Chapter 7: Secondary Research to Develop Market Reviews


Overview

One of the best starting points in developing a marketing plan is a formal market review. The purpose of the market review is to clearly present all of the available data that are relevant to the marketing of the products or services to be included in the marketing plan. In some cases this involves looking at the company s present business, while in other cases the market review is directed toward a new market that the company is planning to enter. The market review typically looks at the growth and nature of the market for the product category involved. If the company is currently participating in that category, the market review should identify the company s past and projected participation.

The main reason for doing a market review is to provide good visibility on the overall marketing situation before attempting to do something new. It just makes sense to know basic details such as how big the market is, the market s history and trends, and competitive activity before sitting down to draft a comprehensive marketing plan. Most market reviews also include things like the number of appropriate retail outlets by trade class and geographic region, product movement through the various retail channels, shares of market by manufacturer, price points by manufacturer and trade class, and industry advertising expenditures by manufacturer and medium.

This book outlines a number of different ways to complete a market review. One of the best ways to start is by reviewing data that already exist. This includes data written up in secondary sources such as magazines, trade publications, government publications , catalogues and directories, annual reports of principal competitors , and newsletters; information available on the Internet; and information in company files. It is amazing what you can find by simply looking around you. This information will generally provide you with a framework for the market and how it breaks down by major market segments.

Many people further round out this search of secondary information with data-gathering field trips. These may include both telephone and personal interviews with government agencies, trade associations, and the authors of some of the articles about the industry. It is not a bad idea to do some quality store checks for the purpose of writing down prices, shelf facings, and other things you might see that can help you to verify some of the information you have read about. Doing a market review is a lot like being a detective, except that instead of searching for a criminal, you are looking for information.

The market review in the following marketing plan example for Satellite Alkaline Batteries is a good example of how this is done. Although the specific data in this market review have been altered because of the confidential nature of the information, the plan is based on an actual marketing plan that was approved and implemented by a major manufacturer. This market review should give you a good idea of how a market review should be structured and the information that should be included. As you accumulate information for your market review, be sure to include as many tables and other specifics as you can.

The Satellite Alkaline Batteries market review was primarily completed using secondary sources and information that was available to the company in its private files. These data included Department of Commerce year-end summaries, data on actual company shipments, information from trade publications, information that the company had purchased from A.C. Nielsen Company (a market research organization), competitive price schedules, and some basic projections made by company marketing personnel.

The Satellite Alkaline Batteries marketing plan is also a good example of how to put together a total marketing plan. In addition to a market review, it includes sections on consumer usage and attitudes, trade practices and attitudes, planning assumptions, key strategic marketing objectives, and all of the strategic programs. The marketing plan also includes financial projections and an interesting section on contingencies, just in case something goes wrong.

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Marketing Plan for: Satellite Brand Alkaline Batteries Consumer Product Division Hsinchu Electric Company, Ltd. [1] April 14, 1997

INTRODUCTION

The purpose of this report is to develop a four-year marketing plan for a major new Hsinchu Electric Company venture in the consumer segment of the alkaline battery market. This report is divided into the following sections:

  1. BACKGROUND. This section reviews the background of this project and outlines the steps that led to the development of this marketing plan.

  2. MARKET REVIEW. This section reviews the growth and nature of the alkaline battery market, and identifies Hsinchu s past and projected participation in that market.

  3. CONSUMER USAGE AND ATTITUDES. This section outlines present consumer practices, desires, and expectations regarding alkaline batteries.

  4. TRADE PRACTICES AND ATTITUDES. This section reviews the retail food trade s current involvement in the alkaline battery market, its attitudes toward the product category, and its specific reactions to the venture outlined in this marketing plan.

  5. PLANNING ASSUMPTIONS. These are key conclusions based on the facts presented in the previous sections.

  6. KEY STRATEGIC MARKETING OBJECTIVES. This section provides the specific objectives of this venture over the next five years .

  7. STRATEGIC PROGRAMS. This section presents very specific and implementable plans that the Consumer Product Division intends to use to accomplish the objectives of the venture.

  8. FINANCIAL PROJECTIONS. This section provides detailed calculations of the costs, volume, and payout of the venture from initial rollout to national expansion.

  9. CONTINGENCIES. This section presents plans for retaliation against possible competitive action directed at either this venture or the regular Hsinchu line of consumer batteries.

The scope of this report is primarily directed at developing plans to launch a totally incremental venture in alkaline batteries for the consumer market through the grocery channel of distribution. These plans are designed to function as an incremental marketing effort, and are intended to be compatible with present activities involving the regular product line in the grocery trade as well as other channels of distribution.

The information required to develop this marketing plan was gathered in five stages. Each stage was designed to provide a systematic understanding of the current activities in the consumer alkaline battery market and how a major new Hsinchu venture might fit within the framework of that market. The following specific steps were taken:

  1. MARKET RESEARCH. Eight consumer focus groups were conducted in representative markets throughout the United States (Los Angeles, Minneapolis, Atlanta, and Philadelphia). In addition to this qualitative research, a quantitative survey of consumers was conducted in various markets in an effort to test various advertising alternatives.

  2. NAME /PACKAGE/DISPLAY. Based on an analysis of the results of the consumer market research, a design consultant was retained to develop a totally unique name, package, and display for this venture. The name developed for the venture was Satellite. On completion of the design of the name, package, and display, these were exposed to consumers in additional focus groups and were determined to be highly acceptable and motivating.

  3. ADVERTISING CAMPAIGN DEVELOPMENT. An advertising agency was retained to assist in the development of an advertising campaign. In addition, a promotion plan for the venture was developed by this advertising agency and an outside marketing consultant. Details of the promotion plan are included in the Strategic Programs section of this report.

  4. TRADE PROBES. Detailed interviews were conducted with key executives at the headquarters of nineteen major food store organizations in ten representative geographic areas throughout the United States. The purpose of these interviews was to determine the viability of the Satellite venture.

  5. MARKETING PLAN DEVELOPMENT. Upon completion of the previous steps, a complete national marketing plan was developed for the venture. This plan included all of the objectives, strategies, and tactical plans for the total venture. The balance of this document deals with the specifics of this plan.

BACKGROUND

The Hsinchu Electric Company is a large manufacturer of general-purpose batteries and specialty batteries. The company is headquartered in Chongquin, China, and has offices in five other countries , including the U.S. headquarters in Atlanta, Georgia. Hsinchu is one of the largest marketers of alkaline batteries to the U.S. consumer market, and currently commands approximately a 16 percent share of this market.

In 1994, extensive consumer and trade research was conducted by Hsinchu, leading to the conclusion that there was an opportunity for a new brand of alkaline batteries in supermarkets in the United States. This led to the formation of an internal task force to examine this opportunity. The net result was the creation of Project Alpha. The objective of Project Alpha was to capture and maintain a major incremental share of market in the U.S. food environment. This was to be done by launching a major advertising and promotion program for a compact line of long- lasting , general-purpose batteries. The brand was to be sold into distribution as an additional brand for the retail outlet.

Project Alpha was launched in three test markets in 1995. The first market was in New Jersey, and no advertising was used. The second market was in Buffalo, with introductory advertising only. The third market was in Houston, with a full, sustained advertising program.

Project Alpha was successful in demonstrating Hsinchu s ability to obtain incremental distribution with this new line of batteries. Three accounts, with a total of twenty-seven stores, were obtained in New Jersey. Four accounts, with a total of nineteen stores, were obtained in Buffalo. Two accounts, with a total of fifty-two stores, were obtained in Houston. This demonstrated the ability of a unique program to penetrate accounts that were otherwise closed to Hsinchu. The remainder of this document deals with future plans for this venture, and the steps that are recommended to expand this venture nationally over the next five years.

