I. CASE SUMMARY The year is 1970 and the total coffee market has plateaued but the total decaffeinated segment is expected to double over the next 10 years. Furthermore, the decaffeinated coffee segment offers higher margins than the regular coffee segment making the decaffeinated coffee market a tempting target for competition. Given that Maxwell House's Sanka held 92% of the decaffeinated market its position would have been reasonably secure except for one major weakness... its poor taste. These factors prompted Maxwell House to launch Brim, a decaffeinated blend of high-quality beans with taste-oriented positioning. The introduction of Brim is a flank defensive maneuver designed to preempt competitors from entering the decaffeinated coffee market by further segmenting the overall coffee market and by providing a better tasting alternative to Sanka. Furthermore, management believed Sanka's 4.4% hold of the Instant and Freeze-dried market was about to face a serious threat from a decaffeinated version of Nestle's Taster's Choice Freeze-Dried, a decaffeinated product extension of an already successful brand positioned on taste.
Finally, with the introduction of Brim, Maxwell House hoped to insulate the division's decaffeinated position by offering a better tasting alternative to Sanka. In 1974, two short years after its rollout, Brim appeared to have won the race to national expansion over Nestle's Taster's Choice Decaffeinated. But within the next year Brim's growth stagnated while Taster's Choice Decaffeinated continued to grow and Proctor & Gamble introduced High Point. Now, two years later and six years after the introduction of Brim, the total coffee market is at a 20-year low, the decaffeinated segment has been stagnant for three years and there have been recent reports that the decaffeination process might cause cancer.
It is in this environment that Brim must develop next year's strategic plan and a five-year plan for its product group, modified coffees. II. STATEMENT OF THE PROBLEM Several key internal and external issues play an integral part to the main issue of whether and how to revive Brim. The key internal issues includes Maxwell House Division's recent designation as a "cash cow minus", Brim's negative margin and ROFE and the involvement of several levels of management. Key external issues include a stagnant mature market, increasing competition from new entrants, the growth of substitute products and the decline of Brim's product life cycle. Faced with a stagnant industry and declining market share Brim's product team faces two major tasks.
First, immediately arrest the decline of Brim's share in the total market. Brim's market share has dropped from 2.6% to 2.1% in the past two years and its market share is expected to decline to 1.9% within the next eighteen months. Second, Maxwell House must decide on a long-term direction for Brim.. FINAL DECISION IV. ANALYSIS A.) PRODUCT Background of Coffee According to legend, coffee was discovered in Ethiopia when goatherds noticed their flocks stayed awake all night after feeding on coffee leaves and berries.
By 1200, coffee had reached Arabia. Before its use as a beverage 700 years ago, coffee was a food, then a wine, and then a medicine. Coffee moved from Arabia to Turkey during the 1500's and to Italy in the early 1600's. Coffeehouses sprang up throughout Europe in the 1600's and became meeting places for discussion. Coffee came to America in the 1660's and coffee growing was introduced to Brazil in the 1700's. There are three general groups of coffee-Brazils, Miles, and Robust as.
Most coffees are named for the region where it is grown or the port from which it is shipped. The active ingredient in coffee is caffeine. Caffeine is a substance that acts as a stimulant on the nervous system. Research has shown that prolonged use of coffee in substantial quantities may lead to certain heart disease and increase the risk of potential heart attacks.
Market In the mid and late 1970's the overall coffee market was in decline. The coffee market had many characteristics of a mature market. Total coffee volume had plateaued and was beginning to fall; however, the total decaffeinated segment was expected to double by 1980. General Foods acquired Sanka, the first decaffeinated brand of coffee in 1932. Sanka held a 92% share of the decaffeinated market, but it was vulnerable because of one major weakness: poor taste. Research showed the main reason people were unwilling to switch to decaffeinated coffee was its perceived poor taste, and in particular, Sanka.
