Knowledge, Innovation and Product Development

Introduction

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Mr. Tom Morris will set the foundation stone for Morris Auto Accessories Company, who will launch this enterprise in 2007. The parent company is involved in the manufacturing of automobiles with customized features. A life long love of automobiles for Tom and Cuyler has spanned 40 years. Over the years they have grown in love with the automobiles, and today are known as one of the most successful auto companies in the United States as well as a company offering luxurious products with great quality.

Background

Morris Autos is a well-established, financially successful company with a strong reputation for quality and performance, and loyal and knowledgeable customers.

The company has an initiator approach to selling, which is largely due to the direct competition in its principal target market.

Morris Autos has grown steadily over the years building a range of semi-custom finished heavy bikes and luxurious automobiles which now number close to one-fifty.

Its products, high-performance cars and heavy bikes, are made to order with a delivery time of 9-15 months, while prices are negotiated individually with clients, depending on the automobile specifications.

As Morris Autos has grown so have their services and facilities. Today, the family business has expanded into a complete automobile service organization including brokerage, chartering, winter indoor heated storage and custom automobile construction.

 

Although the demand for expensive luxury goods declined in the 1980s, the company faced a problem of a continuous decrease in its sales volumes, which proved not to respond to price cuts, but throughout the 27 year old history Morris Automobiles Company has developed sail or power, and the labor and design skills to handle routine maintenance inclusive of more complicated restorations and rebuilds to all Automobiles owners.

Morris Automobiles is a family run business supported by a highly skilled team of professional automobile builders, service technicians and sales personnel. Their goal is to build the finest semi-custom “sound enhancer” and power automobiles detailed to each owner’s vision and supported by exemplary after sales service. “Fulfilling this goal they assure pride of ownership and outstanding resale value for our customers, as well as employee satisfaction, long term profitability and stability for the company” (Adler, 1999, 7-16). Their facilities are open to all visitors and gladly welcome the opportunity to show you first had the Morris difference.

Analysis of the present marketing situation

In this phase I evaluate where the company is now, where it wants to go, and what level of resource capability does it poses. In conducting a situational analysis, two types of information need to be assessed-internal and external.

Internal (business related) information

Financial resources and capabilities

In relation to information given from the Morris Automobiles Company papers and articles found, the company is a well-established and financially successful one. It has operated in a market segment where it offered luxury goods, a market segment where profit margins are high (Adler, 1999, 7-16). Even though the company had financial problems in the past I believe that the company will not encounter obstacles in providing sufficient financial resources to invest in launching a new product on the market.

Operating facilities

The process of launching serial production in its nature requires a new organizational technical and technological approach. Therefore, the company will have to invest in increasing the production capacity. Thus, it can also use some of the existing technology as well as the existing manpower.

Company’s strengths and weaknesses

Strengths: financially rich, well-established, strong reputation, tradition, high name recognition, high product quality and performance, loyal customers.

Weaknesses: decrease in sales volumes for 12 years (1980-1992), reactive approach to selling, no distribution methods and channels, no formal pricing of products, low advertising and promotion activities, long delivery time (Gloria, 2003).

My task will be to set up such an organizational structure and correlation among the elements of the marketing mix to transform all weaknesses into company’s strengths. This is a complex task because the need for detailed market research will emerge since the company is entering a new market segment in which it has no experience and it will encounter a significant amount of competitors.

External (market related) information

Environmental constraints

The company is the leader on the market segment for expensive and luxury high-performance automobiles and thus follows the latest trends and implements the latest technology in manufacturing its products.

Market conditions

In order to asses the conditions of the new market segment where Morris Automobiles Company will operate the need information about the size of the market in geographical terms, size of the market segment that the company will serve, customer’s buying habits in the specific market segment (Gloria, 2003). Apart form the findings of the consultant that the new customers, and new target group are less knowledgeable about automobiles and sailing and would expect a greater degree of `active selling` of the product’s benefits, there are no additional information necessary to asses the market conditions.

Analysis of competition

To have a successful placement of the product in that market segment, I need a detailed analysis of the competition by determining the number of competitors, their market share, and their strengths and weaknesses in terms of product quality, prices, distribution channels, marketing communication activities with emphasis put on analyzing the current market leader.

Opportunities

The company, however, does have the opportunity to capitalize upon its reputation and strong brand name associated with quality and high performance by developing a new product, a smaller and a lower priced automobile, and offering it to a ,for them, new market segment.

Threats

However, many potential threats exist for the company beginning with the unfamiliar new market environment, no previous experience in that particular market segment, little knowledge about its new target group and their buying habits, increased competition in the new market segment and little knowledge about its new competitors, the risks of the new product development processes, risks of structuring a new distribution network, changes in the company’s organization structure in order to enable planning, development, production and launching of the new product on the market, additional employment and training of staff.

