this market, there is substantial concentration. Swatch, Fossil, Guess?, and Anne Kline are strong competitors, holding 70 percent of the market. Swatch and Fossil have strong manufacturing and distribution skills, while Guess? and Anne Kline have less extensive distribution networks but strong name recognition in fashion. Fossil and Swatch are strong at the lower price lines. Branded fashion watches are a relatively new product category. Although pioneered by Swatch, there is considerable opportunity for new entrants as demonstrated by Fossil and Guess?.
Company Analysis
General currently distributes products through channels accounting for 75 percent of watch sales. Branded fashion watch sales are growing faster than our current product lines. Our innovative product, product design skills, strong manufacturing skills, and experience in distributing consumer clocks provide an opportunity for entry and growth in this market.
SWOT Analysis
Strengths
· Innovative production methods provides the potential for new designs
· Experience in distribution channels for timepieces
Weaknesses
· No experience in distribution to jewelry stores
· No experience in marketing fashion products
Opportunities
· Large market
· Market growing faster than our current sales
· Consumer demand for fashion goods creates a demand for innovative products
Threats
· Strong competition with concentrated market shares
· Possibility of new market entries
OBJECTIVES
MARKETING STRATEGIES
General will introduce a new product, the innovative Spree watch, using penetration pricing, extensive advertising, and expanded distribution in order to increase our revenues and growth rate.
ACTION PLAN
Product
We will introduce between 30 to 40 different designs in the first year. One quarter of these will have a "metal" case, copying many of the traditional and modern metal designs. These are targeted at consumers 25 and over. We will design a series including licensed characters and unusual shapes for the market segment under 24 years of age. Swatch does not have exclusive licensing for Disney and Warner Brothers characters or Coke. By using these and others we will have a variety of product and character designs in our line. The most unusual aspect of our line will be some very unusual shapes. Several of these will be geometric; hexagon, trapezoid, oval, and diamond. For younger ages our technology allows the design of watches in the shapes of cartoon character faces.
Price
The Spree watch will be sold for a suggested retail price of $45. We believe that we have product quality and feature advantages, encouraging the use of a price slightly exceeding Swatch. This pricing strategy, coupled with our efficient production methods, aids in achieving our relatively high market share for a new product entry.
Distribution
We will introduce Spree in the northeast but within the first year sell to the national market. With our current strong distribution channels nationwide covering 75 percent of watch sales, we will limit our potential if we restrict our distribution to specific regional markets. Although we do not currently have jewelry stores, our distribution will place watches in at least 75 percent of locations in the United States. We will use current normal distributor markups.
Promotion
Five new sales representatives will be added to assist in the development of new distribution outlets. A sales trainer will be hired to train the sales force in the new product. This will be within our $500,000 sales support budget based on an average salary and benefits cost of $100,000 for each position.
The advertising level for the four leading firms can be compared by determining the ratio of voice share (% of total advertising dollars of $20 million) divided by the market share as shown in Table 3. Consumers will not know our brand; therefore, we will have to advertise more aggressively to achieve brand awareness. Although our market share goal in 1998 is three percent, we will set advertising at one million dollars. This will achieve an advertising voice/market index considerably higher than our competition.
Table 3: Fashion Watch Advertising and
Voice
|
COMPANY |
MARKET SHARE |
VOICE SHARE |
VOICE/ MARKET |
ADVERTISING MILLION $ |
|
SWATCH |
20% |
28% |
1.4 |
5.5 |
|
FOSSIL |
20% |
24% |
1.2 |
4.8 |
|
GUESS? |
20% |
21% |
1.05 |
4.2 |
|
ANNE KLINE |
13% |
13% |
1.9 |
2.5 |
|
SPREE
PLAN |
3% |
5% [assumes same level of
total advertising as last year] |
5.0 |
1.0 |
Media will be targeted to our major market segments; women between 18 and 24 and between 25 and 34. Smaller amounts will be directed to other segments.