MARKET REVIEW

  1. The total market for general-purpose batteries in 1996 was $521 million in net factory dollar sales, and 1,574 million in unit sales. Hsinchu achieved a market share of 19.5 percent of industry dollars and 20.3 percent of units in 1996. This equated to net factory dollar sales of $101 million and unit sales of 320 million for Hsinchu.

  2. The total industry historical unit growth has averaged about 3 to 4 percent per year. Future unit growth is projected to be only 2 percent per year, or approximately equal to population growth. Industry dollar sales have been growing at an average of 9.2 percent from 1991 through 1996, reflecting the impact of inflation. Dollar growth is forecasted to continue at approximately a 7 percent level through 2001.

  3. Hsinchu s growth over the past six years has slightly lagged that of the total industry. The company s 1996 unit sales were 8 percent below those that the company moved in 1991, versus a slight increase for the total industry. Similarly, Hsinchu s dollar sales increased from 1991 to 1996 at an average of 6.6 percent, compared to 9.2 percent for the total industry. The company is forecasting unit growth through 2001 in the area of 3 to 4 percent per year, and dollar increases in the range of 8 to 9 percent per year. These estimates do not include the potential impact of the Project Alpha program.

  4. The total consumer market for alkaline batteries in 1996 was $259 million, or 49.7 percent of the total alkaline battery market. Total consumer market dollar growth from 1991 to 1996 averaged 10 percent per year; however, 1996 showed a 20 percent increase. Growth in total industry units lagged dollar growth, with an average growth rate of 7.6 percent per year; however, 1996 growth was 17 percent. Total consumer market units are projected to grow at a rate of 3 percent through 2001, with dollar increases at the rate of 6 to 7 percent.

  5. Hsinchu s consumer alkaline battery sales for 1996 were $41 million and 152 million units. This translated to a dollar share of 15.8 percent and a unit share of 15.9 percent. These shares had dropped slightly from 1991, when Hsinchu had a dollar share of 17 percent and a unit share of 16.3 percent.

  6. Hsinchu s dollar growth in the alkaline battery consumer market has averaged 8 percent per year since 1991. Like the industry, Hsinchu enjoyed a significantly higher than average growth rate in 1996 (17 percent). In terms of unit growth, Hsinchu has averaged 7 percent per year since 1991, with a 1996 growth of 17 percent.

  7. Hsinchu is projecting a growth rate in dollars and units through 2001 of approximately 5 percent per year. These projections are based upon marketing activities currently planned for the regular product line and do not reflect the impact of the Project Alpha program.

  8. Food stores are the dominant consumer channel for alkaline batteries, accounting for 54 percent of total consumer market sales. Food stores are followed, in rank order, by mass merchandisers, with 17.9 percent; hardware/auto stores, with 15.4 percent; and drugstores, with 7.5 percent. These four channels of distribution account for 94.8 percent of total retail alkaline battery sales.

  9. Food stores also represent the largest single distribution outlet for Hsinchu consumer sales, accounting for 46.6 percent of the company s total retail alkaline battery sales. Hsinchu has a 13.9 percent share of sales through food stores; however, this is significantly lower than its 16.1 percent share for all retail channels of distribution. Hsinchu also has a marginally lower than average share through hardware/auto stores, while its mass merchandiser share (21.4 percent) and drugstore share (21.7 percent) show that it is outperforming the industry through these two distribution channels.

  10. The grocery market for alkaline batteries in 1996 represented $140 million in net dollar sales, or 27 percent of total alkaline battery sales, and 54 percent of total consumer sales.

    The growth of the grocery market has been, and is anticipated to be, approximately the same as that of the total consumer market. Total grocery dollar growth over the past five years has averaged 9.8 percent. On a unit basis, the total grocery industry has shown a 5 percent growth over the past five years. The industry s units through 2001 are anticipated to grow at approximately a 3 percent rate, with dollar growth of 4 to 7 percent per year.

  11. Hsinchu has lagged the total industry in growth through grocery stores in terms of both dollars and units. On a dollar basis, Hsinchu has shown a 6.8 percent growth rate over the past five years, or about 70 percent of the industry growth rate. In terms of units, Hsinchu has shown a 3.8 percent growth rate versus the industry s 5 percent. In 1996 Hsinchu did not enjoy the significant increase in alkaline battery grocery dollar sales seen by the industry.

  12. The Hsinchu grocery share for 1996 was 13.9 percent for both dollars and units. This represents a decrease from the company s 15.9 percent share of dollars and 14.7 percent share of units in 1991. Hsinchu is forecasting a unit growth through the grocery segment of approximately 6 to 7 percent per year through 2001 and dollar growth of 6 to 10 percent per year.

  13. On a geographic basis, the grocery market for alkaline batteries is largest in the Eastern Zone and smallest in the Western Zone. Approximately 42 percent of total grocery sales dollar volume is in the Eastern Zone, 38.6 percent in the Central Zone, and 19.7 percent in the Western Zone. Hsinchu s sales and resulting shares are stronger than the industry average in the Eastern Zone, and weaker than the industry average in both the Central and Western Zones. Specifically , on a share basis, Hsinchu shows an 18.6 percent share in the Eastern Zone, an 11.5 percent share in the Central Zone, and an 8.6 percent share in the Western Zone.

  14. In terms of grocery store types and sizes, Hsinchu s volume is skewed more heavily toward chain groceries than that of the total industry, and Hsinchu shows a significant deficiency in terms of its business through the largest independent outlets. Specifically, chain groceries account for 74.6 percent of Hsinchu s total grocery store dollar volume versus 64.8 percent of the volume for the total category. As a result, chain groceries are 15 percent more important to Hsinchu than to the total market.

    The large independent stores account for only 11 percent of Hsinchu s grocery store volume versus 22.4 percent for the total industry. As a result, Hsinchu s business development through these accounts is less than half that of the total industry.

  15. Nielsen data show that Hsinchu s retail grocery inventories are the highest of the three primary manufacturers, and that as a result, the retail turns on Hsinchu merchandise are lower than those for either competitor. The average grocery account s supply of Hsinchu alkaline batteries is 2.58 months versus 2.17 for the total market. Similarly, Hsinchu shows 4.65 retail turns on its inventory per year versus 5.53 for the total industry.

  16. On the basis of consumer unit consumption (actual grocery store units purchased), the alkaline battery grocery market is relatively stable, with a low point in July/August of 85 percent of an average month and a high in the November through February period of 111 percent of an average month. Hsinchu follows the total market seasonality almost exactly, while its two major competitors show marginally less seasonality than the total market.

  17. AA batteries are the dominant battery type sold through food stores, accounting for over 65 percent of both unit and dollar volume for 1996. This AA dominance has remained relatively constant since 1994. AAA batteries remain the second largest category, accounting for 23.4 percent of units and 19.4 percent of dollars in 1996. The remaining battery types accounted for 11.2 percent of units and 14.8 percent of dollars in 1996.

  18. Grocery AA battery consumption is highest on the West Coast and lowest in the metro Chicago area. The area with the highest AA battery consumption is the Pacific area, with an index value of 113 versus the total United States. The area with the second highest consumption is metro Los Angeles, with an index of 111. The remaining areas are relatively close to the U.S. average of 100 with the exception of metro Chicago, which shows an index value of only 42 versus the total United States.

