The Jade Box: Marketing Plan Marketing 4020-001 | Dr. Gary Grikscheit

April 26, 2016

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Submitted by: Denise Afable

Alysa Masquelier Aleksandra Obradovic

Ari Schjelderup Jun Song

Table of Contents

Executive Summary (Everyone).............................................................................................Page 3

Situational Analysis (Ari, Jun, Aleksandra, and Denise)........................................................Page 6

SWOT Analysis (Alysa).........................................................................................................Page 8

Internal Analysis.........................................................................................................Page 8

External Analysis......................................................................................................Page 11

Strategic Market Plan (Denise, Jun, and Ari).......................................................................Page 12

Share Objectives (Jun).............................................................................................Page 13

Positioning Strategy (Denise)...................................................................................Page 13

Price Strategy (Denise).............................................................................................Page 14

Channel Strategy (Ari)..............................................................................................Page 15

Communications Strategy (Denise)..........................................................................Page 15

Region 1 Analysis (Alysa)....................................................................................................Page 16

Region 2 Analysis (Alysa)....................................................................................................Page 18

Region 3 Analysis (Aleksandra)...........................................................................................Page 19

Region 4 Analysis (Ari)........................................................................................................Page 23

Exhibits (Figures 1-37).........................................................................................................Page 24

Forecasting Q13 to Q17 --- Appendix A (Ari).....................................................................Page 31

Market Budget --- Appendix B (Ari)....................................................................................Page 32

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Executive Summary

Mission Statement: The Jade Box (TJB) is a manufacturer that provides customers with high quality, easy to use products, while recognizing price sensitivity and focusing on efficiency to allow for lower prices and the best deals for customers.

Strategies and Objectives: The Jade Box’s objective is maximizing profits for the company. Its strategy is to deliver a reliable product that provides the consumer with more benefits at competing prices to make it affordable for customers.

Overall Performance

Stock Performance: From Q8 to Q9, there has been an increase in stock prices for The Jade Box which was ranked in top 3 firms in the stock market. However, the stock price decreased from $70 to $41.10 at Q10 and continued to drop. After Q10, the stock price made a slight increase but continued to stay at the lowest price in the stock market.

Net Income to Revenue: Net income to revenue decreased about 2% from Q1 to Q2 but then had a steady increase and reached industry best in Q5. It was about 4% above the industry average, the firm saw a 6% drop in net income to revenue due to increased spending, reconfigurations for P1, and the launch of P3 in Q8. In Q9 it net income to revenue increased about 10%. With increased spending on reconfigurations and advertising the firm's net income to revenue stayed pretty constant from Q11 to Q13 at about 1%. The product reconfiguration did not increase revenues as much as expected and continuous spending lead the ratio to drop.

Forecasting Accuracy: Between Q1 through Q7, before making the first major changes in Q8, the firm maintained a forecasting accuracy above 75% by using a polynomial regression model to estimate future sales volumes by product, region, and channel. By Q8, the firm had begun making major changes that made the polynomial regression model was no longer the most accurate forecasting method. The firm implemented a new model, examining past sales volume figures and adjusting accordingly based on market trends and the decision TJB made that quarter. Forecasting accuracy remained between 50-75% from Q9 through Q13.

Marketing and Service Spending: In Q2 the firm was spending among the industry worst which was about 12%, spending stayed steady but an increase in revenue brought the firm to 10% in Q4 and Q5 which was the industry best at the time. As the marketing and service spending decreased on average TJB stayed fairly consistent in attempt to raise awareness of products and increase sales. In Q11 the firm was spending a little over 15% to help improve customer preference and spread the news of new reconfigurations. Decreasing spending to bring the firm closer to industry average can help retain more of the revenue and save spending to launch new products and increase customer preference in designated regions.

Customer Satisfaction: Overall, the firm is constantly below average for customer satisfaction. When broken down by region and channel, however, The Jade Box shows more satisfactory outcomes. R1 and R3 have always had a product that is above average for all but one quarter from Q4 to Q11. Customer satisfaction for R2 only started improving when P3 was introduced into the region, but for both Q10 and Q11 P3 gave the firm numbers much higher than industry averages.

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Decision Making Process

Market Share: Analysis of the market showed that TJB is in a competitive market and fighting to maintain market share. Competition strongly affected how the firm was performing, when market share is lost by one firm, it is due to competition. Tailoring products to customers’ preference and increasing customer satisfaction have impact on market share. TJB had a decrease in market share overtime and began to study product configurations that met customer preferences in order to increase market share.

Product: Analysis of customer preferences and concept tests showed product configurations that would be most effective across the regions. However, firms with previous reconfigurations were already meeting certain product demands, which resulted in expensive patents. To acknowledge this, the firm chose to reconfigure products with less similarities to competitors’ products and give customers more options. Products tailored to individual regions have proven to work better.

Price: Pricing per unit was calculated by product worth, average industry pricing, and company efficiency. Early quarters showed that the company net income to revenue ratio was very good and the company had become efficient in producing its products. Therefore TJB did not change pricing frequently. It aimed to keep pricing consistent and competitive, based on product worth, in each region to align with positioning.

Promotion: TJB marketing mix allocation was focused on advertising rather than promotions of products, which proved to be more successful especially for region 3. Moving into the later stages it changed to allow for more promotions in a competitive industry where the competition was reconfiguring products and gaining market share. When new products were released advertising spending was increased to introduce the new product. Positioning was kept pretty constant across the regions and quarters, TJB provided a constant image to align with previous advertising efforts.

Past Decisions

Region 1: Moving into Q6, the firm increased marketing spending to $450,000 for both channels in R2 and R1, Ch1. In Q8, the firm reconfigured P1 to H34302 in both Ch1 and Ch2. The prices were also changed in Ch1 and Ch2 to $415 and $491 respectively. P3 was also launched into R1 with a H11101 configuration at a $280 price for Ch1 and a $480 price for Ch2. In Q10, the marketing mix allocation was changed to 701515. It was during this time that P3 was also reconfigured to H46703 at prices of $500 for Ch1 and $700 for Ch2. After monitoring the performance of P3 in the new region, the firm decided to reposition the product to have an exclusive benefits emphasis. Since sales in R1 did not look too promising for P1, the firm decided to reduce marketing spending to $360,000. The price for P3, Ch1 was also lowered to $450. The positioning for P3, Ch2 was changed to an exclusive price emphasis and a promotional program was changed to customer rebates and trade ins/exchanges.