Strategic Imperatives

Although Morris Automobiles Company is a well-established, financially rich, successful company with tradition and strong reputation for high quality products, it has reached a dead end in its evolution and development, facing a problem of decline in sales. The company served a tiny segment of the market, where it delivered high quality products and enjoyed the little competition and high profit margins of that particular market segment (Kotler, 1999). However, the company’s management did not have a proactive development strategy. They made no effort nor did they foresee the need of operating on other market segments which characterize with a more consistent demand, thus dispersing the risk.

Faced with a decline in the demand for luxury goods, Morris Automobiles Company undertook corrective actions, i.e. price cuts in two consecutive years, which proved unsuccessful-sales, remained sluggish. Further price cuts, according to the consultant, were not a good strategy because in the long run they would be detrimental to the image and the reputation developed by Morris Automobiles Company.

Principal Assumptions

The consultant (ME) hired by Morris Automobiles Company Managing Director sees a way out of this situation. His proposal is that the company should capitalize upon its high reputation and strong brand values associated with its name in terms of high product quality and performance. Morris Automobiles Company should develop and introduce a new product, a new range of smaller and lower priced “sound-quality enhancement auto accessory”, and than offer them to a new market segment. However, this is not an easy task. It involves a high level of risk because the company moves away from its existing product and market (Kotler, 1999).

Besides developing the new product the company will have to structure a distributing network throughout the country, implement a formal pricing and discount system and invest heavily in advertising and promotion of their new product.

Even though the company is aware of the bigger competition it will have to face in the new market segment, the more consistent patterns of demand in this segment will enable it to sustain more stable sales volumes and thus, profits.

Preliminary marketing objectives

Developing a new product with features that will satisfy the needs of the consumers on the market segment where we plan to place the new product

– Introducing and positioning the product on the market

– Developing a distribution network throughout the country

– Developing a formal pricing system

– Developing a program for advertising and promoting the new product

– Achieving a planned percent of sales volume

– Achieving a specific percent of market share

Increase profitability

Marketing objectives by definition have to measurable, attainable and have specific deadlines. Therefore, a thorough, detailed and exact research and analysis is needed regarding market demand, competition, customer’s motives, prices as well as their constant monitoring.

Target market selection

The company will need to undertake a thorough research of the market segment where it plans to sell its new products in order to gain deeper understanding about its future potential customers.

Once situation analysis is performed and objectives are set, the company then needs to segment the market by identifying the segmentation variables (geographic, geo-demographic, demographic, behavioral and psychological and lifestyle) and develop profiles for each segment. After segmenting the market, the company needs to decide which market segment to target by assessing the size and growth potential of each segment, its profitability, and whether the company has the necessary resources to operate successfully on that particular market segment.

Buyers need to be categorized on the basis of their characteristics and their specific product needs with the aim of developing a product and a marketing program to satisfy the different customer tastes and demands.

Apart for the information that our new customers are less knowledgeable about automobiles and sailing, the case study gives insufficient information to perform the above-described analysis.

Positioning Statement

The process of positioning refers to designing the image and the values of the product so that the customers within the target segment understand what the company or the brand stand for in relation to the competitors.

When positioning the new product Morris Automobiles Company should emphasize their long tradition and success in building high-performance Automobiles and power accessories, the company’s strong reputation for high quality and performance and the strong brand values associated with its name. These attributes will for sure distinguish Morris Automobiles Company from its competitors (Kotler, 1999).

In order to select the best market position, Morris Automobiles Company will have to identify the current market structure and the market positions held by competitors. This can be done by creating a brand map.

Furthermore, the company needs to assess whether it has the resources to reach the desired market position and if it does, will it be able to operate effectively and profitably in the aimed market position.

Marketing Mix Concept

The concept of the marketing mix consists of the four elements (product, place, price and promotion) which when put in co-relation are instruments for strategy implementation and achieving marketing objectives.

Product

Even though the company has an initial idea to produce smaller automobiles with lower prices, this idea needs to be developed further. The process itself consists of three phases:

– Product planning

Product Development

Product Launching

In the first phase of product planning the company generates and evaluates ideas for new products, based on information about consumer’s needs, desires and preferences, supplied by a thorough marketing research (Gloria, 2003). Once the idea is chosen, like in our case, to produce smaller automobiles, the company needs to determine what technology to use in the production process and decide upon the product attributes such as product quality, brand name, product features, styling, size and colors.

The second phase is the actual physical development of the product and its testing to assure safety and functionality. Market testing is also a part of this phase and consists of testing the new product on a representative market sample. Market testing provides input on eventual product weaknesses.

The last phase of the process deals with the product’s commercialization i.e. the launching of the product on the market. In this phase the company will need to decide when, where and how to launch the product on the market.

Distribution

Since the company has decided to implement a serial production of the new product, it would require a structured distribution network throughout the country which will bring the automobiles to the potential customers.