  19. Nielsen data indicate that actual grocery selling prices are below suggested list prices and that Hsinchu tends to get discounted significantly more than the competition. The grocery trade seems to be discounting competitive AA batteries by approximately 10 percent and discounting Hsinchu batteries by upwards of 20 percent.

  20. Total industry consumer advertising expenditures have averaged about $2 million per year from 1992 through 1996. The significant exception to this average was in 1995, when total industry expenditures dropped to under $1 million for the year. As would be expected, the company with the dominant market share also emerges as the dominant advertising spender, accounting for 55 percent of total industry advertising expenditures from 1992 to 1996. Hsinchu s advertising expenditures have accounted for 20 percent of total industry spending from 1992 to 1996 and totaled $1.9 million.

CONSUMER USAGE AND ATTITUDES

  1. The retail alkaline battery category is heavily female -oriented, with women accounting for 70 percent of total alkaline batteries purchased. Research indicates that the heaviest users of alkaline batteries are females, twenty-five to forty-five years old, living in households where there are children in the family.

  2. The retail alkaline battery category is characterized by a relatively low purchase frequency. Typically a household will make an alkaline battery purchase between four and five times per year. Each of these purchases usually involves five to six individual batteries. At the time of purchase, the consumer will purchase more than a single battery type. Purchases are almost universally made (87 percent of the time) to replenish the average household inventory of six batteries.

  3. Most alkaline battery purchases are made in supermarkets. The respondents in the focus group sessions verified Hsinchu s information on distribution, indicating that supermarkets are by far the largest single outlet for alkaline batteries.

  4. Alkaline batteries emerge as an extremely low-interest category to their prime consumers. For example, virtually all of the consumers interviewed during the focus group sessions indicated that alkaline batteries were of minor importance, that this was a category that they didn t know much about and were not very interested in spending a great deal of time thinking about. In sum, the alkaline battery category is viewed largely as a commodity category.

  5. Consumer comments indicated that alkaline battery purchases were often based largely on impulse. This impulse can stem from being confronted with a battery display in the supermarket and realizing that the in-home inventory is in need of some replenishment.

  6. Correct battery type emerged as the primary purchase criterion. Interestingly, price was rarely a critical factor. Consumers did indicate that the presence of a sale on batteries could motivate an impulse purchase, but they were basically unaware of the normal pricing or the actual price they paid for the product.

  7. The overall alkaline battery category appears to suffer from significant consumer confusion. In addition to being a category of very low interest, batteries tend to be very confusing to the average consumer. Consumers have a great deal of trouble understanding the difference between the different types of batteries available on any given merchandiser. Similarly, consumers are unsure of the advantages or disadvantages of the various battery brands. There appears to be very little understanding of the difference between one brand and another.

  8. There is no strong brand preference in the alkaline battery category. Awareness of the various brands available is almost identical to their individual share of distribution. Although people are generally aware of the brand that they regularly purchase, they do not make any effort to seek out this brand when repurchasing. This stems from the fact that consumers perceive no difference between the major brands.

  9. Manufacturers marketing programs have not been effective in motivating consumers. Only 17 percent of the 1,000 people interviewed during a 1992 consumer survey could remember seeing any recent battery advertising. Additionally, consumers were unable to state the advertising claims of one brand relative to another.

  10. The focus groups indicated that consumers find one primary area of complaint within the current alkaline battery category. The major complaint about alkaline batteries cited by consumers was that they go dead too fast. A battery s going dead is generally a frustrating and irritating experience for a consumer.

  11. Consumers clearly indicated that a long-life alkaline battery would be the most significant single improvement that a manufacturer could offer within the category. Quantitative research indicated that over 83 percent of consumers felt that long life would be the only benefit of any importance in terms of a battery product improvement. Similarly, the consensus from the focus group research was that increased battery life was the most meaningful benefit that could be developed. The significant information regarding a long-life battery that emerged from the focus group discussions can be summarized as follows:

    1. Consumers indicated a willingness to pay a premium price for a truly long-lasting battery. Very few of the people interviewed during the group sessions objected to paying a higher price for a longer-lasting battery. At least half of the people interviewed would actually prefer to pay a premium price for a long-lasting battery than a low price for ˜ ˜cheap batteries that would require frequent changing.

    2. While endorsing the concept of a long-lasting battery, consumers indicated that the combination of the extra life and the incremental price should result in a meaningful dollar saving. The concept presented during the focus groups was a battery that was 21/2 times longer lasting for only 36 percent more in price. Most consumers found this satisfactory because it would be economically advantageous to them.

    3. While they were receptive to the concept of a long-life battery, consumers questioned the credibility of a manufacturer s claim of long life. A part of this skepticism stemmed from the fact that consumers found it difficult to believe that a manufacturer would actually produce a long-life product that would provide significant in-use savings. The following comments were offered regarding the credibility issues:

      1. Consumers wanted to be told why a battery lasts longer. In this regard, most of the focus group participants responded favorably when they were given specific reasons why a battery would last longer.

      2. Consumers felt that a long-life battery should come with some sort of a manufacturer s guarantee. The feeling was that if a manufacturer were willing to guarantee the performance of its products, this would add considerable credibility to the claim.

    4. Consumers indicated that they would evaluate the effectiveness of a long-lasting battery on the basis of how often they were required to change this new battery compared with standard batteries. Most people recognized that this would be a very difficult evaluation. Most consumers really do not have any idea of how long their current batteries last. Therefore, they recognize that it will be very difficult for them to evaluate an improved battery. Nevertheless, most people felt that if, in their subjective opinion, the new battery did not last longer than their old battery, they would not repeat the purchase.

TRADE PRACTICES AND ATTITUDES

The following findings stemmed from an extensive series of trade interviews conducted on behalf of the Project Alpha program. The purpose of the trade interviews was to elicit overall attitudes toward the alkaline battery category and specific reactions to the Project Alpha program concept. A total of nineteen major food store organizations in ten geographic areas were contacted and given a preliminary presentation on the Project Alpha program.

  1. The overall trade reaction to Project Alpha was positive. Retailers generally recognize that alkaline batteries are now sold basically as a commodity. It was generally felt that the Project Alpha marketing programs could be successful in capturing a major share of the market for a long-life alkaline battery. Most retailers were willing to participate in a test of such a venture, and if the test were successful, they would be willing to take on such a program in permanent distribution.

  2. The primary strengths perceived by the trade regarding the Project Alpha program were the strengths of the marketing communications programs, and the ease for them of taking on such a program in distribution. The trade generally believed that Project Alpha would provide the consumer with a meaningful benefit, and that this benefit would be well communicated through advertising/promotion and a totally unique name/package/display. Additionally, the trade felt that it would not be difficult to take on such a program because it would be provided to retailers in addition to their current brands of batteries. Finally, the trade liked the small number of stock-keeping units (only five battery types) because this would minimize space requirements, both at the warehouse and at the retail outlet.

  3. The trade clearly indicated that the key to obtaining broad-scale distribution for the Project Alpha program was a high sustained level of advertising and promotion spending. The trade was not willing to take on a new brand of long-life batteries unless this brand were heavily pulled through the distribution channel by a strong marketing communications program. It was indicated that in order to sell such a brand, it would be necessary for a manufacturer to incur high levels of advertising spending on a continuous basis, similar to those for other successful packaged goods.

  4. The supermarket trade was unanimously impressed with Project Alpha s name/package/ display. Supermarkets felt that the new brand name and package were very consumer oriented and totally unique, and that they would help add credibility to a claim of long life. The trade liked the compact and flexible nature of the Project Alpha merchandiser, and felt that it was designed to accommodate various- sized stores.