Region 2: In R2, the first major change happened during Q6 where marketing spending for P1 was increased to $450,000 in Ch2. P2 experienced the same changes during Q8 where P1 was reconfigured to H34302 and the prices were changed to $415 and $491 for the two channels. Due to a decrease in units sold for P1, the firm decided to decrease marketing spending to $100,000 in Ch1 in Q10, while adjusting the marketing mix allocation to 403030 and changing the price to $500. The only change made for Ch2 was a price increase to $600. P2 was launched in R2 with a H37602 configuration

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at prices of $400 and $600. Since sales in this region were still declining in Q11, TJB attempted to decrease marketing spending to $50,000 instead of just discontinuing the product. Another attempt made to salvage sales during this quarter was to change positioning for P3 to have an exclusive price emphasis (81). The last change made in this region was done in Q12, where the price of P3 in Ch1 was decreased to $450.

Region 3: The marketing spending was increased to $450,000 during Q6 for P1 Ch1. It was not until Q8 that P1 was reconfigured to H34302 with prices of $415 and $491 for Ch1 and Ch2 respectively. In Q10, the marketing mix allocation was changed to 203050 for P1 in Ch1. In this same quarter, TJB decided to expand in this region by launching P3 with the configuration of H46703. The decrease in P1 sales in Ch1 prompted TJB to switch back to a 503020 marketing mix allocation in Q11. The positioning of P3 was also changed to 81 (exclusive price emphasis) in both channels. After a decrease in units sold for P3 in Ch1 during Q11, TJB lowered the price of the product to $450, which helped increase sales.

Region 4: P1 was introduced to this region in Q12 at the H34302 configuration priced at $350 for Ch1 and $550 for channel 2.

Future Implications

Region 1: R1 is TJB’s most profitable region, especially with no tariffs, the firm needs to maintain market share in this region. The firm intends to research niche products that would be different enough that customers would consider switching products. To do this, TJB will conduct Concept Tests on products with low royalty costs so the product is differentiated from competitors.

Region 2: The firm may have ruined its chances with R2 by creating a bad reputation by raising its prices, or TJB might have abandoned the region too soon, giving too much market share to competing firms. The firm can either abandon the region, or attempt to reignite it. TJB suspects that the market is still large enough that the firm can go back with a different product and positioning to regain sales and market share in this region.

Region 3: To better understand the way R3 is affected by pricing, TJB will perform multiple price sensitivity tests on the current products in the region to see what kind of pricing the consumers demand. It will also perform tests on P2, to see if the product is right for the region.

Region 4: Since TJB is new to the region, it will watch competitors on price changes. The firm also intends to change the positioning in this market to better fit consumer needs after performing research to find appropriate positioning differences for the different channels.

Marketing Budget

Using the Marketing Program Experiment, an optimum budget was created for each region and channel. Spending on the marketing mix was rarely increased in the regions because an increase in spending did not yield a high enough return to justify the spending. The mix is adjusted based on what part of the life cycle a product was in. For the next four quarters, the firm created a bottom up market budget.

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Situational Analysis Current Performance From Q1 to Q12 the most revenue in R1 was seen with P2, which held more than 60% of R1

sales until P3 was introduced in Q8 (Figure 1). Still, P2 had the most gross margin in R1, although in

Q13, revenues from P3 Ch1 exceeded P2 revenues, and margins differed by only $19,899 (Figures 2 and

3). Sales in R2 consistently dropped from Q5 to Q13 for both Ch1 and Ch2, and even P3, which has the

most sales, has not come close to previous sales from P1 or P2 for R2. R1 has the highest margins when

combining all the products, but R3, for only having two products in the region, has high margins

compared to R1. It is rare for R3 have less than 15% of R1’s margins, even though it has one less

product (Figure 4).

Market Demand

The total industry had grown from 433,370 units in Q8 to 944,526 in Q13. At Q5, the company’s

market growth decreased 40.41% (Figure 5). TJB was not able to increase its lost market growth rate

until Q12, when the market growth increased up to 41.36%. Since then, the company’s market growth

continued to increase. The Jade Box’s overall average market growth rate was about 2.46% (Figure 6).

Competition and Industry

TJB’s main competition is Firm 2 and Firm 4, although Firm 2 was not seen as a competitor at

first because its net income to revenue was lower and spending was high. Firm 2 reconfigured its

products and met customers’ preference quickly, which lead to lower customer satisfaction and loss in

market share for TJB. Firm 2 found a market preference, gained first mover advantage, and tracked

industry statistics closely. Firm 4, on the other hand, has been gaining market share fairly consistently

and had a few quarters of high net income to revenue. Firm 4 had a tendency of dropping price, the

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unpredictability lead to decreased forecasting accuracy for TJB. The industry is extremely competitive,

all firms are looking to differentiate and gain customer preference.

Market Share

With 5 competing firms in UTG, even allocation for market share would be 20%. Among 5 firms

in UTG, TJB had the lowest market share. Total end consumer demand sales of 944,526 units in Q13

represent 10.7% market share (Figure 7). Since TJB purchased its research study on market share from

Q8, the firm does not have enough information on its market share.

Customer Needs

The average customer satisfaction percentages don’t reach above 25, except for R4, so the firms

that seem to capture customer needs have satisfaction numbers of 25 or more (Figure 8). Looking at

these products more closely, there is a correlation to the configuration of products and the customer

satisfaction. Firm 2, which has the highest customer satisfaction in every product, sells only one product

in each region, and each product has environmental packaging. Other products with premium packaging

also get high customer satisfaction numbers, but none compare to Firm 2. Consumers in R3 and R4

seem to be most satisfied with products that cost less than $200 to manufacture, versus R1 and R2

customers seem most satisfied with products costing more than $200 (Figure 9).

