Wrap Your Marketing Strategy Around Benefits Your Customers Want

The main lesson to be learned from the success of Philips s long-life lightbulbs is to pay attention to the needs of your customers. This applies to both the consumer and the retailer. It is easy to simply look inside your company for the answers. Philips succeeded because it did a lot of consumer and trade research right at the beginning of this marketing effort. It found out what was really important to its customers regarding its product category. It identified what benefits its customers wanted, then provided those benefits and wrapped an entire marketing program around them. The results were very successful.

Summary Marketing Plan for: Philips Long-Life Lightbulbs Philips Lighting Company ^[1] 2001

MARKETING PLAN SUMMARY

1. BACKGROUND. In 1998 the management of Philips Lighting Company decided to try to make a significant impact on the consumer lightbulb market. It began this effort by doing some serious market research to see what was really important to consumers of lightbulbs. The results of this market research clearly indicated that long life was the most important feature that consumers would like to have in a lightbulb . Philips, therefore, decided to provide the consumer with long-life lightbulbs and at the same time take away the consumer confusion concerning this category. It would do this by offering a series of new longlife lightbulbs. As of this writing, Philips has become the only company whose whole consumer line is long life. It has become the long-life company.

2. MARKET REVIEW. The consumer market for incandescent light bulbs has five retail distribution segments: grocery stores, hardware and home center stores, mass merchandisers, drugstores, and a category labeled ˜ ˜other. GE was the dominant player in the grocery chains and mass merchandisers. Philips was the dominant player in home centers because Philips was the primary supplier of lightbulbs to Home Depot, which sold 20 percent of all the lightbulbs sold in the United States. Sylvania was number three among the major brands. The other factor was private label. Some retailers were selling lightbulbs imported from the Far East under their own private label. Some imported lightbulbs were also being sold under the Westinghouse brand name , which was licensed from Viacom (the owner of the trademark).

3. CONSUMER USAGE AND ATTITUDES. Consumer focus groups revealed that a typical consumer perception was that lightbulbs burn out too soon. Consumers wanted long-life ^light-1 The long-life lightbulbs Philips Marathon, Philips Halogena, and Philips DuraMax are trademarks of Philips Lighting Company, and are used with permission. bulbs, but they thought that current claims of long life were not believable. They felt that a better lightbulb would be one that lasted longer, and that this was the only benefit that would be worth a premium. Many respondents also felt that a guarantee would add credibility to claims of long life. Many of the consumers included in this research felt that a full line of long-life lightbulbs would be more credible than one new long-life lightbulb.

   Respondents liked the full-line concept because they would be able to choose the ideal lightbulb type for different locations.

4. PLANNING ASSUMPTIONS. Philips decided to proceed with the launching of a major strategic effort to transform itself into the ˜ ˜long-life company. The following are Philip s key planning assumptions:

   1. A long-life strategy would effectively differentiate Philips s lightbulbs from those of the competition.

   2. Consumers would buy into the long-life lightbulb idea.

   3. The long-life strategy would help Philips s retailers compete with their competitors .

   4. Premium pricing on a line of superior products would be acceptable to retailers and consumers.

   5. Philips s engineering department had identified the proper line between life and light.

5. KEY STRATEGIC MARKETING OBJECTIVES. Based on these assumptions, the new marketing plan had two primary objectives. First, Philips would introduce a series of lines of long-life lightbulbs that would be significantly different from the lightbulbs offered by the competition. Second, because they were superior, these new product lines would be sold at premium prices, which would generate higher margins for Philips and for Philips s retail partners .

6. MARKETING PLAN ELEMENTS.

   1. Brand names . The new corporate long-life strategy included three brand names. Philips Marathon was the name used for the longest- lasting or ˜ ˜best lightbulbs (guaranteed for five to seven years), Philips Halogena was the name used for the second-longestlasting or ˜ ˜better line of lightbulbs (guaranteed for two years ), and Philips DuraMax was used for the entry-level or ˜ ˜good line of lightbulbs ( guaranteed for one year).

   2. Product line. The challenge at Philips was to develop an incandescent lightbulb that would last at least one year. This would be the ˜ ˜good lightbulb. Philips then added halogen technology to create a ˜ ˜better lightbulb, with a two-year life. Finally, Philips used fluorescent technology to create the ˜ ˜best lightbulb, with a life of between five and seven years. Management felt that this would take Philips lightbulbs out of the commodity class and make them products with real value-added qualities.

