Saturday, December 31, 2005

Increasing Topline for a Market Leader – Pointers

There are cases where the client wants to increase his/her revenues despite already being the market leader. This post talks about some common approaches (using our takeaways from Gillette case) that can be used in such cases.

Problem Statement:
My client is a watch making company. Its revenues and profits have been flat for the last few years and it wants to increase both of them now. Can you help?

Facts:
· There are three segments – high end/lifestyle, value for money, low price
· Client has 5% market share in lifestyle segment, 70% market share in the value for money segment, and 20% in the low price segment.
There are some other facts which are not very relevant… refer to ISB Consulting Case Book

Analysis:
First of all, you need to ascertain whether you are a market leader in $ terms or # units sold terms (thanks Umang). In this case, the client is a market leader on both these counts.

In general, there are three ways to increase top and bottom line (other than simply increasing the price and reducing cost):
(a) enter new segments in the existing market
(b) increase penetration in existing segment or
(c) create new market segments, i.e. redefine the segmentation all together – change the rules of the game

In this case, it turned out that the client for some reason was reluctant to enter the other two segments. So if the client is a market leader in a given segment and it wants to increase its revenues from the same segment then it can adopt three strategies:
(a) Increase the frequency of purchase of its products
(b) Generate multiple/alternative uses of its product. For example, a wrist watch can double as a heart rate tracking devise
(c) Increase segment size by
i. trading-up customers from lower segments to the client’s segment
ii. cannibalizing some customers from higher segment

After some data collection about the growth rates of the existing segments, market penetration etc, this case boiled down to creative problem solving. By talking about various approaches to do the three things mentioned above you could come up with recommendations for the client to follow. Some recommendations could include:
(a) Launch watches for each day of the week
(b) Keep changing the designs for each season to entice customers into purchasing new watches
(c) Promote alternative uses of a watch such as a gift item or an accessory
(d) Launch watches at extreme price points within the value for money segment. The cheaper watches will attract customers from the low price segment while, the costlier watches will attract some customers from the premium segment if the positioning and branding is right. This also involves generating strong brand awareness

Finally, don’t forget to do a sanity check of the recommendations that you make. They should be practicable and should not create new problems.

8 comments:

sunil said...

I suggest one more idea.

create a further new segemnt with in value for money segment for fashion inclined women.

Women+ fashion+vfm=HIT

Hope u guys like it

Anuj said...

I think innovation in the way manufacturing and operations are carried out can also result in decrease in cost and thus increase in profit.

Another thing I can think of is knowing how much which segment corresponds to the final revenue figure and how much is their relative input and gain wuld help us concentrate on the most profitable one.

Consulting @ ISB said...

Interesting thoughts guys!

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