Sample Answer With Headers
Question 4 for BUS 704

4. A. Recommendation.

    1. Strategy.

    American Entertainment, Inc. (AE) should increase sales to new customers within their current market area by undertaking a series of intensive direct mail advertising campaigns over the next three years to targeted potential customers within Miami-Dade County.

    2. Explanation of strategy.

    The objective of these campaigns would be to increase sales for the company to new customers within their current market of Miami-Dade County by steadily rising amounts over the next three years. Since the potential high-income customers can be easily identified and represent a small subset of the total population, direct mail has been selected as the most cost effective method of marketing.

    The major problem that AE faces is that sales have leveled off after four years of growth and are no longer growing. This is in spite of increased television advertising (Dubcek, 1995). In order to get sales growth restarted and continue its past climb, they need to find more qualified customers. The current mass marketing approach isn't working anymore and is a waste of money. Since they can identify the specific characteristics of their potential customers, they should purchase mailing lists of households with over $125,000 in income and send direct mailings to them. This should be started with a test mailing to the Zips within a five-mile radius and then expanded once the approach is proven. Later mailings could possibly also be expanded to include incomes as low as $110,000 (90% of current customers). Results testing for this would be important.

    3. Support for strategy appropriateness.

a.  Values.

    Management wants to grow the business, but still be in direct touch with their employees and customers (Dubcek, 1995). A controlled growth strategy within a small geographic area satisfies both of these values as management can still personally interact with all employees by maintaining a central location for sales, in-home installation and service.

b.  Environment.

            Studies project a growing market for high-end home entertainment systems nationally (Dubcek, 1995) supporting a strategy of growth within their current product/service line. Local forecasts are for continued growth of housing units within Miami-Dade County with incomes in excess of $110,000 (Dubcek, 1995) which directly supports the strategy of remaining within the current geographic market.

c.  Mission.

    The mission is focused on providing exceptional quality in-home entertainment systems (Dubcek, 1995). The proposed strategy continues to provide this same high quality to the same in-home customers rather than expanding to new customers/markets such as commercial systems or lower quality systems.

d.  Feasibility.

    The company already has a great reputation, a complete line of high quality brands, and trained and motivated employees (Dubcek, 1995). The proposed strategy builds on these internal strengths. The strategy is feasible, costing less than $10,000 for the initial campaign. Subsequent campaigns would actually save money as television advertising could be reduced by much larger dollar amounts than the cost of the added direct mail programs. Additionally, since customers are within a small area, management can stay in touch with them and build on the good word-of-mouth provided by past customers.

    4. Support as the best strategy.

a.  Makes a difference.

    The company's management is not looking for high growth, just a reasonable expansion that allows them to maintain the highest quality and close personal service to their customers. This strategy should get the company back on track with the previous growth rates before the recent leveling-off. This growth of around 10% per year in sales should be easily achievable. Additionally, since the change in marketing approaches represents a reduction in the marketing cost per sale, this strategy should improve profits even faster than sales increase.

b.  Likely to lead to success.

    Earlier analyses showed that AE offered unique entertainment systems, reliably installed in customers' homes with extensive after-sales service. They are known for the high quality of their products and the excellence of their systems. However, their systems are very expensive and appeal primarily to upper-income customers. Their own market research studies show that their average customer has household income in excess of $125,000 and that 90% of their past customers had household incomes exceeding $110,000. Nationally, only 8.2% of households had income over $100,000. (Dubcek, 1995), and a lesser number had incomes over $110,000. It doesn't make sense to advertise to everyone through mass approaches like television, when only 6-7% of the people can afford to buy your product.

    The proposed direct mail campaign is a low risk approach. They have done some direct mail in the past, which has been successful (Dubcek, 1995). There is no change in the product/service or geographic market, so there is no risk of new markets or products. Since recent increases in television advertising have had no sales impact, it is unlikely that initial reductions in television advertising will reduce sales, while the added direct mail should have a positive impact.

    Since the proposed implementation is incremental in nature (try some, see if it works, then do some more), the strategy is a low risk strategy financially. Combine this with past successes and the ability to spend your advertising money only on people who can afford your product and it can be seen that this represents the best choice for AE.

    Finally, if the strategy is successful, it provides a base for future expansion after several years (for example, into Broward County), since direct mail, by its highly specific nature, can be used to gradually target areas furthest south and then move north if successful.

c.  Competitors.

    Finally, the company enjoys a good competitive position; number two in the county in their specialized niche (Dubcek, 1995). There does not appear to be any reason why a new competitor would appear in the near future that would be a serious threat (there are no national companies in this niche). To succeed in this market requires a critical mass of brands, products, and installation skills - something not easy for a new company to assemble in this industry. Nor does it appear likely that any existing competitor could adopt counter-strategies that would negate the success of the proposed strategy.

4. B. Relation to analysis tools.

    1. Internal/External Matrix. Direct mail marketing is an example of a market penetration strategy. Market penetration is one of the strategies recommended by the internal/external matrix in #1.

    2. BCG Matrix. The BCG matrix in #2 shows that AE is barely a star (.55 on the relative market share axis). The theory recommends that considerable effort be made to maintain stars. The direct mail proposal continues to invest and grow this star business and matches the theory's recommendation. Additionally, since they are close to the line, it is even more important, according to the theory, to increase sales to move more solidly into the star quadrant (Kulzick, 2000).

    3. Market Share Theory. Finally, according to the market share analysis in #3, they are one of the top three companies in their defined market. This theory recommends that AE remain in their current niche and compete utilizing a broad product line and cost leadership strategies. The proposed direct mail campaign would maintain their existing broad product line and allow them to more fully penetrate their existing market.

    See FAQ - GE Matrix for sample 4.B. on the GE Matrix.

    See FAQ - CPM - Competitive Profile Matrix for sample 4.B. on the CPM.

Related information:
        Sample Outline Question 4A for BUS 704

- R. S. Kulzick - 01/06/2002 - last updated 12/31/2009 -

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