Competitive Position and Value

TJB’s main selling point was providing customers with low-priced products and allowing for the

best deals. Over time, TJB focused more on making changes to compensate for decreased sales over

quarters. The main changes that were done on configurations, marketing mix allocation, marketing

budget, and positioning were based on conducted research studies. The pricing strategy depended on

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how well a certain product was doing in the previous quarter supplemented by the findings from the

price sensitivity research.

SWOT Analysis

Strengths

Forecasting Models: One of the firm’s greatest strengths was its adaptability in finding a

successful forecasting model. Forecasting accuracy was above 75% every quarter until the firm's first

major change in Q8. The firm used a polynomial regression model to determine sales from Q5 to Q8. An

Rof 85% or more was acceptable. In Q8, when the firm made its first major changes however, accuracy

dropped to 35%. The polynomial regression was no longer acceptable since the fluctuations in sales

would require polynomial function with powers 4 or higher. This was not deemed helpful due to the

number of quarters the firm had sales data, so the firm created a new forecasting model that used trends

in the market, and past trends in product sales. After estimating what sales would be without any

changes that TJB would make, the firm estimated the percent change in sales that the change would

cause, and then adjusted forecasting as such. The firm has been able to keep forecasting between 50%

and 75% from Q9 to Q13, but never higher (Figure 10). The firm's strength was its ability to adapt to the

change.

Consistent Market Research: The firm consistently ordered a select few research studies, aiming

to gather market data and analyze trends over several quarters in order to make important decisions.

Research Study 12: Market Statistics provided information about total industry demand and overall

market shares for each firm within the industry. Each quarter, and especially during Q9 though Q13, the

firm applied these results to forecast future sales volume.

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Research Study 20: Customer Satisfaction provided the firm with a customer satisfaction statistic

for each region, product, and channel. The satisfaction study results then stirred ideas for possible

product reconfigurations, which were tested according to product, region, and channel specifications in

Research Study 23: Concept Test. The concept test results, obtained from end-user customer surveys,

aided the firm in understanding the way its customers derive value from a given product.

Spurred by market trends, as well as a rising market spending to revenues ratio, the firm used

Research Study 28: Marketing Program Experiment to test a full marketing programs (including

marketing spending, marketing mix allocation, positioning, and promotional programs) for various

products. This ensured that the firm was making a careful and well-informed choice when deciding to

increase or decrease market spending on a particular product.

Consistent Customer Satisfaction: Although the firm’s customer satisfaction score was below

industry average from Q3 through Q13, it was fairly consistent throughout, ranging from 18-23 (Figure

11). Increases were seen from Q9 to Q13. Additionally, if examined on a regional basis, products in R1

and R3 had customer satisfaction scores above industry average for all but one quarter from Q4 to Q11.

Weaknesses

Hesitancy to Make Major Changes: During the first three decision-making quarters (Q3 through

Q6), the firm was performing well in terms of its net income to revenue and marketing spending to

revenue ratios. In fear of losing its successful standing, the firm was complacent during these quarters

and hesitated to make major changes. In Q7, as its first major change, the firm reconfigured P1 to

H34302 in R1, for Ch 1 and Ch 2. The results of Q8 sales volume indicated that this reconfiguration was

unsuccessful, and after that point, the firm became hesitant again. Moving forward from Q9, the firm

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was hesitant to copy other firms’ customer satisfying-products, as patent costs would be high and The

Jade Box’s selling proposition would no longer have been unique.

Customer Satisfaction: Holistically, the firm’s customer satisfaction scores were below industry

average between Q3 to Q13 (Figure 12). Although Research Study 20: Customer Satisfaction provided a

consistent indicator of customer satisfaction levels, the firm spent several quarters attempting to

understand the variables factoring into a customer satisfaction score and the way that specific customers

derive value from a product.

In comparison to the rest of the industry, the firm was late in making its first major product

reconfiguration, which took place in Q7. By this time, the firm was unable to claim a unique selling

proposition, as other firms had already found a way to satisfy customer needs and command market

share. If The Jade Box were to copy this product configuration, patent costs would be high.

Understanding and Applying Research: Although Research Studies 12, 20, 23, and 28 were

ordered consistently, the firm did not use each of these studies to their full potential in making quarterly

decisions.

Unordered Research Studies: In Q11, the firm ordered Research Study 14: Regional Summary

Analysis for the first time. This study, a regional summary analysis providing scores of customers’

perceived product, service, and availability quality, would have aided The Jade Box in understanding

and improving customer satisfaction.

Underperformance of Region 2: On average, 41.18%, 18.78%, 33.03%, and 6% of revenues

were contributed Regions 1, 2, 3, and 4, respectively (Figure 4). R2 was the firm’s weakest-performing

region in terms of sales volume results. To illustrate, P1 began in Q5 by comprising 39.14% of the firm’s

gross margins; this figure continued to diminish until it represented only 2.73% of gross margins in Q13.

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P2 and P3 performed better in comparison, yet never accounted for more than 31% of the firm’s

margins. The firm struggled to find the appropriate product configuration to be successful in R2.

Underperforming Products: P1 and P3, particularly within R1, did not perform as well from Q3

through Q11 as did P2 (Figure 13). Throughout this time period, the firm struggled to find the optimal

product configuration, price point, marketing mix, positioning, and promotional program to satisfy

customer preferences with these products due to difficulty applying research studies in the most

effective way. In the future, research can be used to refine these two products.

Opportunities

Applying Research Statistics to Customer Satisfaction: A quarter-by-quarter analysis of Regional

Summary Analysis and Research, Price Sensitivity Analysis, in addition to the aforementioned studies

12, 20, 23, and 28, would aid the firm in releasing a product with an attractive configuration, price point,

positioning statement, and promotional program in order to achieve higher customer satisfaction scores.

Tailoring Products to Niche Markets: Although the underperformance of products R2 is an area

of weakness for The Jade Box, the firm now has the opportunity to transform it into a successful region

by using research to find the appropriate product positioning that will fit the niche market. Specifically,

the configurations of H92503 and H99403 of P2 in R2, the latter of which has not yet been released in

the market and will cost $0 in royalties, should be run through the Concept Test (Figure 14). These two

configurations will possibly succeed in R2.

