Marketing Case Analysis of Tweeter Electronics

2. TWEETER IS A SPECIALTY CONSUMER ELECTRONICS RETAILER PROVIDING MID
AND HIGH END ELECTRONIC EQUIPMENT
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Founded : Early 1972
Founder : Sandy Bloomberg
Roots : New England
Company Acquired : Bryn Mawr Stereo
Types of Stores :
1. Specialty stores
2. Mass Merchants
3. Department Stores
4. Mail Order Houses
Stores : 21 stores(1996)
Annual Sales : $82 million(1996)
Company
Customers
Competitors
Collaborators
Context
• Audio and Video equipment
• Present in the market since a
long time - 21 stores in 1996
• Entry level Customers
• Price Biter
• Quality/Service
• Lechmere
• Circuit City
• New Wiz
• Bryn Mar
• Bad Economic conditions in ‘87-’88
• Seasonal Factor
• High Bargaining Power of Consumer

3. TWEETER’S GROWTH RATE OVER THE YEARS HAD BEEN BETTER THAN THE
INDUSTRY AVERAGE
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50
40
30
20
10
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-10
-20
PERCENTAGE GROWTH RATE
Company growth rate Industry Growth Rate
Period:
1992-1996

4. 1. ABANDONMENT OF THE “SALE” CONCEPT
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• Two negative impacts that the sales were having were:
• Too many makes and models of product, making it impossible to compare prices across retailers
• Weekend “Sale” was diluting the USP of the company – high quality products and great customer service
2. AUTOMATIC PRICE PROTECTION (APP)
• Retailing tactic intended to assure consumers that they were receiving the best prices available
• Consumers were promised to refund 100% of price difference for a period of 60 days
• Tweeter itself tracked local newspapers and sent out rebates
• Applicable to items over $50 and a price difference of more than $2
3. CHANGE IN THE MARKETING MIX
• Aim was to restore price capability by shifting their marketing mix away from print advertising (to promote
“Sale”) and toward television and radio advertising (to promote Tweeter’s Price competitiveness and APP
Policy)

5. TWEETER WAS INITIALLY POSITIONED UNDER THE PREMIUM STRATEGY ALONG
WITH CAMBRIDGE AND SOUNDWORKS
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High Medium Low
High
Medium
Low
Tweeter
Cambridge
Soundworks
-
-
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Lechmere
Circuit City
The Wiz
-
-
Fretter
Highland
Tech High-Fi
Price
Quality
Actual: HQ-HP
Perception: HQ-HP
Actual: MQ-MP
Perception: MQ-HP
Actual: MQ-LP(MP)
Perception: HQ-MP
Till
Mid
‘80s
‘80s to
1983
1983
to
1996

6. High Involvement
• Thought for 2 months on average
• Visited 2-3 retailers prior to purchase
• Actively checked advertisements
Consumers familiar with Tweeter:
• High-Quality, High Price Perception. 80% had
preference for Tweeter if price were not an
issue
• Visited Lechmere (60%) and Fretter (45%)
Entry Level
Sought
Cheapest
Item
Classification
of Consumers
on their
Behavior
Price Biter
Absolute
Best Deal
Convenience
Shopping
Convenience
Quality
Service
Quality and
Service,
BBCO policy
CONSUMER BEHAVIOUR BEFORE CHANGE
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QUALITY/SERVICE
• High Level Product
Quality
• High Level
Customer Service
• Price Concern:
Moderate to Low
• Policy: BBCO
• Constituted 10% of
New England
Market
• Preferred Store:
Tweeter
PRICE BITERS
• Moderate Level
Product Quality
• Moderate Level
Customer Service
• Price Concern:
Moderate to High
• Policy: Absolute
Best Deal
• Constituted 15% of
New England
Market
• Preferred Store:
Circuit City
Preferred Stores
Customer
Segment
Total Market Tweeter Lechmere Circuit City
Entry Level 50% 5% 40% 35%
Price-Biter 15% 20% 10% 35%
Convenience 25% 5% 40% 15%
Quality/
Service
10% 70% 10% 15%
QUALITY/SERVICE VS. PRICE

8. THE USE OF EDFP AND APP BY TWEETER TO CHANGE CONSUMER BEHAVIOR
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• In fact, it is not just intended to change the behavior but also the consumer perception
• Tweeter had lost Price Credibility
• Tried to Change consumer behavior and perception towards it by the “three pronged attack”
Role of EDFP:
• Aimed to Promote Consumer Spending
• Restore the “Perceived Value” USP
• EDFP pointed to a more stable mindset resulting in favorable consumer perception (similar to EDLP vs. High Low Pricing)
APP: Meant to communicate Price Competitiveness
Eliminate the need for extensive, price-based search: Consumers indicated that if price were not an issue, they
would prefer to buy at Tweeter
Break the “wait for a sale” buying mentality: Under APP, consumers have less incentives to wait
Convert “potential” or “free-riding” customers: APP eliminates the need to travel to another location
Smoothens demand over time: APP eliminates the cyclical buying patterns of sale-based retailing
Creates positive word-of-mouth (since word-of-mouth has a significant impact on buying behavior)

