978-0077861049 Case Part 2

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Comments on Cases in Essentials of Marketing

if it continues to appeal, they become regular patrons. Ice skating, on the other hand, has been more

exercise–oriented – and those who are satisfied with this experience are the ones who return.

Claude is trying to change established customer patterns. This is a big job – perhaps an impossible one,

because ice skating is more difficult to learn. The first experience is typically not enjoyable – especially

Claude will not be able to make a drastic change in his public skating format in the short run unless he is

willing to “invest” in a new format. If he decides to go after the “couples” market, then he will have to

exclude the younger patrons. At the same time, it probably will be necessary to promote aggressively to

the new target market. Further, it might be desirable to offer mini–skating lessons for partners who have

not skated before. Further, in the transition stage, the “dances” should be relatively easy to make it a

pleasurable experience.

It is important to recognize that Cooper’s would not be catering to a strongly felt ice–related need, but

rather to the “generic” need for “recreation.” Presumably, the potential customers are already satisfying

this need in a variety of ways – including going to movies, dances, high school games, and so on. That is,

they treat ice skating as a heterogeneous shopping product. Therefore, it will be necessary to compete

against a variety of competitors – many offering something that is much easier to do – i.e., is less “active.”

This means that it is unrealistic to expect that all young people are potential customers. Moreover,

proper environment is created and maintained. This will add another expense, unless Claude can do the

job himself.

Perhaps the marginal gain from switching strategies would not be worth the effort. An initial loss probably

would have to be incurred while eliminating the younger part of the present market and attracting

“couples.” But if the strategy is successful, then in the long run a loyal group of customers might develop

The decision is not clear–cut. Is Claude Cooper able and willing to work to create a new marketing

strategy? Or would his time be better spent on other possibilities? As noted earlier, most rink operators

have not tried to segment their broad market and create “social” strategies – preferring instead to try to

make their public sessions as appealing as possible to anyone who comes. Given that this is what the

majority of customers have been offered and come to expect, this may not be such a bad decision.

Changing people’s attitudes is difficult. But staying with the present strategies (especially for Friday and

Saturday nights) does not solve the profitability problem either! Maybe he’ll just have to accept the

Case 11: Running Room

Running Room is a “specialty shop” that focuses rather narrowly on Nike running shoes and some

running accessories but has begun to branch out trying to find a new way to grow sales and profits.

Unfortunately, these efforts are not working very well and Raina Cisco, the owner, faces the classic

problem of trying to retain the loyalty of her traditional customers while changing her marketing mix to

appeal to new types of customers. This is complicated in a market that is reaching maturity and is

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V-12 Perreault, Cannon, & McCarthy

So the “happy days” of early market growth are over and Raina is considering what to do. Her energy and

risk taking motivation of the early days have paled and in many ways she is now just trying to “hang onto

what she once had.”

The alternatives she is considering require major changes in strategy and should be carefully evaluated –

including not only the pros and cons of the alternatives but some rough financial estimates of the the

Probably the most basic question is whether Raina can adapt what she is doing in such a way that she

gains any sort of competitive advantage. The “custom shoe” opportunity on the surface seems to be very

consistent with Raina’s original focus, but it requires a focus and investment that is narrow compared to

what she has been doing in recent years.

It is logical to expect that a shoe manufacturer would look for other shoe–market opportunities–even mass

customization opportunities or the move to related sports lines – when sales fall off. Running Room is not

really add value and help her customers. That might still be true with the custom shoe business, but if her

target market of serious runners continues to shrink, it’s pretty certain that she will see an even smaller

number of people interested in expensive custom–made shoes. However, if she has exclusive distribution

and her territory is large enough, she may be able to attract customers from a larger distance, especially

if she can use her website effectively. On the other hand, promoting the idea of custom shoes on a

website is different from doing business over the Internet. She still has to get the customers into her store

