General Electric Company: Consumer Incandescent Lighting
...is called phosphor, which is a substance that emits white, visible light whenever it absorbs light waves. Both compact fluorescent bulbs and fluorescent tubes contain a gas that gives off invisible light when excited by electricity. This invisible light travels to the phosphor coating on the bulb, where it is transformed into light visible to the human eye. Light bulbs can burn out quickly for a variety of reasons. The first thing to do if a bulb seems to burn out quickly is check the fixture it's in. Light fixtures can wear out over time and develop wiring problems that blow out bulbs. If bulbs are repeatedly burning out quickly in the same light fixture, it's probably the fixture. Light bulb manufacturers adhere to a standard industry rating for light bulb life called "rated life." Check your light bulb package to see the rated hours of life for your particular bulb. The rated life is a measure of the median time in hours that it takes for a light bulb to burn out. This is the point in laboratory testing at which half the test bulbs have burned out and half the test bulbs are still burning. Distribution: Consumer incandescent lamps were sold primarily through 4 distribution channels: 1. Food stores ¡V The food stores were the primary channel for distribution with around 50 SKUs of light bulbs. They earned a margin of up to 56% on the light bulbs 2. Discount stores ¡V They used light bulbs as traffic builders and had over 100SKUs. They promoted private labels over the branded ones and had a margin of around 41%. But they sold more bulbs per purchase. 3. Hardware stores ¡V These preferred carrying speciality lamps and new items and also promoted the inside frost bulbs. They had a margin of 45%. 4. Drug stores ¡V Drug stores on the other hand carried only one brand at a time and had a margin of 45%. Keeping the above statistics in mind GE would have to push sales in the hardware section too. The industry growth rate for the hardware section is 5%. Despite this the GE growth in this section is ¡V1%. GE should cash on the industry increase in the case of the hardware section. Competitors: Its two main competitors are: ƒá Westinghouse ƒá Sylvania Norelco was fourth in line, having a dominant position in the European market. Private labels were gaining inroads into the bulb market and unlike its competitors GE was the last to cash on the boom. When it did so, it started with Action range, which was manufactured in Hungary. The private labels market share was steadily rising at approximately 2% per annum. Over the years though the competitive structure of the market was changing and GE had responded by increasing its price premium from 3-4% in the 1970s to almost 30% in the 1980 era. Its competitors especially Norelco pursued food-stores more aggressively for marketing its products. Despite the late 1970s era rising out of depression, GE faced two problems: ƒá Its market share fell as price premium increased ƒá Some of the increase had to be dealt back as additional trade promotion. Another problem that arose was that the inside-frost bulbs sales started increasing at the expense of the soft-white sales¡¦. Market segmentation: Here certain important characteristics need to be highlighted before analyzing. Firstly they occasions for usage and the purchase cycle of the bulbs need to be identified. Several surveys conducted give us the following data. The uses to which these light bulbs were put would be: general lighting (60%), reading and writing (9%), work aid (6%), decoration (7%), personal care (7%), security (5%) and outdoor lighting (4%). Also the purchase cycle was put to 5-6 times per year. One important finding of the 1980 survey (Opinion Research Corporation) identified a special cluster of consumers who were especially interested in energy efficiency and at the same time GE¡¦s share in this segment was quite low. This could be an opportunity for GE to increase its market share by entering a new category with its Miser range of bulbs rather than eating into its own market share as in the case of the inside-frost bulbs. Also the market segments GE could give more emphasis on are the Energy conscious buyers (promote Miser range), Undecided buyers (promote soft-white) and the Home enhancers (promote the decorative bulbs). The price conscious category could be sold the inside-frost variety of bulbs. Test Market: The concept of selling the idea of ¡¥quality of light¡¦ and differentiating the product based on this benefit was tried out to justify the price premium. Also a test was conducted to study the impact of price premium on the GE bulbs and its competitors before and after advertising. The results supported the fact that advertising helped in improving the brand image of the GE bulbs and also increased the perceived value in the minds of the consumers. With increased advertising, the impact of the price premium decreased from 7-8% to 2-3%. Also we need to note that these advertisements impacted the purchase behaviour of customers shopping from food and drugstores and not in discount chains. The 1982 Marketing Plan: This plan set out to reallocate the marketing expenditure, launch a new product and pursue new distribution opportunities based on the results got in by the surveys and tests that had been conducted through 1980-81. ƒá The funds were thus shifted from off-invoice allowances to national advertising, coupons and back-bill allowances. Also it was made mandatory to run feature advertisements by the trade to qualify for bill-back allowances. This ensured that the retailers did not use branded bulbs simply as traffic builders. ƒá As far as new products were concerned, Miser was supposed to be rolled out nationally as an energy efficient lamp. It was supposed to deliver 5% more lumen per watt as compared to ordinary lamps. In a mature market like this, introduction of a new product helps the company to bounce back. Besides broadening the product line, it helps in creating a new market by changing consumers¡¦ expectations and then catering to those needs. This further helps in advertising and differentiating your product from other products. ƒá Coming to the new distribution techniques, they were planning to promote more private labels so as to capture the price sensitive market. But they would only market inside-frost and non soft-white light bulbs in this category. Again these would only be sold to only to those customers who had GE accounts. Planning for 1983: Despite the belief that the price premium should be reduced, Frago¡¦s analysis proves that the price premium should be maintained at 30% for optimum pretax income and for continuing the support for the kind of image that the company has created. It should be noted here that the analysis was based on the assumption that the market would continue to remain flat, the sales ad marketing expenses would remain fixed, the changes in price premium and unit share would be steady over a seven year period and there would be an additional 0.5% gain on increasing volume of annual productivity. Despite the bill-back allowance being a success, the problem that arose was of checking the performance on these allowances. The alternative proposed here was of affidavits being signed upfront, or letters of intent being signed priorly, but results show that these methods are extremely unreliable and very inefficient. The final problem was the impact of national advertising. While on one hand it would help in product differentiation and in building a consumer base, on the other hand it would impact the retailers¡¦ commissions and encourage them to use this commodity as a traffic builder and sell private labels by emphasizing on their price. Analysis: Selling price is a factor that is dependent on the cost price as well as the perceived value by the customers. The best pricing strategy is to price the commodity above the cost price and below the perceived value. The extent to which this price is below the perceived value would depend on the product manager while taking his pricing decision. In the case of GE, it has created a public image of being a high quality provider. It¡¦s due to this image that they can afford to charge almost at a 30% premium over their competitors. But then also, the drop in market share due to a more price sensitive segment of people being on the rise; raises the...