Threats

UTG 2: Firm 2 has consistently posed a threat to TJB and the rest of the industry. From Q8

through Q13, Firm 2 held, on average, a 24.9% market share. This was due to the fact that Firm 2

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successfully achieved a product configuration that delivered value to the customer, and the first mover

advantage aided that firm in performing well over time.

Other Competitors: The 5 firms operating in the industry UTG work in concert, and one firm’s

success in raising stock prices, gaining market share, or achieving a higher customer satisfaction score

affects incumbent competitors’ scores on those same measures. From Q8 through Q13, Firms 2 and 4

earned the highest scores in the industry for market share and customer satisfaction. When these firms

achieved customer satisfaction, TJB is hesitant to follow suit due to high royalty costs.

Strategic Market Plan

Strategic Market Plan

Strategic Objectives: As the firm continues on, resources must be reallocated to redirect the

focus to new products and/or new regions that have profitable potential. TJB needs to be more

aggressive when moving into new markets to be able to reap the benefits of being a first mover in a new

region. Advertising efforts should be emphasized in these new markets to aid in the increase of brand

awareness. In the past, most of the research studies were on scenarios that tested different marketing mix

allocations and marketing spending.

Positioning Plan: Based on purchase history among the different regions, TJB has narrowed

down the possible the price sensitive regions to R3 and R4. That said, moving forward, the focus of

positioning in these regions should be more price directed such as 71 (exclusive price emphasis). P1 was

launched in R4 with an exclusive price emphasis; consequently, sales performance was successful in

Ch2 of that region outperforming P1 sales in the other regions. (Figure 15). Despite the decline of sales

in R2, TJB should try to salvage these sales by changing the positioning strategy rather than decrease

spending, as was done in the past. However, since the operating income for R2 has been consistently

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negative for Q10-Q13, TJB does not have much financial stability to maintain keeping products

available in R2 for much longer.

Investment: The cash that TJB has accumulated at the end of Q13 of $4,823,488 should be

maximized by investing in the development of products in new regions and the launching of new

products in existing regions (Figure 16). P1 was launched into R4 in Q12, and it proved successful. TJB

should now conduct research studies to better understand this region, giving TJB a better grasp of

market trends. When it comes to determining the reallocation of resources, TJB needs to address which

stages of the product life cycle certain products are in. For example, advertising efforts should be

increased for P1 in R4 since it’s still in the introductory stage and building brand awareness is essential.

Share Objectives

Market Size: Since TJB had a hard time finding its niche market, the firm has decided to focus

more on finding the niche market instead of increasing its market share.

Growth Rate: Even though TJB is maintaining a steady growth rate, the firm’s market share is

decreasing. Therefore, the firm needs to slow the decline rate and eventually increase the market share.

Potential: The average market growth rate from Q1 - Q13 is 2.46% (Figure 6). Historically, the

firm has had the smallest market share in the industry. Therefore, the firm needs to benchmark this rate

to determine its performance.

Positioning Strategy

Competitors: TJB should utilize the customer satisfaction levels of the competition to

supplement the TJB’s own research studies in order to gain a better understanding of the market. By

looking at competitors, TJB will also be able to determine what kinds of products are already available

in different regions. That way, TJB can launch products in such a way that does not accumulate too

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much royalty costs. For example, a possible reconfiguration of product 2 that has no royalty fees is

H99403 (Figure 14).

Industry: TJB should launch products that have not been patented yet in order to gain first mover

benefits and give the product a unique selling proposition. To do so, TJB must use product configuration

studies to determine ideal product configurations and compare that to what the other firms currently

have. In the past TJB has been more focused on experimenting with different prices, marketing mix

allocations, and budgets to gain a better market share. For example, sales in R2 have dropped

significantly over the quarters and the strategies used to try to remedy that was price cuts and decreased

marketing spending. This approach did not prove successful for TJB since this region is not as price

sensitive.

Share Position: Firm 2 and 4 remained on top of the market quite consistently. P3 (H46703) is

similar to P2-2 (H26703); however, Firm 2 had the upper hand since they introduced the product a

quarter earlier in Q9. P3 sales have been fluctuating since the product’s reconfiguration in Q10. In the

past, TJB was not quick enough to act as the first mover in the industry.

Price Strategy

Market Share: After narrowing down the price sensitive regions to R3 and R4, TJB should

continue to market products in those regions as low price products. A different approach should be used

for the non-price sensitive regions where customers are more satisfied with products that cost more to

make. TJB should avoid pricing a product too low for R1 and R2 in order to maintain the customer’s

perceived quality of the product.

Share potential: R2’s sales have been on a consistent decline over the quarters; however, TJB

believes that there is still profitable potential in this region. The price cut strategy previously used was

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not effective and so TJB should attempt to experiment with positioning instead and maintain a premium

price point for the products in this region.

Channel Strategy

Customer Needs: Ch1 requires lower prices because it has to mark up before selling to Ch2,

which means if TJB prices the two channels too close to one another, sales in Ch 2 drop. Moving

forward, this means that the firm must find the right difference to price these different channels. To do

this, the firm plans to compare price sensitivity research between the channels, and perform Marketing

Program Experiments to see how close it can mark the prices between channels.

Purchase Behavior: Neither Ch1 or Ch2 are constantly the channel that makes the most

purchases. However, 70% of P1 is sold in the direct channel (Ch2), and about 60% of sales for P2 and

P3 come from Ch1 (Figure 17). To accommodate this, if TJB changes the spread of price between Ch1

and Ch2, the firm has to watch how sale quantity changes. To make sure Ch2 sales are not compromised,

the firm will create a model from the research that optimises which channel will be most beneficial to

TJB. This model will consider the differences between prices from the channel and then determine if the

price cut is worth loss and gain in sales between channels.

Communications Strategy

Product and service: The customer satisfaction level for the industry averaged at 24.1%.