One alternative that she should evaluate is being satisfied with her present business. It may not be a

growth business, but it might be profitable for several years while some of the other alternatives may not

be profitable at all! It might also be possible for her to experiment with a variety of smaller changes rather

than trying to shift the strategy all at once. For example, she might introduce the custom shoe line while at

the same time adding some different types of shoes from other manufacturers in areas where she thought

that Nike was particularly weak. She could also begin to add fashions or other related products that are

It’s not clear that the alternatives that she is considering at present really focus on a significant unsatisfied

need. The firm that was previously supplying her with custom shoes may have gone out of business for a

variety of reasons, but she needs to at least consider the possibility that there was not enough demand

for custom shoes to justify the costs. After all, most people—even serious runners—can find a good

quality shoe from an off–the shelf–assortment.

Admittedly, some of these markets (say, for general athletic shoes) seem to be quite large, and there are

many other retailers who are already serving them. Further, many of her competitors are better able to

To get a better idea about the alternatives, Raina should construct several P&L statements to try to

estimate the likely profitability of the alternative strategies she is considering. Obviously, this will be very

difficult given that she has a very poor understanding of the size and nature of some of these markets.

Comments on Cases in Essentials of Marketing

Instructor’s Manual to Accompany Essentials of Marketing V-13

Some crude assumptions will help sharpen her thinking about how much new business she would need

to obtain from her current customers and/or how many new customers she would need to pull in for the

new product lines to justify changing strategies. This analysis will probably show that some of her

customers are quite fashion–oriented; therefore, taking on additional “quality” fashion lines of both running

and walking shoes might be consistent with her present image. She can then keep some of the “fashion”

business that she loses to competing stores, which might be enough to enable her to continue in her

present location.

Whether Raina adds more “fashion” merchandise and aims at fashion–oriented shoppers, or moves to the

new custom shoe producer, she will need to retrain her salespeople and probably move to different

displays and advertising copy thrusts. With care, it may be possible to promote running and other related

gear and fashions without driving away the original jogging customers. After all, many of the original

than “pure fashion.” So retaining the Running Room name along with appropriate copy will probably be

desirable.

An alternative not mentioned in the case, one that probably should be dismissed very quickly, is shifting

to a sporting goods store. This is far from her present operation and strengths. Such a move would

require much more capital. Further, most areas already have a number of well–entrenched sporting goods

Raina knows a lot about her present market and should be able to make an informed “guesstimate” of the

size of nearby markets and their likely responses to alternative marketing mixes.. If she can’t find

something that looks attractive and builds on her personal strengths and personnel resources, then she

probably should consider a much wider range of opportunities – even starting another business that

moves beyond sporting goods to other areas where she thinks that she can add value.

Case 12: DrJane.com—Custom Vitamins

This case offers an opportunity to discuss customer service, customer retention, word–of–mouth

promotion, customer satisfaction, financial analysis in marketing, and possibly cross–functional topics in

This case was inspired by a real life incident and “The Case of the Complaining Customer,” (Harvard

Business Review, May–June 1990, pp. 9–25). The Harvard Business Review case includes comments

from four customer service experts. Some of these comments may be useful in the discussion of this

case and interested instructors are encouraged to investigate this resource.

In teaching the case, the instructor might start broadly, perhaps asking “What is the problem facing

Dr.Jane.com?” This question typically results in a broad variety of responses that include: (a) specific

asking for too much?

• Prince Zimbalist does not appear to be a strong customer advocate. Should a customer service

manager more strongly advocate the customer – or the company?

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• Internet companies often rely on computer systems to help them manage customer service. What

are the strengths and weaknesses of this approach?

A more focused approach, and one we find easier to work with, is to jump to Prince Zimbalist’s

assessment that some customers may not be worth the trouble. Ask the question: “Is Prince Zimbalist

correct? Do you think DrJane.com would be better off without a customer like Maxine Slezak?” The

instructor should sense the stance of the class and be prepared to play devil’s advocate since most

students find it difficult to get rid of customers. The instructor might ask, “Are some customers not worth

keeping?” or “Are we setting precedents here?”

