I. Executive Summary
Computer Doctors undertakes home computer repair. The slogan for this service is `We still make house calls. ` With its market segmented demographically as well as psychographically, it targets members of generation X and generation Y. Computer Doctors pursues a grand strategy of growth, which is underpinned at the generic level by ability to offer exceptional service. Other of its strengths include a lean and mean structure that enables it to respond fast and adaptively to changing market needs, and an organizational culture that facilitates innovation and creativity.
Notwithstanding these strengths, Computer Doctors faces certain threats emanating from its external environment. The current recession has led to a tightening of credit, which has resulted in reduced consumer expenditure. The rate of unemployment has increased, as massive home foreclosures and dipping stock values have wiped away a huge chunk of householder wealth. The result is that most people are putting away purchases of non-essential items such as computers and holding on to older models for longer, causing experts to project a decline in PC sales of up to 12% this year.Additionally, Computer Doctors also faces intensifying competition from computer manufacturers, computer owners and third party maintenance (TPM) firms. These are generally better endowed financially, have higher brand recognition and more expansive distribution networks than Computer Doctors. However, the technological environment offers opportunities that the firm can exploit. By adopting the internet, the firm will simultaneously cut intermediation and operational costs and expand its market reach. It will also introduce new products, and use its exceptional service, responsiveness to customer needs, and innovation capability to fight off competition. Marketing communication will be used to enhance brand recognition while short term promotional offers will be deployed to stimulate demand.
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The marketing plan addresses the marketing strategies that Computer Doctors can adopt in order to ward off the threats posed by a harsh economic environment and stiff competition from larger, better resourced rivals; and to take advantage offered by factors in the technological environment such as the internet. The external environment is first assessed, followed by an analysis of the competitive environment, a customer and market analysis, and an analysis of the internal environment of the firm (that is, SWOT analysis). Strategies are then deployed that will help Computer Doctors exploit the opportunities identified, while overcoming the threats posed and minimizing weaknesses.
III. Situation analysis
The external economic environment in which Computer Doctors operates is harsh, especially after the onset of the global economic crisis which the National Economic Recession Bureau estimates to have begun in late 2008, and which is mainly viewed as having been triggered off by the sub prime mortgage housing crisis (Chandra and Tanzi, 1; Isidore, 1).
According to Chandra and Tanzi (1), the US economy will shrink by 1.5% this year, with the slump expected to push inflation to levels below what is considered to be price stability. The recession is said to be the longest recession since World War 2. The country’s GDP declined by 5% in the last quarter of 2008, and by 3% in the first quarter of 2009. Consumer expenditure, which makes up the largest part of the US economy, fell by 2.7% in the last quarter of 2008 and by 1.6% in the first quarter, the first such time that consumer spending in the US has declined in a nine month p since the end of the Second World War (Chandra and Tanzi, 1).
The fall in home values and stock prices has wiped away most of the household wealth. In 2008, the economy shed off 2.6 million jobs, the largest job loss the country has ever experienced since 1945. At the end of 2008, the unemployment rate had jumped to 7.2%, and is expected to accelerate to 8.4% by the end of 2009, which is going to be the largest unemployment rate in 26 years (Chandra and Tanzi, 1).The home-building industry is in the fourth year of its slump, while retailers have just come out of the worst holiday season in forty years. In addition, the government’s budget deficit for the 2009 fiscal year is projected to reach $1.325 trillion, equivalent to a postwar high of 8.6 percent of GDP. Prices are also retreating, with Fed’s preferred inflation rate expected to rise by only 1.2%, the slowest ever increase since 1962 (Chandra and Tanzi, 1).
According to Isidore (1), declining house prices have resulted in a sharp drop in home purchases and home building, resulting in massive foreclosures that have led to billions of dollars in losses for banks and financial institutions. The result of this is that credit has tightened, with many individuals and organizations unable to access credit to finance purchases or investments. This has forced the Federal Reserve Ban has cut the Federal Reserve rate to almost zero.In spite of the general economic downturn, Irwin (1) writes that with the recent $700 billion stimulus plan announced by the Obama administration, there has been some stabilization of the financial system, with “surveys showing that both consumers and businesses are more confident about the future.” The easing on the unemployment rate, as evidenced by the loss of 539,000 jobs in April (the lowest job loss since October last year), and the strengthening of the stock market, have also given hope that the recession may be easing (Recession.org, 1).
