Company Alistair is one of the leading companies in the ETC cold and allergy remedy market with the second highest sales in the industry the previous year. Its Alluring product is the market leader in cold and allergy relief segments. Alluring is a significant contributor towards Alligator's sales and is viewed as one of the major factors that determine Alligator's financial performance. Alistair primarily rides on Larboard's strengths that include highest market share in its product segment, very high brand awareness, and a high conversion ratio.
Alistair also has an organized management team as well as an organized and productive R department, enabling it to be an innovative leader in the industry across its portfolio. From the financial reports of the competitors, it can be observed that Alluring has a lower % of fixed costs to sales, compared to competitors. However the impact of Alluring on Alistair is so high that the company relies on the cash flows that Alluring generates to allow the company to Pharmacists
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Alluring leading to poor Alistair performance the previous quarter.
This is a potential nakedness as it makes the company solely rely on one product in its portfolio and rides or sinks with it. Alistair should focus on getting into other products and have a healthy mix of profitable and reliable products to be able to sustain long term profitability. Potential threats could be new products introduced by competitors and the increased spending by Alluring on promotions [advertising compared to competition. Additionally, Alluring has a capacity issue at hand with it running at 105% capacity.
It should focus on increasing its capacity or controlling its demand so hat it can maintain high profitability and increase its capacity only after it has sufficient profits, and also focus on process improvement within its factory. Alluring could also re-visit the amount spent on trade-promotions to large box retailers and increase their sales-force to work with the smaller shops. Customer Alluring product has the best brand awareness among consumers, in the industry (78. 1 It also has the best customer satisfaction rate of 60. 3%.
Additionally, Alluring has the best (or is ranked within top 2) performance in almost all customer centric metrics like conversion ratio (63. %), most frequently purchased (27. 1%), and brand trial rate (47. 1%). The ingredients of Alluring and its effectiveness enable it to be a price leader and the customer is willing to pay the premium price for the differentiation in the formulation and relief it provides compared to the competition. However, the recent dip in market share, drop in financial performance, and an overall lower retention ratio are signals of potential weaknesses that are surfacing slowly but surely.
Alluring product contains alcohol, and although it makes it an effective night time medication, it is perceived negatively by many. Another potential issue is that Alluring doesn't have an expectorant in its formulation, an ingredient that helps in relieving chest congestion (a common symptom with cold) which makes it less desirable to customers who have a cold and congestion. Price sensitive customers will not stick with Alluring due to its premium price but will look for cheaper products. Alluring is often perceived to be of a Cold remedy rather than what its formulation suggests that it can be a multi symptom reliever.
All the above factors restrict the penetration of Alluring and impact its retention ratio. This is a serious concern that needs to be addressed immediately. Alluring team has an opportunity to leverage its current customer strengths to penetrate into other customer segments that are currently not in the mix by assessing their needs and wants. Ata high level they can categorize their segments into several categories like cold, cough, allergy, other and also based on demographics; young singles, young families, mature families, empty nesters, retired, children etc.
They could use social media effectively for this purpose. Overall the goal is to determine a strategy to achieve long term segment attractiveness eventually in all customer segments. They also need to be cognizant of the price sensitivity of a huge percentage of the consumers of the industry. Population growth is also a major factor which is growing at a 0. 9%. The niche products targeting non - penetrated customer segments by its competitors, loss leaders, inflation, brand formulation and aggressive marketing strategies from competitors are the biggest threats to All round's market share and retention ratio.
Competition brand awareness, highest market share, lower fixed costs, and a relatively high inversion ratio. A market survey detailed in Exhibit 1. 5 of the case shows that the Alluring Brand has brand awareness 14% higher than their next competitor and the 2nd highest conversion ratio at 63. 6%. Alistair also enjoys the highest market share in the industry, currently controlling 23. 8% of the ETC cold and allergy remedy market. Where Alistair is clearly struggling against competition is in its product diversity. While Alluring Brand controls 40. % of the cold segment market with their 4-hrs cold liquid, they currently do not have products to compete in the allergy, or cough and nasal niche markets. Alistair is also limiting the size of their target market by only offering a 4-hrs liquid product, while most of their competitors offer multiple brands covering a combination of product forms and durations. Another weakness that Alluring needs to address is that their retention ratio is lower than three other competing brands, suggesting that they may not have as high of brand loyalty as some of their competition.
Introducing new products to compete in the other segments provides a great opportunity for Alistair to increase market share. Not only would they be able to leverage their brand awareness of Alluring, but their high inversion ratio also suggest that it would be relatively easy for them to introduce a new product that could attract new customers away from their competition in the cough, allergy, and nasal categories. Introduction of new products, new formulations, and increase in promotion and advertising expenses by competing brands would be the biggest threats.