The discussion can then move on to whether to compensate Maxine Slezak and, if so, how to

compensate her. By the way, another option for teaching this case is to start with the statement and

Then ask of those who feel Maxine Slezak should receive something: “What should she receive?” At this

point, it is useful to get a wide variety of answers on the board. Usually someone asserts that a simple

apology will suffice. At the other end of the spectrum, someone usually suggests giving Slezak quite a bit

more than she requests. Arraying these on the board – from lowest compensation to highest – can be

useful. Leave one option – do nothing – farthest to the left. If students fear providing extreme answers,

goad them – “Come on, doesn’t anyone think that we should give her even more than she is asking for?”

Then the instructor can ask students favoring a more modest proposal, “Why do you think this is the right

option? Why aren’t you advocating something way out there like ‘[student name]’?” The instructor can

then choose a student who advocates greater compensation and another with a more extreme proposal?

A variety of issues may surface here. One is that while customers often ask for hard compensation (free

services or cash) – they often react best to someone simply showing they care. In fact, if Dr. Jane Chung

herself were to call, thank Slezak for her concern, and promise to improve service, Slezak may forget all

The instructor might move the discussion along by asking, “How much is Maxine Slezak worth to the

company?” Students quickly point out that she purchased almost $800 worth of products last year and,

now that prices are higher, she is likely to spend closer to $1,000 this coming year. The instructor can be

sure students consider actual profits by looking at contribution margin. “What type of contribution margin

are vitamins likely to have?” If the contribution margin on the vitamins is 50%, the contribution might be

$500 per year. Plus, if we talk about lifetime customer value, we can see that she may buy vitamins from

DrJane.com for many years to come. If she buys for 10 more years, this totals to $5,000 in contribution.

years). This quickly demonstrates the power of her advocacy.

If Maxine Slezak has such a strong positive influence, her anger might result in a strong negative

influence. She might run around telling potential customers not to use DrJane.com. In fact, studies have

shown that customers are much more likely to tell friends about a negative experience than a positive

Comments on Cases in Essentials of Marketing

Instructor’s Manual to Accompany Essentials of Marketing V-15

Even if the contribution margin were a very conservative 25% (and the financial analysis totaled half the

numbers shown here), the numbers favor doing everything possible to save this customer’s business and

her strong loyalty.

While this teaching note emphasizes the financial issues, and they should not be overlooked, it is

important to spend as much or more time talking about the softer side of customer service. Customers

to Maxine Slezak on an emotional level.

The case may be used in a number of different chapters:

• Chapter 2: customer equity, customer retention, or customer lifetime value

• Chapter 5: customer behavior

• Chapter 12: online retailing

• Chapter 14: customer service

Case 13: AAA Office World (AAA)

AAA Office World (AAA) is selling office supplies and the folder line in question appears to be in market

maturity already (the margins are down to 20 percent and the president is worried about the “commodity

customer, selling “quality” products, and profitability). Here, not enough data is presented for this, so the

analysis must be subjective.

This is a “tough” decision given AAA’s objectives. It appears that this product–market is already very

competitive (moving toward pure competition) and in market maturity where there will be continued price

pressure. Assuming Business Center can and will buy these folders somewhere and in volume, it

One obvious conclusion is that AAA should work harder to develop new products, using the short run

profits (if any!) from dealer branding to help it avoid the inevitable continuing pressure on existing

products, especially the “commodities.” This is a fact of business life and a rigid “anti–dealer branding”

policy will not stop the product life cycle from moving on and profits being squeezed as competitive

pressures increase on homogeneous “commodities.” Most likely, production–oriented, “old–fashioned”

Case 14: Showtime Media

This company basically sells business products (although it does sell some consumer products to serious

amateurs) and probably has been projecting the appropriate image. The most recent Christmas

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promotion, on the other hand, was aimed at amateurs who do not normally buy from them. The signs in

Showtime Media’s front windows probably would not be seen by these people. And the four

The old saying: “The grass always looks greener on the other side of the fence” is appropriate here. Bob

seems to know what he is doing in his present markets and would be well advised to try to exploit them

more fully rather than “dabbling” in other people’s markets. If, however, he does want to move into the

amateur market, then he had better study this market more carefully and develop a new strategy or set of

strategies. He probably would have to carry new lines of products and probably would have to train his

salespeople to deal with these much less knowledgeable customers. And he would have to accept much

service for them declines – leading to lower sales and profits.

