Tweeter Etc.

: A Case Analysis by
Abhijit Chanda
Maulik Savalia
Soumyadeep Roy

The Initial Years

Tweeter started out as a small retailer of high-end

audio/video equipment right outside of Boston
University.
This store was a success and soon expanded into 13
stores through out New England. It began to get a
reputation for its excellent service and quality
products and sales soared.

We dont carry all the brands, only the ones that count
Some hi-fi salesman can sell you anything, and often do

United States Market

Consumer Electronics was a $30 Billion Industry in 1995

Compound Annual Growth Rate for the industry was 5.6%
Retail Margins averaged around 30%
At retail level, it was distributed through various channels

40000
30000

23223

27204

30570

20000
10000
0

1991. 0

199 3. 0

1995. 0

Specialty Stores and Boutiques (SS)

-- Good facilities & customer service, medium to high end product line, Ex: Tweeter

Electronic Superstores (ES)

-- Moderate service, high volume selling, diverse product line, Ex: Wiz, Lechmere

Department Stores (DS)

-- Poor service, moderate selling pressure, limited product line,

entry & middle level.

SS & ES

Warehouse Clubs (WC)

43%

11%

Mail Order Houses (MOH)

Source for Graphs: Exhibit 2 and 4

MOH

4%

-- No customer service, no selling pressure, price is the USP, limited

products.
-- No service, no selling pressure, shipping expensive, returns difficult,
catalogs present.

DS

14%

Mass Merchants (MM)

-- No customer service, little selling pressure, focus on value brands,

Ex: Wal-Mart.

MM & WC

28%

The new england Market

New England represented 5% of the total U.S.
consumer electronics market
Size of New England Market share
= 30 billion x 0.05 = 1500 Million $
Share of Tweeter in New England Market
= 54 Million $

64.2
2.8
0
0
0

10

33
30

20

40

50

60

70

Market Share 1992

53.9
2.7
0
7.4
36
0

10

20

30

40

50

60

Market Share 1994

38.3
3.6
3.9
18.6
0

Source for Graphs: Exhibit 5

10

15

20

25

35.6
30 35

Market Share 1996

40

45

The Major Events

5

1. Market growth led to fierce competition especially in lower end of retail market (against Tweeter )
2. Market growth halted because everyone already owned VCRs and home electronics.
3. Halt in the U.S. economy in 1987-88 with New England market taking the hardest hit.

1. Not all retailers were able to survive and thus filed for bankruptcy
-- Tech Hi-Fi (1985), Highland Superstores (1991) & Fretter (1995)
2. Increased Price promotion by retailers and emergence of Sale every
weekend
-- Customers delayed their purchase & waited for weekend sale

Counter measures by
tweeter
OR
Change in strategy and played on pricing as well as product quality and customer service
-- Began to carry Sherwood audio components which were of lower price to compete
against Lechmere and Fretter
In 1988, they joined the Progressive Retailers Organization (PRO), a buying consortium of
small high- end retailers in U.S.
-- Obtained prices from manufacturers which were comparable to those obtained from its
larger competitors

Did the Customer

Perception Change?

No, the perception still persisted among the customers and still
viewed it as expensive when compared to Lechmere
Acknowledged its high level of services but were not willing to
take those at the expense of higher price

Ansoff Matrix

Existing

New

Existing
Existing

Market
Penetration

Product
Development

New
New

Market

Product

Market
Development

Diversification

Positioning of tweeter before

1993
ORIGINATION
Came into existence in 1972, located
near Boston University
High- end stereo market was developing
in U.S.
Tweeter served this audience in their
region

SEGMENTATION
Value,
Quality &
Service

Perceived as a high quality, high end

audio and video retailer, with excellent
Salesforce and offering best customer
service
Customers perceived that they were
paying premium price for the products

Bloomberg
Bloomberg
CUSTOMER PERCEPTION

Within few years, the stereo components

market tripled & led to more retailers entering
the market
Major players were Tech Hi-Fi and Lechmere
Tweeter avoided direct confrontation with
them and focused on its student market with
sophisticated tastes

Demand for high end audio and video

equipment grew in mid 1980s
VCR and CD player were introduced
Tweeter strengthened its positioning in high
end audio and video equipment market
By 1986, it grew to 13 stores

POSITIONING

Positioning of tweeter before 1993

(Customer Perception)
Customers perceived Tweeter as an expensive and high- end retailer
charging much more than the competitors
High Price

Market share was eaten by low cost stores coming up which used to give
heavy weekend discounts
Tweeter had to follow the suit to match the prices
Their discount advertisement of quality products was damaging their own
image
And was still causing severe loss in
profitability

