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Boosting retail business sales
After winding down from a hectic Carnival season, Janet Simon was reviewing plans for the upcoming year at the electronics store that she managed with her husband.
The couple had recently discussed finding new ways to serve their existing customers and the need to reach a wider audience for their products and services. Janet was excited by the thought of developing a Web site and offering the company’s products online but was not sure if her husband would be receptive to such a major change in strategy.
The marketing strategy they had put in place five years ago seemed to be working reasonably well but she sensed an overhaul was needed if they wanted to remain competitive and improve sales.
Simon’s Electronics opened for business in 1998 and, over time, had developed a reputation for offering superior customer service and reasonable prices on a wide range of household appliances and electronic equipment. Shortly after opening, the owners had started offering high-end headphones and speakers for sale but this experiment was short lived as sales were slow and stocking these items tied up too much cash in inventory.
As Janet recalled “My husband and I learnt our lesson from that fiasco, stick with what you know you can do well”. With the widespread introduction of high definition television sets to the local market in 2005, sales had flourished as customers upgraded their old sets to the newer digital models. Sales of HDTV sets currently accounted for 40 per cent of total revenue and the store was also one of the few places where customers could have their sets repaired.
In recent years, the repair and service department had experienced rapid growth although sales of the televisions themselves had slowed sharply as larger competitors entered the market.
Overall, sales had declined 14 per cent over the past three years as consumers responded to a slowdown of the local economy by delaying purchases of big ticket items such as HDTV sets.
When Simon’s Electronics first opened, the local market was divided between the large retail outlets which sold a wide range of furniture and household items (including electronics) and smaller independent electronic outlets.
The larger retailers typically carried a narrow range of name brand products which tended to be similar in price to what was available at the smaller electronic stores. These retailers were, however, able to offer deeper discounts during their sale periods due to the economies of scale that they enjoyed. In contrast, the smaller stores frequently stocked a wider range of items, including lower quality brands that were sold at much cheaper prices than the more popular brands.
Several of the smaller stores also competed by stocking a variety of parts and accessories as well as providing a repair service for the items they sold. This repair service was also available to customers with products purchased from the larger retailers but which were no longer under warranty.
The downturn in the local economy had seen a significant shift in the market with fierce competition among retailers and the exit of many of the smaller electronics stores. The entry of a membership warehouse club into the market had further depressed the price of electronics and generally made customers more price sensitive.
The customers who patronised Simon’s Electronics comprised four distinct groups. There was a relatively small set of commercial customers consisting of bars and pubs who provided multiple televisions for the entertainment of their customers. These business customers often bought multiple units and required both installation and after sale service. The sets that were bought tended to be larger, high-end units and these customers were more focused on reliability of the sets rather than the sticker price.
Hobbyists comprised another core group of customers. These were primarily persons looking for parts to build or repair their own electronic devices. This customer segment was mainly interested in electrical accessories and power units which could not be easily sourced at the larger retailers. These customers tended to be middle aged or teenaged males who were serious about their specific projects and though limited in number, were very loyal to the store.
Over 50 per cent of the store’s sales was derived from customers who were unfamiliar with the newer technologies available and depended on the sales assistants in the store to provide recommendations about the products they should purchase.
In order to cater to this segment, Simon’s Electronics invested in a high level of training for its employees so they could easily explain the features of all the products sold in the store. This level of service was difficult to obtain in the large retail stores and many of these customers relied heavily on word of mouth referrals when selecting electronics. This segment was quite price sensitive and less interested in purchasing the most updated technology in the market.
The final set of customers were younger, upwardly mobile professionals and students who were very knowledgeable about the latest technologies and were incredibly price sensitive. They were more likely to buy niche brands and products that might not be available at the larger retailers and spent a lot of time online researching these products before they made a purchase.
This group made up the second largest segment of customers for the store and were most likely to bring in products purchased elsewhere for repairs.
Simon’s Electronics carried a variety of electronics and small electrical appliances.
The store had a wide range of HDTV sets from all the leading manufacturers along with accessories and wall mounts. The inventory also included musical supplies and specialty wiring that would be needed to install home audio equipment.
In an attempt to diversify its product lines, the store had recently received a supply of cellphone cases which Janet hoped would appeal to the students and young professionals. Small appliances and electrical parts needed by DIY builders rounded out the store’s inventory.
The store policy was to set prices that were equal to or no more than 10 per cent higher than competitors. Repair services were priced based on a combination of parts and labour. Janet paid the repairmen $50 per hour but used a rate of $100 per hour when calculating the customer’s bill.
A 50 per cent markup was also added to any parts that were required to complete the repair. The store currently offered a 90-day warranty on items purchased and Janet was considering charging a service fee to customers who wanted a longer a longer warranty period. She was still unsure however, how many customers would be willing to pay for this service.
Little promotion was conducted by the store since the owners believed that there was no better advertising than having satisfied customers spreading positive word of mouth. Flyers for Simon’s Electronics were distributed on a nearby university campus and the store was listed in the Yellow Pages.
Once a year the store took out a full-page ad in one of the daily newspapers to advertise its inventory clearance sale, This sale saw prices on older models being reduced by up to 40 per cent and usually generated a lot of excitement among existing customers who sometimes timed their purchases to coincide with the sale. Janet was considering developing a website to promote the company and its products as well as using some form of social media.
She estimated that it would cost at least $10,000 to develop the site and recognised that she would have to hire an additional employee to maintain the site on an ongoing basis. Although implementing these changes could prove to be a costly mistake Janet was convinced that a more effective marketing strategy was needed to arrest the current decline in sales.
1. What are the major strengths and weaknesses of the business?
2. What segment of the market should the company target?
3. What marketing strategies should the owner pursue in order to ensure the viability of the business?
Dr Barney Pacheco is a lecturer in the Department of Management Studies at The University of the West Indies, St Augustine
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