Chapter 11: Using Online Consumer Qualitative Research | Powerhouse Marketing Plans(c) 14 Outstanding Real-Life Plans and What You Can Learn from Them to Supercharge [... ]aigns

Overview

This chapter provides a marketing plan for expanding the sales and distribution of a Chinese manufacturer of central air conditioners in Taiwan. One of the interesting aspects of this marketing plan is its use of the Internet to develop a qualitative understanding of consumer usage and attitudes. Internet research can be very useful when research respondents are sparse or difficult to find because they are scattered in a lot of different locations. When the Internet is used, it really does not matter where the respondent is located. In the case of this marketing plan, there were very few central air conditioning consumers in Taiwan at the time the plan was written, and they were located all over the island. Clearly the most efficient research method in this case was the Internet.

The qualitative research method used for the development of this marketing plan was the time-extended online depth interview technique. The interviewing procedure included time-extended online interviews that used a ˜ ˜bulletin board discussion format to conduct a moderator-facilitated discussion. These time-extended online depth interviews lasted three days with each respondent, who logged on twice each day. Exposing each respondent to a small series of questions twice each day enabled the respondents to give more thought to each question. This approach also enabled the moderator and company management personnel to provide input throughout the series of interviews.

The moderator guided the discussion by introducing the topics from the discussion outline and posing follow-up questions. Throughout the process, the moderator continued to encourage participants to provide the greatest possible amount of detailed information about any and all of their experiences, thoughts, feelings, attitudes, decision-making processes, and behaviors that were pertinent to the purposes of the study.

The time-extended online depth interview has many of the same benefits as the traditional face-to-face depth interview or focus group . Because respondents can review the moderator s questions and post their answers at their convenience, time-extended online depth interviews enable the recruiting of respondents who would not be able or willing to participate in the traditional face-to-face qualitative research on the same topic.

Furthermore, time-extended online depth interviews give the respondents more time to reflect on their answers and therefore can produce more thoughtful and in-depth comments than any other form of qualitative research ”including both traditional and online interviews and focus groups. Similarly, the extra time available to the moderator (and to the clients , who can observe the time-extended online depth interviews that are in progress on their own computers) allows the moderator to ask more reflective and insightful follow-up questions than would be practical in other types of qualitative research.

For Eagle central air conditioners, all interviews with central air conditioning consumers in Taiwan were conducted over the Internet. The overall objective of the research was to develop a profile and obtain an understanding of the habits and practices of purchasers of central air conditioners for their homes . A questionnaire was prepared for the interviews that provided information meeting all of the objectives of this project. The questionnaire included approximately thirty to thirty-five unstructured questions. A database of approximately 350,000 Internet users in Taiwan, of which 2,000 were purchasers of central air conditioners, was then purchased. The completed interviews were taken from this sample.

An e-mail invitation was sent to all of the potential respondents asking them to complete a short screener. They logged on and answered a few questions to confirm that they were qualified. They were then told about the survey and asked if they would be willing to participate. Those participants who answered yes were told that they would receive notification of their selection shortly (so that the company could control how many people were interviewed).

A full report was prepared after completion of the interviews. The full report included detailed findings and an analysis of the results. Full transcripts of the interviews were also provided with the report. The entire project was completed in approximately six weeks. This research was done early in the process of developing the marketing plan, enabling the company to design programs around the needs of its target group of consumers.

Marketing Plan for: Eagle Central Air Conditioners Zhenzhou Electric Company ^[1] July 1, 1999

INTRODUCTION

The purpose of this document is to analyze the residential central air conditioning market in Taiwan and to provide a marketing plan for the Zhenzhou Electric Company to use to expand its sales to this market. This report is divided into the following sections:

BACKGROUND. This section details the current Zhenzhou organization in China and reviews the present strategy for competing in the Chinese central residential air conditioning market.
MARKET REVIEW. This section reviews the growth and nature of the central residential air conditioning market in Taiwan, including the present and anticipated competitive environment.
CONSUMER USAGE AND ATTITUDES. This section reviews the desires and expectations of current Taiwan consumers, as well as their acceptance of the idea of purchasing central residential air conditioners through various nontraditional channels of distribution.
DEPARTMENT STORE PRACTICES AND ATTITUDES. This section reviews the department store trade s current involvement with central residential air conditioners in Taiwan, and its attitudes toward the product category.
CONCLUSIONS. This section presents strategic implications based on the facts presented in the previous sections.
MARKETING PLAN ELEMENTS. This section presents very specific and able to be acted upon plans for what Zhenzhou should do within the framework of the information presented in the previous sections.
FINANCIAL PROJECTIONS. This section provides detailed calculations of the sales projections and the anticipated costs associated with a residential central air conditioner program in Taiwan.