Positioning of competitors

Lechmere: (35.6 % Market Share)

It was the most popular retailer of the region
Growing to 28 stores throughout new England and New York by
1995
In business since 1960.
It was the only place to consider for many New Englanders for
buying Video and audio equipments
This view was reinforced with the well informed sales people, good customer service and
fair pricing on wide variety of entry and middle level products
Having weekly sales discount offers on some products

Circuit City: (18.6% Market Share)

Nations largest electronics retailer

Launched in New England in 1993, grew to 15 big + 6 small stores
Known for Knowledgeable sales people and good service
Having weekly sales discount offers on some products

Sears: (8.7% Market share)

Positioning not Known

Positioning of competitors

Wal-Mart (3.9% Market Share)

Mass merchant
Little customer service, little salesperson Knowledge

Radio Shack (3.9% Market share)

Positioning not known

Cambridge Sound works (0.6% Market share)

Grew to 15 stores in new England since inception in 1988.
Manufacturer and seller of exclusive line of products, and some popular brand name
electronics
Rated as good value for their range (200$ to 600$) of products

12

Analysis of Customer
Tweeter
conducted no. of focus groups and came up with two sets of insights:
behavior
1. Individuals shopping for consumer electronics displayed the
following behavior and traits
-- High Involvement in Purchase
-- 8/10 customers checked newspaper ads for product
availability and price information
-- Consumers visited 2 to 3 retailers before actually buying it
-- Their purchase was affected from Newspaper ads, past
experience and recommendations from friends & family

70
50

40

Factors

2. Individuals familiar or who purchased from Tweeter displayed the following

behavior and traits
60
-- 4 out of 5 customers viewed Tweeter as expensive, however
if price was not an issue, then they would have favored Tweeter
-- Customers who visited Tweeter also visited Lechmere, Fretter
and Sears for the product search
Lechmere
-- 1 in 3 customer came to Tweeter to check out the product
and bought it from Lechmere or Fretter at a better price

45
20
Fretter
Retailers

Source for Graphs: Case Page 5 & 6

Sears

13

Types of electronic
Entry Level Customers
consumers
Interested in purchasing the Lowest Priced item in each product
category
Product quality and customer service did not matter to them

The Price Biters

Cognizant about the price but product quality and customer service
also mattered to them
Focused on Absolutely Best Deal in the product category

The Convenience Customers

Price, product quality and customer service were secondary to
Shopping Convenience to them
Preferred to shop from Familiar stores like Lechmere and Sears
Could purchase products in almost all the product categories on the
same shopping trip

The Quality/Service Customers

High level of product quality and customer service were of utmost
importance, price was of secondary concern to them
Also referred to as BBCOs i.e. Buy the Best and Cry Once

14

Three- pronged attack

strategy
Abandonment
of
The Sale
Eliminated the concept of
Sale to build the traffic in
stores
Big players like Lechmere
could sustain this Sale but
not Tweeter
Competitors were offering
sales on low range products
which Tweeter didnt even
stock
Their perceived image of
Being Expensive was also
working against them
Wanted to again focus on its
unique selling proposition of
High quality and excellent
service
Moved to Everyday Fair
Pricing (EDFP) Strategy

1993
Print
TV
Radio
Direct
Others

3%4%
12%

80%

1996
23%

4%

18%

15%
41%

Source for Graphs: Exhibit 10

Print
TV
Radio
Direct
Others

Change
Change in
in
the
the
Marketing
Marketing
Mix
Mix

Had
Had aa shift
shift in
in the
the Marketing
Marketing mix
mix
away
away from
from Print
Print Ads
Ads towards
towards
Television
Television &
& Radio
Radio ads,
ads, direct
direct mail
mail
and
product
catalogs
and product catalogs

Majority
Majority of
of marketing
marketing budget
budget (8%
(8% of
of
gross
gross sales)
sales) was
was spent
spent on
on
Newspaper
Newspaper ads
ads for
for Sale
Sale
announcement
announcement

Shift
Shift in
in marketing
marketing mix
mix focused
focused on
on
Tweeters
price
competitiveness
Tweeters price competitiveness
and
and APP
APP policy
policy

Released
Released aa Buyers
Buyers Guide
Guide which
which
was
was released
released 44 times
times aa year
year and
and
was
available
at
all
its
retail
was available at all its retail
locations
locations

Buyers
Buyers Guide
Guide was
was also
also mailed
mailed to
to
the
the customers
customers directly
directly

15

Automatic price protection

policy

If a customer purchased a product at one store and later (normally within 30 days) found
that product is available at lower price, the customer can visit the store with the proof and
get reimbursed for the difference

