Essay, Pages 3 (554 words)
Ralph needs to achieve company targets for earnings growth for his division by developing a new business product. Ralph has commissioned an extensive investigation into the blank cassette tape market and he views this market as poised for substantial growth and opportunity over the long-term range of ten to fifteen years.
President, new business development, Gillette Safety Razor Division (SRD)
Ralph feels that his division is well positioned to enter the market through utilization of its many core strengths.
Market Overview The current blank tape market segment has many weaknesses, such as, lack of widespread distribution, lack of media coverage, poor product display and packaging, and lack of a true market leader. These weaknesses in the blank cassette tape market are all areas where Gillette has developed strong core competencies in their Safety Razor Division.
The blank cassette tape market is segmented into three distinct product markets: Professional quality, Standard Quality, and Budget Quality and within those segments there are recording lengths of 30, 60, 90 and 120 minute cassette tapes.
Bingham’s consultants have focused on the 60-minute cassette tape market in particular. Gillette Safety Razor Division Decisions Gillette has four product options:
- do not enter market.
- enter professional tape market
- enter standard tape market.
- enter the budget tape market.
The professional quality market offers the greatest margin on products, but it is also the smallest segment in the market. The professional segment will also have the most competition as more established tape makers enter the market. As such, the fierce competition may potentially saturate the market and decrease the margins on these tapes and make it less appealing in the long run.
Alternatively, standard tape market has moderate margins, but is a highly growing segment and is ready for a market leader, such as a company like Gillette.
Lastly, the budget market has the lowest profit margins, the highest volume sales, but also requires a high volume of sales in order to be profitable due to the significant fixed costs associated with manufacturing. Gillette’s manufacturing constraints make it difficult for Gillette to enter the budget product market and Gillette would not want to damage its brand name by affiliating with a lower end product such as the budget quality tapes. (See appendix for quantitative analysis)
Recommendations and Conclusions
The Gillette Safety Razor division should enter the Standard Quality 60-minute cassette tape market and target the teenager and student market as it is a growing segment and offers much potential. Gillette should distribute the tapes using their established channels and wholesalers. Gillette should promote this new line through an aggressive advertising program as a high standard quality tape free from the defects of budget cassette tapes and with greater quality than the average standard tape. Gillette should leverage its brand name to promote the quality and value of these tapes.
Gillette’s pricing for the standard quality tapes should be priced at the regular retail price with the design that consumers will choose Gillette’s product and pay more than the discounted brands due to Gillette’s high quality and brand name. In this scenario, Gillette’s monthly break-even quantity would be 518,758 units and it would make a monthly profit of $92,867 if it conservatively sells 750,000 units/mo. in year one. Annualized, the company’s net profit would be $1,114,400 at 9,000,000 units sold.