The scope of this report is primarily directed at identifying what Zhenzhou should do to expand its central air conditioner sales to Taiwan, in addition to its present marketing activities in China. The recommendations presented in this report have been designed to function as an incremental marketing effort and are compatible with present plans for the present air conditioning business. In addition, this report deals only with the residential segment of the central air conditioning market and does not comment on the new construction or builders market, except where appropriate for clarification reasons.

The information required to write this marketing plan was gathered in three stages. The first stage involved three field trips to Taiwan, during which extensive discussions were held with two major Taiwan advertising agencies, three major department stores, and a major appliance dealer . Second, the available market research on central air conditioners in China was reviewed and then updated with a Taiwan survey of recent air conditioning purchasers and potential customers in the Taipei area. Finally, an Internet survey of purchasers and potential purchasers of central air conditioners in Taiwan was conducted.

BACKGROUND

Sales of Eagle central air conditioners in China are currently handled by the Zhenzhou Electric Company in Zhenzhou, China. The present air conditioning company started in 1990; first-year sales were $6,330,000, increasing each year to a 1998 sales level of $16,000,000. At the end of 1995 the company reached its break-even point, and it is now operating in the black. United States dollars are used throughout this marketing plan to simplify comparisons for the reader.

The air conditioning company is headed by a general manager, who has delegated the responsibility for sales to a national sales manager and five field sales representatives. The main sales thrust since 1990 has been to the residential market through heating and cooling contractors. The company now plans to penetrate the central air conditioning market in Taiwan. Thus far, however, strong efforts by well-entrenched competitors have limited Zhenzhou s ability to achieve an effective level of penetration.

In an effort to circumvent the heating and cooling contractors in Taiwan, in 1997 Zhenzhou conducted an experiment in Taipei that attempted to penetrate the residential market by selling through major appliance dealers. The test never got off the ground because of certain insoluble problems with the installing subcontractors .

Because of the dramatic growth of the residential segment of the central air conditioning market in Taiwan, and because of the inability of the Zhenzhou Electric Company to penetrate this market through traditional contractors, it has been decided to evaluate a nontraditional approach to entering the market. There are two specific reasons for this decision. First, there is the proven ability of the Zhenzhou service group in China to launch an effective installing organization. It is felt that this same type of organization can be organized in Taiwan, thereby permitting Zhenzhou to circumvent the traditional distribution channels. Second, there would be an obvious difficulty in obtaining a large network of major heating and cooling contractors in Taiwan as a result of the solid entrenchment of competitors.

As a result of these considerations, Zhenzhou decided to develop a nontraditional method of penetrating the residential segment of the air conditioning market in Taiwan that would run concurrently with other sales thrusts in China. Thus, the objective of this marketing plan is to provide a distribution plan that will generate incremental sales and result in a deep penetration of the rapidly expanding market for central air conditioners in Taiwan.

MARKET REVIEW

The Taiwan market for central residential air conditioners has been growing at the rate of 40 percent per year for the past three years . This growth rate is expected to continue at least through 2005. The recent upsurge in the sale of central residential air conditioners can be accounted for by the heavy promotion campaigns waged by the utilities, air conditioning manufacturers, and local dealers and distributors beginning in 1996. These promotion efforts were triggered by the ˜ ˜Spring into Summer Campaign that the local utilities launched in 1976 in order to get increased power usage in the summer.

Although the Taiwan market for central residential air conditioners is still very new, a number of identifiable characteristics are beginning to emerge. The following are features of the Taiwan central air conditioning market as it has developed thus far:

Of the total central air conditioning market, sales to the residential segment alone were over 19,000 units in 1996. Because of the newness of central air conditioning for Taiwan customers, a replacement market for central residential air conditioners has not yet developed. However, it is expected that after 2000 central residential air conditioners will begin to be replaced , and that this segment of the market will emerge strongly. Table 11-1 illustrates the growth of the residential segment of the central air conditioning market from 1994 through 1999, using a projection of a 40 percent per year growth rate.