General Foods felt that to protect their stronghold on the decaffeinated market they had to employ a defense strategy. The chosen strategy was to use innovation to develop a product that operated in the same decaffeinated niche as Sanka but made up for it's taste shortfall. Product Defined According to Kotler, a product is defined as anything that can be offered to satisfy a need or want. Occasionally, other terms are used in place of product such as offering or solution. Decaffeinated coffee was offered as a solution to customers who required the taste of coffee without the ill effects of caffeine. Brim's Position Product Characteristics Product Life Cycle Four points must be asserted to say that a product has a life cycle: (1) products have a limited life; (2) product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller; (3) Profits rise and fall at different stages of the product life cycle, and (4) products require different marketing, financial, marketing, purchasing, and human resource strategies in each stage of their life cycle.
A product's life cycle typically portrays its sales history following a distinct bell shaped curve. This bell shaped curve can further be divide into four stages: introduction, growth, maturity, and decline. Branded products can have either a long or short-run product life cycle. Brim is in the mature-decline stage of its life cycle.
The Life-Cycle pattern it most clearly resembles is the Growth-Slump-Maturity pattern. Competition During every pioneer's product life cycle, the product will enter a competitive cycle. In this cycle, competitors will enter and market share leadership and prices will fall. Initially the pioneer is the sole supplier with 100% of the production capacity and sales. This was the case with Sanka in the decaffeinated segment from 1932 until the 1960's when the competitive penetration stage began. Brim was introduced with the specific intent of holding off the competitors increasing interest in the decaffeinated market.
Nestle introduced its brand of freeze-dried decaffeinated coffee at the same time as Brim was introduced. Taster's Choice Decaffeinated was a major competitor and Proctor & Gambel's High Point is already competing with Brim in select markets. B.) Price The Boston Consulting Group Model portfolio planning approach designated the Maxwell House Division a cash cow minus. What does it mean? It means Maxwell House should harvest. The objective of harvesting is to increase the SBU (Brim)'s short-term cash flow regardless of long-term effect.
General Foods needs to cash in on Brim before it becomes a Dog. Some of the indicators of harvesting are as follows: Business is in a stable or declining market - The total US coffee market is at a 20 year low, and the decaffeinated market has stagnated for 3 years Business has small market share and building it would be too costly or it has a respectable share but defending it is not economically justified The business is losing money or produces only modest profits Sales decline would not be precipitous if support is reduced The firm has better use for freed funds The business is not a major component of the firm's portfolio The business contributes little to other entities within the organization in terms of synergies, sale stability, and prestige Harvest One of the components of harvest is to reduce cost at a faster rate than any potential drop in sales, resulting in an increase in the company's positive cash flow. Reducing costs include limiting investments in advertising, new plants and equipment, and R&D. In addition to trimming product costs, Maxwell House can also consider changing Brim's price. Questions that Maxwell House should ask include: would a price cut attract new users?
If so, should the list price be lowered, or should prices be lowered through price specials, volume or early-purchase discounts, freight cost absorption, or easier terms? Or would it be better to raise the price to signal higher quality? Some of the objectives that Maxwell House might consider are as follows: Survival Profit Maximization Revenue Maximization Sales Growth Maximization - penetration pricing Market Skimming Maximization - inelastic demand situations Product-Quality Leadership - price / quality relationship Other Pricing Objectives - e. g., cost recovery, social pricing Strategic Pricing Alternatives After Maxwell House has decided on a pricing objective, it will then decide on whether to increase or reduce the price of Brim. The following lists the eight strategic alternatives: STRATEGIC OPTIONS CONSEQUENCES Maintain price and perceived quality Smaller market share Lowered profitability Raise price and perceived quality Smaller market share Maintained profitability Maintain price and raise perceived quality Smaller market share Short-term decline in profitability Long-term increase in profitability Cut price partly and raise perceived quality Maintained market share Short-term decline in profitability Long-term maintained profitability Cut price fully and maintain perceived quality Maintained market share Short-term decline in profitability Cut price fully and reduce perceived quality Maintained market share Maintained margin Reduced long-term profitability Maintain price and reduce perceived quality Smaller market share Maintained margin Reduced long-term profitability Introduce an economy model Some cannibalization but higher total volume Any price change can affect customers, competitors, distributors, and suppliers and may provoke government reaction as well. Customers' often question the motivation behind price changes.
