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zenith case study
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Date: 2 November, 2010
CASE STUDY NUMBER 2
TABLE OF CONTENTS
Introduction.................................................................................................................. 3
INTRODUCTION
Zenith Electronics Corporation is a brand of the South Korean conglomerate LG Group by
way of LG Electronics. The company was previously an American manufacturer of
televisions and other consumer electronics, and headquartered in Lincolnshire, Illinois.
Before LG Electronics acquired a controlling share of Zenith in 1995 and eventually the rest
in 1999, Zenith was the inventor of subscription television and the modern remote control,
color picture tubes , color computer displays , cable products and high tech electronics
components such as monochrome displays, power supplies , and automotive electronics.
Zenith has employed more than 32000 people world wide . all though brand and
distribution were among its strength , results from continuing operations were
disappointing in 1999.Despite sales volume increases, zenith saw net loss of $17 million
compared to a net loss of $11 million in 1988.
Zenith Electronics Corporation was keen on entering into the High Definition Television
(HDTV) segment by launching a new technology that produced higher resolution (sharper
pictures) and super digital stereo sound. Currently, there exists a relatively square NTSC
(National Television Systems Committee) standard with an aspect ration of 4:3, found in
almost all the households in the United States. However, Zenith would like to study
whether consumers preferred the 16:9 wide screen aspect ratio proposed to HDTV as
compared to the existing NTSC. If preferred, Zenith would have to shell large amounts on
investments in new plants and equipments to produce wide shape picture tubes larger
than 28” in diagonal.
To understand the consumer behavior in terms of HDTV introduction, managers at Zenith
must decide what marketing research, if any, needs to be done now in order to assess
market potential and consumer preference for a technological innovation, high definition
television (HDTV) that is yet to be introduced. The case describes various marketing
research options available to Zenith in August 1990. In particular managers have to decide
whether to conduct a study to examine consumer preferences for the wider screen format
of HDTV. They also need to forecast HDTV demand from 1992-2000 under pessimistic,
most likely and optimistic scenarios that have to be defined.
In 1989, despite sales volume increases and a strong branding and distribution base, Zenith
saw a net loss of $17 million compared to $11 million in 1988. The areas of an increase in
sales were due to shipment of color TV sets, picture tubes sold to other manufacturers, and
high resolution color monitors.
Case Analysis
Zenith was primarily a CRT manufacturing firm. They had a perception in people mind
which was like a father’s TV set (Old TV Sets). They major matter if concern was their
market capture. Thompson and RCA were the leading companies. Zenith saw a net loss of
$11 million in the year 1988 in the corresponding year their sales volume increased by 9%
even then they faced a net loss which increased to $17 million in 1989. As a result Mr. Jerry
Pearlman CEO was very concerned and asked Mr. Bruce Huber, VP Marketing of Zenith to
conduct a thorough Market research upon the introduction of HDTV technology which
functioned at an aspect ratio of 16:9, as compared to the present ratio of 4:3. There were
many problems with this innovation as Zenith had no idea of the consumer preferences and
their choices. Their marketing activities were majorly focused on the gut feel of their CEO.
Which needed to change, Zenith was the pioneer of HDTV technology. As HDTV was taken
into consideration a lot of problems arrived the first and foremost was whether to go ahead
with this technology as the not only the cost of production but also the cost of market
research was way too high. At the point of time when they were in process to take a
decision on HDTV technology the major competitor was Thompson and RCA. During this
period HDTV was given the name of the next generation technology but the acceptance was
uncertain amongst the people. When the buying pattern of the consumers were analyzed it
was known that consumers often were hesitant to buy a TV set of more then $1000. When
Zenith made an effort to understand the Consumer Behavior Findings their key Point of
Targets was:
1. Consumers
2. Product
3. Price
4. Distribution
5. Promotion
Pearlman the CEO of Zenith at first was hesitant in conducting the Market Research he felt
that Market Research slows down the new product introduction. But at the later stage he
realized that its very important to conduct Market Research as it allows the company to do
Market Segmentation. It helps in setting up communication strategy also helps in selecting
the appropriate media for targeting the consumers. Zenith also conducted survey amongst
the non-zenith buyers such that they can understand their buying pattern and can also
target them.