Table 11-1. Forecasted Unit Sales of Central Residential Air Conditioners in Taiwan
1994	94,170
1995	132,680
1996	192,290
1997	269,210
1998	372,890
1999	527,650

Because of the small percentage of homes in Taiwan that are currently air conditioned, it is feasible for the growth of this market to continue for some time. According to the utility company, 64 percent of homes located in areas of Taiwan where air conditioning would be desirable have forced-air heat, and yet only 5 percent of these homes currently have central air conditioners.
Central air conditioning dealers usually base their decisions concerning which brand to sell on three things. The first of these is the margins provided by the manufacturer. The second is the amount of advertising and other promotional support available. The third is the availability of special incentives, such as trips, contests, and so on, to dealers. Conversely, dealers usually do not select the manufacturer based on the quality of the brand. The primary reason for this is that there are very few perceptible differences in product at the consumer level. Although there are some technical differences between the units provided by one manufacturer and those provided by another, the home air-conditioner consumer usually does not understand these differences, nor are they very important to this consumer.
Traditionally the primary channel of distribution for central residential air conditioners is the heating and cooling contractor. Some sales are obtained through fuel oil dealers, department stores, and other nontraditional channels. The major channel in Taiwan, however, is the heating and cooling contractor.
The procedure used by these contractors in selling air conditioners is fairly uniform throughout Taiwan. The consumer generally responds to an ad in the local newspaper, after which a representative of the contractor goes out to the consumer s home and makes an estimate. If a sale is made, the contractor sends out a team to install the air conditioner. Follow-up servicing is done by the contractor as needed.
Over 90 percent of the Taiwan air conditioning market is controlled by six manufacturers. Although the shares of market, the strengths and weaknesses, and the business practices of these manufacturers do differ , they have the following things in common:
1. Central air conditioning manufacturers are extremely trade-oriented rather than consumeroriented. Generally speaking, all central air conditioning manufacturers are competing for the same basic pool of dealers. Their objectives are to (1) convince as many of these dealers as possible to carry their brand of air conditioner and (2) convince as many dealers as possible to push their brand over a competitive brand.
  
  In Taipei, for example, nearly all of the dealers in the phone book carry more than one brand of air conditioner, and some carry as many as three or four. In visiting two of the major contractors in Taipei, it was noticed that each of them had manuals and promotional materials from nearly every manufacturer of air conditioners on a back shelf. The contractors explained that although they generally emphasize one brand of air conditioner at a time, they are capable of selling almost any brand of air conditioner available in Taiwan, and they do change brands from time to time depending on changing margins and other types of dealer incentives.
2. Taiwan central air conditioning manufacturers have very little control over their contractors. As indicated earlier, an air conditioning contractor is an independent businessperson and therefore has a great deal of flexibility concerning the brand and type of air conditioners he or she will sell, the number of options to include, and even the quality of service to be provided. Because of this, most manufacturers are forced to rely heavily on the judgment of the individual contractor.
  
  This lack of control is even greater with smaller manufacturers. Smaller manufacturers, who have fewer and relatively less lucrative incentives, are frequently forced to accept any distribution channel they can get. In these cases they have virtually no control because dealers will simply shift to another brand if any requirements are placed on them that do not meet with their approval.
3. Because of the independence and instability of the contractor network in Taiwan, manufacturers generally do not place a great deal of emphasis on national brand advertising. Instead, most advertising monies are generally funneled to the contractor on a coop basis. The contractor then places his or her own ads in the Yellow Pages and local newspapers, and leads are generated from this advertising.

In interviews with local contractors, it was explained that even when a consumer requests a specific brand of air conditioner, the contractor can usually convert this consumer to another brand by simply telling the consumer that ˜ ˜although the brand selected is a good one, it simply is not the right brand for his or her house. Because of this, national brand advertising has not proved successful when the traditional channels of distribution are used.