FINANCIAL ANALYSIS AND EXPECTED RESULTS
As shown in Tables 1 and 2 of the financial appendix, we expect to achieve a market share of three percent and sales of $8.5 million in the first year. The Spree watch project will break-even in the first year. We do not expect any watch technology breakthroughs during this period. Competition is expected to be based on design, price, and achieving widespread distribution, areas in which we expect to be very competitive.
In conclusion, we will invest one million dollars in the Spree watch project. We can achieve sufficient market share to achieve our financial and marketing objectives. During the next five years the market is expected to grow and our costs are expected to decline with experience increasing unit contribution. Our greatest challenge will be tracking the market's tastes in watch design and meeting and leading these with creative and innovative designs.
CONTINGENCY PLANS
Table 4: Impact of Advertising Levels on
Financial Results
|
TOTAL AD BUDGET |
BREAK EVEN YEAR |
NET PRESENT VALUE IN MIL. $ |
|
$2,500,000 |
1998 |
$35.8 |
|
3,000,000 |
1999 |
34.0 |
|
3,500,000 |
1999 |
30.4 |
|
4,000,000 |
1999 |
28.6 |
It is not expected that there will be increased price competition due to the entry of the Spree watch. Increased advertising, however, might lead to an increase in industry advertising. A sensitivity analysis of the effect of increased advertising on our break-even year and cumulative profits appears in Table 4. Increases in advertising in steps of an additional $500,000 dollars up to $4 million, assuming no additional gains in market share, have fairly limited effect on our performance. Therefore, in the event that there is increased industry advertising, we are prepared to increase our advertising by as much as $1,500,000 annually. Our increase advertising also will allow us to react to lower than expected consumer awareness, fewer distribution outlets than planned, or less than expected consumer acceptance of Spree watch.
FINANCIAL
APPENDIX
TABLE 1: PRO-FORMA INCOME STATEMENT
AT $50 PRICE
|
CURRENT
YEAR |
1997
|
|
|
|
|
|
|
|
BEFORE |
|
|
|
|
|
|
RESEARCH &
DEVELOPMENT |
RELEASE |
$50.00
|
SUGGESTED RETAIL
PRICE |
|
| |
|
INVESTIGATION
COSTS |
$250,000
|
$12.50
|
LESS
RETAIL DISCOUNT (25%) |
| ||
|
DEVELOPMENT
COSTS |
$750,000
|
$37.50
|
PRICE
TO RETAIL |
|
| |
|
DISCOUNT RATE PER
YEAR |
12.00% |
$7.50 |
LESS
WHOLESALE DISCOUNT (20%) |
| ||
|
|
|
$30.00
|
MFG
SELLING PRICE |
|
| |
|
|
|
|
|
|
|
|
|
ANNUAL COSTS AND
SALES |
|
1998 |
1999 |
2000 |
2001 |
2002 |
|
PRODUCER'S PRICE PER
UNIT |
|
$30.00
|
$30.00
|
$30.00
|
$30.00
|
$30.00
|
|
VAR
COSTS PER UNIT |
|
$15.00
|
$14.00
|
$13.50
|
$13.25
|
$12.00
