Market analysis of the MEM company

This research analyzes the MEM Company, Inc. case. The findings of the analysis are presented in discussions defining the central issues, identifying strengthsweaknesses opportunitiesthreats (SWOT), developing alternative strategies, evaluating alternative strategies, and selecting the most appropriate strategy.

PROBLEM STATEMENT

Reviewing their sluggish sales over their most recent operational year in 1980, MEM Company, Inc. was considering ways to stimulate sales for the company's line of men's toiletries. Two main options surfaced; either 1) to expand distribution into food stores or 2) to introduce a new line called Cambridge.

SWOT ANALYSIS

Strengths

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MEM has a strong value delivery system by having good cooperation with retailers, offering retailers an extended payment period for Christmas shipments.

MEM had the largest sales force of 50 in the industry. MEM's commission-based remuneration encourages proactive promoting of sales. Thus it can maintain low turnover and higher quality and experience above the industry average. With an experienced sales force to take of customer needs, MEM can maintain a long term profitable relationship with its customers and turn them into "true friends". As it has a better sales force than its competitors, it is in a good position to reach out to food store chains, many of which are acquiring drug stores.

MEM has effective marketing communication channels such as advertising promotions, sponsorship campaigns and promotional programs. This leads to high and effective brand awareness. It has comparable brand awareness with Old Spice even though Old Spice had spent 1.5 times more than MEM has on all six lines.

MEM has achieved a higher distribution penetration than most of its competitors particularly in independent drugstores. The distribution channels of MEM are better suited for medium to high end fragrances, which includes MEM's target market of mid-range fragrances.

MEM has maintained its competitiveness in the mid-range market through their six product lines. Led by English Leather (considered as a "cash cow"),and its high distribution penetration in stores, MEM's market share had grown and ranked second in terms of market share in 1979.

Weakness

The lack of production efficiency, frequent need for short production runs, and seasonal sales, greatly limits MEM product line. For starters, some of MEM products such as gift sets require a lot of labour as they are not automated.

Another weakness will be the fact that most of MEM's market share revolves around English Leather. Putting all their eggs in one basket is a risky move, as the failure of the brand can extremely detrimental to MEM.

One of the management's weakness is their over emphasize on pricing to attract customers. Although it is true that price is a major factor for purchase decisions in the fragrance industry, they should focus more on the other "wants" such as hedonic appeal. Some might argue that MEM has six lines in the same mid range market. However, these six lines generate significantly less revenue than English Leather. This may suggest that MEM has made a mistake in segmentation, targeting or positioning. Failing to end the weaker brands also deprive MEM of growth in other areas.

MEM did not raise their prices as quickly as the other companies in the industry despite rising cost. While this may make their product more affordable in the short term, it might have lowered the attractiveness of the brand in the long run. Furthermore, the failure of increasing prices along with the industry lowered MEM's profit margin.

The slogan "All my men wear English Leather" is outdated.

MEM also does not have brand equity in the luxury fragrance market as it depended on other brands from the start.

MEM also has a budget deficit in the second half of the year. It is likely to require debt financing too.

Opportunities

Market Development: By expanding into new markets like major food stores, MEM will be able to acquire an additional distribution channel to reach out to a wider consumer market.

However, MEM will likely face strong competition from existing competitors with presence in the major food chains channel. For example, Old Spice, who is their strongest competitor in the men's toiletries market has already taken 20.8% of the market share (refer to Exhibit 6).

Market Penetration: It is less risky since MEM just needs to leverage on their existing resources and capabilities. It also lowers the advertising cost for MEM by focusing on the advertising efforts on their six existing lines to raise brand awareness amongst the consumers, rather than spending a large sum to promote a new product.

New Product Development: MEM believed to attract new customers and maintain consumer and trade interest in the men's toiletries market by launching the new product Cambridge. There was a favorable response from initial marketing research efforts for Cambridge. If effective, this will increase profits for MEM.

Lastly, the cologne market is getting increasingly lucrative where rising market of retail sales of 10% is estimated at $224 million. Hence, MEM can look to capturing a share of this.

Threats

MEM's 6 lines of fragrances faced intense competition in a fragmented men's toiletries market with 60 companies and 200 brands competing for consumer purchases. This is due to the low barriers of entry in the market to offer exclusive product launch. This is exacerbated by the fact that competitors are spending more on advertising to position their product, which might create a stronger brand awareness comparatively. Shulton spent 1.5 times the amount spent by MEM on advertising.

As a result, Consumers can easily find substitutes of MEM's products like Cambridge and switch to another companies' products due to change in consumer taste and preferences. This is especially so since men in the age group 18-34 are believed to switch brands the most easily.

Furthermore, English Leather is losing its appeal to men average aged 25. They feel that they have grown out of the brand which is associated as a more teenage fragrance, and are looking for sophisticated fragrances instead.

Lastly, many drugstores that are buying up the food stores make them one entity. If MEM were to expand into the food stores, they might face the problem of drugstores unwilling to provide them with additional shelf space for their products.