CONSUMER USAGE AND ATTITUDES

General Research Findings

The average Taiwan central air conditioning consumer is male, is over thirty-five years old, considers himself to be either a professional or a white- collar worker, and is a family man living with his wife and at least two children. This consumer owns his own home, which is over six years old. The key purchasing characteristics of the average Taiwan central residential air conditioning consumer can be characterized as follows :

As might be expected, by far the overwhelming reason for purchasing a central air conditioner is to overcome the heat and humidity during the summer. Although a small number of consumers (17 percent) indicated that they purchased an air conditioner because of allergies or respiratory problems, and a few (7 percent) had previously owned a central air conditioner, the prime reason for purchase was the weather.
The final decision to purchase a central air conditioner is generally made by the husband. In this purchase situation, the wife generally plays the role of the influencer. In some cases (26 percent), the wife even telephones for the original estimate. However, the wife is clearly not the decision maker and almost never closes the sale.
At the time of purchasing a central air conditioner, the consumer usually does not have any other form of air conditioning in the house. Although a small percentage (22 percent) of those purchasing a new central air conditioner were replacing a window unit, generally speaking purchasers were not trading up from window units to a central unit.
Over 85 percent of central air conditioning consumers make their actual purchase within three months of the time they made their original decision. In other words, although central air conditioning is not generally purchased on impulse, the entire cycle between original decision and installation is completed within one season .
After the original decision to purchase a central air conditioner has been made, most consumers do at least some shopping. Approximately 32 percent of the people in Taiwan who purchased a central air conditioner in 1999 obtained estimates from two separate contractors, and 39 percent received estimates from three or more contractors.
A number of the people in Taiwan who purchased central air conditioners did no shopping before they purchased their air conditioner. Approximately 28 percent of Taiwan central air conditioning consumers did not shop around, but bought their air conditioner from the first contractor they contacted.
Most of the people in Taiwan are not familiar with central air conditioning or the process they would have to go through in order to make such a purchase. Because of the small percentage of homes that have central air conditioners (5 percent), consumers are unable to discuss the purchase with neighbors who have gone through the process already. About the only research they are able to conduct is reviewing advertising on central air conditioners and discussing it with their local contractor.
Over 68 percent of recent central air conditioning purchasers were unaware of any advertising of central residential air conditioning. Of those who had seen or heard advertising, the major medium remembered was newspaper.
The market for central residential air conditioners in Taiwan is not very price-sensitive. Over 70 percent of those who purchased a central residential air conditioner in 1998 made their purchase decision on the basis of something other than price. Most purchase decisions were made on the basis of the credibility of the contractor, the knowledge of the person doing the estimating in the home, or the brand name .
Most of the people in Taiwan who purchased a central residential air conditioner felt that the final installed cost was about what they expected it would be. The average person in Taiwan fitting the profile of the target market feels that a central residential air conditioner will generally run between $2,000 and $2,300, depending on the size of their house. Those with very large homes recognize that the cost will be substantially greater.
Nearly all recent purchasers (98 percent) did not feel that they had to wait until it was time to replace the furnace before they bought a central residential air conditioner. Air conditioning is considered to be an entirely separate purchase.
Almost 70 percent of those who purchased an air conditioner in 1998 paid cash. Of those purchasing on credit, the major source was a credit card or bank loan.

Nontraditional Distribution Channel Findings

Although currently nearly all residential central air conditioners are sold through heating and cooling contractors, there are a number of nontraditional channels that either are now being used or theoretically could be used in the future. Past experiments by the Zhenzhou Electric Company demonstrated that air conditioners could be sold through major appliance dealers. In addition, major department stores in China are now selling a limited number of air conditioners. Theoretically, air conditioners could also be sold directly by the manufacturer, or by discount stores. The following summarizes the consumer s reaction to each of these nontraditional channels:

Potential central residential air conditioning consumers and recent purchasers of a central air conditioner feel that they would not be willing to purchase a central air conditioner in a discount store. A primary reason for this is that they feel that the discount store could not be counted on to stand behind the unit if something were to go wrong. Although these consumers recognize that they could conceivably save money by buying their central air conditioner from a discount store, they feel that a central air conditioner is a major addition to their home, and therefore they would rather forgo the savings and deal with an organization that has a reputation for backing up the sale if later problems arise.

