With the analysis we did in class, we made the suggestion of not doing the next promotion. The first thing I did after class was adjusting our model in class from three months moving average to a five months moving average, with data from previous two months, current month, and two months after. With this adjustment, the incremental increased a little, but still, I think it’s not attractive enough when taken other factors, such as cannibalization effects, into consideration.
Also, as Katz pointed out, “the April-May 1978 promotion had been announced on January 1” (page 14), the relative lower January-February 1978 sales level should not be used to forecast March-May 1978 sales without promotions. In fact, I believe it is the announcement of promotion on January 1st that led to the low sales level in January-February 1978. Retailers would order fewer units prior to the promotion but catch up with more units ordered during promotion period.
This should also be considered to cut the attractiveness promotion. Other than the data analysis we did in class, there are a few more reasons I don’t recommend Hartmann to have a price promotion in the following year. First, price promotion will damage Hartmann’s brand image. One of Katz’s principles for Hartmann was to “maintain a prestigious image” (page 2). Since the price promotion itself was not very efficient, why should Hartmann risk its brand image to do it? Second, as Katz said, there are all kinds of different ways to increase total sales, and, based on luggage consumer surveys, price promotion was definitely not the best way for Hartmann to achieve higher sales.
From Hartmann’s own survey, durability and style were considered the most important features in selecting luggage (page 5). Although the results itself seems like is a little misleading, since price was not an option on that questionnaire, it actually should be the real case, and this conclusion could be proved from the industry market research in Exhibit 2. In this research result, only “31% of respondents cited price as the most important criterion in selecting luggage”, while “21% cited it as the least important criterion”, and only “26% would ‘wait for sale, then go there to buy’” (page 16).
Also, considered the target market for Hartmann, which are “customers who demanded the highest quality and durability in luggage” (page 1), and its market position as “most expensive in the industry” (page 1), the demand of its products was definitely inelastic. With such an inelastic demand, price promotion would never be the best approach to improve sales, especially to improve profit. So what would be a better way for Hartmann to increase sales and profit? The same as the consultants, I would recommend Hartmann to make more advertisements to build wider brand awareness among target consumers (page 14).
The reason I makes this recommendation are as follows. Based on the industry research report in Exhibit 2 (page 16), “48% of respondents believed they would favor a brand of luggage they recognized or had seen advertised”.
The percentage for Hartmann’s target consumers might be even higher, because they were pursuing “the highest quality and durability in luggage” and the probability that they would trust an unknown brand was very low. However, according to Hartmann’s telephone survey (page 5), the overall aided awareness level was pretty low among high income level customers, who were considered as Hartmann’s target customers, and “only 5% of respondents recalled having seen any Hartmann advertising”.
Therefore, building brand awareness among target consumers by increasing advertising should be the best way for Hartmann to increase sales and, more important, not jeopardize either profitability or brand image.
Therefore, all reasons listed above, as well as sales data analysis we did in class, point to one identical conclusion that price promotion was not a good choice for Hartmann to achieve sales and earnings objectives. Yet, increasing advertising was a harmless and more effective approach to help Hartmann achieve its objectives.