|
|
FIXED
COSTS PER YEAR |
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
|
RETAIL
SALES FORECAST [MIL $] |
|
$524 |
$574 |
$616 |
$672 |
$721
|
|
INDUSTRY SALES PER YEAR
[UNITS] |
|
10,480,000 |
11,480,000 |
12,320,000 |
13,440,000 |
14,420,000 |
|
COMPANY MARKET SHARE
[UNITS] |
|
2.00% |
4.00% |
6.00% |
8.00% |
10.00% |
|
COMPANY SALES PER YEAR
[UNITS] |
|
209,600
|
459,200
|
739,200
|
1,075,200
|
1,442,000
|
|
|
|
|
|
|
|
|
|
|
BEFORE |
|
|
|
|
|
|
INCOME
STATEMENT |
RELEASE |
1998 |
1999 |
2000 |
2001 |
2002 |
|
SALES
REVENUES |
|
$6,288,000
|
$13,776,000
|
$22,176,000
|
$32,256,000
|
$43,260,000
|
|
VARIABLE
COSTS |
|
$3,144,000
|
$6,428,800
|
$9,979,200
|
$14,246,400
|
$17,304,000
|
|
FIXED
COSTS |
$1,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
|
PROFITS |
($1,000,000) |
$1,144,000
|
$5,347,200
|
$10,196,800
|
$16,009,600
|
$23,956,000
|
|
CUMULATIVE
PROFITS |
|
$144,000
|
$5,491,200
|
$15,688,000
|
$31,697,600
|
$55,653,600
|
|
NET
PRESENT VALUE |
$35,309,732
|
|
|
|
|
|
TABLE 2: PRO-FORMA INCOME STATEMENT
AT $45 PRICE
|
CURRENT
YEAR |
1997
|
|
|
|
|
|
|
|
BEFORE |
|
|
|
|
|
|
RESEARCH &
DEVELOPMENT |
RELEASE |
$45.00
|
SUGGESTED RETAIL
PRICE |
|
| |
|
INVESTIGATION
COSTS |
$250,000
|
$11.25
|
LESS
RETAIL DISCOUNT (25%) |
| ||
|
DEVELOPMENT
COSTS |
$750,000
|
$33.75
|
PRICE
TO RETAIL |
|
| |
|
DISCOUNT RATE PER
YEAR |
12.00% |
$6.75 |
LESS
WHOLESALE DISCOUNT (20%) |
| ||
|
|
|
$27.00
|
MFG
SELLING PRICE |
|
| |
|
|
|
|
|
|
|
|
|
ANNUAL COSTS AND
SALES |
|
1998 |
1999 |
2000 |
2001 |
2002 |
|
PRODUCER'S PRICE PER
UNIT |
|
$27.00
|
$27.00
|
$27.00
|
$27.00
|
$27.00
|
|
VAR
COSTS PER UNIT |
|
$15.00
|
$14.00
|
$13.50
|
$13.25
|
$12.00
|
|
FIXED
COSTS PER YEAR |
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
|
RETAIL
SALES FORECAST [MIL $] |
|
$524 |
$574 |
$616 |
$672 |
$721
|
|
INDUSTRY SALES PER YEAR
[UNITS] |
|
10,480,000 |
11,480,000 |
12,320,000 |
13,440,000 |
14,420,000 |
|
COMPANY MARKET SHARE
[UNITS] |
|
3.00% |
5.00% |
8.00% |
10.00% |
11.00% |
|
COMPANY SALES PER YEAR
[UNITS] |
|
314,400
|
574,000
|
985,600
|
1,344,000
|
1,586,200
|
|
|
|
|
|
|
|
|
|
|
BEFORE |
|
|
|
|
|
|
INCOME
STATEMENT |
RELEASE |
1998 |
1999 |
2000 |
2001 |
2002 |
|
SALES
REVENUES |
|
$8,488,800
|
$15,498,000
|
$26,611,200
|
$36,288,000
|
$42,827,400
|
|
VARIABLE
COSTS |
|
$4,716,000
|
$8,036,000
|
$13,305,600
|
$17,808,000
|
$19,034,400
|
|
FIXED
COSTS |
$1,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
$2,000,000
|
|
PROFITS |
($1,000,000) |
$1,772,800
|
$5,462,000
|
$11,305,600
|
$16,480,000
|
$21,793,000
|
|
CUMULATIVE
PROFITS |
|
$772,800
|
$6,234,800
|
$17,540,400
|
$34,020,400
|
$55,813,400
|
|
NET
PRESENT VALUE |
$35,823,504
|
|
|
|
|
|