EVALUATION OF ALTERNATIVES

Market Development

There are pros and cons of MEM moving into food stores, a new market segment, with the current products it has.

Pros:

MEM's good reputation with stores will be advantageous for them to fight for the market share that they have not contested much in. This will help MEM to challenge for market share where their strong competitors have only 25% share in.

MEM's product range mainly targets the middle range, but the products at the lower end of the middle range like Lime or Timberline (Exhibit 1) can be introduced into the foodstores since their current sales are not good.

By distributing to food chains, MEM would be able to save on advertising costs if they choose to advertise its English Leather brand under the 'Cooperative Advertising Programme'. In doing so, the publicity achieved may allow MEM to reduce its budget on other more expensive forms of advertising such as television commercials.

MEM's customers have feedback that the products that the variety of products is limited by shelf space. By increase shelf space, MEM is able to display all their products which will increase sales.

MEM is able to re-allocate budget effectively by using communication budget for food chain to overcome 20% constraints.

Cons:

Strong and direct competitors occupied three fifth and MEM does not have first-movers advantage. MEM needs to plan its marketing strategy well in order to compete with its competitors

Might create unfavourable brand association since foodstores have traditionally stocked only the lower-end men's toiletries. However, mid-range toiletries' like old spice, Mennen skin Brenner (exhibit 6) have already ventured into the food stores and captured a substantial share in the foodstores. It is a venture that MEM should follow suit

New Product development: To introduce a new brand called "Cambridge". Cambridge was going to be target at men aged 18 to 34 and was to be sold at $10.

Pros

Periodic new product introductions in the men's toiletries market would allow MEM to maintain consumers, trade interest and sustain sales. The last product line MEM came out was Racquet Club in two years ago, and MEM has been introducing new product line every 2 to 3 years in 1970s.

Launching Cambridge might gain sales with potential new customers switching from competitor brands like British Sterling, Jovan and Brut in the medium price group. This is further supported by research evidence that that targeted consumer market has a high tendency to switch brands.

The English Leather brand name was known for its youth focus, which describe by their customer as "the brand 'all the guys wore in college'" (Exhibit 12). This allows MEM to attract a different target group and capture more customers since Cambridge was perceived as classic, understated, and dignified.

Cons

New product may lose out to competition. Cambridge's biggest threat will be Shulton's Blue Stratos as they are targeting the same market. Blue Stratos would be launched 6 months earlier than Cambridge and supported by a $12-million advertising budget, which is 4 times higher than Cambridge's highest planned budget (Exhibit 14). Entering a market with the competition having the first mover advantage and a greater communications budget is typically bad in the short term for any company.

Several experts pointed out that Racquet Club still has potential for growth. However, if Cambridge was launched, it would eat into the sales of MEM's other product lines such as Racquet Club, Lime and Timberline.

MEM will be in an Advertising dilemma. If Cambridge is introduced, MEM is required to have a large budget to support its strong advertising. However, among the three possible advertising schemes came out, MEM could not even afford the cheapest one. Although some of the people in MEM suggested that Cambridge could carry English Leather's name, consumers perceived English Leather as a brand for younger age group, but Cambridge as classic (Exhibit 12). Therefore, let Cambridge carry English Leather brand name to save advertising cost would not be a wise move.

Cambridge is also the name of a cigarette product under Phillip Morris, which might result in negative associations with the perfume.

Recommendations

Firstly, we arrive at a consensus that MEM should hold its Product Development approach and thus delay the launch of Cambridge. The company should proceed with its Market Development plan of expanding into food stores. Even before entering this new market, MEM already ranked second based on market share research thanks to its elaborate distribution channels. By expanding into food stores, MEM could possibly overtake its competitors through this new product channel.

Secondly, the strain on MEM's advertising budget with regards to its original 6 line of products can be tackled by selecting certain products to be marketed as "limited edition" products for seasonal sales. For instance, by removing Lime and Musk from the product line, Lime only contributed to 2.3% of dollar sales (least profitably product) as shown in Exhibit 5, the company frees up funds to support the 4 remaining products, including the more successful English Leather line and the relatively newer Racquet Club line. By making Lime and Musk 'limited edition" products that are heavily promoted during the festive seasons as gift sets, customers may be more obliged to stock up on these gift sets. MEM should therefore focus on their existing products which are doing poorly in the industry and not try to push for a new product altogether One way to add value its current product would be to attract customers by using glass packaging for the middle range products. With sophisticated packaging for products at similar prices, customers will be more inclined to buy MEM's products as more value is created for them as it is differentiated from the rest of the market

Finally, MEM could build on their key strengths as mentioned above. MEM has an "above industry average" efficient sales force but responsibilities are based on geographic territory. Moreover, due to the changing consumer demands, each of their products may require very different marketing strategies. Therefore, MEM could continue to tap on the efficiency of their sales force but reorganized them along with their product lines. This is to create more opportunity to influence product positioning and promotion in MEM's different distribution channels.