With high rates of unemployment, lack of access to credit, and a massive loss in household wealth, computer purchases are expected to decline as consumers put off the purchase of nonessential commodities and hold on to their old models for a little longer. According to PR News (1), “PC shipments will hit 257 million units this year, which will be a drop of 11.9 percent from 2008 sales figures. This drop in sales will be four times as big as the drop that was experienced back in 2001, when they fell 3.2 percent” with mature markets such as the North American one being the hardest hit.
Rapid technological developments within the computer industry have resulted in the miniaturization process, with computers becoming not only small but also faster, cheaper, more reliable and more powerful. Consequently, there has been a transition from the mainframe to the PC, which is being gradually supplanted by the laptop. This shift from mainframes to PCs and then to laptops has created opportunities for small independent TPM’s (Third Party Manufacturers) to compete against large OEMs (Encyclopedia for American Industries, 1).
Hand in hand with the rapid development in hardware technology has been the development of software. One key development has been that of diagnostic software, which enables the repair or maintenance of computers remotely and eliminates the need to travel and carry out the repairs or maintenance on site. This provides Computer Doctors with the opportunity to cut costs since it can now carry out repairs and maintenance remotely and save on the costs and time that could have been spent traveling on site (Encyclopedia for American Industries, 1).
The proliferation of the internet has also caused massive opportunities which firms like Computer Doctors can exploit to enhance their growth. The development of the internet offers a highly cost effective medium through which the organization can both promote itself and distribute its products. At the touch of a button, Computer Doctors is able to access a market potentially made up of billions of people without the added cost and hassles of traveling globally. The development of the internet has also led to the demand for new services such as website design (Dern, 378).At the same time, the massive proliferation of the internet and the development of networking technology have enhanced the security threats that firms’ systems face from malicious attacks such as virus, Trojan horse, and worm attacks. Individual and organizational systems also face a graver threat, now more than ever before, from attacks such as Denial of Service (DoS) attacks (examples of which include Teardrop attacks, ICMP floods, and application level floods, among many others) as well as Distributed Denial of Service (DDoS) attacks (Dern, 378).
Massive opportunities, resulting from these developments, exist. Among these include the opportunity to expand our services to include virus cleaning and protection services, internet connection services, website design and authoring services, and installation and maintenance of software. The increased reliability of computers as a result of advances in hardware technology gives firms such as Computer Doctors the opportunity to reduce repair time by “replacing components instead of repairing them” (Encyclopedia for American Industries, 4).
Another emerging trend is that due to rapid technological development, there has been an increasing convergence between the telecommunications and computing industries, leading to the creation of handheld devices with computing capability such as smartphones. This offers an opportunity for firms such as Computer Doctors to expand their services and offerings to include support for “high-definition computer displays and wireless communication devices” (Encyclopedia for American Industries, 4).
Computer Doctors competes in the computer repair and maintenance industry (SIC Code 7378). According to Lindbergh and Vaughn (1), competition in the industry is posed by three classes of firms. These include the computer manufacturers, of which the main players include HP, Dell, IBM, and Apple. Apart from selling computers, computer equipment, and peripherals, these computer manufacturers extend warranties that extend for ninety days as well as maintenance contracts for an annual cost of 3 to 7% of the purchase price.The second class of competitors comprises of Third Party Maintenance firms (TPMs), with some of the leading TPMs including “Sorbus (Frazer, PA), TRW Inc. (Fairfield, NJ) and Control Data Engineering Service (Minneapolis, MN)” (Illinois). Competition is also posed by computer owners, especially those who carry out their own repairs. While most of the TPM’s are smaller, and operate on a regional or local basis, some others have a national presence such as Cerplex Group, ENTEX Information Services Inc., and Inacom Corp. other competitors worthy of note are Best Buy’s “Geek Squad” and Circuit City’s Firedog services (Lindbergh and Vaughn, 2).
