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63. Exeter Industries produces and markets several lines of food and beverage products. The
company plans to expand its market to cover a new geographical area, and the first products to
be introduced into this new market are three of Exeter's coffees. A meeting of the marketing
committee has been called to determine the pricing and promotional strategy for the introduction
of these coffees. Exeter has adopted the differentiation strategy and is using the marketing
committee to come up with the proper way to execute this strategy in the firm's pricing and
promotional policy.
Mark Williams, vice president of marketing, has suggested that Exeter continue its policy of
premium pricing for Rich Roast Coffee in the new market. "Rich Roast is a superior blend of
Brazilian coffees and should have little difficulty gaining customer acceptance. The use of other
promotional strategies doesn't appear necessary at this time."
Carol Randolph, general sales manager, agreed with this strategy for Rich Roast but
recommended a different approach for Vitality Coffee, Exeter's brand of decaffeinated coffee.
"Vitality is an unknown name in this region and will require a determined promotional effort to
gain market share from other very competitive products. We could try penetration pricing or
packaging options combined with either manufacturer's coupons or rebates. Whatever strategy
we select, we should hit the market hard if we want to be successful."
Dan Felton has been appointed regional sales manager for the new geographical area and is
concerned about the acceptance of Mellow Roast Coffee, a blend of regular and decaffeinated
coffees. "This is a brand new type of coffee in this region and may just sit on the shelf unless we
develop an effective advertising campaign." Pricing or packaging options will be worthless unless
the product gains some visibility and the targeted customer base is made aware of the benefits
of Mellow Roast. We need a good slogan like "A gentle wakeup without caffeine stress!"
Required:
Mark Williams has suggested the continuance of premium pricing for Rich Roast Coffee. Explain
the strategic role of premium pricing, and describe the economic circumstances in the
marketplace that would encourage the use of this pricing strategy. (CMA adapted)
64. Williams Instruments manufactures specialized surgical equipment for hospitals and
clinics throughout the world. One of Williams' most popular products, comprising 40% of its
revenues and 35% of its profits, is a blood pressure measuring device. Average production and
sales are 400 units per month. Williams has achieved its success in the market through excellent
customer service and product reliability. The manufacturing process consists primarily of
assembly of components purchased from various electronic firms, plus a small amount of
metalworking and finishing. The manufacturing operations cost $600 per unit. The purchased
parts cost Williams $800, of which $300 is for parts which Williams could manufacture in its
existing facility for $100 in materials for each unit, plus an investment in labor and equipment
which would cost $175,000 per month.
Also, Williams is considering outsourcing to another firm, Matrix Concepts, Inc., the marketing,
distribution, and servicing for its units. This would save Williams $75,000 in monthly materials
and labor costs. The cost of the contract would be $125 per product.
Required:
(1) Prepare a value chain analysis for Williams to assist in the decision whether to manufacture
or buy the parts, and whether to contract out the marketing, distribution, and servicing of the
units.
(2) Should Williams continue to: (a) purchase the parts or manufacture them? (b) provide the
marketing, distribution and service, or outsource this activity to Matrix? Explain your answers.
65. Levis Strauss and Co, maker of Levi's familiar 501 and Made and Crafted brands of jeans,
also makes a brand that was introduced for discount retailers such as Walmart and Kmart. Levi's
strategy with the new jeans (the Signature brand) was to sell a competitively priced pair of jeans.
The jeans are about one-half or less the price of the familiar 501 and Made and Crafted jeans. To
get costs down Levi's:
• Uses cheaper fabrics and materials.
• Shuns costly mass-market advertising.
• Strictly limits the number of fits, styles, and colors.
Required:
1. Assess the new strategy at Levi. What do you think are the potential benefits and risks?
2. How will the firm's value chain and balanced scorecard change as a result of the new strategy?
66. Gordon Manufacturing produces high-end furniture products for the luxury hotel industry.
Gordon has succeeded through excellence in design, careful attention to quality in manufacturing
and in customer service, and through continuous product innovation. The manufacturing process
at Gordon begins with a close consultation with each customer so that the finished product
exactly meets the customer's specifications. This commonly means unique designs, special
fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key
competitive edge it has over other competitors is that it has an outstanding design staff that is
able to work with customers to come up with product designs that go beyond the customer's
expectations.
