Trevorcluthe.weebly.com



Business 1220E – Marketing ReportMackenzie & Marr GuitarsTrevor Cluthé250744090Cole FinnbogasonSection 003Executive SummaryMackenzie & Marr Guitars (MMG) is a Canadian guitar manufacturer that sells its guitars exclusively online to customers in both Canada and the United States. The CEO, John Marr, wishes to increase the company’s monthly sales level to 100 guitars and as a result increase the company’s annual revenues to one million dollars. Marr has already decided to launch a new dreadnought guitar model in June of the current year, 2013, and has many decisions to make in order to formulate a marketing plan that will allow MMG to successfully achieve their goals.The decisions Marr faces include selecting a target market for the new guitar, deciding if the new guitar should be endorsed by an artist and if so, what specific characteristics the artist should have, and choosing a selling price for the new guitar. He also must decide whether or not to offer guitar accessories to help MMG increase revenues. Lastly, he must determine an effective way to allocate the company’s $4,000 monthly promotional budget.MMG should target experienced male guitar players between the ages of 45 and 60 who are in their highest earning years and live in either Canada or the United States. This target market represents MMG’s existing customer base which is large enough to be worth pursuing and is not very price sensitive. Projected increases in production costs for MMG suggest the new guitar be priced higher which most likely will not have a negative impact on sales volume due to the target market being less price sensitive.MMG should pursue an endorsement deal for the new guitar because when they have endorsed their guitars in the past, their sales level greatly increased. The endorsing artist needs to be popular with males in the target market and should therefore be approximately the same age. The artist can be either Canadian or American as long as they are well known is both countries and should have a current loyal fan base so the demand for the new guitar will be high.The new guitar should be priced at $899.99 which is above what Marr had intended but can be justified by the expected increase in production costs. This price is lower than most of the prices offered by MMG’s competitors which enables MMG to remain in a competitive position. The annual break-even point for this price is lower than that for Marr’s suggested price which will allow MMG to generate greater profits.Guitar accessories should not be offered by MMG because most of their customers have been playing guitar for most of their lives and will likely have all of the accessories they need. This would therefore be a risky option to pursue because MMG could increase their costs and provide these products but may not get a corresponding increase in sales.MMG’s promotional budget should be put towards increasing their existing Google AdWords advertising, implementing the Google Search Ads option, increasing their existing Facebook advertising, and pursuing advertising in Acoustic Guitar Magazine. All of these promotional options will allow MMG to more heavily advertise their website resulting in greater website traffic which is essential for MMG to be successful.The proposed marketing plan is financially feasible and will allow MMG to successfully increase their monthly sales level which will lead to greater annual revenues being generated.IntroductionThe primary goal that Mackenzie & Marr Guitars (MMG) has is to increase their monthly guitar sales level. Specifically, the CEO of the company, John Marr, wishes to increase sales to a level of 100 guitars per month which is equivalent to increasing annual revenues earned to one million dollars. It is important to note that MMG sells their guitars exclusively online to customers in both Canada and the United States. In addition, John Marr has already decided to launch a new guitar model in June of the current year, 2013.Internal AnalysisMMG has a $4,000 monthly promotional budget which most likely cannot be stretched. This budget will help determine the amount and type of promotional activities that MMG decides to pursue. The company also secured financing in 2010 on the television show “Dragon’s Den”. It is possible that the venture capitalist that provided the funds may be willing to provide some insight on how the company could progress. MMG may also be able to get additional funds from the investor which would allow them to increase their promotional budget. The two owners, John Marr and Jonathan Mackenzie, both had successful careers before they founded MMG so they may be able to invest more money in the business if it was necessary. This additional investment could also go towards increasing the promotional budget.The company’s appearance on “Dragon’s Den” resulted in a large increase in sales when the show was being aired. However, the episode was taken out of regular circulation last year. This appearance definitely helped establish the MMG brand and leads one to think that new television advertising may be a good way to increase the monthly sales level. As a result of selling their product exclusively online, MMG has incorporated online advertising into its existing marketing plan. This is an essential component of the company’s promotions because they need to get customers to visit their website to see their product line. This suggests that the website should be heavily advertised and the amount of online advertising should be increased.MMG has their guitars manufactured in China and their supplier ships the guitars to the company’s headquarters in Montreal. The guitars must then pass a quality control test to ensure they have been built correctly and meet company expectations. As a result, the production process is of a very high quality which is important to emphasize in company promotions. MMG’s supplier insists on being paid when the guitars are ordered which has resulted in a tight cash position for the company. This limits the amount of money that can be spent on promotion which means that MMG needs to effectively use the funds it has. The supplier does have the capacity to allow MMG to meet its desired monthly sales goal. MMG can therefore focus its efforts on increasing their sales level by as much as possible.MMG has been operating for about three years which means its owners have gained some experience in the musical instrument industry. Neither of the owners had any previous industry experience