According to estimates by the US Census Bureau (1), the total worth of the industry’s revenues were estimated to be $7 billion in 1990, which rose to $15.4 billion at the end of the decade. The value of services associated with the industry was however much higher - estimated at $62 billion in 1998. However, the US Census Bureau (1) states that less than 25% of these revenues accrued to firms specifically dedicated to the repair and maintenance of computers. Most of the revenues instead went to the large computer manufacturing firms such as HP and Apple.
Reports by the New York Times indicated that by 1995, the PC repair and maintenance market was valued at $28 billion, and was forecast to expand at a rate of 14% throughout the nineties. The PC home repair market was in particular one of the segments of the market which, though largely unexploited, showed tremendous growth potential. Latest statistics from the US Census Bureau indicate that by 2002, the PC repair and maintenance industry was made up of 6,087 players. The critical success factors, on which most of the competition is based, include: the cost of carrying out the repair or maintenance, the quality of the service, and the ability of the firms carrying out the repair and maintenance to service non-vendor brands (Lindbergh and Vaughn, 5).
The largest player in the industry is HP. Headquartered in Palo Alto, California, HP is the largest technology firm in the world. It develops and manufactures computers and computer hardware, computer software, networking equipment, storage devices as well as offering services. Its other products include enterprise servers, printers and imaging devices such as scanners, electronic test equipment and systems, medical electronic equipment, solid state components and instrumentation for chemical analysis. HP markets these products to several market segments, which include households, enterprises, small, and medium sized businesses. These products are distributed to the customers through various channels which include through the internet, retailers of office equipment and those of consumer electronics, as well as through technology vendors and software partners (HP, 1).
Comparing Computer Doctors with HP, we find that HP has several strengths that give it a relative competitive advantage over Computer Doctors. These strengths include market leadership position, well known brand name, innovation capability, and huge financial resources. In 2006, HP had total revenues worth $91.7 billion, which were the largest revenues in the industry, and which rose to $104 billion the following year. It commands the largest market share, estimate to be at least 4% larger than the next big rival Dell. It pursues a grand strategy of growth, which is supported at the business level by the generic strategy of differentiation with the unique selling points of its products being functionality and high levels of product innovation (HP, 1).
Dell is the second largest computer manufacturer after HP. It develops and manufactures computers, computer peripherals and equipment, and third party software products. The company sells its products and services directly to customers through sales representatives, telephone-based sales, and online at www.dell.com, as well as through various indirect sales channels. It is based in Round Rock, Texas. Over the last ten years the company has seen its revenues grow from $12 billion to $61 billion. Like HP, it also pursues a growth strategy at the corporate level, although at the generic level Dell has been known for pursuing am overall low cost leadership strategy, which has been underpinned by the low cost structure of its processes (Dell, 1).Dell has segmented its markets into five areas, which include the consumer market, the small and medium business market, the emerging countries market, the enterprise market and the notebooks market. Dell also has a number of strengths, which include a robust financial position, relative cost advantages, a well known brand name, and extensive distribution networks (Dell, 1).
With the economic environment having become harsh, many customers are putting off the purchase of new computers and holding on longer to old models. Many are also cutting their expenditure on non-essentials. To stimulate demand in such a price-sensitive market, it may be necessary for Computer Doctors to adjust its prices downwards and compete on the basis of price rather than on exceptional service levels as it does. However, adoption of this strategy is likely to trigger off retaliation from our competitors, which may most likely result in a price war. Since our rivals have a lot of financial resources relative to Computer Doctors as discussed, Computer Doctors may not be able to sustain a price war and therefore such a strategy may not be the best. Additionally, with the economic crisis prevailing in the country, a lot of competition is likely to be posed by knowledgeable computer owners, who are likely to decide to do their own repairs and maintenance in order to save costs, rather than to contract our firm to do that for them. However, as the economy picks up towards the end of this year or early 2010 as projected, these competitive factors are likely to change.