A price cut can be interpreted in the following ways: The item is about to be replaced by a new model The item is faulty and is not selling well The item is in financial trouble and may not stay in business to supply future parts The price will be reduced even more; it pays to wait The quality has been reduced A price increase, which would normally deter sales, may carry some positive meanings to customers: The item is "hot" and might be unobtainable unless it is bought soon, or the item represents an unusually good value. Customers are more price-sensitive to expensive products and / or are products they buy frequently, while they hardly notice higher prices on low-cost items they buy infrequently. Coffee is generally a weekly purchase. In addition, some buyers are less concerned with the product's price than they are with the total costs of obtaining, operating, and servicing the product over its lifetime.
A seller can charge more than competitors and still get the business if the customer can be convinced that the product's total lifetime costs are lower. When contemplating a price change, Brim also has to worry about their competitors' reactions as well as the customers' reactions. Competitors are most likely to react where the number of firms in the industry is small, the product is homogeneous, and the buyers are highly informed. The decaffeinated coffee market is of such a nature. The challenge is to read the competitors' mind by using inside and outside sources of information. Because there are several competitors such as P&G's High Point and Nestle's Tester's Choice, Brim must estimate each of the competitor's likely reaction. C.) Brim-Advertising & Promotion Promotion Objectives Kotler's three promotional objectives are to inform, persuade, or remind.
Brim's advertising shifted from informing ("The first strong coffee without caffeine") to reminding (taste enjoyment). The message kept changing, from a rational appeal (caffeine concerns) to emotional appeal (husband reward), creating confusion for consumers. Further, Brim's level of advertising spending shrunk during the 1970's and during several periods was cut altogether, showing a lack of commitment from parent company Maxwell House. When a product is introduced, it should receive high levels of spending to develop brand loyalty. Brim received an initial influx of advertising dollars, then, nothing. As a result, consumers never developed a clear perception or loyalty to Brim.
Target Market In the 1970's, the coffee buyer was predominantly the woman of the household and Brim's advertising should have been directed at her. However, from 1972-1978, Brim only advertised once in Good Housekeeping, arguably the most popular women's magazine published. Obviously Brim was not always reaching its target market. The informative / reminder ads were not strong enough to convince consumers to buy Brim. A persuasive approach may have been more effective. Industry Advertising Spending Levels Brim and Sanka combined spent more in advertising than Tasters Choice Regular and Decaffeinated and Nescafe and Nescafe Decaffeinated but as their declining market share illustrates, their message was not effective.
Sanka's advertising levels increased at the expense of Brim. Taster's Choice, even though its spending was less, could receive more impact for its advertising dollar because both brands could be advertised together since the brand names were the same and the packaging was similar. Taster's Choice Decaffeinated was borrowing a "known" name, Taster's Choice, so the name recognition was quicker than for a new to the world product such as Brim. Nestle and Proctor and Gamble could succeed because of the synergies each enjoyed, particularly in sales, distribution and marketing. Product Life Cycle Brim is in the mature stage of its product life cycle. During the mature stage, sales promotion becomes the most important promotional tool, followed by advertising, then personal selling.
Advertising builds brand loyalty and creates a reason for consumers to buy the product. Promotion offers an incentive to buy, and weakens brand loyalty. In the 1970's, coffee was purchased weekly, so advertising was crucial. Promotions will cause some consumers to shift brands, but generally, this type of consumer will buy whatever brand is offering the best deal. The loyal brand buyers will not usually switch brands because of a promotion. Developing loyal customers may be accomplished through consistency in the message, medium of advertising and levels of spending.
Trade Promotion Sixty percent of Brim's sales volume was on deal. Brim should decrease this incentive to cut costs. However, wholesalers and retailers have grow accustomed to receiving these incentives and they could stop buying Brim, especially since there are many other competitors to buy from. Brim should gradually decrease the amount sold on deal and instead offer less expensive quarterly trade promotions.