Case 15: The Buckeye Group

Theresa Campana is a manufacturers‘ agent selling accessories in Columbus, Ohio. Agents usually

expand by adding similar lines that will appeal to the same target customers. Ideally, agents should have

The MetalCoat Company offer does not fit with the normal expansion pattern of agents. It might be a very

good offer, but it is not compatible with what she is doing now. It involves selling component materials to

(probably) new customers. Further, it probably would take more time than is suggested because she will

be responsible for the whole marketing effort. As a selling agent, she would become their “marketing

manager” – here that amounts to almost running the whole business. As she spends more time on the

Theresa Campana must decide between whether she wants to become the “marketing manager” of one

firm or stay with the agent business. She is at a crossroads and the decision is extremely important for

many years to come. Not only potential income, but also her personal preferences for independence and

the kind of job she wants are involved. This is somewhat similar to the decision students graduating from

school must make – what business do they want to be in?

Case 16: J&J Lumber Supply

Jimmy Olson is a drop–shipper. He sells lumber to lumberyards, which, in turn, sell these component

materials to contractors. Some probably also sell directly to “do–it–yourselfers” who buy shopping products

– perhaps even homogeneous shopping products for some types of lumber. Jimmy had a geographic

monopoly until about six months ago when an aggressive younger man entered and began occasional

price cutting on the essentially homogeneous products. In effect, they have an oligopoly situation in the

Comments on Cases in Essentials of Marketing

The offer from Arbor Door and Window Company seems to offer “a way out,” but Jimmy is being asked to

play a different role for the windows and accessories. He would still not handle the products, but now he

would be a manufacturer’s agent. Further, he would be selling a “cross–over” product (besides the more

or less homogeneous windows) that has not been accepted by all potential contractors, architects, and

There is no “right” answer about what Jimmy should do. The important point to recognize is that he is

being asked to do something different. Jimmy should seriously consider what he wants to do and whether

he is able to do it. He has not had order getting experience for many years (if ever). This is a more taxing

kind of work and at age 50 he may not be willing or able to take on this new responsibility. On the other

hand, he may have relatively little to lose – as he would not have to invest in inventory. He could try the

new “opportunity” for a while – and see how easy it is to handle and whether he enjoys this kind of work.

It would not be wise for Jimmy to take the new offer and drop lumber sales completely until he can see

more clearly how successful he will be, and how quickly. He will have to contact contractors and

architects – something he is not now doing and the lumberyards probably will not do! This will tend to take

him away from close contact with his present customers. Ultimately, he might lose touch with them. In the

short run, however, increased telephone activity with his present target customers – as well as all

Case 17: Simply Pure H2O4U, Inc.

This case can be used in a variety of ways: to introduce marketing strategy planning, as a way to highlight

integrative planning later in the course, or as a vehicle for students to practice “working with numbers” to

support their marketing ideas with financial analysis. In these teaching notes, the focus is on using the

case as the basis of an integrative analysis, including some work with “marking numbers” (discussed later

in the course). However, if you use the case earlier in the course, you can just stick to basic ideas:

The case provides a good opportunity for students to analyze – qualitatively and/or quantitatively – the

current strategy of a small but growing firm and to evaluate various opportunities for growth. On the

surface, some of the opportunities for growth seem to be only minor changes in direction from what

Simply Pure H2O4U is currently doing. However, in reality, just about any changes in the target market or

one of the four Ps would have rather significant “ripple effects.”. Presently the firm is doing well from a

profit standpoint and there is little risk because there is little financial investment. Less experienced

students may not see this or recognize its advantages. Students are likely to propose “expensive” plans

going to do what).