Out of all the regions, R4 yielded the highest customer satisfaction at 33.5% for Ch1 and 30.7% for Ch2

(Figure 18). On the other hand, R2 Ch2 had the lowest customer satisfaction level at 17.4%. TJB needs

to be continually order research studies regarding customer preferences and concept tests to supplement

the findings from the marketing experiment research studies. This strategy stresses the importance of

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first knowing what the customer demands are so the firm can continue to grow while keeping the

customer wants and needs as a priority.

Cost of purchase: At the end of Q13, the gross margin for R1 was $7,447,840 while the R4 gross

margin was $5,089,392 (Figure 19). Customers in R1 are more satisfied with a product that cost more to

make (Figure 20). On the contrary, customers in R4 were satisfied with a low cost product, further

proving the price sensitive tendencies of this region. Understanding the customer preferences for

manufacturing costs will help TJB identify the markets to invest the more premium priced products in.

Customer value: TJB maintained a consistent customer satisfaction trend throughout quarters;

however, it was still below the industry average. The marketing program experiment study provides

insight on customer perceptions of product quality, availability, and service quality. Based on the

scenarios from marketing program experiment studies, availability perceptions increase as the marketing

spending increases. Whereas product and service perceptions remain relatively the same as the budget is

increased. While the marketing budget can measure reach, TJB should still ensure that the positioning

and promotional strategies are appropriate for the specific regions.

Marketing Mix Strategy

Region 1 Analysis

Price: Entering Q8, The Jade Box increased prices on P1 and introduced P3 in both the direct

and retail channel for the first time. Prices for P3 in Q10 were raised to $500 and $700 in Ch1 and Ch2,

respectively, only for Ch1’s prices to be lowered to $450 in Q12. Products offered at a more standard

price, about $400, perform best in this region.

Promotion: TJB hesitated to make any major changes in R1 for the first two decision-making

quarters, Q4 and Q5. Eventually, going into Q6, the firm increased market spending to $450K for P1 and

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P2, and began experimenting with varying marketing mix allocations going into Q10. Entering Q12,

however, spending was decreased to $360K due to rising market spending to revenues ratios (Figure 2).

Taking past performance into account, maintaining a market spending budget of $360K - $450K in R1

will suffice moving forward.

Place: R1 is the U.S.A. TJB began Q3 operating in R1 with P1 and P2, and later expanded this

region with the introduction of P3 in Q8. On average, R1 contributed 42.18% of total revenues between

Q3 through Q11 (Figure 2).

Product: Historically, only P1 and P3 have been reconfigured in this region, although all have

been active since Q8. P2 has shown the most promising performance, consistently producing higher

sales volume numbers than P1 and P3. Continued development of P1 and P3 is necessary in this region.

Using research studies 12, 14, 23, 24, and 28, the firm has the opportunity to further tailor each product

to specific regional customer preferences.

Competition: Between Q8 through Q13, Firms 2 and 4 held consistently higher market shares

than TJB, and were the industry’s strongest competitors. In particular, Firm 2 obtained a first mover

advantage by achieving customer satisfaction. TJB could not develop the same product, due to

prohibitive patent costs and a selling proposition that would no longer be unique to one single firm.

Future Implications: Historically, Products 1, 2, and 3 have been active in R1, and an overall

contribution of 42.18% to overall revenues indicates that this region has been one of the most successful.

As such, R1 will remain TJB’s strongest region in the future, with continued activity of all 3 products in

the future. As with other regions, the firm’s aim for R1 is to continue testing product configurations

which are not currently available in the market to increase customer satisfaction scores and ultimately

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gain market share. Research studies 12, 14, 23, 24, and 28 will be most helpful in determining how to

suit each product to the niche market of R1.

Region 2 Analysis

Price: When reconfiguring P1 to H34302 in Q8, the firm also changed the prices to $415 and

$491 for Ch1 and Ch 2, respectively. In Q10, when the price for P1 in Ch1 was increased to $500, the

product saw a 70% decrease in units sold. The firm had expected to see a drastic decline in sales, but

wanted to treat the product as a harvest product until it was no longer profitable for the firm.

Promotion: Experimenting with marketing spending, TJB increased the figure to $450K for P1

in Ch2 when entering Q6. Moving through to Q10, as the product had been delivering consistently

disappointing sales volumes, marketing spending was lowered to $100K. Management reasoned that

sudden removal of P1 from R2 would only decrease variable costs for the firm, but increase fixed costs

across remaining products. So as to avoid this trap, marketing spending was again lowered to $50K in

Q11, rather than complete elimination. In spite of changing price and adjusting market spending, the

firm has not yet tried changing positioning in R2. Moving forward, the firm should experiment with

Place: R2 is the European market. Between Q3 through Q13, R2 contributed, on average,

18.78% of total revenues (Figure 4). Of all the regions in which TJB operated, R2 has been consistently

underperforming. Following a P1 reconfiguration to H34302, priced at $415 and $491 in Ch1 and Ch2

respectively, revenues decreased by 54.73% and 11.42%. Entering Q10, made a major decision to launch

P2 and P3, and in subsequent quarters, attempted to use research to find a product configuration which

would satisfy customer needs. Although the firm never achieved this goal, product optimization in R2 is

an opportunity for future growth.

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Product: It was not until Q10 that firm introduced P2 and P3 into R2. Following this launch,

R2’s average representation in overall gross margins dropped from 21.97% to 11.35%, and down to

10.06% when P3’s positioning statement was changed to 81. Results from the Concept Test were taken

into account when the firm made each of these changes. However, the firm was never able to find a

product in this region which fully met customer needs.

Competition: Throughout the decision-making quarters, Q8 through Q13, Firms 2 and 4 were

the industry’s most formidable competitors, each holding the two highest market shares. Firm 2’s ability

to obtain customer satisfaction early on and before any other firm granted it a first mover advantage. For

the rest of the time, other firms were unable to fully catch up and configure a new product that similarly

fulfilled customer preferences.

Future Implications: TJB has the opportunity to use the concept test, marketing program

experiment, price sensitivity analysis, and customer satisfaction survey to tailor a product to this niche

market. Specifically, a concept test for both an H92503 and H99403 configuration of P2 should be run to

determine their potential in this region. However, with fixed costs being so high, the company is

incurring a $1,913,681 loss from its three products (Figure 25). TJB plans to do a concept test on

potential products in for this area, but has decided to cut R2 until it has found a suitable product.

