As you know, Walmark is bringing a product that is very similar to ours to the marketplace. It has begun the production of the product, and our best intelligence says that it will be in their stores in about a month. That does not give us much time to react, but we should be able to adjust our marketing to accommodate this challenge to our product.
This new competitor will not be distributed outside of Walmark stores when it is introduced into the market. Consequently, our sales, revenue and profits from other retail outlets should not be affected. We need to be careful that the changes we make in our marketing efforts do not damage our success in these outlets. However, since Walmark is the largest retailer of household goods in North America, a significant portion of our sales, revenue and profits come through their stores. Walmark’s new entry will likely impact our success here.
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Since Walmark’s product will likely be a store brand, or private label brand, its marketing strategy will revolve around a low cost entry and it will be priced below what we charge for our product. The fact that Walmark’s product will set next to our product on the store shelves puts us at a disadvantage, especially with price conscious consumers. They will look at the price difference and, if they are not brand loyal to us, they may well purchase Walmark’s entry. Since Walmark will not support this entry with much in the way of advertising or many other promotional programs, it will be able to keep its price consistently lower, appealing to the shopper who buys on price.
Our company’s position in the marketplace and in Walmark stores is under attack now. We are operating on thin production and profit margins, which will likely become thinner unless we find a way to maintain sales, revenues and profits. Consumers who are brand loyal to us will continue to purchase our brand. But, the majority of consumers are probably willing to try a new entry and, if it is good enough, they may incorporate it into the list of brand preferences, which means that our sales will be impacted if many of those consumers continue to switch brands on different shopping trips. The truly price conscious consumer will likely switch to the Walmark brand if it is able to maintain a low price.
It seems to me that we have two options to combat this new entry. First, we can develop an advertising campaign that attempts to convert brand switchers to brand loyal consumers. This will necessitate an increase in our advertising expenditures beyond current levels, and it may call for a significant increase in advertising. I know that our prime medium has indicated that it will give us a 10% price break on our advertising if we increase our placements with them by 20% and prepay our costs upfront. What looks like a good deal really turns out not to be. The extra advertising placements will likely eat up what we would save, and if we prepay for our placements, our budget is expended leaving us with no flexibility should we need to make quick changes in our advertising and its schedule. Besides, converting brand switchers to brand loyal consumers will cost more than we want to spend. Our tight margins and other budget considerations may not permit such a strategy.
I believe a better strategy would involve a three-pronged attack in the marketplace. First, we should begin to emphasize the quality of our product in our advertising in anticipation of this new entry. This will not only help at Walmark stores, it will begin to set us apart in all of our outlets. Second, we should ready a sales promotion program, probably coupons, aimed specifically at Walmark stores. The program should temporarily bring the price of our product to a comparable level at Walmark stores only. I know this seems inconsistent with the quality message, but we may be able to make consumers think they are getting a higher quality product for a lower price. It is only temporary while consumers get used to the new product on Walmark’s shelves. Third, we should begin to explore new outlets for our product to absorb the drop in product movement at Walmark stores. Even if our marketing efforts are successful, we will lose some movement through Walmark stores simply because price conscious consumers will switch to its brand. New outlets, consistent with our product image and marketing strategy could help absorb some of this loss and help us avoid lower production of the product.
We need to monitor the sales promotion to see if it works, and use the results of the first month to see how long we need to do this in Walmark stores. We do not want to get into the position of always having to use sales promotion to maintain product sales in these stores. Consumers may come to expect it and leave us in large numbers when we stop. It is important that we use it temporarily to avoid this and to keep our brand from becoming cheap in the eyes of our loyal consumers.