  5. The trade felt that the two-year guarantee would add considerable credibility to the product, and would be easy for retailers to handle. The trade generally recognized that a major task of the marketing plan for a long-life battery would be to overcome consumer skepticism. The guarantee was felt to greatly assist in this effort. Additionally, because this guarantee did not require store redemption, it would be very easy to gain trade cooperation. Finally, most of the trade felt that the amount of redemption by consumers would be minimal.

  6. The trade generally felt that Hsinchu should increase the suggested retail list price of Project Alpha batteries. Because of the longer life of the Project Alpha batteries, the trade wanted the spread between the prices of standard batteries and the long-life product to be as great as possible. Most people felt that they would do very little discounting from this high price, as they would expect to make Project Alpha their high-profit contributor . In sum, it was felt that Hsinchu should test alternative price levels to determine how high the price could go before volume dropped substantially.

  7. Most of the supermarket executives interviewed during this study indicated that they would be willing to accept a 50 percent margin on the Project Alpha venture. These people recognized that a heavily advertised brand could not support a higher margin. The acceptance of a 50 percent margin obviously depended on the movement of Project Alpha product and an overall improvement in the trade s dollar profits. The notable exception to this was wholesalers, who wanted a higher margin than chains because of the extra service that they provide their accounts.

  8. In sum, many trade executives indicated that they would be forced to take on distribution of the Project Alpha program because of the heavy advertising expense. It was indicated that if Project Alpha were to become heavily demanded by their customers, they would be forced to take on the program, just as they are forced to take on many new packaged goods products. The executives indicated that they were in the business of satisfying their customers needs, and that they could not afford to not carry a product that was demanded by a large number of their customers. The following additional comments were offered regarding the distribution opportunities on Project Alpha:

    1. Improved profits are the key requirement. It was clearly indicated that the key requirement for obtaining distribution for Project Alpha would be that the trade s overall profitability on batteries be improved. The actual movement requirements would be the same as those on their current battery programs. The trade felt, however, that Project Alpha should offer an improved profit from that movement because Project Alpha s longer life would ultimately result in a reduction in repeat sales.

    2. Project Alpha would achieve broad distribution. It was generally felt that because of the heavy advertising of Project Alpha, it would be difficult for Hsinchu to limit the overall amount of distribution. In sum, all stores would probably put pressure on Hsinchu to allow them to carry the new brand.

    3. Taking on Project Alpha would be an operating decision. In most supermarket organizations, the decision to take on Project Alpha could be made by an operating executive. The trade indicated that the decision to shift brands of batteries is currently a major decision requiring top management approval. Because Project Alpha is a totally new product, the decision to take on the new product would not have to be made at such a high level. In most cases a merchandising vice president could authorize distribution.

    4. A major presentation would be required. Most of the people interviewed during this study felt that Hsinchu should introduce the new Project Alpha brand in a very major way through the use of a formal presentation. The trade would expect to see a wellthoughtout presentation provided by senior Hsinchu management personnel. The company should not simply have the product introduced in a casual manner by the normal sales force.

  9. The trade generally felt that the competition would react conservatively to the Project Alpha entry. It was felt that the primary reaction would be for the competition to attempt to talk the trade out of taking on the Project Alpha brand. Competitors would attempt to convince the trade that selling a long-life battery in the large quantities envisioned for Project Alpha would reduce the market. The second competitive action thought likely by the trade would be a price cut by the competition. It was felt to be possible, but unlikely , that the competition would put together a similar program and produce another new brand of long-life batteries. Importantly, a number of trade executives felt that if Project Alpha were successful, the competition might be checkmated.

PLANNING ASSUMPTIONS

  1. In the current business environment, growth opportunities for manufacturers of alkaline batteries are severely limited. Because of this, Hsinchu will probably continue to experience difficulties in substantially increasing its market penetration by continuing to use ˜ ˜ traditional battery marketing techniques. Traditional marketing techniques could, in fact, result in further losses of market share. The following specific factors are currently inhibiting growth opportunities:

    1. Limited market growth. The growth of the alkaline battery market is relatively flat, with units increasing only at approximately the rate of population growth. Most of the dollar growth of the market has stemmed from price increases.

    2. Successful dominant brand. One brand is a dominant and growing factor in the overall market. Given the strength of this brand, it would appear to be difficult to make competitive inroads into its existing volume. In the face of the strength of this competitor, Hsinchu has shown volume and share weaknesses over the past few years that would appear to be difficult to reverse using traditional battery marketing methods .

  2. Consumer research indicates that long-lasting batteries provide a consumer benefit suitable for the establishment of a viable brand franchise that would result in broad distribution and significant volume. Market research has shown that 83 percent of consumers would like to have a truly long-lasting battery.

  3. The fact that long-lasting batteries have previously been produced and offered to the public does not diminish the opportunity for this consumer benefit to generate a viable branded new product entry. The reason for this is that the long-life concept has never been properly promoted in order to build consumer believability and therefore demand for the concept.

  4. A complete and powerful ˜ ˜branded goods ˜ ˜ marketing approach will be required to successfully exploit the opportunity inherent in the long-life concept. The primary elements that would be required as part of a ˜ ˜branded goods approach for alkaline batteries can be briefly described as follows:

    1. Meaningful and unique consumer benefit. It would be necessary to go to market with a battery that has a life significantly longer than that of the average product now on the market. Additionally, any marketing advantages (e.g., an understandable guarantee) that might enhance the consumer value of the product should be included.

    2. Distinctive brand name. In developing a consumer franchise for this product, it is important that it be distinguished in the consumer s mind as something new, apart, and totally different from the balance of the Hsinchu battery product line. The name Satellite Batteries should provide this distinction.

    3. Unique package and display. To further strengthen Satellite Batteries unique and independent positioning, they should be sold in a unique and attractive package. Additionally, they should initially be sold from a freestanding merchandiser. An in-line merchandiser should be provided to stores that require one.

    4. Extensive advertising and promotion. The application of a ˜ ˜branded goods approach demands that Satellite Batteries receive significant support, both during the introduction and on a continuing level.

  5. A strong branded approach to Satellite Batteries will result in significant broad-scale distribution for the brand. The trade interviews have clearly indicated that if consumer demand for Satellite Batteries is as strong as envisioned, most retailers will take on the brand in distribution. We estimate distribution in approximately 30,000 retail grocery outlets.

  6. Hsinchu needs to develop a national network of food brokers supervised by Hsinchu field sales personnel, separate and apart from the division s basic sales force. As outlined in the Strategic Programs section of this marketing plan, a national network of food brokers can be developed to provide excellent in-store service. In addition, a separate Hsinchu organization to supervise these brokers can provide excellent control of the venture.

  7. The entire selling and servicing function for the Satellite Batteries program should be handled by a separate Hsinchu organization together with the food brokers, not by the current sales force. The need for a separate field organization to supervise the activities of the Satellite Batteries food brokers and to assist and oversee the sales function can be summarized as follows:

    1. Lack of current capacity. Broker supervision is a full-time job requiring fifteen additional field personnel, which the division currently does not have in place.

    2. Unique skills required. The function of broker supervision, motivation, evaluation, selection, and/or termination requires specific skills and experience separate and apart from those already existing within the bulk of the division s field sales force.

    3. Totally separate brand. Satellite Batteries will be sold as a separate, and in many instances a competitive, entry relative to the regular Hsinchu line. The presence of a totally independent sales supervision network for Satellite Batteries will ensure that neither this new entry nor the basic line will be compromised at the field level in its efforts to achieve its full marketing objectives.

