Question 1: Who are MM’s target customers? Are all segments equally attractive to MM? If yes, why? If not, why not? How do the different segments’ needs and expectations evolve over time?
Target Customers:
Minnesota Micromotors, Inc. (MM) is a manufacturer of brushless and direct current (BLDC) motors that are primarily used in orthopedic medical devices. MM may be considered to be one of the prominent players in the industry of such orthopedic motor segment. MM’s target customers are of two types. The first set of customers place large volume orders and other types of customers place small-volume orders from distributors. The first category of customers is less in numbers but occupies almost 70% of total customers base of the company in terms of volume ordered and value. On the other hand, the small volume orders are more in numbers but occupy only rest 30% of total customers. The first sets of customers may again be sub-divided into four types which are briefly narrated as below:
These kinds of customers demand premium products and hence require a premium level of service also. In such cases, the management feels the need for customization of the products and services.
This segment deals with the premium on the thermal resistance of motors. In order to sell the product to these kinds of customers, the manufacturing staffs would need a high level of technical knowledge and the customization is minute and detailed. Moreover, these customers expect premium services and hence the company will need innovation in the given line.
This segment is least price-sensitive and requires a premium on both thermal resistance as well as the power-to-size ratio of the motors.
This is the segment where the customer’s order high-value products but are price-sensitive. Generally, the group purchasing organizations (GPO) fall under this category where the discount and premium matters to the fullest extent possible and customers switching cost are subtly low. Since the volume is more, corporate houses entertain such segment in their customer portfolio.
On the other hand, the small-value customers buy from distributors and price-sensitive. Such a segment mostly relies on product literature to use and integrate the product into their systems.
Attractiveness:
It may be noted that all the segments have their own specialties with different market share and revenue contribution for the firm. However, in-depth insight may reveal that among these segments, A and D segments are most important for the company in terms of total revenue as far as high-value customers are concerned. In addition, the entire small-value segment is also critical with 30% revenue proportion and the company should prioritize these areas than others in order to make a sustainable and grow customer portfolio.
Segment Development:
It has been noted that all the customer’s segment has been increasing at a consistent rate of 5% to 6% on a yearly basis which establishes the fact that the business has been able to meet the demand of different segments and capably delivering the value customer wants.
Question 2: How does customer satisfaction change over time? How do you balance hard performance metrics such as revenues and profits with soft metrics such as customer satisfaction?
Change in Customer Satisfaction
Customer satisfaction is dicey from a business perspective as the same change over time based on market trends, technological development, and overall societal transformation. A customer may be satisfied with a specific quality of a product for a particular point of time. But, gradually the customer may change his or her choices and preference to the product and look for other products having some different features (Ahmad 2455).
For example, the smartphone industry has undergone a radical change in the last few years because of innovation and technological development on the front. Earlier people used to have phones that were hard with long longevity. Nowadays people are ready to accept the fact that a smartphone may become obsolete after 2/3 years as there will be new models in the market at a lower price. That is why, now they look for more battery backup, and camera resolutions. Earlier, cell phones were used for oral communication purpose. Now, the phones are integrated with office utilities so that official purpose is also getting served through a smartphone. Therefore, the inclination and testes and preference towards the smartphones have been changing radically over the time (Sivesan 10).
Similarly, the change in test and preferences horizon gives rise to a consequent change in satisfaction rate also. The features that used to contribute towards the customer satisfaction now do not add value to their satisfaction. Customer experience and shipping behavior have shifted from product orientation to service orientation.
The balance between Revenue-Profit and Customer Satisfaction
Hard performance metrics like revenue and profit are comparatively easy to assess whereas the customer satisfaction is subjective and evaluation of such may be performed through thematic analysis. Customer Satisfaction Index (CSI) or CSAT is a soft performance metric which is qualitative by nature (Diaz Martín-Consuegra and Esteban 330).