High Point was effective with its distribution even though High Point used a low percentage of pull promotions. Current Advertising Dilemmas Alan Laker and his staff are faced with several advertising concerns. First, should Brim reintroduce national advertising, second, how much should they spend, and third, what message would be the most effective. 5 M's of an Integrated Marketing Program Brim's management team should consider the 5 M's before embarking on an advertising strategy: mission, money, message, media and measurement. Mission Since Brim is in the mature stage of its life cycle, the company should not increase spending on advertising or promotion. Brim's goal should be to keep its sales from declining too quickly, maintain its market share, limit its costs and generate as much revenue as possible to recoup its investment.
Kotler discusses five factors to consider when setting an advertising budget: the product's stage in its life cycle, its market share, competition and clutter, advertising frequency, and product substitutability. Brim has a declining market share, faces competitors with deeper pockets and better advertising messages, has advertised inconsistently, and decaffeinated coffee has many substitutes. Brim should adopt a strategy of guerilla attacks on its competition instead of launching a full-scale national advertising campaign. Brim would keep its costs to a minimum and yet be able to pick strategic markets. Setting a Promotion Budget Of Kotler's four methods of setting a promotion budget, the affordable method or the objective and task method may help Brim generate as much cash as possible before it is discontinued.
Brim would either spend what it could afford or spend a set amount to achieve certain objectives. Since Brim is now a market follower, the percent of sales method would cost too much and the competitive parity method is not feasible because Brim's competition is willing to spend more on advertising and has deeper pockets. Brim should spend... Brim's Message Brim should choose a message of... but then keep the advertising message the same over a period of time.
Brim's packaging should remain the same. A change in packaging would confuse consumers, reduce credibility and changing the packaging is an expense Brim could avoid. Brim's niche is the premium tasting decaffeinated coffee market. Brim should consider distributing sample packets of its coffee to target markets, such as an insert in the Sunday newspaper. Consumers drink coffee, especially in the morning while reading the paper. Brim should hire a new ad agency with fresh ideas because its advertising using Benton & Bowles has not improved.
When High Point was being test marketed, it used the same advertising, packaging and media plan in each test market, creating a consistent approach. Media Brim should advertise in mediums where they can reach their target market. A combination of print advertising (ladies magazines such as Good Housekeeping and Ladies Home Journal), prime time and daytime (soap operas). Measurement V. RECOMMENDATIONS The Maxwell House division of General Foods has three strategic choices for Brim coffee in fiscal year 1979. The first choice is to do nothing. This strategy will allow natural market forces to determine the fate of Brim under its previously assigned brand role.
Which is? The second alternative for the Maxwell House division is to engage in a hold strategy. This strategy aims to maintain Brim's market share through its desired role. The third option is to engage in a complete retrenchment strategy in an effort to pull Brim off the shelf.
Do Nothing Prior to 1979, Brim's advertising strategies were ineffective in communicating and emphasizing its taste benefits and other attributes. At the forefront of this problem was a continuous shift in advertising strategies from year to year. This lack of continuity eventually forced the Maxwell House division to cut its advertising and promotional expenditures for Brim. For the "do nothing" strategy, minimal advertising and promotion means cost effective management for a product that is rapidly losing market share. Another benefit is that resources once allocated to Brim could be used for other brands.
The "do nothing" strategy is at the mercy of the market. Brim could make a fantastic turnaround, linger on like slow death, or quickly reach a point where carrying the product is no longer feasible. It is this uncertainty that is least appealing. Even with Brim's brand role of market segmentation and as a compliment to Sanka, the marketing mix could not effectively be implemented under this scenario. Hold The hold and protect strategy merits some consideration from the standpoint of maintaining whatever market share is left for Brim. Typically, a hold strategy is appropriate for a product that is yielding substantial positive cash flows.