Region 3 Analysis

Price: TJB experimented with pricing in R3 and concluded it is a price sensitive region, finding

that Ch2 was more price elastic than Ch1. When P1 was reconfigured, going into Q8, to H34302 it was

placed in Ch1 for $415 and Ch2 for $490. After the price adjustment, sales decreased 37.18% in Ch1

and increased 21.14% in Ch2. Following the change in Q9, the firm saw an increase in sales for both

channels, Ch1 saw a 22% increase and Ch2 saw a 26.4% increase. R3 initially reacted negatively to the

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change in price but the reconfiguration was perceived well and allowed for the change in price. Price for

P3 was reduced to $450 going into Q12 and sales in Ch1 increased 44% and revenue increased 37% but

in Ch2 both sales and revenue decreased by 30% again showing the price sensitivity in Ch1 (Figure 4).

Promotion: For P1 the firm focused on channel training and sales force training; TJB wanted

product benefits compared to price to be communicated correctly to the customers. For P2, the firm

found it was beneficial to focus on customer rebates and trade ins/exchanges; TJB is aware that the

direct channel needs to have updated products and catered to those needs. Marketing mix spending was

increased to 450k in Ch1 going into Q6, the firm saw an increase in sales of nearly 32% in Q6 (Figure

4). Spending was not increased in Ch2 and sales stayed pretty constant, the marketing mix allocation

was changed going into Q10 to 203050 in attempt to increase sales in Ch1 using promotions. The

Marketing Program Experiment showed a 5% increase for change of marketing mix allocation but sales

dropped in the following quarter due to the change, in Q11 the firm changed it back to 503020 and

increased sales 26% in Ch1 (Figure 15).

Place: R3 caters to the Pacific and shows a lot of growth potential. In Q9 there was a gross

margin for P1 in R3 that consisted 66% of total gross margins. This increased to 74% by Q11 (Figure 4).

P1 had the highest gross margin six times from Q7 to Q11. R3 responds well to P1 and TJB reasoned

that it could cater to customer needs by providing products that are fairly priced and focusing sales

training to educate customers of product advantages. Q12 P3 yielded the highest gross margin with

nearly 47% and both products have margins over 35% in Q13.

Product: TJB only had P1 in R3 for the first ten quarters. The product was reconfigured to

H34302 in Q8, the gross margin reached nearly 75% in Q11. P1 produced a positive gross margin in

every quarter, industry demand was tied with R1 at 30% (Figure 4). P3 was introduced to the region in

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Q10 when the product was reconfigured to H46703. Positioning was changed to 81 for P3 in order to

emphasize benefits of the product in Ch1 and address price sensitive customers. The product had a 41%

gross margin in its first quarter and had a revenue of $1,749,794 along with gross margin of $6,099,458

by Q13 the gross margin was staying consistently around 21% (Figure 19).

Competition: Firms 2 and 4 are TJB’s main competitors. Firm 2 understood the market and

product configurations needed to reach certain markets, with this information already tracked there is a

chance for firm 2 to make a niche product. Firm 5 has placed its focus on niche products as well but are

positioning all products as premium which will make it harder to succeed in a price sensitive market.

Firm 4 has experimented with price promotions and could challenge TJB on a price level. In respect to

R3 the firm should research competition extensively in order to gain an advantage over competition and

secure the region.

Future Implications: R3 has shown a tremendous amount of potential for growth. In order for

the firm to capitalize on that opportunity it should test customer preference and introduce a product that

caters to customers in R3 specifically. There is an opportunity to introduce P2 into the region if the

suitable configuration and price is established. Price sensitivity studies should be continued in order for

the firm to acquire a more in depth analysis of the region and price products accordingly. Regional

Analysis to assess how firm competes with competition on price and market share is recommended.

Region 4 Analysis

Place: In the past, TJB did not expand into The Latin America Region because it had the lowest

industry demand out of all the regions (Figure 21). The reason TJB decided to launch a product in R4 in

Q12 was because it realized that, although the region had the lowest demand, it had only three

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competing firms compared to 6 or 9 in other regions. TJB reasoned that it could capture a fair amount of

market before other products were introduced.

Product: Before moving into R4, the firm observed the products already in the region to see

what was successful. TJB discovered that all the products in the region were products that cost the least

to manufacture (Figure 22). TJB decided that it was not worth reconfiguring one of its existing products

to fit customer needs, so it decided to sell its cheapest manufactured product in the new market. This

was P1, which cost $154 to manufacture. The first quarter it was placed in R4 it took 7.4% market share

in both channels. However, the second quarter it lost 2.2% market share in Ch1.

Price: TJB theorized that the reason the lower cost products were selling so well in R4 was

because consumers demanded lower prices. The firm decided that $330 and $550 for Ch1 and Ch2

respectively was appropriate. After performing a regional analysis, the firm discovered its pricing was

very close to that of its competitors, and closest to Firm 2, which has the highest satisfaction. The firm

with the largest market share, however, sells its product at $330, the lowest price by far in the region at

this time (Figure 23).

Promotion: In the past, a marketing budget of $450,000 has been most beneficial for most of

TJB products, so the firm decided to continue with this budget and the 503020 allocation. To

accommodate customer’s cost preferences, TJB positioned the product 71/12 to emphasize price. After

launching in R4, TJB performed a Marketing Program Experiment, which communicated that 13/47

would actually increase availability by nearly 17% for Ch1, and $90,000 more marketing spending

would increase sales by 4% taking availability from 54% to 75% (Figure 24).

Competition: In Q12, when TJB launched P1 into R4, P1 had the lowest market share in both

channels. However, in Q13, P1-1 dropped market share in Ch2, bringing P1 into second to last. This was

not due to P1’s success, but rather P4-3’s gain in market share of 3.5%. The reason the firm is not

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growing in market share is because availability is also the lowest in the region for both channels by at

least 15%. PQ and SQ is close to competitors, though still much lower than Firm 2 (Figure 26).