Consumers feel that even if their central air conditioner were guaranteed and completely backed up by the manufacturer, they still would prefer not to buy a central air conditioner from a discount store because of these stores generally poor reputation for service. In sum, customers feel that the function of a discount store is to provide them, at a discount, with products that require no post-purchase service. In the case of a central air conditioner, this negative was increased substantially because of the fact that the air conditioner would actually be installed in the home. Because of this, the organization responsible for the initial sale is felt to be extremely important, and discount stores simply do not fit into this category.
The concept of buying a central residential air conditioner directly from a major manufacturer was extremely well received by both recent purchasers and potential purchasers. The major reason for this preference was that consumers felt that by buying directly from the manufacturer, they would realize a savings because of the elimination of the margins usually provided to the ˜ ˜middleman channel of distribution. In addition, they felt that if the manufacturer were standing behind the sale, the consumer would be able to obtain faster and more reliable service and maintenance than through any other channel.
Taiwan consumers reacted negatively to the concept of purchasing central air conditioners through major appliance chains. Generally speaking, Taiwan consumers associate major appliance chains with discount stores. They feel that these organizations are impersonal and that store personnel would not be knowledgeable about air conditioning. Also, they feel that these organizations have no experience with products that require major installation and long- term service.

This negative consumer reaction to the appliance chain concept holds true even if the manufacturer were to do the installation and service, and were to train the appliance salespeople in its factory. Taiwan central air conditioning consumers want to be able to go to the organization where they originally purchased their air conditioner if they have any problems. Although they realize that the manufacturer would also be backing up the sale, they feel that obtaining recourse through the manufacturer would be difficult and that obtaining recourse through the appliance chain would be impossible .
The concept of purchasing central air conditioners through small, independent, and ( importantly) local appliance dealers with the factory doing the installation and the appliance dealers being factory trained was well received by Taiwan consumers. The main reason for this was that small neighborhood appliance dealers have a reputation for very personal service. Consumers felt that they would be able to go back to their local appliance dealer and obtain satisfactory recourse should they experience problems with their air conditioning unit. Although they recognized that the actual servicing would be done by the manufacturer, they felt that the appliance dealer would take a personal interest in their problem and would pursue the manufacturer until satisfactory recourse was obtained.
The concept of purchasing central residential air conditioners through major department stores was enthusiastically received by Taiwan consumers. Over 40 percent of the potential customers interviewed indicated that they would be very likely to purchase a central residential air conditioner through a major department store. The major reason for this enthusiastic response was their confidence that a major department store would stand behind its service and installation until any problems were corrected to the consumer s satisfaction. Although these retail outlets are very large, they have been successful in establishing an outstanding reputation among Taiwan consumers for backing up any sales they make. About the only real negative associated with purchasing through department stores was these stores general unfamiliarity with the product category. However, there was a strong segment of the market that felt that this negative was overcome by these stores willingness to stand behind the purchase.
Consumers typically felt that with a department store program like the one described to them in a concept statement, they would actually receive a double guarantee. Their installation would be backed not only by the chain, but also by the manufacturer. In addition, consumers felt that having the appliance salespeople attend a factory school would overcome some of the doubts that they had about the store s product knowledge. In sum, consumers were so enthusiastic about this approach to the sale of central air conditioners that they would be willing to pay a slightly higher price (i.e., $100) for this ˜ ˜double guarantee.

DEPARTMENT STORE PRACTICES AND ATTITUDES

Two of the three major department stores in Taiwan are now selling central residential air conditioners, although most consumers are unaware of this. Both department stores are currently selling central residential air conditioners under their own private label. Although they are doing a limited amount of consumer advertising, these stores are now primarily relying on the ability of their appliance department s salespeople to generate leads from walk-in traffic. The installation of the air conditioners that they sell is in both cases handled by a subcontractor.

During interviews with merchandisers at both department stores, several problems associated with their current air conditioning programs were described. The following is a summary of their attitudes toward the central residential air conditioning category.

Department stores are currently receiving a weak selling effort at store level because of a lack of product knowledge on the part of the salespeople and small commissions relative to the effort involved compared to the sale of other products in the appliance department. These appliance salespeople have never been trained on the benefits of a central air conditioner, its technical characteristics, or other aspects of the purchase that the consumer frequently questions them about. Because of this, many appliance salespeople are reluctant to bring up the subject of central air conditioners with consumers, and when they are specifically asked about them, they do not feel confident that they can properly answer the questions. In addition, these salespeople do not find it economically practical to make a great deal of effort to learn the answers to consumers questions on their own. A top appliance salesperson in Taiwan can earn $75,000 a year by pushing major appliances heavily. The effort required to make a small commission on an air conditioning sale is difficult to justify. This is especially true when there is no obvious way to learn the answers to these questions.
Both of the department stores involved in the sale of central air conditioners are experiencing major problems in coordinating their subcontractor network. Both of these organizations are extremely concerned about their reputation for service among their customers. The performance of their subcontractors is frequently not up to their generally high standards. Installations are not always done on time and sometimes are not done properly, and the net result is frequent complaints by customers.
Because of the problems with their appliance salespeople and with their subcontractors, these stores are reluctant to spend a great deal of money on advertising. Because of this, they get very little call-in business. They typically feel that the potential sales of central residential air conditioners are far greater than the sales they are actually achieving.