Anticipating a growth in the demand for luxury hotel rooms, Gordon has expanded its operations
to include one new manufacturing plant, and by refitting some of the older plants with newer,
more efficient equipment. The installation of the new equipment has caused some delays in
filling some customer orders, and Gordon has shifted production from those plants with the
delays to other manufacturing plants. The result has been an increase in some processing costs,
transportation costs, and delays in meeting customer order deadlines. Also, the introduction of
the new equipment has created some tensions with employees who see the new, more efficient
equipment as a potential threat to their job security. There is also some disagreement among
managers as to whether the new equipment will improve or reduce quality.
Required:
Develop a SWOT analysis for Gordon Manufacturing. List one or more items in each category.
67. Gordon Manufacturing produces high-end furniture products for the luxury hotel industry.
Gordon has succeeded through excellence in design, careful attention to quality in manufacturing
and in customer service, and through continuous product innovation. The manufacturing process
at Gordon begins with a close consultation with each customer so that the finished product
exactly meets the customer's specifications. This commonly means unique designs, special
fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key
competitive edge it has over other competitors is that it has an outstanding design staff that is
able to work with customers to come up with product designs that go beyond the customer's
expectations.
Required:
Present a value chain for Gordon Manufacturing with at least five activities and explain the role
of each activity in the value chain.
68. Gordon Manufacturing produces high-end furniture products for the luxury hotel industry.
Gordon has succeeded through excellence in design, careful attention to quality in manufacturing
and in customer service, and through continuous product innovation. The manufacturing process
at Gordon begins with a close consultation with each customer so that the finished product
exactly meets the customer's specifications. This commonly means unique designs, special
fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key
competitive edge it has over other competitors is that it has an outstanding design staff that is
able to work with customers to come up with product designs that go beyond the customer's
expectations.
Required:
Present a balanced scorecard for Gordon Manufacturing with four perspectives and at least three
quantitative critical success factors in each perspective.
69. The tire business is becoming increasingly competitive as new manufacturers from
Southeast Asia and elsewhere enter the global marketplace. At the same time, customer
expectations for performance, tread life, and safety continue to increase. An increasing variety of
vehicles, from the small and innovative gas/electric vehicles to the large SUVs, place more
demands on tire designers and on tire manufacturing flexibility. Established brands such as
Goodyear and Firestone must look to new ways to compete and maintain profitability.
Required:
1. Is the competitive strategy of a global tire maker cost leadership or differentiation? Explain
your answer.
2. What are the ethical issues, if any, for tire manufacturers?
70. In the late 1990s, the bicycle maker Cannondale Corp. faced a variety of key strategic
issues. One was the firm's continued dependence on Shimano Inc. of Japan to supply many parts
for its bikes, particularly the derailleur, brakes, and crankset. A particularly troublesome aspect of
this situation was that Shimano's high-quality and highly innovative parts were relatively
expensive. Cannondale wished to reduce its dependency on these outsourced parts. A second
issue was the increasing competition from Trek Bicycle Corp. and Specialized Bicycle
Components Inc. for bicycles in the upper-end range of the market where Cannondale competed.
Cannondale had built a successful business on the basis of high quality and innovative products.
Its customers were bicyclists who expected the highest quality and most advanced features.
Industry analysts predicted consolidation in the industry for manufacturers that use Shimano
parts but cannot differentiate their products effectively; these bicycle makers will likely be forced
to compete on price.
Required:
1. Consider the use of Shimano parts as one aspect of the value chain for Cannondale. Describe
Cannondale's current strategy. How should this strategy change, if at all, to compete effectively
with Trek and Specialized?
2. Should Cannondale continue to outsource Shimano parts? Why or why not?