C. Customers/Target Market
The PC repair and maintenance market can be broadly split into categories: the organizational segment (made up of small to medium businesses and enterprises) and the individuals / home segment (Lindbergh and Vaughn, 2). Computer Doctors will focus on the individuals / home segment. Within our area of focus, our markets have been segmented demographically, on the basis of the characteristics of population such as age, but also psychographically (that is, on the basis of lifestyles). Using these segmentation variables, we identify six distinct segments: generation Y (the millennials), generation X, the younger boomers, the older boomers, the silent generation and the GI generation (Jones, 1-3).
Generation Y refers to the segment of the American population born between 1977 and 1990. Members of this population segment are aged between 18 years and 32 years, and make up 26% of the American adult population. Generation X on its part refers to the segment of the US population born between 1965 and 1976. Members of this segment are aged between 33 years and 44 years, and make up 20% of the total American adult population. The Younger Boomers comprise of people born between 1955 and 1964, and who are aged between 45 and 54. Like the generation Xers, they make up 20% of the total American adult population. The Older Boomers segment is a segment made up of people born between 1946 and 1954, and who fall in the 55-63 age brackets. Older Boomers make up just 13% of the total American adult population. The Silent Generation consists of Americans born between 1937 and 1945, with members of this generation being aged between 64 years and 72 years. Members of the silent generation make up only 9% of the total American adult population. G.I Generation is made up of Americans born before 1936, and who are 73 years and over. The GI Generation makes up 9% of the entire American adult population (Jones, 3).
Computer Doctors target two of these segments: the generation Y’ers and Generation X’ers. On the basis of this, the following profiles for the two targeted segments can be presented. With a population estimated to be in excess of 70 million, Generation Y is the largest generation ever since the baby boomers. Members of this generation are racially and ethnically diverse, fiercely independent (due to trends such as high divorce rates, day care, single parenting, and technological advances), and have a high sense of empowerment and entitlement (Jones, 4).
Additionally, they are very tech-savvy, with 75% of all teenagers being reported to be online and 93% of those between 17 and 19 being active computer users. One out of every three members of this generation belongs to a minority group, and the members are very tolerant of ethnic and racial diversity. They are impatient and demand instant gratification; are skeptical, image driven, blunt and expressive, efficient multi-taskers, learning-oriented, and are highly adaptable to new situations. They are also highly educated. Over 70 million, more than three times the size of generation X. 40% of the teens have a part-time job, with teens having an average disposable income of $100/week. Between 75% and 90% of them have a computer in the home, with 50% of them having internet access at home. Highly influenced by the media and their peers, but prefer personal contact even though they are tech-savvy (Denverorg, 1).
Gen X’ers are cynical, individualistic and independent, and media-savvy. They simultaneously value freedom and responsibility, are realistic but also cool. They are also well educated, technologically adept, and ethnically diverse (Denverorg, 1). Over 50 million, “They reject accumulation of material possessions in favor of the accumulation of experiences and other intangibles: a rich family or spiritual life, a rewarding job, the chance to assist others, and the opportunity for intellectual enrichment” (Turner, Mitchell and McLean, 3).They have a pragmatic approach to life. Have an estimated spending power of $125 billion. Additionally, the members of this generation are regarded to be realists who only trust themselves and their friends, and are skeptical about claims of marketers. Therefore, when marketing to them, straight talk is more effective than hype. Information provided to this generation through the media will not be accepted as factual on face value alone. Additionally, generation Xers are very sensitive to gender issues and to effectively msrket to them, Computer Doctors will have to refrain from using sexual images to manipulate buying behaviour. “X'ers are very concerned with buying environmentally-safe products, particularly those that are recyclable or produced from recycled products” (Turner, Mitchell and McLean, 5).
In general, generation Xers attach much value on a product’s ability to satisfy functional benefits and not on its prestige or symbolic value, which also reinforces the highly pragmatic nature of generation Xers. They have a high degree of brand loyalty when compared to baby boomers for instance, but are also given to experimenting with other brands (Turner, Mitchell and McLean, 3). Another characteristic of generation Xers is that they prefer shopping in large shopping outlets, and when it comes to marketing communication, they demand for communication which is specifically tailored for them. The favourite media which members of this generation prefer include “Time, Newsweek, People, Details, and Spin,” as well as local entertainment metropolitan newspapers. With a preference for short and concise writing, generation Xers also enjoy a wide range of music. They have a high uptake of technology, and “use technology to personalize and humanize everything in their grasp, demanding only that hype and commercialism he controlled.” Additionally, members of generation X are increasingly demanding for personalized and interactive communication, away from mass communication (Turner, Mitchell and McLean, 3).
