ADMN 3056 - Mackenzie & Marr Guitars PDF

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Prof: Glenn Brophey...

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ADMN 3056 – Mackenzie & Marr Guitars Keely Goldberg Nipissing University

1. What is John Marr's marketing challenge? 

Decide how to allocate the $4,000 monthly promotional budget

2. Evaluate MMG's internal capabilities. Does the company have the capabilities necessary to be successful in the current external environment?  3. Perform a PEST (political, economic, social, technological) analysis. What implications can you draw from this analysis? 

Not looking favourable

4. Perform a competitive analysis. What implications can you draw from this analysis? 

There are a lot of competitors for MMG who are very successful

5. What is the target market for MMG's new guitar?  6. What options must Marr consider in terms of expansion into new markets, target markets, product decisions (price and endorsement for the new guitar, adding accessories) and promotion (online and/or print advertisements)?  7. As John Marr, what is your decision on how to proceed?

SWOT Analysis Weaknesses Strengths  Small target marked (primarily  Canada has a large population of purchased by experienced male guitar guitar players (2.5 million) players)  MMG produced 5 different models of  MMG struggled to convince potential guitars customers of the quality of its guitars  By selling directly to consumers,  Canadian leisure time is decreasing MMG cut retail outlets and wholesalers out of the supply chain  High quality is expected Opportunities Threats:  MMG was on Dragons Den and  Retail music chains (Long & McQuade, received funding/exposure Tom Lee Music Co)  Selling guitar accessories (strings,  Specialty guitar retailers (Rufus Guitar, capos, humidifiers, tee shirts) Guitarworks, Folkway Music, The  Endorsement Twelfth Fret)  Untapped US market  Online retailers (Musicians Friend)  The bulk of purchases happens in physical stores PEST Analysis Economic Political  Canadian economy had been weak  Bad trade relationship with China following the 2008 financial crisis; (tariffs increasing from 5% to 6%) however, consumer confidence is where a lot of outsourcing is done expected to go up  Reshoring to US is a trend as wages in China had increased and transportation costs had increased Technological Social  Quality differences between guitars  Leisure time among Canadians made from different materials suggested a downward trend over the  Accessories past 10 years  Asian rep for guitars is declining  95% male market – “boomers”  People aged 15-24 and 55+ have more leisure time

Objective John Marr, CEO of Canadian guitar manufacturer Mackenzie & Marr Guitars (MMG), wanted to increase monthly sales 

Goal: o o o o

Sales of 100 guitars per month or $1 million in annual revenue $1M sales, $50k profit This would be a win To reach this goal, Marr planned to launch a new guitar on June 1st priced at $699

Due to tight cash flows in the past, Marr had limited MMG’s promotional budget to $1,000 a month. However, Marr believed that increasing the promotional budget to $4,000 per month was necessary to spur sales growth.  Decide how to allocate this money o Over the past several months, MMG had increased its expenditure on online advertising in its marketing budget *Make decisions before June 1st when the new guitar launches – we are currently in March. 

Information to be Gathered   

 

What should be MMG’s target market for the new guitar? Should an artist endorsement deal be pursued along with the new guitars launch? If so, what characteristics should the artist have? What should the new guitars selling price be? o Marr estimated $699  54 percent markup on the guitars cost o By selling the new guitar a $699 they may appeal to the new, younger market who is more price sensitive as it stated that their current market is financially stable and not price sensitive o Their other guitars are priced $899-$999 which will appeal to the current target market as they are less price sensitive Should MMG diversify its offerings and offer accessories to help increase revenues? How should MMG’s $4,000 monthly promotional budget be allocated? o Google AdWords? (had generated a notable increase in sales in past months) o Magazines? o Facebook?

Segments: Canadian to US market size is x10. Ex. CAD = 1M, US = 10M

GENERAL NOTES        

Stick to what you know and do a good job of that Think outside the box – throw ideas at the wall and see what sticks Price drives things Not every industry should be treated the same way Always know who you are – what’s a win? o There is value in figuring out who you are Segment, message, medium, competitive comparison, comparison to capabilities 5 W’s and H is a valuable tool for behaviour analysis o Who, what, when, where, why, how? Know your customer

*Simplified approach: The basic premise of business is to buy low and sell high.  

In order to sell high enough, you must create a package which customers value highly enough. Learning what customers value and managing resources profitably to deliver the matching value package is the essence of management.

Canada Male 45-60

US English speaking world Canada

Male/Female 15-24

US

?

Alternatives    

New target market? YES or NO Keep the selling price of $699 or change it Endorsement? YES or NO Accessories? YES or NO

Cash was not generated from operations, ended up having a negative balance for 2012. This is not good as income from operations is the engine of the business. If it does not make money from operations and this trend continues, the company will eventually go bankrupt - Accounts payable is the biggest account in operations with $156,100 which is not good as they have a lot of money to pay off and since they didn’t make any money from operations, it doesn’t look like it can be paid off Cash was not generated from operations, ended up having a negative balance for 2012. This is not good as income from operations is the engine of the business. If it does not make money from operations and this trend continues, the company will eventually go bankrupt - Accounts payable is the biggest account in operations with $156,100 which is not good as they have a lot of money to pay off and since they didn’t make any money from operations, it doesn’t look like it can be paid off

Recommendations New target market: younger demographic AND the current target market. Current market: experienced male guitar players between the ages of 45 and 60 Guitar world magazine states that their audience (so people who are interested in guitars) is 35 years with an average household income of $76,000 which is substantially less than the current target market which is $102,716 as stated in acoustic guitar magazine Both magazines state that the majority audience is male (95% and 92%) so the product should be marketed towards males Selling price: Marr estimated $699 (54 percent markup on the guitars cost) Approx. $450 cost to produce (450 x 0.54 = $243, $243 +$450 = $693) ***Need to sell at a higher price than $450 to make profit By selling the new guitar a $699 they may appeal to the new, younger market who is more price sensitive as it stated that their current market is financially stable and not price sensitive Their other guitars are priced $799-$999 which will appeal to the current target market as they are less price sensitive Endorsement: YES With the endorsement, the new model is exactly ¼ (25%) of total sales for the company whereas without an endorsement, the sales proportion is less than 1/5 or 20%.

Guitar Model Tom Rush Signature Dreadnaught Tofino Dionisio New Model

Selling Price $999.99

$799.99

Sales Proportion w/o Endorsement 41.0% $410,000

33.0% $330,000 $899.99 8.0% $80,000 $699.99 18.0% $180,000 Estimated $1M in annual sales

Sales proportion w/ Endorsement 37.5% $375,000 30% $300,000 7.5% $75,000 25% $250,000

Advertising: Split between both magazines as the new target market is viewers of both.

WHAT ACTUALLY HAPPENED IN THIS CASE    

Marr pursued an artist endorsement for the new guitar – successful launch in June o Wasn’t well known across Canada Price dropped to $549.99 o Avg. per month sold: 50 guitars Did not reach revenue goals Did not add accessories...