which suggests that seeking advice from a consultant may be beneficial. Also, Marr is the only one managing day-to-day operations because Mackenzie manages his doctor practice in Ottawa. This has not been a problem thus far, however, if sales increase it may be necessary to hire additional employees.PEST AnalysisThe cost advantage of having products produced in China has been decreasing and duties on guitars imported from China are expected to increase from five to six percent in 2015. This overall increase in production costs suggests that the price of MMG’s new guitar should be higher than what Marr wants because it is better to start with a higher price than have to increase it later out of necessity. The economy as well as consumer confidence in both Canada and the US has suffered recently due to the 2008 financial crisis but there is an upcoming period of projected growth. MMG may be able to greatly increase their monthly sales as a result. There has been a downward trend in the amount of leisure time among Canadians, however, those aged 15-24 and 55 and over have the most leisure time. This suggests that MMG should target one of these groups because they would be most willing to buy a guitar. There have been no new technological advancements recently in the acoustic guitar manufacturing process which means that MMG’s products are not subject to any new threats and do not need to be petitive AnalysisRetail music chains, specialty guitar retailers and Musician’s Friend are the main direct competitors to MMG. Retail music chains have a wide selection of musical instruments including both entry-level and high quality guitars offered at competitive prices. They are able to attract a larger number of customers than MMG and some have online storefronts which increases the amount of online competition. These retailers probably will not react to MMG’s decisions because of their size and success. Specialty guitar retailers focus almost exclusively on high-end guitars and are much smaller than retail chains which makes it difficult for them to compete on price. They have a good selection of guitars as well as offer excellent customer service. MMG can compete with these specialty retailers on price and on size of customer base. Musician’s Friend is the largest online musical instrument retailer and has a wide selection of instruments. Their high-quality guitars are more expensive than those of MMG and it takes them longer to ship their guitars to Canadian customers than it does for MMG. These may be good characteristics for MMG to focus on in their promotions to help them remain competitive.Customer AnalysisCurrent MMG customers are mostly experienced male guitar players between the ages of 45 and 60. They are in their highest earning years and are therefore less price sensitive. This means that MMG would be able to charge a higher price on the new guitar without sales levels suffering if this market segment were to be targeted. These customers want and value a high-quality guitar which is what MMG offers. Customers purchase MMG guitars at a later stage in their life, after they having been playing for a long time. It is assumed that a single customer would not purchase guitars frequently which means MMG should focus on attracting as many new customers as possible instead of trying to increase current customer spending frequency.MMG customers can only purchase the guitars online. Many experienced guitars players prefer to test multiple guitars at retail locations before selecting one. This would suggest that MMG’s sales level could benefit from opening a retail location. However, there would be many additional costs involved in pursuing this option and therefore it may not be ideal to do so. MMG customers are influenced by the desire for the highest quality product. As stated above, many are also influenced by how they feel when testing a guitar in a retail location. Since it may not be in MMG’s best interests to open a retail store, continuing to promote their product as having superior quality appears to be essential.Target MarketMMG should continue to target their existing customer demographic which can be described as males between the ages of 45 and 60 who are experienced guitar players. They are able to identify a high quality product and they are in their highest earning years. Males from both Canada and the US who fit this description should be targeted because both are essential to MMG’s success. Both are essential because 25% of MMG’s current sales come from the US and the remainder from Canada. This market segment is also large enough for MMG to achieve their monthly sales goal. Part of the segment, those aged 55 and over, is one that was found to have the greatest amount of leisure time among Canadians which means they will likely be more willing to spend money on a guitar. Lastly, this market segment is less price sensitive than others due to the high earnings and therefore will not mind paying a slightly higher price for the new guitar. A higher price may be necessary due to the projected increase in production costs.ProductThe existing three guitar models offered by MMG, the Tom Rush Signature Dreadnought, Tofino, and Dionisio, should not be altered as there is nothing wrong with their design. An endorsement deal should be pursued for the new dreadnought guitar because endorsing previous guitars proved to be very effective in increasing sales volume which is the current goal of MMG. No upfront payments are required with an endorsement deal as well which is beneficial for MMG due to their tight cash situation. The endorsing artist should be an adult male guitar player who is particularly popular with those in the target market. Therefore, he should be approximately the same age as MMG’s customers. The artist should also have a loyal fan base so there is sufficient demand for a guitar endorsed by the artist. The artist should be either Canadian or American and must be well known in both countries because these are the countries where MMG’s sales come from. Lastly, the artist should currently be performing and producing new music so their popularity has the potential to increase which would potentially increase sales of the new guitar.MMG should not pursue selling guitar accessories because the target market contains experienced guitar players who most likely already have any accessories they need such as capos, humidifiers, and strings. Therefore, there is a high risk that the products will not be purchased which would