The advent of electronic commerce will affect the sale and purchases of our products in several ways. According to Jones (5), the internet is mainly patronized by younger generations, mostly by those between eighteen years and forty four years. While the younger users engage primarily in social networking, blogging and instant messaging, older generations mainly use the email. “Compared with teens and Generation Y, older generations use the internet less for socializing and entertainment and more as a tool for information searches, emailing, and buying products.” Eight out of every ten generation X’ers are said to buy products through the internet, as compared to seven out of every ten members of generation Y, with the rate being even lower for the other groups (Jones, 5).
This offers Computer Doctors the opportunity to use internet marketing techniques such as viral marketing, e-mail marketing, and search engine marketing as well as techniques such as web PR. It means that electronic catalogs which contain pictures, prices, and specifications of products can be posted on the website. Consumers can then compare the products online, order for them on-line, and pay through electronic means such as through the debit card or credit card. Since the internet is impersonal and lacks the one on one touch offered by traditional store selling, and since members of generation X prefer personal contact when carrying out transactions, Computer Doctors will make use of live service agents and rich media that enhance interactivity to enhance personal touch between the us and the inline buyers. The use of the internet also offers Computer Doctors the opportunity to cut costs since it can offer its services directly, as well as the opportunity to reach a wider market unencumbered by spatial or time considerations.
Computer Doctors has a number of marketing goals and objectives. These goals and objectives include:
- To expand sales and sales revenues
- To increase market share
- To enhance brand recognition
- To enhance customer satisfaction
An assessment of our marketing objectives shows that they are consistent with our organization’s missions and goals. Our mission is to achieve market leadership position in the PC repair and maintenance industry through offering the best service in the industry. In doing so, we expect to earn consistent growth in profits, which shall enable us to return value to our shareholders. To achieve growth in profitability, it is necessary grow our sales and sales revenues. This will then enable us to deliver reasonable returns to our shareholders. By offering service that is exceptional and unique, we shall be able to differentiate our products from those of our rivals, which shall provide the basis for our brand’s growth and the achievement of brand equity, as well as the satisfaction which our customers require. For that reason, our marketing goals and objectives are in sync with our organization’s overall goals and objectives.
Additionally, evaluating our marketing goals and objectives against macro-environmental conditions shows that they are not consistent with recent changes in the economic environment in which Computer Doctors operates. The slowdown in key economic indicators as described have led to tightening of credit (which is constraining consumer purchases but also investment), reduced purchasing power and consumer spending, and plummeting industry sales. This suggests that Computer Doctors should adopt maintenance or retrenchment strategy rather than a growth strategy at the corporate level. Harsh economic conditions suggest the imperative for the adoption of low priced services and goods to simulate demand, which suggests a low cost leadership strategy at the generic level.
However, in spite of the muted economic environment, the technological environment offers numerous opportunities that Computer Doctors can take advantage of to grow itself and for that reason its goals and objectives can be described as being consistent with this environment. As stated by PR News (1), the shipments of PCs are going to drop by approximately 12% this year, a drop that will be four times as huge as the last drop witnessed eight years ago. With most of the PC markets having matured, most of the growth in the shipments has been attributed to emerging markets, whose growth is also expected to slow down 11%. With falling PC sales, it means that they are potentially less computers to service and repair.Even though our marketing strategies were performing well in terms of market share gains, and growth in sales volumes and profitability, as well as in positive brand enhancement, the declining industry fortunes resulting from the harsh economic environment mean that our strategy of charging premium prices is basically flawed, given also that the home customers whom we target are more cost conscious than the corporate customers.