    4. Totally different marketing approach. The significant differences between the marketing approach of Satellite Batteries and that of the regular Hsinchu line, as well as the overall potential volume and profit impact, dictate the need for a separate and specialized field organization to sell, support, and supervise the brand s field efforts.

  8. The Satellite Batteries brand has the potential to provide Hsinchu with total retail sales of $94 million and factory sales of $47 million by 2001. This would represent the largest single battery program in Hsinchu history and would establish Hsinchu as the marketing leader of the industry.

  9. The risk to Hsinchu from developing and launching the Satellite Battery venture can be substantially reduced by continuing the current program of step-by-step consumer and trade research efforts. Steps taken to date, such as extensive consumer focus group research, trade probe activity, consumer package research, and copy development consumer research, have all been undertaken to ensure that there are no significant gaps in the marketing planning effort and that the program moves forward with the best series of program elements available. The subsequent steps outlined in the Strategic Programs section of this document should continue to minimize the risks of the venture.

  10. In addition to the volume and profit contributions previously discussed, the successful introduction of the Satellite Batteries program will provide a series of secondary benefits to both the battery division and the overall Hsinchu Electric Company. Specifically, the following benefits are envisioned:

    1. Definite growth plan. The successful launch of the Satellite Batteries venture will provide the division with a definite plan of action for achieving substantial growth over the next five years. In gradually expanding the plan from research through test to national rollouts, the division will be forced to focus on a definite growth plan.

    2. An incremental effort. The development of this brand can be accomplished in addition to the current marketing efforts. It is not be necessary to sacrifice marketing planning on the regular consumer battery line in order to launch the Satellite Batteries brand. Both programs can be developed in tandem, leading to a strong, two-pronged attack on the marketplace .

    3. Higher profitability. Because the Satellite Batteries brand will be a premium line, overall division profitability will be substantially increased. Satellite Batteries will add incremental volume at a higher profit contribution than the current product line.

    4. Improved trade reputation. By effectively launching a hard- hitting consumer program, Hsinchu will substantially increase its reputation in the food trade. It is believed that such a success will result in Hsinchu s being viewed by the trade as a leader in consumer marketing. This reputation will be extremely valuable in expanding the current regular product line, as well as in other ventures by this division and other Hsinchu divisions.

    5. Improved corporate image. Because this will be a highly visible venture with the general public, it is believed that such an effort will be extremely valuable for Hsinchu corporatewide. Because of the high levels of spending on advertising and promotion, a secondary benefit of this venture could be favorable publicity for the corporation.

KEY STRATEGIC MARKETING OBJECTIVES

The key objective of Satellite Batteries over the next five years is to develop a highly profitable, major new brand of alkaline batteries that will be sold to the consumer market through the grocery channel of distribution. The specifics of this objective are as follows:

  1. PREMIUM PRODUCT. The objective is to provide the consumer and the trade with a truly superior product that has a meaningful consumer benefit. It is intended that this product provide the consumer with an excellent price/value relationship, and the trade with an opportunity to significantly increase its profits.

  2. NAME/PACKAGE/DISPLAY. The intention is to communicate the uniqueness of the Satellite Batteries brand through a totally revolutionary name, package, and display.

  3. BRAND FRANCHISE. The objective is to create a brand franchise of loyal customers equating to 11 percent of the total consumer alkaline battery market units. The plan is to do this through a high-level sustained advertising and promotion program.

  4. DISTRIBUTION OBJECTIVES. The objective is to obtain distribution of the Satellite Batteries brand in 30,000 food stores by the time the brand reaches full national distribution.

  5. VOLUME OBJECTIVES. The objective of the Satellite Batteries brand on achieving national distribution is $47 million in factory sales. Hsinchu hopes to do this strictly through the food channels of distribution, and it hopes to use Satellite Batteries as a vehicle to expand the supermarket category by drawing volume from other traditional outlets (drugstores, mass merchandisers, and so on).

  6. FINANCIAL OBJECTIVES. The objective is to achieve an after-tax return on net sales of 14.0 percent. Additionally, the expectation is that the Satellite Batteries brand will show a return on investment that meets or exceeds that of the balance of the division.

  7. SALES AND DISTRIBUTION SYSTEM. The objective is to launch the Satellite Batteries brand through a series of food brokers, coupled with a separate Hsinchu organization specifically set up to supervise these brokers.

  8. RISK OBJECTIVES. The objective is to minimize the risk and investment required in the Satellite Batteries venture by carefully testing the program and through gradual expansion plans.

  9. TIMETABLE OBJECTIVES. The objective is to complete the necessary activities in time for a 4/1/98 introduction in the first rollout area.

STRATEGIC PROGRAMS

  1. OVERALL OBJECTIVES. The key objective of the Satellite Batteries program is to develop maximum profitable battery volume for Hsinchu via:

    1. Establishing a solid position within the current supermarket alkaline battery category.

    2. Expanding the supermarket category by drawing battery volume from other traditional outlets (drugstores, mass merchandisers, department stores, and so on).

    These objectives will be accomplished by:

    1. The introduction of a new branded alkaline battery product, Satellite Batteries, that is unconditionally guaranteed to provide the consumer two years of service.

    2. Providing strong advertising and promotion support, on a sustained basis, designed to generate consumer awareness of and demand for the Satellite Batteries brand.

    3. Limiting the distribution of Satellite Batteries to grocery outlets in order that this trade class may enjoy the full benefit of the consumer demand generated for the Satellite Batteries brand.

  2. PRODUCT. The key elements of the Satellite Batteries product line can be summarized as follows:

    1. The product will be offered only in AA, AAA, C, D, and 9-volt sizes, which account for 77.9 percent of total alkaline battery volume.

    2. The product will carry an unconditional guarantee of a two-year use life.

  3. PRODUCT NAME. The product will be marketed under the brand name Satellite Batteries. The strategic reasons for the selection of this name are as follows:

    1. The name is memorable.

    2. The name is preemptive and proprietary in that it can be trademarked for exclusive Hsinchu utilization in the battery category.

    3. The name has the ability to lend itself to advertising and promotional activities on behalf of the brand.

    4. The name in and of itself connotes the long-life aspects of the product.

    5. The name has the ability to provoke consumer interest in the product.

    6. The name has a timeless quality.

  4. PACKAGE. The Satellite Batteries package has been designed to provide the following strategic advantages:

    1. It offers a unique and readily identifiable new shape in battery packaging.

    2. It provides the consumer the opportunity to see and recognize the unique printing design on the Satellite Batteries product.

    3. It provides satisfactory protection for the product.

    4. It clearly and quickly communicates the product name, logo, and product specifications.

    5. It reinforces the communications aspects of the Satellite Batteries program by stressing the two-year use life of the product and by stating the full product guarantee.

    6. As a result of its unique shape, the package precludes intermingling of the Satellite Batteries brand with other battery brands and packages in the store.

    7. The package is aesthetically attractive and offers a fresh, clean, and appealing appearance in its own in-store display with the minimum of housekeeping effort.

    8. It lends itself to automatic packaging.

    9. It is affordable (2.05 cents per unit).

  5. DISPLAY. The Satellite Batteries display offers the following strategic advantages:

    1. The display has dramatic visual impact, either when used singly in a small store situation or when used in multiples in larger stores.

    2. The display has been designed to be flexible in order to accommodate various store sizes and store locations. For smaller stores or low-profile stores, the top two trays of the overall display can be eliminated, thus reducing its overall size and product capacity.

