Month: October 2010

I am taking the management course this term. We looked at the company called Iridium. Iridium was the firm that innovated the satellite, and Motorola was its primary contractor. I think it’s a pretty interesting topic. I am going to talk about the reason why Iridium failed to perform well in the market, which is quite related to Marketing Strategy.

• Low Customer Satisfaction: Consumers were not satisfied with the size of the Iridium cell phone and thought their phones were heavy and inconvenient to bring around. Customers were also not satisfied due to the blocked access, rampant interference and dropped calls. In order to use Iridium service, customers had to purchase Iridium cell phones, which cost about 3000 dollars. On the other hand, its direct competitor Globalstar, for example, offered the phone for less than 1000 dollars. Service cost per minute for Iridium was $3, which was almost 10 times greater than Globalstar’s.
• Low Market performance: By the end of 1998, Iridium only obtained 3000 subscribers, which is 0.5% of their target amounts 600,000. The market penetration was 2.5% in 1992 and increased to 33% in 2000. Competitors’ subscribers were from 23 million in 1992 to 650 million in 2000.Their competitors were growing much stronger than before.
• Porter’s Generic Strategy: Iridium had high differentiation in their product, however; the company focused on the single segment. Iridium concentrated on the high-income market and tended to target successful business people who travelled a lot. There were risks involved in targeting such single segment. For instance, this group of people might no longer want their service when they change their taste or requirements. Management team should be responsible for this because they should target different segments to diversify the risks.
• High cost structure: Iridium’s operating expenses were extraordinary high. Iridium had system cost of 4.9 billion, which is 33% more than its competitor globalstar. Their debt-equity ratio was quite high and they had never considered lowering the costs as part of the strategy. The management team should have developed a better cost-structure for the firm.
• Wrong forecasting: Iridium overestimated the demand of their service and underestimated cell phone and Internet technology improvement. The firm failed to understand the customers’ needs. To determine if there is really a need for their product and service and obtain the better estimation, their marketing department should spend more time and investments on the marketing research such as focus group interview, survey, and etc.
• Failure of understanding the industry: The rival in the industry is very high. There are a lot of competitors already existing in the market. Cell phone industry, like any technology-based industry, is always changing constantly. The delay in launch did cost them a lot. Iridium had many technical problems and unrealistic launch time in which had to be postponed for more than a month. As a result, it exerted negative impacts on their brand image. The industry and customers are very time sensitive. Iridium was unable to sell their service due to the delay of delivering the phones.  Iridium’s bargaining power over their suppliers was low. The service provider was not exclusive to Iridium because they had several other options to sell.

StarCraft 2 is one of the most popular online competition games these days. You can see people are fascinated with StarCraft while some of them are spending most of their life time playing it. Why is StarCraft so popular???

I wanna open this “Nerd Business Model” they apply for marketing and share with the secret of why the games has been so successful.

First of all, It’s the good product quality. StarCraft is designed by Blizzard, which is the company that has a portfolio of three multi-million dollar intellectual properties:StarCraft, Diablo, WarCraft. Every time Blizzard releases the new games, its high quality ensures its perfectly stability, absolutely perfect user experiences delivering to the customers.  Kevin Martens, the head designer at Blizzard, illustrates this point in an interview  last year: “Here’s the secret to Blizzard games, and this is a secret that won’t help any of our competitors: endless iteration. We’ll take something, we’ll put it in the game. Maybe we’ll like it when we put it in, maybe we won’t. We’ll leave it in there for a while, we’ll let it percolate. We’ll play it and play it and play it, and then we’ll come back. We might throw it all out, or we’ll throw half of that out and redo it.”

Secondly, Blizzard is focusing on building the long-term relationship with users rather than transactional basis. Blizzard shows fans that they care about making their games best even long after the game’s initial release. The company improve the game quality time by time and customers are more than welcome to provide feedback to the company. Therefore, customers are loyal.