The management should make a consistent effort to balance between these two. There are instances where the business has suffered fall in bottom line but earned customer loyalty on a long-term. Investment in customer service may be contributing a decline in profit but in the long-run, more customer satisfaction will increase the revenue and consequently the profit for the firm.
Question 3: How does customer satisfaction relate to customer loyalty?
Customer satisfaction and customer loyalty are two different terms carrying almost similar connotations as far as the success of a business’s marketing and sales strategies are concerned. However, there lies a thin line of demarcation between these two and a steady relationship also. The section below briefly describes the same.
Customer satisfaction may be conceived to be the measurement of customers’ attitudes regarding the products in terms of its brand value, quality and services in the market. On the other hand, customers’ loyalty derives its meaning from the repeat value of the products or services offerings. In other words, the existing customers’ have the intention to buy the products once again as the same satisfied their needs and preferences (Young Keith and Ernest 5). Therefore it may be noted that the customers’ loyalty may come from customer satisfaction. In nutshell, it may be stated that customer loyalty depends on customer satisfaction and one succeeds the other.
However, one interesting dimension of customer loyalty may derive from the fact that customers do probably not like the product but still stick to the same because of non-availability of any other options. For example, there may be customers who are unhappy with the products, but still under the periodic subscription plan, because there are no other alternatives in the market as of now. Such a scenario may also depict customer loyalty but from a different angle (Yue and John 650).
Therefore, it is critical for the management to understand the process of moving from satisfaction to loyalty index and sustainability. There has a survey which has established that the effort should be reduced to retain customers by way of propaganda and publicity. Almost 90% of the customers do not want to be communicated for using the product they are already using. Rather, the retention pitch may be converted to an engagement initiative where he updates about the existing product which the customer may be interested in, should be communicated to them. Also, the investment in a loyalty program may be considered to be a long-term investment as far as retaining the existing customer is concerned.
Question 4: How should you manage MM pricing? What does it take to justify the price increase?How does price discounting affect the outcome?
Price Management
The price for MM products should be fixed considering the diverse range of customers in its portfolio. There should be strategic move with respect to the price variation. Also, the liberty allowed a sales representative to manipulate the price by way of offering a discount should be narrowed down and cut short.
Price Increase
The increase in price is not perceived to be a growth prospect for the company. Rather, the increase may dilute the customers’ choice and preference to the product and they may shift to other competitors. However, it may also be noted that the C segment customers are the least price sensitive and hence, the slightest increase in price may not take them away from the company’s customer base. Considering the benchmark pricing for customizing product MM is dealing with, the margin may be increased in this segment.
Price Decrease
As stated earlier, most of the customers of MM are price sensitive. Hence the decrease in price may be a viable option for the management to retain and develop the customer base and move towards customers’ loyalty. Loyalty may be achieved for MM if there is a reduction in price at a base level and include additional services in order to put own self in a cost leader position in the industry. Since there will be an increase in price in the C segment, the same may be utilized to absorb the decrease in price in other segments.
Question 5: How do you balance short-term and long-term investments?
In the context of the given case study, customer satisfaction may be construed to be like the short-term goal of the company and customer loyalty may be regarded as the ultimate long-term objective. However, it may also be stated that investment in the supply chain is equally important and maintaining a healthy and effective communication with them is utmost needed for effective execution of marketing distribution strategy (Cai Gangshu Zhe and Zhang 85).
From the given perspective, the management of MM should cut the stringency of supply chain contract and try to reduce the attrition rate of sales representatives. Such may be achieved by forming new policies, recruit new people in the supply chain, introduce them to the company’s policy through training and monitor their actions on a periodic basis. Such investment will be short-term.
However, there should be cut in the compensation for non-performers as per the company set criteria. Such investment will be long-term as the instant result may be perceived to be dissatisfaction among the distributors. However, if the policy is strictly monitored for next 6 months and assess the result, there are chances of achieving the desired result as the new sets of representatives will be required to perform under newer sets of rules and hence there will be no psychological barrier which will make them compared with the previous situation.