    3. The display uses a minimal amount of square footage of floor space within a store. When used as a single unit, the display requires little more than one square foot of actual store space.

    4. The display is usable either in a freestanding configuration or as an end-aisle display by itself or in multiples, or it can be converted to in-line utilization.

    5. The display accommodates up to eight dozen packages.

    6. The display provides an excellent showcase for the Satellite Batteries package and product.

    7. The display facilitates quick and easy selection of the product by the consumer and similarly requires a minimum amount of restocking time.

    8. The display is constructed to accommodate only the Satellite Batteries packages in order to prevent other manufacturers brands and products from utilizing the proprietary Satellite Batteries in-store location.

    9. The display is solidly constructed and is projected to provide an in-store use life of between three and five years.

    10. The display is within the previously forecasted price range for the Satellite Batteries program and, in rollout quantities, can be produced at a cost of $55 to $60 per individual unit.

  6. PRICING AND MARGINS

    1. Retail pricing and consumer economics. It is planned that the Satellite Batteries brand will carry a premium price for all sizes. This retail pricing, nevertheless, will result in a significant consumer savings in terms of costs per hour of use life for Satellite Batteries versus the competition.

    2. Trade terms and economics. Trade terms for Satellite Batteries will be established at a 50 percent margin (percentage off retail), with the product sold on an outright guaranteed sale basis and extended terms of 2 percent on the fifteenth of the second month or net at the end of the second month. Trade interviews have indicated a willingness on the part of food retailers to accept the Satellite Batteries program at the 50 percent margin.

    3. Manufacturer s margin. Satellite Batteries will carry a gross margin to Hsinchu of 50 percent of its recommended list price to the trade. While this is considerably above the normal 41 percent manufacturer s margin on retail alkaline battery products, it must be remembered that Hsinchu will be investing significant marketing dollars in this program and that the additional margin does not necessarily fall to the bottom line. The overall financial results of the program are presented later in this document.

  7. DISTRIBUTION/VOLUME/SHARE OBJECTIVES

    1. Distribution objectives. Satellite Batteries objective is to achieve distribution in 30,400 stores accounting for 52.5 percent of total grocery store all-commodity volume. The plan anticipates a range of distribution by store size, with 75 percent of the largest stores stocking Satellite Batteries, trending down to only 5 percent of the smaller stores stocking the brand. Further, the plan has not assumed any distribution in convenience stores.

    2. Volume objectives. Based upon the total store distribution, the Satellite Batteries brand is expected to generate annual going-year sales of $94 million per year in retail sales and $47 million per year in factory sales.

    3. Share objectives. Satellite Batteries volume objectives translate to an 11 percent unit share and a 17.4 percent factory dollar share of the total consumer alkaline battery market and a 20.6 percent unit share and a 33.6 percent factory dollar share of total grocery alkaline battery sales. The brand s dollar shares are significantly higher than its unit shares as a result of the premium pricing of the product.

  8. DISPLAY REQUIREMENTS. Based on the expected distribution store count and estimates of the number of displays used per store, it is projected that there will be a requirement for 53,300 displays by the time the brand has completed its full national rollout. This is because it is expected that the vast majority of the large accounts will utilize multiple display units.

  9. SALES PLAN

    1. Sales objectives. The principal sales objectives of the Satellite Batteries program can be summarized as follows:

      1. To obtain and maintain Satellite Batteries distribution and volume objectives.

      2. To implement approved brand sales-oriented plans and promotions both at headquarters and at retail store levels.

      3. To provide retail store coverage in order to:

        1. Minimize brand out-of-stocks.

        2. Solicit turnover orders.

        3. Sell trade and consumer promotion offers at the retail level.

        4. Obtain retail-level display and merchandising support for the brand.

        5. Maintain a high level of housekeeping for the Satellite Batteries display area.

      4. To serve as a source of management information regarding the Satellite Batteries sales and volume situation and competitive market information.

    2. Sales strategies. The specific strategies that will be employed in order to achieve the overall Satellite Batteries sales objectives are as follows:

      1. Sales organization. For the reasons stated in the Planning Assumptions section, Satellite Batteries will use a sales organization that is wholly separate and apart from the division s existing sales force. The Satellite Batteries organization will involve a national network of food brokers supervised by an organization of Hsinchu field personnel.

      2. Sales organization functions. The principal functions of the various levels of the Satellite Batteries sales organization are as follows:

        1. Brokers. The individual food broker organizations bear primary responsibility for introductory and ongoing selling activities at the headquarters and retail levels.

        2. District managers. Each district manager bears the responsibility for the overall performance and accomplishments of approximately four food broker organizations. In this respect, the district manager is responsible for providing ongoing supervision, evaluation, and motivation of the individual brokers. The district manager will be expected to work at the retail level both with broker personnel and on his or her own to determine the effectiveness of each broker s efforts. The district manager will also assist the brokers in making headquarters calls and sales. If necessitated by poor broker performance, the district manager will have the responsibility for recommending the termination of an individual broker and for the screening process involved in determining that broker s replacement.

        3. Zone managers. Each of the three zone managers is responsible for an average of five district managers and twenty food broker organizations. The zone manager is responsible to the company for achieving overall Satellite Batteries distribution and volume objectives in his or her geographic territory. The zone manager also bears the responsibility for recommending to company management the addition or deletion of Satellite Batteries promotions or marketing plans in order to maximize the brand s volume and profit in his or her geographic area.

        4. Sales and marketing manager. This individual bears primary and overall responsibility for both the development and the implementation of Satellite Batteries annual marketing and sales activities. He or she is responsible to company management for the construction of the brand s annual marketing plan, volume forecast, and profit forecast. Additionally, he or she has line responsibility to the Satellite Batteries sales organization to ensure that the objectives and results of the approved marketing and sales plans are achieved.

      3. Sales support information. In order to provide optimum supervision of the activities of the food broker network, the plan is to use an outside organization to provide an ongoing ˜ ˜mystery shopper function that will report regularly on such areas as distribution, out-of-stocks, retail pricing, and merchandising support for both Satellite Batteries and competitive brands. This service will provide information on a broad sampling of the largest stores on a biweekly basis and monthly detail on smaller accounts.

        The reports from this service will be issued on a broker-by-broker basis so that the brokers supervisors can utilize them most productively with their individual broker principals. Additionally, the same data will be provided for each of the three geographic zones of the country so that both zone managers and divisional management will have a timely and usable overview of the Satellite Batteries field situation.

    3. Sales costs. Based on the organizational structure described, Satellite Batteries goingyear sales costs are projected at $5.1 million. It should be noted that these costs assume brokerage commission charges of 6 percent and further allow for the implementation of the sales support information system (mystery shoppers). If, in actual implementation, either of these assumptions proves to be overly conservative, the overall sales expenses might be significantly reduced.

  10. COPY. The objective of Satellite Batteries advertising is to build consumer awareness of and demand for the brand through the registration of the following points:

    1. The brand name.

    2. The two-year in-use life span of the product.

    3. The fact that the product is unconditionally guaranteed to provide its two-year life span.

    4. The unique package shape and design.

    5. The Satellite Batteries display.

    6. The fact that Satellite Batteries are available through supermarkets.

  11. MEDIA

    1. Media objectives. Satellite Batteries year one media objectives are as follows:

      1. To build high awareness and trial of Satellite Batteries by introducing the brand with media expenditures significantly above the total industry s sustaining levels.