Thirdly, it’s Blizzard’s brand image. Blizzard puts their attention to every single level in artwork and overall presentation of their properties from the game itself, to the box art, their websites, trailer videos, and any other marketing material. Blizzard also stands for the lifestyle. If you play StarCraft, some people might think you are kind of cool and not out-dated.

I think everyone knows about Harley Motorcycles. Harley Motorcycles is one of the world’s most famous motorcycle manufacturers. Harley is well-known for its super-heavyweight bikes. It has successfully captured over half of the world’s heavyweight market. Harley is an archetype of American style. Together with a few other companies such as Disney and Levi, Harley had a unique relationship with American culture.

Harley’s target customers are middle aged and middle class. For the marketing strategy, Harley consider the Harley-Davidson image and the loyalty it engendered among its customers to be its greatest assets. It is not only selling motorcycles but also the Harley Experience to customers. The company is doing their best to ensure the experience matches the image it conveys and the lifestyle it represents. More than half of all sales were to customers who had owned a Harley before, while about 20% were first-time motorcycle buyers.

However, the rivalry in this industry is pretty high. There are lots of competitors in the market such as Honda and BMW, which offer the lower price and higher technology for consumers. Count on Ducati and BMW to do something every few years. For instance, BMW develops a new appearance and makes the technology change for a model every six years. Harley lagged far behind its competitors in the field of technology and design. The cost disadvantage that Harley has compared to its competitors makes even worse off. Harley’s low production volumes relative to Honda and the other Japanese manufacturers imposed significant disadvantages. I think the cost disadvantage is the purchasing components. Unlike BMW, which has the high bargaining power over suppliers due to size of the company, Harley has lower bargaining power because it purely manufactures motorcycles.

How to attract the younger consumers in the market is also a new challenge for Harley. As the baby-boom generation going downturn, Harley should turn their attention to the new and younger generations. As a 22 year old college student, I will definitely choose a Ducati or BMW motorcycle instead of buying a Harley. Harley should put more focus on the design and technology that creates a connection with younger consumers.

The changing world of motorcycle marketing

In my mind, honestly, marketing is all about how to sell things to people although I knew it is not. But sales plays a significant role in the market industry. Most consumers are price sensitive.  How to sell your products and successfully capture the market share in the industry? Today, I want to write something related to monopoly power, which is First Mover Advantage.

I think the first mover advantage is also a key factor for the company because it enables the firm to create entry of barrier to its competitors and be able to capture the market shares in the industry. Whoever has the first mover advantage would be most likely to control those scare sources and create switching costs to customers. I am obsessed with Wal-Mart research these days. I would use Wal-Mart as an example to write about the first mover advantage.

Locating stores in isolated rural areas and small towns in which everyone else is ignoring is the first mover advantage for Wal-Mart. Instead of competing with other stores in urban areas, Wal-Mart locates stores in isolated rural areas and small towns. The company could reduce the competitions and have more bargaining power over buyers. The numbers of Wal-Mart stores are increasing dramatically. Wal-Mart does greater job than its competitors.  Wal-Mart could capture the major market shares in rural areas and create the barrier of entry to its competitors.

This summer, I went into the Wal-Mart store in China. I was so curious why Wal-Mart can be so successful even in China because there are lots of competitors in this industry before Wal-Mart entered the Chinese market. I did some research online and figured out it’s all about competitive advantage.

Wal-Mart’s main competitive advantages are their low costs system and high product availabilities. By providing large varieties of merchandise to customers with discount price, Wal-Mart has been successful over the last century.  The reason why it has been so successful is that Wal-Mart offers lower gross margin products compared to department stores and able to cut down their costs compared to other discount stores. Wal-Mart lowers its gross margin by 10-15% compared to typical department stores. This strategy allows Wal-Mart to cut down their service and other expenses without losing customers. Based on this concept of discounting store, Wal-Mart entered this industry, where sales volume steadily increased over the last few decades.

Here’s the link about the diffusion of Wal-Mart and economies of Density.