However, without a well-trained, highly motivated sales force and a smoothly functioning installing organization, they find it difficult to justify a heavy advertising campaign.
All three major department stores in Taiwan indicated that the right type of program could alleviate many of their current problems, and would receive their active support. One of these chains felt that the right type of program run exclusively through that chain would be able to capture a minimum of 10 percent of the Taiwan central residential air conditioning market. The chain s primary basis for this confidence was that it has been successful in capturing 10 percent of the market for every major appliance it has aggressively pursued. For example, its current share of appliance sales in Taiwan is now greater than 10 percent. The chain feels that the only reason it does not now have 10 percent of the central air conditioning market is because of its unwillingness to actively pursue the market as a result of installation problems and the lack of support by its sales force.
This chain feels that the right program from the right manufacturer would overcome these problems. Given the right program with the right partner, this chain feels that it would pursue the market very aggressively, and there is no question in its mind that it would be capable of achieving at least a 10 percent market share.

CONCLUSIONS

The Taiwan market for central residential air conditioners is now providing central air conditioning manufacturers with strong growth possibilities that are likely to continue, at least into the foreseeable future. Over 192,000 units were installed in residences in 1996, and this increased to over 527,000 by 1999. This growth rate is expected to continue.
Because of the solid entrenchment of the current air conditioning manufacturers within the existing channels of distribution, the ability of a new manufacturer to obtain distribution rapidly is severely limited. Existing central residential air conditioning dealers are very sensitive to high margins and trade incentives. All six of the current major competitors are directing almost their entire marketing efforts toward traditional trade outlets and distribution channels rather than toward the consumer. Because of this, the competition for these channels is extremely rigorous , and they are almost impossible for a low-volume new entry to penetrate.
Launching a consumer-oriented promotion or motivation program, while using the traditional heating and cooling contractor as the channel of distribution, would be almost a fruitless effort on the part of the manufacturer. Because of the ability of heating and cooling contractors to shift the consumer to any brand they desire because of the contractors perceived expertise, consumer motivation programs lose their impact when the consumer reaches the point of purchase.
Because of the newness of central residential air conditioning in the Taiwan market, consumers are totally unaware of how to go about buying a central air conditioner. Because of this, a consumer-oriented advertising campaign could have a substantial impact. Once the consumer decides that he or she would perhaps like to install a central residential air conditioner, the consumer has very few sources from which more information can be obtained. The consumer s neighbors generally do not have central air conditioning, the consumer is generally unaware of any central air conditioning advertising, and during the early stages of the purchase cycle, the consumer is eagerly seeking information.
Advertising in the Taiwan market can be done efficiently as a result of the distinctness of the target market. The average Taiwan central air conditioning consumer is an upscale family man who owns a fairly expensive home located in one of a number of distinctly separate ˜ ˜pocket areas throughout Taiwan. Because of this, the consumer is fairly easy to reach through selective media and a selectively designed copy strategy.
Because the average Taiwan consumer completes the entire purchase cycle within one season, a strong sales organization, aggressively following up on initial leads, would be practical in Taiwan. Because the average Taiwan air conditioner consumer makes his final purchase within three months of the time he originally decides to buy an air conditioner, if he could be identified early in the purchase cycle, it would be practical for a sales organization to continue to pursue this consumer until the final purchase is made.
Because of the combination of (a) the difficulty of obtaining distribution of new products in traditional air conditioning outlets, (b) the potential effectiveness of consumer advertis ing, and (c) the feasibility of a strong consumer sales force, a manufacturer that was attempting to penetrate the Taiwan market would appear to be justified in using nontraditional channels of distribution. Nontraditional channels would enable a new entry into the marketplace to circumvent completely the majority of the barriers established by wellentrenched present competitors.
Selling central residential air conditioners through discount department stores or through major appliance chains would not be feasible as a result of the consumer s unwillingness to purchase through these channels because of their low credibility in terms of follow-up service. A manufacturer attempting to penetrate the Taiwan market through these channels would have to overcome this strong barrier of consumer nonacceptance.
Although it would be feasible from a consumer standpoint for a new manufacturer to launch a direct sales program, the risks attendant on this would seem to be greater than would be warranted by the long-term potential benefits. This is because of (a) the relatively large commitment of fixed costs required, (b) the inability of a new manufacturer to forecast sales based on historical data, and (c) the obvious long-term pull required to become established this way vis-a`-vis the potential retaliatory tactics that could be used by already entrenched competitors.
Although it would be practical to sell central residential air conditioners through small independent appliance dealers if the factory were willing to conduct training seminars for these dealers and handle the installation and follow-up service, the major problem with this approach also appears to be the large fixed cost investment required to achieve consumer awareness and set up the installing organization. In addition, it would not be practical for a manufacturer that was attempting to sell through these outlets to rely on leads generated by walk-in traffic, because the walk-in traffic factor in small appliance dealers is relatively negligible.
The most practical nontraditional channel available to a manufacturer attempting to penetrate the Taiwan central residential air conditioning market is major department stores, combined with a training program for these stores appliance salespeople and factory installation and service. This method of distribution receives extremely high acceptance by consumers and is available to a new manufacturer because of the advantages to the department store.