Competitors are also spending at least $150,000 more in marketing than TJB in Ch1, and nearly three

times as much in Ch2. TJB predicts that competition will grow as more firms enter the region, and that

the market is still growing enough that the firm has a chance to capture more market share than its

competitors.

Future Implications: TJB does not plan on reconfiguring P1 for R4, but instead plans to wait

until more studies can be performed to see if any reconfigurations are worth the cost. TJB thinks that it

can wait a few quarters before considering changing the products features. Future pricing depends on if

Firm 2 changes its prices. Since P1’s prices are lower than P2-3, but higher than the others, it does not

want to lose profits, but will lower prices if P2-3 prices get too close to P1’s price. The way TJB plans to

increase profits and market share in this region is to change positioning to 13/47 in Ch1, which should

increase sales by 17%, and increase budget by $90,000 each quarter until research results show that

increased spending will not produce a return. In subsequent quarters, the firm must perform more

research studies to stay on top of customer needs. This will allow the firm to know if the positioning is

right for the region, and if the marketing budget needs to be increased or redistributed.

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Exhibits 1-37

Figure 1: Region 1 Percent of Sales from Product 2

!

Figure 2: Percent of Gross Margins from Region 1

Figure 3

Figure 4: Percent of Gross Margins

Q13 Q12 Q11 Q10 Q9 Q8 Q7 Q6 Q5

35.81% 35.84% 36.29% 54.45% 44.53% 45.27% 41.83% 44.78% 40.83%

Amount of sales that Product 2 has more than Product 1 in Region 1

Q13 Q12 Q11 Q10 Q9 Q8 Q7 Q6 Q5

19,899 1,203,767 459,925 2,611,914 1,273,817 1,915,153 1,367,791 1,805,973 2,346,392

% of GM from R1 % of GM from R2% of GM from R3

% of GM from R4

Difference from R1 and R3

Q13 35.81% 10.40% 29.33% 24.47% 6.48%

Q12 35.84% 10.06% 24.54% 29.56% 11.30%

Q11 36.29% 11.35% 52.36% 0.00% -16.07%

Q10 54.45% 21.97% 23.58% 0.00% 30.86%

Q9 44.53% 9.61% 45.86% 0.00% -1.33%

Q8 45.27% 19.16% 35.57% 0.00% 9.69%

Q7 41.83% 27.65% 30.52% 0.00% 11.30%

Q6 44.78% 30.48% 24.73% 0.00% 20.05%

Q5 40.83% 28.38% 30.79% 0.00% 10.04%

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Figure 5: Percentage of Market Growth

!

Figure 6: Average Market Growth Rate

Figure 7: Market Share Q8 - Q13

! Figure 8: Average Satisfaction Levels per Region and Channel

Q1 - Q2 Q2 - Q3 Q3 - Q4 Q4 - Q5 Q5 - Q6 Q6 - Q7

-2.37% 9.26% 3.90% -40.41% 25.76% -5.75%

Q7 - Q8 Q8 - Q9 Q9 - Q10 Q10 - Q11 Q11 - Q12 Q12 - Q13

-2.44% 23.40% 0.19% -39.58% 41.36% 16.21%

Average Market Growth Rate 2.46%

Region and Channel R1C1 R1C2 R2C1 R2C2 R3C1 R3C2 R4C1 R4C2

Satisfaction 24 21 23 17 22 19 33 30

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Figure 9: Products with the Most Satisfaction

Figure 10: Forecasting Accuracy

Figure 11: Customer Satisfaction Consistency

Product 1-2 2-2 3-2 4-2 2-2 4-2 1-2 2-1 3-3 1-2 2-1 2-1 3-3 2-1 2-3 2-3

R/ch 1/1 1/1 1/1 1/1 1/2 1/2 2/1 2/1 2/1 2/1 2/1 3/1 3/1 3/2 4/1 4/2

Satisf. % 30 47 31 36 44 34 40 36 31 31 32 39 31 34 49 43

Packaging 2 3 2 2 3 2 2 3 3 2 3 3 3 3 3 3

Manu. cost $ 268 331 260 256 331 256 268 226 337 268 226 226 337 226 182 182

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Figure 12: Industry Customer Satisfaction

Figure 13: R1 Sales Units Sold

Figure 14: Possible Configurations Configuration Price Royalties to Pay

H92503 227 $32,000

H99403 224 $0

H88403 217 $32,000

H29503 234 $32,000

H29502 220 $62,000

H39502 223 $125,000

H93303 182 $15,000

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Figure 15: Total Sales Units per Region

Figure 16: Cash and Marketable Securities

Figure 17: Percent of Sales from Channel 1 to Channel 2 P1Ch1 sales 7,585,405 P2Ch1 sales 5,526,400 P3Ch1 sales 8,391,150

P1Ch2 sales 17,762,932 P2Ch2 sales 3,201,000 P3Ch2 sales 5,171,600

total 25,348,337 total 8,727,400 total 13,562,750

Ch2/total 70.08% Ch2/total 36.68% Ch2/total 38.13%

Ch1/total 29.92% Ch1/total 63.32% Ch1/total 61.87%

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Figure 18: Average Customer Satisfaction Levels for TJB

! Figure 19: Q13 Gross Margins

Figure 20: Satisfaction Levels and Manufacturing Costs for Regions 1 and 4

R1 R2 R3 R4

Product 1 $2,828,841 $370,933 $5,288,685 $5,089,392

Product 2 $2,848,740 $582,338 - -

Product 3 $1,770,259 $1,209,393 $810,773 -

Total Gross Margins $7,447,840 $2,162,664 $6,099,458 $5,089,392

Region 1, Channel 1 Satisfaction Level Manufacturing Cost

Product 1-2H 30 $268

Product 2-2H 47 $331

Product 3-2H 31 $260

Product 4-2H 36 $256

Product 5-2H 27 $260

Region 1, Channel 2 Satisfaction Level Manufacturing Cost

Product 2-2H 44 $331

Product 3-2H 27 $260

Product 4-2H 34 $256

Region 4, Channel 1 & 2 Satisfaction Level Manufacturing Cost

Product 2-3H 49 $182

Product 2-3H 43 $182

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Figure 21: Industry Demand by Region

!