Along with the same, the price adjustment based on the perception of the customers of different segments (A, B, C, and D) will also be construed to be a long-term investment. Such adjustment will move mostly towards the attainment of the company’s goal of sustainability through building the base of loyal customers, effective sales force and motivated supply chain.
Question 6: How does channel conflict figure into your pricing decisions? How do you minimize channel conflict?
Impact of Channel Conflict in Pricing
Channel conflict is one of the most critical areas in marketing strategy framework and the management needs to resolve the same with strategic moves. Channel conflict may take several forms some of which is briefly described below:
Such conflict occurs when the competitors are similar types of intermediaries and at the same level of distribution hierarchy.
This is similar to the previous one except for the fact that here the competitors belong to be involved in different types of offerings.
This is the conflict which occurs in a different level of intermediaries involved in the supply chain.
Since these types of conflicts occur within the single supply chain system of an organization, the pricing may get severally affected. In order to meet the sectional key performance indicators (KPIs), the sales representatives or the distributors may offer a discount to the customer especially the ones dealing with high-value products (Senior 2011). Such offering is made either to retain the customers’ base or develop the same. However, such price war between the channel members may confuse the customers which eventually may impact their buying decisions as well along with the change in perception about the offering and its quality (Chen 55).
Conflict Resolution
Since the channel members are engaged through a common system having own individual identity, it is imperative for the business to clearly chalk out the supply chain policy and distribution strategy so that no members of the supply chain are in a competitive mood with other members. Exclusivity of the product is one approach whereby the channel conflict may be resolved, If the products are unique and offerings are customized, the other market players may not be involved in price war by way of undercutting the price and hence, the demand of the product will subsist on the market. Accordingly, the sales representatives’ will have their own playing ground to retain the existing high0value customers as well as develop new customers based on the company’s pre-defined promotional and distribution strategy (Paananen and Marko 710).
In the case of MM, the company has been spending well on sales force in terms of base pay and performance linked bonus. However, the management may need to supervise the entire supply chain to ensure no communication breakdown occurs. Also, it is important to note that the policy of price negotiation by way of offering discount may need to be revised to incorporate therein some amount of monitoring by a higher level of management.
References:
Ahmad, Amir. “Evaluation Of The Relationship Between Brand Measures And Customer Satisfaction By Using Data Mining Techniques.” Journal of Intelligent & Fuzzy Systems 33.4 (2017): 2451-2462.
Cai, Gangshu George, Zhe George Zhang, and Michael Zhang. “Game Theoretical Perspectives On Dual-Channel Supply Chain Competition With Price Discounts And Pricing Schemes.” International Journal of Production Economics117.1 (2009): 80-96.
Chen, Tsung-Hui. “Effects Of The Pricing And Cooperative Advertising Policies In A Two-Echelon Dual-Channel Supply Chain.” Computers & Industrial Engineering 87 (2015): 250-259.
Diaz, Estrella, David Martín-Consuegra, and Águeda Esteban. “Perceptions Of Service Cannibalisation: The Moderating Effect Of The Type Of Travel Agency.” Tourism Management 48 (2015): 329-342.
Paananen, Aija, and Marko Seppänen. “Reviewing Customer Value Literature: Comparing And Contrasting Customer Values Perspectives.” Intangible Capital 9.3 (2013): 708-729.
Senior, Nicki. Measuring satisfaction with public services. Diss. University of Nottingham, 2011.
Sivesan, S. “Impact Of Celebrity Endorsement On Brand Equity In Cosmetic Product.” International Journal of Advanced Research in Management and Social Sciences 2.4 (2013): 1-11.
Young, Joyce, R. Keith Tudor, and Ernest Capozzoli. “The Use of Electronic Marketing Channels For Disintermediation: A Historical Examination Of Producers’ Behavior.” B> Quest(2016): 2-12
Yue, Xiaohang, and John Liu. “Demand Forecast Sharing In A Dual-Channel Supply Chain.” European Journal of Operational Research 174.1 (2006): 646-667.
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