MARKETING PLAN ELEMENTS

The Zhenzhou Electric Corporation should launch a central residential air conditioning program exclusively through the largest department store chain in Taiwan. The program should include installation and service by the Zhenzhou Service Group and Zhenzhou-provided training for the department store ˜s appliance department salespeople. The following are the principal reasons for making this recommendation:
1. Obtaining local and national distribution would be greatly facilitated, and heavy consumer awareness would be generated through extensive advertising by the department store and an extensive sales effort directed at the large numbers of walk-in traffic.
2. Zhenzhou could rapidly become a major factor in the central residential segment of the air conditioning market, very probably obtaining a 10 percent market share during its first season in Taiwan. This is based on this department store s proven success at obtaining a 10 percent share of the appliance business in any given category, and on the wide acceptance of such a program by consumers.
3. Going exclusively through this department store chain would provide the chain with a much stronger motivation to sell Zhenzhou air conditioners. Zhenzhou should anticipate that the department store s support will be much stronger in terms of both advertising support and sales effort.
4. By providing the department store with factory installation and service, Zhenzhou not only would solve the department store s problems with subcontractors, but also would provide its customers with the ˜ ˜double guarantee (which the department store could capitalize on in its ads).
5. Such a program not only would be profitable on a national scale, but would achieve a payout in the first year. In addition to the high profitability of such a program, the department store would take on the burden of both the initial investment required to maintain the sales organization and the advertising costs.
Zhenzhou should employ the following tactical plans in entering the central residential air conditioning market in Taiwan. These plans are a radical departure from the normal ways of marketing central air conditioners in Taiwan, and they should effectively differentiate Eagle central air conditioners from the Zhenzhou Electric Corporation from other central air conditioners in the market.
1. Factory training. The program should provide factory training for the department store salespeople to equip them to sell air conditioners effectively, answer any questions the consumer might have, and teach them how to do estimating in the home.
2. Training seminars. A series of training seminars for appliance salespeople should be developed and conducted prior to implementation of either the promotion activities or the advertising. It is estimated that an appliance salesperson can be effectively trained in approximately two weeks; however, the organization of these training programs should begin immediately.
3. Factory installing and servicing. Installing and servicing of the air conditioner should be completely handled by the factory.
4. Warehousing. The warehousing of the air conditioning units should be handled by Zhenzhou and not by the department store. Because the physical movement of the actual unit will be directly from Zhenzhou to the consumer, through the Zhenzhou servicing organization, it would not be practical to warehouse the units at the department store. In addition, the motivation of the department store management will be increased because the store will not have to invest in inventory.
5. Fixed-cost installation. A single fixed cost should be established for the installation, so that the estimating can be done by the appliance department s salespeople. Establishing a fixed installation cost will make the estimating job relatively simple, as the only real variables will be the size of the unit and the accessory options.
6. High commissions. The program should be profitable enough for the store to enable it to pay its sales force a high commission relative to that paid on other major appliances, thereby significantly increasing the salesperson s motivation.
7. Store credit. The financing of the air conditioning unit and the installation and service should be handled by the department store chain.
8. Store estimating. The appliance salesperson should have complete control over the entire sale, including the initial sale, in-home estimating, and follow-through until the close is made. Specifically, the salesperson should go out to the consumer s home, conduct a thorough in-home survey, and then recommend the size of system that will exactly fit the requirements of the home. He or she will explain how the system works, what the installation will involve, and how much the system will cost. If the consumer decides to order, the salesperson will put in a call to Zhenzhou reserving the equipment and the staff needed for the installation. Zhenzhou will then install the system.
9. Merchandising support. The factory should provide the store with merchandising devices such as a display, wall banners, and pins for the salespeople to wear. Specifically, a freestanding display should be placed in the appliance department of each department store. The display should be designed to achieve high visibility. Brochures explaining the program should be inserted into special slots on each display. A button inviting inquiries about central air conditioning should be worn by each salesperson in the appliance department.
10. Advertising program. The advertising department of the chain should do the advertising; however, the factory should provide the chain with guidance on media selection because of its greater knowledge of the consumer. Full-page ads should be placed in media reaching every area of the potential market. The message in this advertising should promise the fastest , most efficient, guaranteed home air conditioning system available anywhere .
11. Store Margin. The store should receive a 35 percent margin on the unit itself and an additional 15 percent margin on the installation. Out of this, the store should pay for all advertising and for the commission to the salesperson.
12. Eagle brand name. The department store should be required to use the Eagle brand name on all Zhenzhou Electric air conditioners.