Morris Automobiles Company had made to order type of production and did not feel the need to develop a distribution network. Either, the company delivered the ordered automobile or the customer would pick it up himself. The delivery times were very long, 9-15 months. Having in mind the new customers, Morris Automobiles Company will have to establish an excellent distribution network because the customers, as noted by the consultant, will not be prepared to wait that long for a delivery.

The company must decide whether it will establish its own distribution channels or use already existing ones. Furthermore, Morris Automobiles Company will need to invest in educating the distributors about the product features and its benefits in order to provide an excellent assistance to the potential customers. Other very important aspects to decide upon are the level of stock required for normal operation, supplying customers with after-sales services, and spare parts for the automobiles.

Price

It was a company’s practice to determine prices through negotiation with each customer individually, depending on the automobile specifications. The serial production of the new products, however, requires a development of formal pricing, a structure of discounts for distributors, as well as crediting policies. When determining the price, the company should take into consideration all costs related to planning, developing and launching the new product on the market. Furthermore, another orientation in setting prices could be competitors’ prices on the market. However, the company must always have in mind its corporate objectives and set such prices that would support and facilitate achievement of those objectives.

Promotion

The new product can not stimulate demand by itself even if it has the highest quality and the best design. Therefore, the company has to facilitate the launching of the new product by developing adequate marketing communication activities, thus enabling a more ‘active selling’ of the product’s benefits which according to the consultant is necessary due to the target group’s lack of knowledge about automobiles and driving (Ettlie, 2001).

The marketing communication activities mentioned above refer to advertising campaigns, sales promotions, personal selling, and public relations. The marketing communication activities are quite expensive, so the company has to decide what would be the best way to promote the new product, choose the media, and determine a budget.

The company will not limit the advertising and promotion of the product in the launching phase only, but will continue to do so in the future phases of the product’s life cycle.

Implementation and Control

The implementation of the marketing plan is a highly complex matter and the process involves all of the company’s business functions.

The Finance department should supply the financial resources required for the development of the new product and its launching on the market.

The Supplies department is responsible to deliver high-quality raw materials necessary for production according to the product specifications.

The Production department is required to produce the product according to the given product specifications.

The Marketing department is responsible for developing and implementing the marketing mix concept – product, price, distribution and promotion and following the product’s initial sales volumes (Ettlie, 2001).

The Planning and Control department is responsible for planning the new product, its features, market positioning, etc. and controlling the process of implementation of the plan.

The process of control in highly related with the planning process. Therefore, I find it absolutely necessary to set up a department that would evaluate the results achieved within a certain time frame, compare them with the objectives set and provide feedback for eventual corrective actions (Ettlie, 2001).

Budget

The development and the launching of the new product range are connected to significant costs. “In order for the company to be able to implement the marketing plan successfully, it needs to define a budget by assessing all expenditures related to the new product development” (Griffin, 2004).

In order to determine the budget, the company has to assess the following:

– Costs of market research

– Costs of product planning

– Costs of product development

– Costs for setting and organizing the production process

– Costs for setting the distributive network

– Costs for product launching

“Furthermore, on the bases of the defined budget, the company can decide whether it has the money to undertake the new product development project. And finally, before commencing with the implementation of the marketing plan, the top management of the company has to agree with the budget”. (Morris Yachts marketing plan. – CheatHouse.com)

Conclusion

In order to overcome these problems and be able to successfully implement the plan for a new product development and execute its marketing plan, Morris Automobiles Company will have to establish a Marketing department as part of its other key business functions thus employing new people with relevant education and experience.
References

Adler, P. S., Riggs, H. E. & Wheelwright, S. C. 1999. Product Development Know-How: Trading Tactics for Strategy. Sloan Management Review, 31:1, 7-16.

 

Baalbaki, Imad B; Malhotra, Naresh K. Marketing management bases for international market segmentation: An alternative look at the standardization/customization debate. International Marketing Review; 1993; 10, 1; pg. 19

 

Barczak, Gloria (2003). Managing Global New Product Development Teams. Institute for Global Innovation Management Working Papers.

 

David, N. Mcarthur, Tom Griffin; 2004. A Marketing Management View of Integrated Marketing Communications. Journal article Journal of Advertising Research, Vol. 37, pp 1

 

Ettlie, John (2001). Three takes on NPD.  Automotive Manufacturing and Production (June).

Keegan, W. Multinational Product Planning: Strategic Alternatives. Journal of Marketing, Vol. 33 (January, 1969), 58-62.

 

Kotler on Marketing: How to Create, Win, and Dominate Markets, Philip Kotler, April 1999

Marketing Management: Millennium Edition, Philip Kotler, July 1999

 

Marketing Management: Analysis, Planning, Implementation, and Control, Philip Kotler, June 1999

 

Morris Yachts marketing plan. – CheatHouse.com

http://www.cheathouse.com/essay/essay_view.php?p_essay_id=69082 Accessed, April 4, 2007