Tweeter Case Summary

I. Situation Analysis. Tweeter is a specialty electronics store, which dealt in middle and high end electronics in the New England area. The majority of consumers in the market for electronics are interested in price and Tweeter is in most cases well above the other retailers advertised starting prices. The middle and high end electronics are sold at around the same prices in all stores, but the product offerings made by Tweeter and the competitors advertising has made it price somewhat uncompetitive. The price biter and the quality/service customers together account for 90% of Tweeter customers. Tweeter targets a niche segment, to be sustaining growth in that segment amongst the low cost players and mass marketers should be synonymous
with the customers for high end systems. The too-expensive tag attached to Tweeter has to be justified and the awareness to quality created, as Tweeter prides itself on high end products with superior quality and service unlike other retailers. Customer usually visit two to three stores before they buy a product looking for a better price, or a better deal. Lechmere, Circuit City, Wiz and Tweeter are the main competitors in electronics business. Lechmere customers usually visit Tweeter to gain knowledge on the products, and then shop for better pricing elsewhere. Lechmere is in direct competition with Tweeter as its major customers are Tweeters current targeted customers. The APP program was undertaken as a part of a three pronged approach to gain market share and growth. It is perceived by some of Tweeters management to have helped in some aspects to increase the customers and revenues, at a cost over a 2.5 year period of around $798,000. Is the APP strategy focused on a customer acquisition strategy or a retention strategy, as the number of customers visiting the retail store are not turning out to be consumers as they are utilizing it for ‘search’ and ‘service’ and then move on to another retailer to purchase. However it is helping in the consumers by paying out $0.8 Million back to its customers, eliminating the need to search ads for price guarantee opportunities.
Tweeter management believes that APP is the reason for increased sales and revenues.
APP Program Data From the above table, the price competitiveness has seemed to decrease, as the pricing in the marketplace seems to be going down on the products with overlap to the competition, as the cost per transaction is going up. Or maybe the program is working to get more customers, on the other hand Tweeter added 4 new stores, and acquired Bryn Mawr in the same period. Having only 3.6% share in 1996, Tweeter cannot rely on APP alone to sustain in the price sensitive market by offering quality products to the customers at low or minimal costs.
II. Problem Definition. Does APP affect consumer behavior towards Tweeter etc. and should they continue with it in their marketing strategy?
III. Analysis of Alternatives.

Alternative 1: Keep APP
There are numerous positives to this option;
1 Since APP is an automatic reimbursement, the customer enjoys a good deal of convenience from not having to search after the purchase.
2 Attracts entry-level customers (50% of the markets) and price-biters.
3 Keeping with the current situation will prevent customer confusion.
4 APP has not reached its full potential for revenue maximization and customer awareness (only 30% know about it, only 22% think it's a Tweeter policy).
5 APP is a competitive advantage over other superstores.
There are several downsides to keeping the plan as well
1 APP deteriorates the profit margin.
2 If there is a price war (i.e. with Nobody Beats the Wiz, Lechmere or Circuit City) APP may lead Tweeter into bankruptcy.
3 Other companies can mimic the APP concept.
4 Advertising expenditure, although significant, has not shown to have beneficial effects on recognition of the policy.
Alternative 2: Discard APP
There are numerous positives to this option
1 Tweeter will no longer have APP expenditures to affect its bottom line.
2 Advertising may be used more effectively in conveying Tweeter's message to the public.
3 Tweeter can now survive a price war, without APP's price reimbursement policy.
There a several downsides to this option as well
1 No price protection convenience for the consumer.
2 Detriment to Tweeter's business image by having to drop the policy.
3 Consumers will lose confidence in Tweeter's pricing.
4 Tweeter will have to find an additional strategy to provide convenience to the customer for price competition.

Alternative 3 – Look at overall marketing strategy, focus on segmentation targets, keep APP but look to persuade on quality and service and/or utilize APP in very targeted segments.
IV. Recommendation.
Does Tweeter want to play in the higher end niche of the market or be caught in the middle or think that they can compete with the larger, big-box retailers?
The decision to keep or fail to keep APP depends on both the product mix and promotion strategy. If Tweeter seeks new customers from the low end of the market, it likely doesn’t make sense for Tweeter to continue APP as the cost incrementally increase. This leaves Tweeter susceptible to price cuts from other providers and could culminate in a price war. The niche in which Tweeter occupies would be less unique and would have Tweeter competing more directly with the big-box retailers. However, if Tweeter chooses to stay competing in the same market niche, it is imperative that they align product and promotion policies that enhance the overall offering.
The key to success is the management of their product overlap while at the same time maintaining enough uniqueness to maintain higher margins and sustain the business. APP may not be credible as a pricing strategy. With too much overlap on the other hand, it may prove unprofitable. It would be beneficial to know what specific products are costing us the most money. In the table below we can deduce that the areas with more overlap are creating more cost exposure and more cost
risk.
Product Overlap Data: Other competitors could borrow APP but as you see in the table above each has a larger degree of overlap and could therefore require writing a check to the consumer for nearly everything. It is more sustainable and strategic where there is less overlap and more uniqueness such as in the case of Tweeter. Exhibit 2 in the appendix shows the product overlap by key segments within the market.
Price image is not equivalent to price.
Tweeter has a challenge in changing the price perception if they chose to do so. It is fundamentally easier to change price, however in the mind of the consumer it is much more difficult to sway perception to a company’s favor. Continuing to signal to the consumer by drawing attention toward ‘price’ is a significant challenge that Tweeter needs to overcome. The marketing strategy requires rigorous analysis to arrive at a positioning strategy. The APP program is not a standalone activity; it is an integrated part of how Tweeter seeks to position itself in the marketplace. They look to find points of parity as well as points of differentiation versus the competition. My view is the role of the APP program works depending on segmentation and targeting (Price Biters/Quality & Service). Good decisions rely on both quantitative and qualitative data analysis. The current perception will be difficult to change and by continuing to draw the consumer’s attention toward their pricing, they run the risk of maintaining this perception in the market. Other parts of the marketing mix need to be adjusted and over time, this should help Tweeter modify and manage perceptions in the market to their advantage. They need to focus on making APP a know program for Tweeter, but may need to look at a more specific segment. Without altering other elements of the marketing mix, again, Tweeter runs the risk of failing to alter consumer perceptions and
confusing consumers more so than driving new growth for the company. One way would be to optimize certain ads in areas where there is overlap to gain credibility on price. With enough overlap, APP is a credible promotion strategy from the perspective of the consumer. In effect, APP guarantees the customer the lowest price (within its stated provisions), but APP does not make the lowest price apparent until the customer receives his or her rebate check. In other words, APP ensures that Tweeter offers the most competitive price, but it does not allow Tweeter to advertise the most competitive price. Without seeing a competitive price advertised in the newspaper, management questioned whether customers were simply concluding that the price competitiveness was never there in the first place. The elements of the marketing mix can't be considered independently. In Tweeter's case, the effectiveness of APP (pricing policy) hinges on Tweeter's product mix (Product policy) and advertising message (Promotion policy).