Brim has a negative cash flow, but its desired role for fiscal year 1979 will play a key role in creating enough momentum to maintain market share for the short run. The desired role for Brim is to "present the broadest decaffeinated appeal to caffeine-concerned coffee drinkers by complimenting Sanka's health emphasis with a taste-emphasis positioning". One benefit of attempting to maintain market share is that it can buy additional time for valuable market research for long term strategic planning. In addition, a hold strategy can force Brim to evaluate its current strategies by refocusing or refining its desired segmentation role. Harvest The third alternative strategy is harvest. Harvesting involves a decision to eventually withdraw from a business by implementing a program of continuous cost retrenchment.
The elimination of research and development expenditures, advertising and other budgetary elements are characteristics of a harvesting strategy taking place. Generally, this strategy is appropriate for SBU's or businesses that have lost market dominance and are experiencing poor or negative cash flows. One of the main objectives of a harvest strategy is to slash costs at a rate faster than any potential drop in sales. One disadvantage to harvesting Brim is competitors would have the opportunity to absorb Brims 2.1% share of the total coffee market. VI. TEAM RECOMMENDATION The Maxwell House division should harvest Brim for several key reasons.
First, Maxwell House had already been practicing a retrenchment strategy when it decided to cut advertising expenditures for six months in 1976. In 1977, a similar action was taken. Market growth stagnation and a confusing advertising campaign were two primary reasons for this cut in advertising. By 1978, advertising was almost at zero.
In summary, the outlook for market growth is stagnant and advertising dollars have been drastically cut for the past three years. Brim's future is weak and a harvest strategy should be accelerated. Brim and the Boston Consulting Group Model Where does Brim get plotted in the BCG model? Maxwell House division, not Brim, is a "cash cow minus"; however, Brim possesses all the characteristics of a "dog". Brim is not expected to turnaround its poor market growth rate, and it has little or no chance to make a profit. In the BCG model, it is suggested that "dogs" be phased down or withdraw.
Mature Marketing Strategies for Brim Brim is a product that can benefit from strategies developed for use with mature products. We have already concluded that Brim is a weak product from a market share perspective. Management has cut its advertising and its future appears dim. The objective of mature marketing strategies is to try and revive a product's use and benefit to consumers. A hold strategy is recommended for Brim, and if this strategy is adopted, the following mature marketing initiatives could aid in this effort. To revive Brim, the Maxwell House division should first attempt to boost sales volume.
This can be accomplished in three ways. The first is to attract new nonusers to Brim. The Maxwell House division should explore new packaging, product improvements, wider segmentation strategies or increased promotional initiatives to demonstrate the benefits inherent in Brim. However, the cost involved with this may be prohibitive. Another method of expanding the number of brand users is to enter new markets.
For example, Brim could find ways to introduce its benefits to hot cocoa or tea drinkers. A third way of increasing sales volume is to win competitors' customers. In the Brim case, the key is to bait consumers of Taster's Choice, Nescafe or High Point to adopt Brim. Increased usage of a brand is another strategy of expanding volume. Marketers can extol the virtues of Brim as a beverage that can be drunk at any time during the day or night.
They may attempt to get users to drink more than one cup per occasion. Here, Brim could experiment with ways to get users to brew ten to twelve cup servings rather than one individual serving per occasion. As an accompaniment to food, Brim can be marketed as a dessert coffee Despite equal preferences in blind product tests High Point's packaging and trademark had significant consumer appeal and their advertising copy contained strong tats credentials. Strategic plan Plus a five-year plan Main issue whether and how to attempt to revive brim Brim's role was open to debate-Brim's role had been to support Sanka Two major tasks Arrest immediately the decline in Brim's share of the total market Decide on a long-term direction for Brim Shrink, Hold or Expand? By How Much? Brim Sanka RAU Present statistics Present Statistics Target Statistics ROFE (12.0) % ROFE ROFE 35-40% Margins (6.8) % Margins Margins 13-14% CAN WE BACK INTO THESE TARGET GOALS Cash cow minus Competitive nature of the industry-Did I do okay do you have anything to add?
Organization of the Company-recent high turnover-need to include somewhere Characteristics of a mature market specifically a declining mature market.