   3. Packaging. On the new packaging Philips designed, wattage was the most prominent number, and how long the light bulbs last was the second most prominent number. Philips felt that consumers could not relate to life represented in hours, so it stated the life in years. It also gave the guarantee on the packaging: The lightbulbs were guaranteed for one year, two years, five years, or seven years. Finally, the packaging visually showed the consumer the shape of the lightbulb and where it should go in the home. The idea was to simplify the shopping process.

   4. Pricing strategy. A Philips DuraMax lightbulb with the light output of a sixty-watt bulb would cost approximately fifty cents , yet would have a one-year life versus a six-month life for GE lightbulbs. A Philips Halogena lightbulb with the light output of a sixty-watt lightbulb would have a two-year life and would cost about four dollars. The Philips Marathon lightbulb with the light output of a sixty-watt bulb would have a life of five years and would sell for approximately nine dollars. There was a substantial additional hidden savings with Philips Marathon lightbulbs. Over the five-year life of this light bulb, the owner would save approximately thirty-five dollars in electricity costs.

   5. Sales and distribution methods . Philips s factories generally shipped lightbulbs from the factory warehouse to a Philips combination warehouse, where all of the different types of lightbulbs were brought together. The retailer s regional depot orders would come into these facilities, and the products ordered would go to the retailer s regional warehouses. The retailer would then generally distribute the lightbulbs to the stores.

      However, there were some exceptions where Philips would ship directly from its combination warehouse to a retail store.

   6. Advertising strategy. To introduce consumers to the new Philips long-life strategy, an advertising campaign called ˜ ˜light bulbs that last was created. Philips s advertising agency came up with a number of humorous television and radio commercials and magazine advertisements depicting situations in which a light bulb had burned out. These advertisements were run in eight- to ten-week flights on introduction, and then periodically for about two years.

   7. Publicity. In addition to advertising, the Philips long-life lightbulb strategy was the basis for a highly successful public relations campaign. The campaign centered around Philips Halogena lightbulbs. Halogena became the official Times Square lightbulbs for five years, including the huge millennium celebration . The most watched event of the millennium New Year s celebration was the dropping of the ball in Times Square. Because of its use for this, Halogena light bulbs were broadly publicized in print and on television, including the Today show. Retailers also participated in the event. Home Depot, for example, provided an end-aisle display of Halogena lightbulbs for the six weeks surrounding New Year s Eve.

   8. In-store merchandising . Philips worked with each retailer to help that retailer customize the in-store displays for its lightbulbs. Home Depot, for example, had a whole wall of lightbulbs, and Philips provided the chain a detailed plan-o-gram and recommendations to help it help its customers to find what they needed quickly. Philips provided signs and operating samples of products. Philips also provided occasional off-shelf displays. The company suggested that the best way to sell some of these lightbulbs was to crossmerchandise them with other products. For example, if the retailer was selling fixtures, it was told that it should sell lightbulbs with them.

   9. Product warranties. All Philips long-life lightbulbs were guaranteed. If a lightbulb failed to last as long as Philips said it would last, the customer would be able to mail it back to Philips for a prompt refund. No questions would be asked. The customer would simply have to send the product back with a proof of purchase or register receipt. In sum, Philips was not only saying that the light bulbs would last one, two, five, or seven years, but also guaranteeing it.

7. FINANCIAL PROJECTIONS. A detailed financial plan was created for the overall long-life strategy. Documentation on all of the planned expenditures and expected sales was presented to senior Philips management for approval prior to launching the program. These documents were then updated from time to time as the plan unfolded. Thus far, the numbers on Marathon and Halogena are holding as planned. DuraMax was only launched in 2001, which is too recent to make a final judgment on its success.

8. CONTINGENCY PLANS. Philips s largest competitor is the General Electric Company. Philips does not believe that GE will come out with a major effort on long-life lightbulbs. Philips believes that GE would hurt itself if it focused on long life because it would shrink the incandescent market, of which it has an enormous market share. Philips feels that GE is likely to react by providing something other than long life, leaving the long-life niche to Philips.

 

^[1] The long-life lightbulbs Philips Marathon, Philips Halogena, and Philips DuraMax are trademarks of Philips Lighting Company, and are used with permission.