Pioneer Electronics Case Study
Case Summary
In 1975 Pioneer maintained relationships with approximately 3,500 franchise retail outlets, the retail outlets benefited from a 5% Pioneer investment in local advertising, and attractive gross margins and credit terms. However, that same year, Pioneer and three competitors were forced to sign consent decrees with the U.S. Federal Trade Commission promising not to engage in alleged anti-fair competition practices – namely requiring distributors to use suggested list prices and punishing those distributors who didn’t comply either through delayed shipments or revoked franchises. A market price war followed the signing of the consent decrees, lowering franchise’s profits while increasing revenue for Pioneer. Pioneer followed with a new marketing strategy aimed at pushing its new lower-priced hi-fi components over compacts or consoles, this further boosted Pioneer’s profit, continuing to erode the franchise distributors’ profit margins. The final outcome was a select few distributors’ shifting from supporting Pioneer component sales to pushing competitors’ products in order to make a larger profit.
Central Problem
Pioneer Electronics must determine how to move forward from franchise distributors’ complaints that they cannot make an adequate profit selling Pioneer components over the lesser quality, more affordable competitors’ components. The result is “dissident behavior” by the distributors– including disparaging comments about the Pioneer brand to potential consumers, poor product placement in franchise stores and “bait and switch” sales tactics. These actions reflect a possible erosion of franchise distributor support, which might force Pioneer to alter its business model.
Relevant Facts
With the repeal of the fair-trade laws, the market changed drastically for Pioneer, sales and market share increased significantly during this period, prices and margins dropped. As the target market for their products expanded, Pioneer changed their
In 1975 Pioneer maintained relationships with approximately 3,500 franchise retail outlets, the retail outlets benefited from a 5% Pioneer investment in local advertising, and attractive gross margins and credit terms. However, that same year, Pioneer and three competitors were forced to sign consent decrees with the U.S. Federal Trade Commission promising not to engage in alleged anti-fair competition practices – namely requiring distributors to use suggested list prices and punishing those distributors who didn’t comply either through delayed shipments or revoked franchises. A market price war followed the signing of the consent decrees, lowering franchise’s profits while increasing revenue for Pioneer. Pioneer followed with a new marketing strategy aimed at pushing its new lower-priced hi-fi components over compacts or consoles, this further boosted Pioneer’s profit, continuing to erode the franchise distributors’ profit margins. The final outcome was a select few distributors’ shifting from supporting Pioneer component sales to pushing competitors’ products in order to make a larger profit.
Central Problem
Pioneer Electronics must determine how to move forward from franchise distributors’ complaints that they cannot make an adequate profit selling Pioneer components over the lesser quality, more affordable competitors’ components. The result is “dissident behavior” by the distributors– including disparaging comments about the Pioneer brand to potential consumers, poor product placement in franchise stores and “bait and switch” sales tactics. These actions reflect a possible erosion of franchise distributor support, which might force Pioneer to alter its business model.
Relevant Facts
With the repeal of the fair-trade laws, the market changed drastically for Pioneer, sales and market share increased significantly during this period, prices and margins dropped. As the target market for their products expanded, Pioneer changed their