9. TWEETER AND CIRCUIT CITY FOLLOW DIFFERENT STRATEGIES TO ATTRACT
CUSTOMERS
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• Focus groups
 Entry level
 Price Biter
 Convenience
 Quality/Service
• Advertising Slogans
• Skilled salespeople
• Weekend sales to Everyday fair pricing strategy
Customer Segment
Total Sales in
1996
Total
Market Tweeter
Circuit
City Tweeter
Circuit
City
Entry Level 31914 0.5 0.05 0.35 797.85 5584.95
Price Bitter 31914 0.15 0.2 0.35 957.42 1675.485
Convenience 31914 0.25 0.05 0.15 398.925 1196.775
Quality/Service 31914 0.1 0.7 0.15 2233.98 478.71
V/S
• Good consumer service
• Skilled sales-force
• Huge variety of products (Personal
computers, home appliances, audio tapes
and compact discs)
• Media blitz advertising

10. APP DIDN’T WORK BUT EDFP DID, WHY?
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APP has NOT been effective because:
Reasons:
• Failure of the same w.r.t. Bryn Mawr
• Unaltered High Price Perception
• Mere 32% people cognizant of APP
• Only 22% people aware that Tweeter
offers it
• Among those aware of Tweeter’s APP, 59%
still perceived it High Priced or didn’t
know the implications
• $783,000 given out in Checks
EDFP turned out to be effective because:
• Pointed to a more stable mind-set
• Resulted in more accurate consumer perception of price as opposed to High-Low pricing
• Focus on USP: High quality products and great customer service
EDFP depicting Stability
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11. ALTERNATE PRICING STRATEGY
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Pricing Objective
• Current: Maximum Market Share
• Suggested: Product-Quality Leadership
Demand Determination
• Survey suggests 70% of people are Quality-Service Consumers
• Less price sensitive  Inelastic Demand Curve
Cost Estimation
• Advertising Costs: Paid Media: TV, Radio, Print Media
• Should focus on Earned and Owned Media too
Analysis of Competitors Costs, Prices and Offers
• Lechmere, Circuit City, The Wiz focus on Market Share
• Hence their prices are very low
Pricing Method
• Current: Going Rate Pricing
• Suggested: Perceived Value Pricing
Selecting the Final Price
• Brands with High Quality and High Advertising command the highest premium
• Tweeter should follow the same path esp. with customers attaching value to its customer support too

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Watch, but don’t take on the
new rival
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Don’t launch a price war. Increase the differentiation of
your products by using a combination of tactics
Are sufficient
number of
consumers
willing to pay
more for the
benefits?
Learn to live with a smaller company.
If possible, merge with take over
N N
rivals
If Low-Cost
business is set-up,
will it
generate
synergies with
existing
business?
Switch to selling solutions or
transform your company to a
low-cost player
Attack your low-cost rivals by setting up a low cost
business
Intensify differentiation by offering more benefits. Over
time restructure the company to reduce the price of
benefits offered
Y
Y Y
FRAMEWORK FOR
TAKING ON LOW-COST
RIVALS
Will competitors
take away market
share?

13. FACTORS FOR APP EFFECTIVENESS
 Tweeter’s customers pay lower prices for products that overlap with its competitors.
 Tweeter’s small stores and higher levels of customer service translate to a higher costs of operations.
 The key to success for Tweeter is the management of their product overlap:
 Sufficient product overlap to make APP a credible promotional strategy in the eyes of the
consumers.
 Sufficient product uniqueness to generate the overall customer margins necessary to maintain
the business.
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14. PRICE COMPARISON WITH COMPETITORS
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554
229
Lechmere Circuit City The Wiz Tweeter
713
261
507
240
740
244
563
229
737
355
648
389
845
642
2 7 ” C O L O R T V MULTIPLE CD PLAYERS CAMCORDERS STEREO SPEAKERS
MEAN PRICES ($)
PRODUCT LINE
 Tweeter’s Mean Product Prices are higher by 15-27% for 27” Color TVs
 Tweeter’s Mean Product Prices are higher by 65% for CD Players
 Tweeter’s Mean Product Prices are higher by 125% for Stereo Speakers

15. ANALYZING PRODUCT PORTFOLIO & PRICE COMPARISON
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Color TVs
Lechmere
Competitor
Circuit City The Wiz
Competitor's Mean Price $675 $552 $666
Tweeter's Mean Price $668 $566 $676
Number of Overlapping Models 10 5 9
CD player
Competitor
Lechmere Circuit City The Wiz
Competitor's Mean Price $193 $255 $215
Tweeter's Mean Price $180 $257 $200
Number of Overlapping Models 3 4 4
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16. ANALYZING PRODUCT PORTFOLIO & PRICE COMPARISON (CONTD..)
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Camcorders
Stereo speakers
Competitor
Lechmere Circuit City The Wiz
Competitor's Mean Price $893 $875 $805
Tweeter's Mean Price $895 $877 $806
Number of Overlapping Models 11 11 8
Competitor
Lechmere Circuit City The Wiz
Competitor's Mean Price N/A N/A $198
Tweeter's Mean Price N/A N/A $200
Number of Overlapping Models 0 0 1
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17. THANKYOU