Week 5 Blog Post

Target & Neiman Marcus: A for effort, F for...failure.

As seen in our reading, "The Slippery Slope of Brand Extension," there are cases when high priced, luxury brands, team up with non-luxury, inexpensive brands in an attempt at brand extension.  In any case, the larger risk lies on the luxury brand, as thee is a fine line between the company extending its brand into the affordability market, and losing the luxury-ness of the brand.      

"Collaborations between luxury and non-luxury brands are risky for the luxury partner. They can attract nega- tive attention, disappoint existing customers, damage the luxury brand’s image and lower the Luxury Brand Status Index, thus diluting the luxury brand if that brand’s customers perceive the collaboration’s results as inappropri- ate for the brand. When the product of such collaboration is finally introduced to the market, the resulting product’s luxury status depends on whether or not the product has kept the luxury facets, such as outstanding quality, unique- ness, scarcity, exclusive distribution, carefully selected points of sale, high price, history and heritage" (Stankeviciute, 2011).

The purpose of downward luxury brand extensions is to help attract customers that are currently not considering a specific luxury brand.  There have successful cases in which collaborations between luxury and non-luxury brands: Jimmy Choo and Hunter, Rolls-Royce's introduction of it's Ghost model, and Armani's "lifestyle brands".  Obviously, the purpose of Neiman Marcus collaborating with Target was an attempt at tapping into a new market and providing more affordable luxury products through Target.  Also, Target was looking to set themselves apart in their market, by providing luxury products at more affordable prices to its consumers.  While it was a valid effort, it was an epic fail, as detailed in the article below.  The quality of the products was not near the standards of what Neiman Marcus was traditionally known for, and the pricing of the product line was too high, both for the target market and the quality of the product produced.     

Epic Retail Fail: Where Did the Target + Neiman Marcus Collection Go Wrong?

Deadly Sin #1: Seeking High Profit Margins and Premium Pricing

This week in class, we looked at whether or not it is beneficial to charge a premium for products.  Drucker lists premium pricing as his first of The Five Deadliest Marketing Sins.  But what about luxury brands such as Apple, Rolls Royce, and Gucci?  How can they charge such a high premium for their products and still be successful in their markets?

Premium pricing is defined as the "practice in which a product is sold at a higher price than that of competing brands to give it snob appeal through an aura of 'exclusivity'".  Drucker's two prime examples are of Xerox and the entire American automobile industry, both of which were the innovators of their specific markets, but ended up losing the market share to Japanese companies.  Based on Drucker's examples, his definition of premium pricing did not refer to high pricing as a result of a better product, but instead the addition of add-ons or an increase in size to allow increased profits.

So, when we look at luxury brands and their premium pricing strategies, we should realize that the pricing is not based on all the bells and whistles in which the product might possess, but the actual quality of the product.  For example, when looking at the market for laptops, Apple charges a premium price for its MacBook line of products, which is considerably higher than their competitors.  The reason for the higher price is not because it has different capabilities than its competitors (as most laptops now offer similar products with similar services), but because of the quality of the product.  Apple is known for their high quality products that last, and a high level of customer service.  This is what the customer is paying for, not for add-ons or bells and whistles.

Remembers, total profit is margin multiplied by sales, so successful marketers should be seeking optimal profit margins that combine with sales over time to equal maximum profits.  When understanding Drucker's first sin, we must realize that not only would the quest for high profit margins ultimately fail, but that it could result in the loss of the entire market to a competitor.

PHARMASIM

Classifying each line extension for Allround

Once we reach Period #4 in Pharmasim, we have the option of introducing a line extension to Allround+.  Our options for the brand extension include a 4 hour children's cold liquid, 12 hour multi. capsule, and 4 hour cough liquid.  Before we can classify each line extension, we must define our current market.  Allround is an over-the-counter cold medicine produced by Allstar Brands.  Now we can classify each line extension according to the chart above.  

4 hour Children's Cold Liquid: Choosing to introduce a children's cold liquid would be an example of Market Development.  Because we already define ourselves as an OTC cold medicine, a children's cold medicine would be essential an existing product, but would allow us to enter into a new market, therefor creating a niche product.  This product does have the potential to create cannibalization, as we are already defined as an OTC cold medicine, and introducing another cold medicine could interfere with our existing sales.  

12 hour Multi. Capsule: Choosing to introduce a 12 hour multi. capsule would be an example of Market Penetration.  Since we already define Allround as an OTC cold medicine, a 12 hour multi. capsule would essentially be the same product, just in a different form (capsule instead of liquid).  This would be an example of an existing product entering into an existing market, and would have the highest potential for cannibalization because, as mentioned before, it is essentially the same product as Allround, just in capsule form.

4 hour Cough Liquid: Choosing to introduce a 4 hour cough liquid would be an example of Product Development.  Because we classify ourselves as an OTC cold medicine, a cough liquid would be an example of a new product, but in an existing market.  Allround is already being used as a cough remedy by our consumers (as seen in the Brands Purchased Report), even though its specific intention is for cold relief.  Because of this, a cough liquid has the potential for cannibalization as well, since Allround is already being utilized for cough relief.  

Market Demand

Next, it is important to look at the market demand for each of the line extensions offered for Allround+. In order to do so, we should consult the Brands Purchased Report and Decision Criteria Report.

Brands Purchased Report

Above is the Brands Purchased Report for Allround.  It shows the Total Market Units Purchased (541.4 mil.) and Allround Units Purchased (116.1).  Below this information, there is "Pct. of Market", "Brand Share", and "Pct. of Brand".  Each is categorized by Cold, Cough, and Allergy.  So, out of the entire 541.4 mil. units purchased in the market, 73.9% was for cold relief, 14.9% was for cough relief, and 11.2% for for allergy relief.  Next, we can see that out of the 541.4 units purchased in the market, Allround accounted for 21.7% of cold purchases, 35.3% of cough purchases, and 1.4% of allergy purchases.  Lastly, of the 116.1 mil. units of Allround purchased, 78.4% was for cold remedy, 24.4% for cough remedy, and 0.7% for allergy remedy.

When looking at the decision criteria reports, the above shows a cross section of young families seeking cold relief, which would help determine the effectiveness of a 4 hour children's cold liquid, since young families are the dominant market for purchasing such a product.  When researching information for introducing a 4 hour cough liquid, we would take a cross section of consumers seeking cough remedies, which is pictured below.