This case can be used several times. Perhaps a first time early in the course to focus on the idea of the

target market, the 4Ps, and the idea of marketing strategy planning. Then, later in the course, after

students have developed a deeper understanding of the marketing decision areas and have been

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introduced to the issues of marketing cost analysis, breakeven, and the like, the case might be used with

more focus on the quantitative aspects. Finally, the case might be used a second or third time to highlight

cross–functional issues and how they affect the selection of a plan.

Simply Pure H2O4U has several potential markets and they are outlined in the case, but at present, its de

facto target market seems to be individual homeowners. The apartment dwellers are not likely to react the

response promotion effort (for example, a mailing based on registration lists for boat licenses, etc.). The

company has a current way of doing things that can work – but it does not have a well thought out

program for developing different strategies to target different types of markets.

How is the firm doing at present? It appears that there is a good opportunity here, at least at the current

prices. But the margins seem very high and one would expect that such large profit margins would attract

How could the firm expand? What are the best opportunities? Morton Rinke could go in any number of

ways. Most approaches will require more investment capital and the risk of front–end costs. It looks at first

as if what he is doing is a bit haphazard because only a limited type of opportunity is being pursued. But

the profitability of its current narrow focus is very good. And by expanding its efforts in that domain (i.e.,

with more sales reps and more new territories), Simply Pure H2O4U can leverage growth and cash flow.

With more income being generated and a broader base geographically, Simply Pure H2O4U could begin

The material that follows provides some illustrative questions and analysis related to these broad

assertions. Here again, how much you expect from students on these issues might depend not only on

when the case is tackled in the course but also how much preparation you have done with respect to

individual issues.

How does the PURITY II compare with other alternatives? What are its advantages and limitations

relative to customer needs?

One approach to this question is to look at the economic value and/or cost to the customer. Simply Pure

H2O4U costs $.05 per gallon, ignoring the initial $395 cost. Since the filter costs $80 and lasts 2 years,

that means that an average household uses about $80/.05 = 1600 gallons of filter water every two years,

which translates to about 800 gallons a year or 800/52=15.38 gallons per week or a little over 2 gallons

per day. Remember this is just the drinking water and not water for other purposes like bathing or

washing clothes. The only alternative on which we have much cost data is Ozarka. At .60 cents a gallon,

The potential health benefits of the PURITY II would probably be most important to hospitals. The

potential taste advantages would probably be most important to customers in geographic areas where

dogs won’t even drink the water; it is probably easy to identify these areas.

A disadvantage of the PURITY II is that it requires payment “up front”. This might eliminate some lower

income consumers who would see it as a luxury. The price would be trivial to a bar, restaurant, or other

Comments on Cases in Essentials of Marketing

Another disadvantage is that it would require the drilling of a hole in the sink. This would probably reduce

the market for customers who rent apartments. Even if the landlord did not object to the renter drilling a

hole in the sink, most renters do not stay in an apartment for a long time and that would mean leaving the

PURITY II behind. To make effective inroads with apartment dwellers would thus probably require selling

to the owner of the apartment building – a job that would probably be easiest while apartments are under

construction (check building permits, especially in areas with lousy water).

How much contribution to profit comes from the sale of a PURITY II and/or filter? What would happen if

Simply Pure H2O4U wanted to develop a different type of distribution through retailers or dealers?

The markup percent on the PURITY II is ($395–$200)/$395 = .4937. If the same markup were used on

filters, the cost of a filter would be about $40.50. Thus the contribution to expenses and profit would be

about $80.00–$40.50 = $39.50. Sales reps get between 80 and 100 dollars a unit for selling a PURITY II –

or about $90/$395 = 23 percent of the selling price. 23 percent of the selling price for the filter would be

If Simply Pure H2O4U sold the PURITY II to retailers, its markup would be only ($275–$200)/$275 = 27

percent. At this markup, and assuming that the filters cost Simply Pure H2O4U about $40.50 (see above),

Simply Pure H2O4U would sell the filters to the retailers for about $55.48. If the retailers resold them at

$80, they would make a markup of about 31 percent.