However, given that shifting our strategy to compete on the basis of price is likely to attract retaliation in the form of price wars from our rivals who are endowed financially better that we are, Computer Doctors should target new segments such as the corporate segment which are less price-conscious. Within the home segment, opportunities for cost savings exist which include using the internet as a distribution channel and cutting out intermediation costs, and use of diagnostic software to offer remote repairs and maintenance and therefore cut costs. Computer Doctors has several organizational resources which include facilities and infrastructure that we use to carry out PC repairs and maintenance (assets and equipments), qualified and experienced personnel, and a well known brand that is distinguished by the exceptional service levels that we offer. Another resource which can be considered to be a key strength is our organizational culture, which fosters the ability to be creative and innovative, teamwork and risk taking. We also boast of strong relationships with our suppliers and customers. Being a small organization, we have a simple organizational structure with no management layers, which enables us to respond faster and adaptively to any changes in the marketplace than any of our rivals can.
However, our rivals enjoy better brand and name recognition, have more financial resources and can therefore attract the best expertise, and enjoy both significant market shares and as well as first to market advantages. They also have expansive distribution networks as well as effective marketing practices.
IV. SWOT Analysis
Strength 1: Simple organizational structure: this helps us to respond and adapt faster to changes in the environment relative to our competitors who by virtue of being large have slow decision making processes. This has distinguished us as being truly responsive to customer needs.
Strength 2: organizational culture: it allows for teamwork, creativity, risk-taking and innovation. As a result, we are able to develop new and unique ways of satisfying our customers’ needs, and this has offered as the basis on which our service has been differentiated.
Weakness 1: financial resources: our organization is significantly under-resourced relative to our competitors. This means that unlike our competitors, we are not able to hire the best expertise, or to deploy significant resources into marketing. Because of this, we cannot be able to aggressively expand our market share as we would like to. We are also not able to take on very sophisticated work.
Weakness 2: brand recognition: even though we have managed to achieve some level of distinction for our brand based on our exceptional customer service, our name recognition pales into insignificance when compared to the brand recognition our rivals enjoy. As a result, when most people need PC repairs and maintenance, they will first think of HP, or Dell, before they think of us.
Opportunity 1: the internet offers us an opportunity to both reduce our costs (for example, use of the internet for direct marketing cuts out intermediation costs, while use of diagnostic software enables remote repairs which eliminates the need for costly on-site repairs) and increase the reach of our market. Lower costs may be passed on in the form of reduced prices to the customers. In the short term, we should use the cost savings from these to give promotional offers (such as discounts, free gifts, coupons, and so on) as a way of stimulating demand during the harsh economic times. Since our service has been differentiated on the basis of exceptional service levels, in the long run (after the economy has picked) we should not reduce our prices but should continue charging market rates and enjoy higher margins (resulting from the lower costs) as a premium for our exceptional service. This will also help avoid triggering price wars which we cannot sustain.
Opportunity 2: the internet has enhanced security threats from malicious software such as viruses. This offers us an opportunity to expand our services to include services such as virus cleaning and installation of antivirus software. In the short and long terms, we should expand our product line to include such services.
Threat 1: harsh economic environment: as stated, one of the main considerations of buyers in the PC repair and maintenance industry is the cost of the service. The home market is particularly cost conscious. With the recession, our customers may not be able to afford our services. The immediate need is to attain cost savings and pass these in the form of short term promotional offers.
Threat 2: with slackening demand and lower industry revenues, competition within the industry is likely to become more cutthroat. This is likely to reduce our revenues and profitability, and may compromise our ability to offer high-quality service to our customers out of the need to cut costs. The immediate reaction would be to stress product benefits that we offer, rather than cost savings.
E. The SWOT Matrix Strengths Matching, Converting, Minimizing, and Avoiding Strategies
SO strategies: leverage on our ability to respond adaptively to changes in the environment (arising out of our lean and mean structure) to introduce new products as demanded by the enhanced security threats. Such flexibility and adaptiveness will also help us implement internet strategies to cut costs and enlarge our market.
WO strategies: leverage on the power of the internet to expand our market significantly at very minimal cost. Also, use cost savings from the adoption of the internet to boost our financial position.
ST strategies: stress exceptional service that we provide to shift customer focus away from cost considerations. Use our exceptional service, responsiveness to customer needs, and innovation capability to fight off competition.
WT strategies: improve marketing communication to enhance our brand recognition. Use short term promotional offers to stimulate demand.
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