Collaborators Collaboration of the direct sales force with convenience stores has been good as can be seen with a 34. 6% growth in sales period 1. However the bigger grocery chains are not allocating enough, or the best, shelf space to Alluring due to its brand awareness. Although the product turnover is high, this could be a serious drawback. It can be addressed through various means, including collaborating in co-pop advertising with the retailers. Increasing sales force numbers in key areas will also greatly help to address the situation.
Alistair should also negotiate and formulate a long term strategic partnership with at least the mid-level advertising agency to be able to deliver a successful and effective message to customers. It also should collaborate with and help the FDA with approvals to be able to launch its new products and gain edge over the competition. Context From a technology standpoint Alistair has a very strong and complementary R department that enables Alistair to be a frontrunner's of innovation and new products that cater to niche customer segments or needs.
It also is a current market leader and the second biggest company in terms of sales that allows it to influence or negotiate FDA rules, and allow it to make more affordable, prescription only medications via ETC market and that may lead to new opportunities or threats based on formulations or product categories. Many customers, physicians, and pharmacies feel the multi-symptom 'shot-gun' approach of Alluring leads to excessive dedication, and there is also negativity around the alcohol content in Alluring.
They need to address this concern and make niche products that appeal to a good mix of customer segments and [or reformulate their product at the point of product/ customer saturation with the current formula. Competitors Jumping onto newer be a potential threat. 10 Year Goals & Strategy Formulation: Product In the future, it will be critical for Alistair to expand their product offering beyond Alluring Brand in order to maintain and grow their market share. Fortunately for Alistair, the R&D product development schedule has some proposals in process that loud potentially fill this need.
Given the success of Alluring Brand in the large cold segment of the market, we do not feel it is necessary to reformulate the current product at this time. We do however think it is vital that we take advantage of the potential line extensions that will be available in periods 3 or 4. All of the options available would increase the size of our target market; however the 4-hrs cough liquid would allow us access to the 2nd largest product category. We expect that introducing this product would increase market share and also help to increase the retention ratio as we enter this niche market.
Price Manufacturers set a retail price for their products, however they use discounts in the form of volume pricing (usually 15-40% of MSP) and trade promotions (10-20% of MSP) to gain retail shelf placements. Even though Alluring has the highest price of any other product in its segment, its' position as price-leader allows Alistair to charge higher prices for its medicines ($5. 29 per Exhibit 1 . 7). The company's high conversion ratio (63. 6% per Exhibit 1. ) is proof that there are several first-time customers who consider Alluring to be a superior product and are willing to pay the higher price to arches the well-known brand. Further, the tradeoffs report also confirms the fact that customers place a higher value on the Alluring brand than any other brand and are willing to pay the higher price to get the medicinal relief that Alluring provides. The strategy should be to price the product above the competition and educate the customers of its differentiation value, with the increase in price offsetting any decrease in demand.
Place The Alluring brand currently does not receive the best placement in the large chains and grocery stores. It is noted in the case that getting best placement is based on 4- actors; product turnover, promotional allowance, sales force support, and co-pop advertising allowance. Alluring has high sales volume, which is the primary driver of product turnover ratio. The industry standard for promotional allowance is 10-20%; with Alluring having 17%. By increasing this promotional allowance, the brand is expected to receive favorable support from the distribution channel partners.
There is a need to enhance sales force support in independent drugstores. On the indirect sales force front, there is a need to increase the number of merchandisers. The co-pop advertising allowance allows money to be paid to retailers to include brands in their own advertising. This helps build a relationship with the distribution channel and also creates brand awareness at the sales channel level. This also helps in gaining good retail shelf space. By increasing this allowance, Alluring should be able to achieve multiple goals.
Promotion Alluring needs to be above the industry average of 14% promotion allowance as it is a premium brand. Alluring needs to evaluate and assess the profitability of the promotion allowance subcategories and allocate the promotion dollars appropriately. Alluring should devise promotions in a targeted way to increase loyal consumers. Alluring should focus more on consumer promotions to increase market share and retention ratio. They should allow extra cash for promoting new products so that the products can penetrate their target markets.
Summary: To summarize, we recommend that Alistair keeps leveraging Larboard's strengths and diversify into other customer segments (e. G. Nasal, allergy, cough, etc. ), through further market penetration, reformulation of products, launching of line extensions/ new diversified products, increasing spending in its consumer promotions/ advertising budget, supporting non-performing sales channels, focusing on the capacity and overall process efficiencies internally to bring their fixed costs down, and lastly maintaining price leadership.
Once implemented we believe this will result in an increased market share of Alligator's products, leading to an increase in net- profits and ultimately the share-price of the company along with high customer retention ratio and satisfaction. It also enables Alistair to be non-reliant on a single product with product diversity to support its long-term profitability.
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