      2. To maximize message delivery to the target audience ”women age twenty-five to fifty-four in households with three or more members , with consideration given to the working woman segment.

      3. To achieve a minimum reach and frequency of 90/4.0 during the introductory period and 60/4.0 for the sustaining period.

      4. To advertise in each new market for a minimum of thirty weeks during the introductory year.

      5. To utilize a media mix that will most effectively and efficiently reach the target audience.

    2. Media strategies. The Satellite Batteries media objectives will be accomplished by:

      1. The use of television advertising as the primary and most effective method of communicating the Satellite Batteries copy points.

      2. The use of magazines as a supplementary medium in order to:

        1. Increase pressure on the light television viewing consumers.

        2. Take advantage of print s unique copy potential.

        3. Serve as a coupon -carrying vehicle.

      3. The selection of television programming to provide maximum impressions to the target audience.

      4. The use of flighting: a heavy-weight introductory period of thirteen weeks, followed by sustaining flights of four to five weeks of advertising each.

      5. Adjusting the spending plan seasonally as the brand rolls out in order to optimize the media impact during the heavy battery consumption periods.

      6. The use of thirty-second TV announcements and four- color print pages.

  12. SALES PROMOTION

    1. Sales promotion objectives. Satellite Batteries introductory-year sales promotion objectives are as follows:

      1. To assist the sales force in obtaining distribution for Satellite Batteries in its targeted food outlets.

      2. To create awareness, trial, and repeat purchase among the broadest possible base of target consumers.

    2. Trade strategies and plans. The trade strategies that will be employed to meet the promotion objective are as follows:

      1. Provide the broker organizations and the Satellite Batteries field force with sales presentation and/or meeting materials to accommodate an orderly and effective sellin of the brand.

      2. Offer an introductory trade allowance on initial inventory quantities of Satellite Batteries.

      3. Provide an advertising allowance once Satellite Batteries has established itself as a viable business within the food store environment.

      4. Stress the strengths of the overall consumer marketing effort and the trial-oriented promotion efforts in particular.

    3. Consumer strategies and plans. The consumer events that will be utilized in order to create awareness, trial, and repeat purchase are as follows:

      1. Offer via the brand s magazine advertising an introductory ˜ ˜Get One Free print coupon with a face value equal to the full retail price of a single Satellite Battery.

      2. Provide a ˜ ˜bounceback coupon packed in the initial quantities of Satellite Batteries to encourage retrial.

      3. Offer a self-liquidating ˜ ˜Satellite Batteries “ related premium item as a method of extending trial to those consumers who are motivated more by an impulse offer at a display than by a cash coupon offer.

      4. Provide a second media coupon late in year one in order to extend trial and generate retrial.

    4. Promotion spending. Over half (57 percent) of the brand s total promotion spending will be directed toward consumer-oriented offers. Trade spending will account for 31 percent of total promotion, and the remaining 12 percent will be accounted for by display material and sales aids.

    5. Year two and going-year promotion spending. After the brand s introductory year, Satellite Batteries will continue to focus its promotion spending on the consumer by using promotion offers designed to stimulate continued trial and retrial of the brand. These offers (i.e., media coupons ) will be tailored back from the year one effort to accommodate the brand s available promotion budget.

  13. EXPANSION PLANS. Satellite Batteries will move toward national distribution along a careful path of regional rollouts. Satellite Batteries will undertake a regional rollout starting in April 1998 that will see the brand achieve full national distribution in January 2000. The first rollout area will be the West Coast, currently the weakest area for the overall Hsinchu business. This will be followed sequentially by expansions into the Midwest, the East Coast, and, lastly, the balance of the United States. Table 7-1 summarizes the rollout schedule.

    Table 7.1: Satellite Batteries National Rollout Schedule

    Beginning Date

    Rollout

    % Incremental Households

    Cumulative %

    of Households

    4/1/98

    First rollout

    10.81%

    11.49%

    1/1/99

    Second rollout

    25.04%

    36.53%

    7/1/99

    Third rollout

    29.86%

    66.39%

    1/1/00

    Fourth rollout

    33.61%

    100.00%

  14. TIMETABLE. Table 7-2 details a number of the principal steps that must be taken to enable the brand to achieve its planned April 1, 1998, introduction into the first rollout.

    Table 7-2: Tentative Timetable

    Finalize marketing plan

    4/11/97

    Marketing plan presentation

    4/14/97

    Commit $1.0 million for display tooling

    5/19/97

    Marketing plan approval

    5/28/97

    Commit $4.0 million for display mold

    6/2/97

    Assign project director

    9/6/97

    Approval of display units

    9/9/97

    Authorize automated packaging equipment

    9/23/97

    Order initial product and package production

    9/23/97

    Commence TV and print advertising production

    9/30/97

    Authorize media buys

    9/30/97

    Start of display production

    10/21/97

    Start of program sell-in in initial cities

    10/30/97

    Commercial production completed

    12/11/98

    Ship initial product

    2/18/98

    Ship initial displays

    2/18/98

    Initial displays arrive

    3/25/98

    Balance of displays in initial cities

    4/1/98

    Start of retail placement

    4/1/98

    Start of advertising

    4/1/98

FINANCIAL PROJECTIONS

  1. FINANCIAL OVERVIEW. Assuming that the Satellite Batteries program achieves its anticipated sales, and that the venture is expanded according to the planned rollout schedule, Satellite Batteries will generate net sales of $46,092,000 in 2001. In order to accomplish this, advertising and sales promotion expenditures for 2001 would be $6,750,000. This would result in an income, after tax, of $6,450,000. Assuming that the venture continues to meet sales projections, Satellite Batteries will show an after-tax loss of $150,000 in 1998, and then proceed to generate a significant profit in each of the following years.

    It should be noted that the build toward the 2001 after-tax return rate of 14 percent is a result of the introductory investment expenditures as the brand expands regionally . In point of fact, the Satellite Batteries brand is projected to achieve this 14 percent return in its second year in any given area. For example, were the program to be terminated after its initial West Coast expansion, the company should be able to realize the 14 percent after-tax return from the West Coast area as of April 1, 1999 ”a year following the West Coast rollout date.

    Table 7-3 provides a financial overview of the Satellite Batteries venture as it is rolled out nationally.

    Table 7-3: Satellite Batteries Financial Overview (Dollars in 000s)
     

    Net Sales

    Adv. & S.P. Cost**

    I.A.T.***

    %

    1998

    $ 3,322

    $ 825

    $150*

    45%*

    1999

    20,119

    4,504

    810

    4.0%

    2000

    43,908

    7,447

    5,038

    11.5%

    2001

    46,092

    6,750

    6,450

    14.0%

    *Loss. **Strategic Programs. ***Income after tax.

  2. FINANCIAL DETAILS. A detailed income statement for the Satellite Batteries brand from 1998 through 2001 is shown in Table 7-4.