The retailer would need to resell the PURITY II for about $398.55 to get a 31 percent markup on it. That is

close to Simply Pure H2O4U‘s selling price of $395, but in the latter case, the “product” includes

What do we know about the firm’s current costs? About its profitability?

The company has 6 sales reps who, we are told, can easily sell about 20 units a month. That would be

120 units a month, or 1,440 a year. 1,440 units x $395/unit yields $568,800 in revenue, plus whatever

might come from sales of filters (unlikely to be much this early). The cost of goods sold would be 1,440 x

$200 = $288,000 so the gross margin would be $568,800–$288,000 = $280,800. That would need to

cover sales commissions, fixed costs, telemarketing commissions, and any advertising the firm might

So profitability would be about $57,000 a year – ignoring revenue from sales of filters and any costs of

telemarketing commissions that might be greater than what is paid directly to reps if they make their own

appointments.

How much does the firm need to sell to break even? Should the firm expand into other geographic

markets?

The break–even sales volume is only about $57,000/ ($395–$200–$100) = 600 units a year, or $237,000 in

sales. Each unit sold contributes about $95 to profit – so profits accumulate quickly with more sales.

Under the current situation, capitalization costs are very low and almost all expenses are variable. Thus, it

looks like it would be easy to grow. It would probably make sense to go ahead and start distribution in

other regions (based, for example, on analysis of where water is worst). It would definitely make sense to

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V-20 Perreault, Cannon, & McCarthy

How much does a typical salesperson make? Is it enough to attract more salespeople?

The typical salesperson can make about $21,000 a year, less expenses. This comes from 20 x 12 x $90

(average of $80 and $100) = $21,600 a year + filter commissions – expenses. Looks ok. It should be easy

to recruit this type of salesperson. In fact, the one unit a day level of sales appears low. It would make

If it costs the company the same whether the product is sold based on an appointment generated by the

office or a prospect identified by the sales rep, it takes 2.5 appointments to generate a sale. If half

(assumption) of the sales (720 units) were based on leads from the office, the telephone people would be

making 720 x 10 / 2 college students working part–time = $3,600 a year. Peanuts. Maybe that’s part of the

reason reps are only selling one unit a day.

What would the firm have to do differently if it were to try to sell through retailers and/or dealers (say,

marine dealers)?

A completely different strategy would be required. Obviously, the thin margin would not support the

current sales commissions. One or more reps would need to specialize by retail accounts. They would

probably need some salary to start out – while customers are being identified – and the commissions

would need to be much smaller. Inventory would be required. It is likely that retailers would expect either

hold inventory to meet their needs quickly, and this might require increase in inventory space and new

transportation arrangements. Dealing with a larger number of retailers would require more sophisticated

office procedures – for billing, responding to problems, and the like – especially if the number of retailers

were large. It would probably make sense to move into the traditional retail channel only if the company

expanded to other geographic areas. This way, many of the costs of serving the retailers would likely be

fixed costs, and would support a larger retailer network. Serving as a wholesaler to retailers would make

Should Simply Pure H2O4U target institutional customers rather than final consumers?

Targeting other than final consumers will increase the risks of the business. At present, it has very low

fixed cost and high margin. Most of the institutional customers would be volume purchasers and the

company would be orienting toward a higher turnover/smaller margin operation. This could be quite

profitable, but the company would need to undergo reorganization. The main problem in the very short

What are the implications of expanding into other geographic areas?

Expanding into other geographic areas would probably be the fastest way to grow – beyond internal

expansion of the sales force (see below). This could help Simply Pure H2O4U lock in other markets

where the potential seemed to be high. It could provide a basis for broader market development when/if

the company moved to other target markets.