Figure 22: Region 4 Customer Satisfaction Levels and Product Manufacturing Costs

Figure 23: Region 4 Product Pricing

CHANNEL 1: Satisfaction Level Product Manufacturing Cost

Product 1-1H 27 123

Product 2-3H 48 182

Product 4-3H 31 119

Average 35 141

CHANNEL 2:

Product 1-1H 22 123

Product 2-3H 44 182

Product 4-3H 27 119

Average 31 141

Ch1 P1-1 Ch1 P2-3 Ch1 P3-1 Ch2 P1-1 Ch2 P2-3 Ch2 P3-1 Ch2 P4-3

$491 $585 $545 $560 $565 $550 $330

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Figure 24: Positioning and Budget Changes for P3-1, R4, Ch1

!

Figure 25: Losses from R2

!

Figure 26: Comparison form Q13 - Q13 Regional Summary Quarter 14 Quarter 13

Volume

Mkt Share Price PQ SQ Av

Volume

Mkt Share

Price

PQ

SQ

Av

Ch1 P1-1 13,230 8.5 491 11 19 69 21,502 11.5 454 11 2170

Ch1 P2-3 21,616 13.8 585 36 32 69 21,116 11.3 616 35 2969

Ch1 P3-1 11,549 7.4 545 15 19 53 9,827 5.2 583 14 1954

Ch2 P1-1 13,267 8.5 560 11 18 51 12,701 6.8 560 10 2052

Ch2 P2-3 36,197 23.1 565 36 30 64 41,619 22.2 565 34 3064

Ch2 P3-1 11,581 7.4 550 15 21 31 13,815 7.4 550 14 2234

Ch2 P4-3 49,032 31.3 330 5 28 64 67,098 35.8 330 5 3164

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Appendix A: Forecasting

Forecasting for the next four quarters consists of projecting the market fluctuations for the next

year. These projections are under the assumption of market fluctuations that will affect TJB sales by

+9%, -7%, -30%, and +26%, in Q14, 15, 16, and 17 respectively. The market is very unpredictable, but

the current patterns seem to indicate this pattern.

The other changes the firm used to predict sales was predicted change in budgeting, market

allocation, positioning, and the discontinuation of sales in R2. The firm expects to perform several

research studies that will help in decision processes for product or marketing changes. Although the firm

does not know the specific outcomes from these studies, it suspects it can increase sales from specific

studies. If the firm cannot increase revenues by at least 5% from changing positioning, pricing, or

promotion, it will not make the change. However, it suspects it can make one of these changes in one of

the quarters. These sales projections are set in forecasting for Q16 and Q17. Q14 and Q15 are mainly

affected by the changes TJB knows it will perform for R4 and R2.

SALES Forecasting Quarter 14 Quarter 15 Quarter 16 Quarter 17

REGION 1

Product 3-1H, Ch#1 5,080 4,335 3,426 6,167

Product 3-1H, Ch#2 5,663 4,831 3,637 6,873

Product 3-2H, Ch#1 12,658 10,800 8,536 16,132

Product 3-2H, Ch#2 4,379 3,736 2,812 5,061

Product 3-3H, Ch#1 10,734 9,159 7,238 13,680

Product 3-3H, Ch#2 2,221 1,895 1,427 2,568

REGION 2: Has been cut. No sales are expected in these quarters

REGION 3

Product 3-1H, Ch#1 7,037 6,004 4,519 8,135

Product 3-1H, Ch#2 16,903 14,422 10,855 20,516

Product 3-3H, Ch#1 4,979 4,248 3,198 5,756

Product 3-3H, Ch#2 2,377 2,028 1,527 2,748

REGION 4

Product 3-1H, Ch#1 11,199 9,842 7,556 13,770

Product 3-1H, Ch#2 15,661 13,763 10,566 19,257

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Appendix B: Market Budget

Budget for fiscal year For all products and regions

Sales Volume 369,911

Price 1,958

Revenues 114,840,034

Product Costs 968

Order Processing 616

Transportation Costs 1,176

Costs 140,860,793

Duties & Tariffs 14,270,714

Gross Margin 72,107,670

Fixed & Other Costs:

Administrative O/H 14,400,000

Consulting Fees -1,200,000

Corporate O/H 9,000,000

Forecast Inaccuracy 5,760,000

Information Technology 72,000

Introductions 0

Marketing 21,240,000

Marketing Creative 800,000

Price Changes 190,000

Reconfiguration 1,500,000

Research Studies 1,100,000

Service Outsourcing 3,800,000

Total Fixed & Other 56,662,000

Operating Income 15,445,670

Non-Operating Income 0

Patent Royalties 160000

Taxes -7,722,835

Net Income 7,882,835

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TJB chose to use a bottom-up budget plan. Revenue is based on the forecasting in Appendix A.

Cutting R2 allows the company to cut spending by nearly $2 million, which decreases nearly all

of operating losses, and increases Net Income by nearly five times from Q13 to Q14 ($381k to $2mil).

These reduced spending has allowed TJB to reallocate spending to other areas, such as increased

research. The company has decided to budget 10% of research to R2 for future products, but focus most

of the spending to increase sales in R1, R3, and R4.

Most of the budgeting is based on what departments have needed in the past, but the company

has increased budgets for marketing and positioning changes for Q16 and Q17. The budgeting plan does

not take into account reconfiguring products, but does give a $1,500,000 projected budget for

reconfiguring in Q16. The firm has determined an increased research budget of $300,000 for each

quarter, which allows TJB to adjust research depending on research or market outcomes.

The firm suspects a continued forecasting accuracy between 50% and 75%. To budget for

forecasting, TJB decided to assume a conservative but reasonable forecasting accuracy of 60% for each

quarter. This gives a budget of $1.44 mil per quarter for forecasting inaccuracy.

This budget does not take into account the possibility of introducing a Product 4, or moving into

a new region. Duty, Tariff, and transportation costs were estimated for R4’s break down.

The breakdown for each quarter’s budget by product, channel, and region is below.

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