mean that the increased costs to produce these items would not result in sufficient sales. This option would also require MMG to find a different supplier since their current supplier is unable to produce these items. This does not seem like an efficient use of time for the company and therefore accessories should not be pursued.PriceThe new guitar should be priced at $899.99 despite Marr’s intention to price it at $699.99. As stated previously, there is a projected increase in tariffs in 2015 on guitars imported from China which will increase MMG’s costs and decrease their margins. MMG should begin by pricing the new guitar higher than $699.99 to avoid a necessary increase in the selling price at a later date. A price of $899.99 is still lower than most of MMG’s competitors carrying a similar product which means this price will enable MMG to remain competitive.In addition, the target market is not very price sensitive which means a price higher than $699.99 probably will not result in a lower sales volume. Since this is the case, a price of $899.99 will allow MMG to generate more revenues annually which is the main company goal. More revenues combined with a lower break-even point (see Exhibit 1 for the annual break-even points associated with each price consideration) will allow MMG to generate more profits at a price of $899.99 than at a price of $699.99. The annual break-even point for a price of $899.99 is only 166 guitars (Exhibit 1). Considering the fact that MMG wishes to sell 100 guitars per month and their current average monthly sales level of 35 guitars will most likely increase, the break-even point will almost definitely be achieved and far surpassed. Therefore, a price of $899.99 for the new guitar is financially feasible and justified.PlacementMMG should remain an exclusively online business because they will be able to continue to sell their guitars at significantly lower prices than their competitors. This will require an increase in the amount of website promotion will which be discussed later. Although many experienced guitar players like to test a guitar in store before buying it, the costs involved with opening a retail location outweigh the potential increase in sales that could result. MMG should continue to offer their seven day, full refund guarantee because it puts customers who would like to test the guitar at ease and therefore will contribute to increased monthly sales.PromotionMMG should not pursue advertising in Guitar World Magazine (GWM) because the magazine’s audience is typically younger men who are on average 35 years old and may be interested in electric or acoustic guitars. This does not directly correspond with MMG’s target market of older men aged 45 to 60 who are interested in acoustic guitars. Also, the only type of advertisement worth pursuing in GWM would be an advertisement in the body of the magazine which would take up too large a portion of MMG’s promotional budget.Promotion in Acoustic Guitar Magazine (AGM) should be pursued because the audience fits within MMG’s target market. As well, AGM offers print, web, and social media advertising in packages which could help MMG reach more customers. The Equal Emphasis platform should be chosen because it is important to be displayed in the best possible way in each advertising medium. The Showcase visibility level combined with a 12 month campaign frequency at a cost of $1,537 per month should be chosen. This visibility level is not too small and the price is reasonable. As well, the 12 month option will allow MMG to consistently increase monthly sales year round which is desired.MMG should increase their amount of Facebook advertising because Facebook allows companies to be specific in who they advertise to. MMG should increase their daily spending cap from $5 to $7.98 which would result in a maximum monthly cost of $239.40. Additional characteristics that should be used to filter consumers who will be exposed to the advertisements are males between the ages of 45 and 60. This directly corresponds to MMG’s target market.MMG should also increase their amount of Google AdWords advertising because the current remarketing strategy used keeps potential customers thinking about MMG. The daily spending cap should be increased to $40.50 which equates to a maximum monthly cost of $1,215. It is not necessary to alter the content of the current MMG advertisements because it already appeals to the target market. In addition, MMG should pursue the Google Search Ads package because it would help direct customers to their website which is greatly needed. This option is estimated to cost $1,000 per month. Some potential keywords to link to MMG’s advertisements are quality, acoustic, guitar, dreadnought, Tom Rush, and the name of the endorsing artist for the new guitar. All of these words are directly related to MMG’s product line. The total promotional cost per month that MMG would incur under this plan is $3,991.40 which effectively utilizes almost all of the $4,000 budget and is therefore financially feasible.In conclusion, the analysis that was performed provided strong reasons for choosing to target the selected target market. The decisions made with respect to the product, pricing, placement, and promotion were based on the target market and allow MMG to increase their monthly sales level which will increase the amount of annual revenues earned.Exhibit 1: Annual Break-Even Points for Different Price ConsiderationsNew Guitar Price ($)New Guitar Unit Contribution ($)Weighted Average Unit Contribution ($)Annual Fixed Costs ($)Annual Break-Even Point (# of guitars)699.99130.45244.4948,000.00197799.99220.45266.9948,000.00180899.99310.45289.4948,000.00166999.99400.45311.9948,000.00154Necessary Initial Calculations:Canadian shipping cost per guitar = $40.00,Assumed US shipping cost per guitar = $60.00Weighted average shipping cost = 0.25(60) + 0.75(40) = $45 per guitarTom Rush Sig. Dreadnought UC = 0.4(999.99) – 45 = $354.996Tofino UC = 0.3(799.99) – 45 = $194.997Dionisio UC = 0.35(899.99) – 45 = $269.9965New guitar cost = $699.99/1.54 = $454.538961Sample Calculations (New Guitar Price = $899.99):New Guitar UC = 899.99 – (454.538961 + 0.1(899.99) + 45) = $310.452039 = $310.45Weighted Avg. UC = 0.375(354.996) + 0.3(194.997) + 0.075(269.9965) + 0.25(310.452039) = $289.4853473 = $289.49Annual Fixed Costs = $4,000(12) = $48,000.00Annual Break-Even Point = 48,000.00/289.4853473 = 165.8115012 = 166 guitars ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download