    Table 7-4: Satellite Batteries Forecasted Four-Year Income Statement (in Thousands)
     

    1998

    1999

    2000

    2001

    Sales billed

    $3,390

    20,530

    44,804

    47,033

    Cash rebate

    68

    411

    896

    941

    Net sales

    3,322

    20,119

    43,908

    46,092

    Direct Product Cost

    Factory cost

    979

    4,384

    9,568

    10,044

    Package cost

    233

    1,276

    2,785

    2,924

    Cash discount

    68

    411

    896

    941

    Transportation

    118

    672

    1,450

    1,521

    Product warranty

    11

    68

    148

    155

    Broker compensation

    203

    1,232

    2,688

    2,822

    Direct Marketing Expenses

    Advertising

    599

    3,418

    5,790

    5,250

    Sales promotion

    225

    1,086

    1,657

    1,500

    Display

    345

    1,798

    1,394

    635

    Display freight

    34

    174

    137

    63

    Display conversion cost

    11

    60

    117

    Sales organization

    124

    719

    1,250

    1,250

    Mystery shoppers

    83

    514

    999

    1,000

    Store setup

    100

    528

    469

    315

    Market research

    60

    48

    79

    60

    Project development

    60

    Other indirect costs

    367

    2,222

    4,849

    5,091

    Total cost

    3,609

    18,561

    34,219

    33,688

    Income before tax

    (287)

    1,558

    9,689

    12,404

    Income after tax

    (150)

    810

    5,038

    6,450

  3. FINANCIAL ASSUMPTIONS. The principal assumptions used in the construction of Satellite Batteries four-year income statement are as follows:

    1. Fixed dollars. The four-year income statement makes no provision for increases in costs or selling price. The assumption is that cost increases will be offset by increasing the list price of a Satellite Batteries unit.

    2. Unit sales. Unit sales are based on the rollout schedule detailed in the Strategic Programs section of this document.

    3. Sales billed. Sales billed are assumed to be 50 percent of the suggested retail price of the Satellite Batteries product.

    4. Cash rebate. This is assumed to be 2 percent of sales billed in all years.

    5. Packaging costs. The packaging cost is broken down into two components : the wrapper and the shipper. For 1998, the wrapper costs for the first 73,000 batteries is assumed to be 4.8 cents per battery. The next 2.4 million batteries carry a wrapper cost of 2.49 cents per battery, or $59,800. The balance of the wrappers purchased for that year are assumed to cost 2.2 cents per battery, or $122,200. Shipper costs for 1998 are at a cost per battery of 0.00592 cents. Wrapper costs for 1999 “2001 are assumed to be at the lowest possible wrapper costs of 2.05 cents per battery, with the shipper cost at that point in time continuing at 0.00205 cents per battery.

    6. Cash discounts . Cash discounts are consistently assumed to be 2 percent of sales billed.

    7. Transportation cost. For all rollouts, an average cost of 0.01361 cents per battery has been used.

    8. Product warranty costs. These costs are based on the assumption that the return rate against the warranty will be one battery returned for every 1,000 batteries sold. The cost per return has been given as $1.40 per battery on costs supplied by a qualified redemption house.

    9. Broker compensation. This item has been assumed to be a consistent 6 percent of sales billed in all years.

    10. Advertising expenses. These expenses have been allocated in accordance with the media plan as outlined in the Strategic Programs section of this report. The 1998 advertising expenditures include production costs of commercials over and above the out-of-pocket measured media expenses.

    11. Sales promotion. These costs have been assumed to be in accordance with the sales promotion plan as outlined in the Strategic Programs section of this report.

    12. Display cost. The displays are assumed to have a unit cost of $60.50, which also includes the amortization of mold charges to produce this item.

    13. Display freight. The display freight charges use an average cost per unit based on estimates provided by the display manufacturer.

    14. Sales organization. The sales costs assume the implementation of the sales organization and broker expenses as illustrated in the Strategic Programs section of this report.

    15. Mystery shoppers. This item assumes that mystery shoppers call on 120 of each food broker s 500 average stores every two weeks. This results in a total of 186,900 store checks in a full year. The total number of store checks equates to an annualized cost of $1 million per year.

    16. Store setup costs. This item assumes a charge per store for initial setup of the display. It is further assumed that this service will be performed by an outside service organization, and that the total time per store, including drive time, will be two hours.

    17. Market research. These costs include anticipated ongoing needs for usage and attitude research in rollout areas.

    18. Project development. This item represents outside professional fees and expenses.

    19. Other indirect costs. This line item includes such elements as the following:

      1. Holiday and vacation expenses

      2. Depreciation expenses

      3. Service expenses for the shipping and traffic department

      4. Distribution warehouse expenses

      5. Plant engineering expenses

      6. Insurance and taxes for manufacturing and warehousing facilities

      7. All administrative and general expenses

      8. Manufacturing development expenses

      9. Corporate interest expense

      10. Corporate managed charges

      11. Group and company managed charges

      12. Corporate research and development charges

      13. Built-in factory variances

CONTINGENCIES

It is believed that there is likely to be strong competitive retaliation against the Satellite Batteries venture. Because of the magnitude of the program, it is felt to be unlikely that major competitors will simply do nothing while this venture is eroding their market share. Because of the strong probability of competitive action, the following assumptions and reactions have been prepared:

  1. LOWER PRICE. If the competition were to substantially reduce prices in reaction to Satellite Batteries, the plan would be to counter these price reductions by temporary promotions. These could be either on the Satellite Batteries brand or on the regular product line. It is believed that temporary promotions in specific markets would effectively counteract price reductions without permanently reducing the profitability of either Hsinchu product line. These temporary promotions could take the form of trade allowances (retailer puts product on sale) or couponing (e.g., on-pack discount).

  2. INCREASED ADVERTISING. Because of the very high spending levels on advertising for Satellite Batteries, the competition may very likely increase its spending levels. Because it is believed that Satellite Batteries spending levels are already set at an optimum level, the plan would be to simply review the nature of competitive advertising, continue Satellite Batteries advertising, and modify our program only if absolutely necessary. The specific reaction would obviously depend on the message that competitors are trying to achieve. For example, if competitors are promoting the wrong consumer benefit, it would certainly not be necessary for Satellite Batteries to increase its advertising expenditures.

  3. LONGER-LIFE PRODUCT. The competition may decide to produce a battery that lasts even longer than the Satellite Batteries product. It is believed to be unlikely that the largest competitor would do this, as it would simply be reducing the total market and would affect its sales more than Hsinchu s. On the other hand, a number of smaller manufacturers may decide to take this action. If this longer-lasting product appears to be successful, the plan would be to react by simply improving the Satellite Batteries product.

  4. ANOTHER MAJOR BRAND WITH A FREESTANDING DISPLAY. The competition may decide to launch a venture similar to Satellite Batteries. Satellite Batteries would plan to counteract this by stepping up promotion activities (coupon drops ), stepping up the advertising spending level, and perhaps even launching a competitive advertising program.

    There is a possibility that a new brand would be introduced during the rollout period of Satellite Batteries, with the new entry attempting to gain an initial foothold in non-Satellite Batteries areas. In such an event, the plan would be to alter the rollout schedule and meet or beat the new brand into key market areas.

  5. INCREASED HEADQUARTERS CALLS. A likely competitive reaction would be for other manufacturers to substantially increase their communications with retail headquarters personnel. The plan would be to counteract this by increasing Satellite Batteries headquarters servicing to an even greater degree.

end sidebar
 

[1] Disclaimer: The specific information in this sample marketing plan was compiled for intended use as an example only. Although this marketing plan is based on actual products from a real company, the specific information in the plan is hypothetical and is not intended to compete with or to divulge proprietary ideas, company structure, or the financial status of any company. The names , numbers , and some of the facts in this marketing plan have been changed because of the confidential nature of the information. The information is intended to be used as a guide only.




Powerhouse Marketing Plans(c) 14 Outstanding Real-Life Plans and What You Can Learn from Them to Supercharge [... ]aigns
Powerhouse Marketing Plans(c) 14 Outstanding Real-Life Plans and What You Can Learn from Them to Supercharge [... ]aigns
ISBN: 735621675
EAN: N/A
Year: 2006
Pages: 172

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