FINANCIAL PROJECTIONS

A marketing program wherein a manufacturer would sell central residential air conditioners through a major Taiwan department store appears to offer an excellent profit potential. On a national basis, this would generate sales of $72,304,000 and would yield an income before tax of approximately $14,526,000.

On the average sale of a central residential air conditioning unit at $1,645.00 retail, the margin to the department store at 35 percent off retail would be $575.00. This would give the manufacturer a sales-billed figure of $1,070.00 per unit. At a retail installation price of $355.00 and a 15 percent margin to the department store, factory sales billed would be $302.00. In sum, at a total retail installed price of $2,000.00, the manufacturer would realize sales billed of $1,372.00 per unit. This is illustrated in Table 11-2.

Table 11-2. Retail Sales Versus Sales Billed
Retail unit price	$1,645
Less 35% margin	575
Sales billed	$1,070

Retail installation Price	$355
Less 15% margin	53
Sales billed	$302

Total retail price	$2,000
Total sales billed	$1,372

In addition to these variable costs, the central air conditioning manufacturer would incur fixed costs for promotion, dealer training, sales and distribution, and initial project development. Although these costs would vary considerably depending on the forecasted volume, the following generalizations can be made:
1. Promotion costs for this program will consist largely of providing one display for each outlet for the purpose of attracting walk-in traffic. The maximum cost of these displays will be approximately $10,000 on a national basis. This cost would provide a cardboard display for each store.
2. The cost for training appliance salespeople will be approximately $30,000. This will provide seminars for all salespeople employed by the department store chain.
3. Sales and distribution costs for this program will run about 9 percent of sales billed for the installing organization and 10 percent of sales billed for the facility providing the air conditioning units. This cost would cover the sales maintenance of a large department store and the warehousing of product and its delivery to the home.
4. Project development cost for this program will be $55,000. This will include the cost of writing training manuals, supervising the development of the department store s advertising campaign, and modifying the original plan as sales begin to develop.

The net effect of these expenses is that at a retail total installed price of $2,000 per unit and at a 10 percent share of market, the Zhenzhou Electric Corporation should expect to earn approximately $14,526,000 in income before tax in the year 2000. Table 11-3 gives a forecasted P&L.

Table 11-3. Taiwan Central Residential Air-Conditioning Forecasted Profit and Loss for 2000 (000)
	Air-Conditioning Sales	Consumer Service	Total
Unit sales	52,700	52,700	52,700
Sales billed	$56,389	$15,915	$72,304
Product/installation cost (70%)	39,472	11,140	50,612
Net sales	16,917	4,775	21,692
Promotion	10	”	10
Dealer training	20	10	30
Sales and distribution	5,639	1,432	7,071
Product development	45	10	55
Total marketing	5,714	1,452	7,166
Income before tax	$11,203	$ 3,323	$14,526

^[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.