Presented below is a sample response to a question #4 for the company American Entertainment, Inc. This is for guidance only. As stressed in class, each company and their situation is different and the answers to the final question will vary considerably.

 4.    Recommendation:

A. What one major strategy should they pursue now? You must be specific (not generic) and support fully. Support for your choice being the most appropriate choice is critical.

    American Entertainment, Inc. (AE) should undertake a series of intensive direct mail advertising campaigns to targeted potential customers within Miami-Dade County, the location of their current store and in-home installation and service business. The objective of these campaigns would be to increase sales for the company to new customers within their current market of Miami-Dade County by steadily rising amounts over the next three years.

    Earlier analyses showed that AE offered unique entertainment systems, reliably installed in customers' homes with extensive after-sales service. They are known for the high quality of their products and the excellence of their systems. However, their systems are very expensive and appeal primarily to upper-income customers. Their own market research studies show that their average customer has household income in excess of $125,000 and that 90% of their past customers had household incomes exceeding $110,000 (Dubcek, 1995).

    The major problem that AE faces is that sales have leveled off after four years of growth and are no longer growing. This is in spite of increased television advertising (Dubcek, 1995). In order to get sales growth restarted and continue its past climb, they need to find more qualified customers. The current mass marketing approach isn't working anymore and is a waste of money. Since they can identify the specific characteristics of their potential customers, they should purchase mailing lists of households with over $125,000 in income and send direct mailings to them. This should be started with a test mailing to the Zips within a five-mile radius and then expanded once the approach is proven.

    According to Kulzick (2000), a successful strategy is consistent with three things: Management’s values, the mission, and the environment (internal and external). The above strategy is consistent with all of these.

    Management wants to grow the business, but still be in direct touch with their employees and customers (Dubcek, 1995). A controlled growth strategy within a small geographic area satisfies both of these values as management can still personally interact with all employees by maintaining a central location for sales, in-home installation and service. Additionally, since customers are within a small area, management can stay in touch with them and build on the good word-of-mouth provided by past customers.

    The mission is focused on providing exceptional quality in-home entertainment systems (Dubcek, 1995). The proposed strategy continues to provide this same high quality to the same in-home customers rather than expanding to new customers/markets such as commercial systems or lower quality systems.

    The company already has a great reputation, a complete line of high quality brands, and trained and motivated employees (Dubcek, 1995). The proposed strategy builds on these internal strengths. The strategy is feasible, costing less than $10,000 for the initial campaign. Subsequent campaigns would actually save money as television advertising could be reduced by much larger dollar amounts than the cost of the added direct mail programs.

    Studies indicate both a growing market for high-end home entertainment systems and continued growth of housing units within Miami-Dade County with incomes in excess of $110,000 (Dubcek, 1995). There are no apparent external trends that would prevent implementation of the proposed strategy and the favorable trends noted above clearly support this strategy.

    Finally, the company enjoys a good competitive position; number two in the county in their specialized niche (Dubcek, 1995). There does not appear to be any reason why any new competitor would appear in the near future that would be a serious threat (there are no national companies in this niche). Nor does it appear likely that any existing competitor could adopt counter-strategies that would negate the success of the proposed strategy.

    The proposed strategy of targeted direct mailings to higher income households in Miami-Dade County is the best strategy to pursue at this time. It is reasonable for this company, costs less than current strategies, would expand both sales and profits, has a high likelihood of success, can be implemented incrementally, and is consistent with management’s values, the mission, and the environment.

B. Clearly relate and justify your choice to the theory in #1 and #2. Be specific to the theory.

    Internal/External Matrix. Direct mail marketing is an example of a market penetration strategy. Market penetration is one of the strategies recommended by the internal/external matrix in #1.

    BCG Matrix. The BCG matrix in #2 shows that AE is barely a star (.55 on the relative market share axis). The theory recommends that considerable effort be made to maintain stars. The direct mail proposal continues to invest and grow this star business and matches the theory's recommendation. Additionally, since they are close to the line, it is even more important, according to the theory, to increase sales to move more solidly into the star quadrant (Kulzick, 2000).