Definition

Competitors like Lechmere, Circuit City and Fretter all offered 110%
of the difference amount for a period of 30 days

Competitors

Tweeter

Tweeter offered 100% refund for the period of 30 days but then went a step further
Under APP, Tweeter decided to itself track the newspapers and send out the rebates
Tweeter tracked 8 major newspapers of the region for this purpose
APP was applicable for products priced at $50 or more and applied to a price difference of
$2 or more
Information was stored in the Tweeters database and was cross checked, if the price was
less then cheque was automatically generated and mailed with 5 days

Other causes of concern

16

Purchase of Bryn Mawr

Similar high end, high
service firm but the
battlefield was entirely
different
Customers perceived
Bryn Mawr as expensive
in comparison to the
large electronic
superstores like Circuit
City, Best Buy & the Wiz,
who were its competitors
Bryn Mawr adopted APP
policy but it failed to
increase sales for them
thus raising questions on
effectiveness of APP.

Entry of Nobody Beats the

Wiz
In 1996, Wiz entered the
New England market by
opening a 50,000 sq. feet
store and major expansion
plans
3rd largest consumer
electronics retailer chain
in U.S.
Was known for its
fearsome marketing
campaigns offering rock
bottom prices
Campaigns included
eminent sport stars
Offered 110% price
protection within 30 days
policy

4C Analysis

Company

Audio and Video equipment

Present in the market since a long time - 21 stores in 1996
EDFP and APP

Customer

Entry level Customers

Price Biter
Quality/Service Customers

Competitors
Context

Lechmere
Circuit City
New Wiz

Bad Economic conditions in 1987-1988

High Bargaining Power of Consumers

Positioning of tweeter after 1996

After change in Marketing Strategy
Brought about a change in the marketing strategy in 1993
Restored to its original USP of product quality and customer service
Strengthened its positioning in medium to high- end audio and video market conveying its price
competitiveness to the customers
Introduced strategies like APP and EDFP and strongly advertised them to gain from these
Effect of mix of marketing policies like: APP
Trying to portray themselves as Fair priced
Discontinuation to project themselves as
High quality service provider
Specialized infrastructure stores
Experts of high end products
End result in customers mind: CoNfUsIoN

Problem statement

High End Customers and Market:

Not working anymore

Selling low cost-low end products like competitors:

Cant do

What to do to Increase market share?

Dont know

APP:
Not working anymore

To continue with APP?

Dont know

Porters Five Forces

New entrants
(High)
Nobody beats the Wiz

Bargaining power of buyers

(High)
Increasing demand for
technological products.

Substitution
(High)
Lowest quality and lowest
price

Bargaining power of suppliers

(Med)

Rivalry among
competition
(High)
Lechmere and
Circuit City.

Multiple distribution channels

Inputs similar and cost low

Mistakes

very costly affair

They were not successful in reaching their Target Segment Quality

customer which represented 150 Mill$ of the size, since their inception in
1972
They tried to change the Legacy which took years 20 years to establish,
by trying to communicating them selves as APP store
They diluted the image they created all over the years since inception in
1972
If at all they had decided to go for it, they failed to communicate the idea
that they could match the price of Big players
Most of the customers, acc to survey, were not aware that
Tweeter followed APP policy
They were NOT over priced
What is APP
8/10 customers checked newspapers for ads before buying the products
they need, and if product wasnt advertised, they would delay the purchase

Mistakes

very costly affair

It did not even have all the high end products in they portfolio, many of
which were there in their competitors portfolio
They tried to compete with the bigger players by waging a price war
which was a futile effort
1/3 customer visited Tweeter just to identify product. They failed to
clearly communicate that products they sell are no costlier then other
stores. Those customer then bought their products from store which was
perceived cheaper
They failed to change the perception of people

Suggestions

Impact of combination of APP and Advertising mix was positive Continue

with it - But make communication effective
Try to find out a communication channels to reach their targeted customers
base more effectively
E.g. They can increase their presence in those locations where more tech savvy people can
be reached easily, e.g. students in college campuses, Venues of parties and pubs

Quality Customer: 10 % of market have clear inclination to go for type of

service that Tweeter offers
That segment made: 10% of New England Market
= 0.1 x 1500 Mill = 150 mill $
Current share of Tweeter = 31 Mill$

Which can be captured just by reaching them and communicating fair

price
proposal: Doing both of it very EFFECTIVELY. Tweeter still to reach full
potential: Opportunity still exists
They should increase product portfolio, to include all high end products, to
improve their branding as the hi tech brand (Exhibit 13)

24