Their main concern was to understand the aspect ratio required for the success of HDTV
system to be a success. How this aspect ratio was to be implemented. How would the
consumer perceive it and respond to it. Also how the problems of side curtains and top and
bottom curtains can be solved and managed.
Challenges faced by Zenith
High competition.
98% of households in US had color TV’s.
Large Sales Volume but low margins.
High Cost.
Its image as an old brand with no fresh products.
Limited target audience.
Carefully understand the consumer’s preferences.
Forecasting the demand for Television in the coming years.
Marketing Strategies
Advertising strategy – pull strategy.
Hired Focus Group.
Heavy Cost incurred on advertising and promotion.
Traditional Marketing with “Gut Feeling”.
Feedback from not just consumers but employees and dealers as well.
Conducted One to One interviews with television buyers to know their buying
behavior.
Applying push strategy, making goods available at large retail stores.
Purchased syndicated consumer data.
Conducted among 200 panels of 1000 households each in 9 geographic regions
across U.S.
ISSUES TO BE ADRESSED IN
THE ZENITH HDTV CASESTUDY
1. The Prospected HDTV demand from the year 1992 to the year 2000 under a pessimistic
Most likely and optimistic scenario.
2. The main factors that are to be taken into consideration in order to analyze market
Research strategies.
3. Solutions to the factor issues.
Issue 1
Pessimistic Scenario
HDTV broadcast issues are resolved.
HDTV sets are readily available.
Quality HDTV programming is not available.
Consumers do not see the benefit in paying higher price.
Sales will suffer and HDTV would only be able to penetrate 3-4 % of US households. It
would
be a mix of the early penetration pattern of color TVs and projection TV.
Most likely Scenario
Sales are slow initially.
Sales pick-up after as good HDTV quality programs are available.
Consumers slowly become willing to invest in a HDTV.
Sales would follow the pattern of the color TV with slow initial sales but high penetration of
US
households as the time progresses.
Optimistic Scenario
Broadcast Standards are readily adopted.
TV stations invest in new equipment and HDTV shows are available.
HDTV sets are readily available.
Consumers think the superior sound and picture quality is worth the higher price.
Sales would follow the pattern of the VCR with high penetration rate
Issue 2
1. Aspect Ratio Analysis
a. Primary Objective: To measure consumer preferences for TV aspect ratio (16:9 or 4:3)
with equal height and/or equal diagonal displays using Conjoint Analysis.
Secondary Objectives:
i. To determine changes in consumer preferences at various price differentials.
ii. To determine changes in consumer preferences with different program content
iii.To determine changes in consumer preferences with different diagonal sizes.
2. Price, Promotion, Place and Product Analysis
Price: Consumers have a fixed budget which was not extremely low as it signified a
cheap product. The objective was to get the best TV within the budgeted amount.
a. Product: Picture quality was the main concern of the consumers .They also concentrated
on other features such as remote controls and stereo systems.
b. Place: Consumers would generally tend to buy their products from retail outlets .They
got
more product information at stores rather than through advertisements.
c. Promotion: Informative advertising generally went unnoticed. Customers were more
interested in sale offers.
ISSUE 3
It is advisable to opt for primary research when it comes to Aspect Ratio Analysis as
the results must be customized in order to meet the research requirements of Zenith.
Moreover the RCA in its earlier research had certain discrepancies wherein it did not
take into consideration how displays would be viewed in the real world. As pertaining
to 16:9 ratio display, aspects such as “side curtains” and “letterbox” images view were
overlooked.
Product, Price, Place and Promotional Analysis
In order to carry out research on price, product, distribution and promotional
preferences of the consumer, Zenith may opt for secondary research already carried
out by research companies as their analysis is extensive and it is relatively cheaper
than carrying out primary research. They should also target dealers as they could
have a considerable amount of influence when it came to helping the customers
adopt a new idea such as that of HDTV.
SWOT Analysis
Strengths Opportunities
Oldest brand in US market.
Good Brand Image
Promised customer
satisfaction
Good Cash Flow
New product launch will
help capture greater market
share.
Despite of increased sales,
Zenith was facing losses.
Lack of acceptance by the
youth.
Intense competition posed
by imported products.
Weaknesses Threats
Conclusion
Even though there were many competitors present in the market, the demand forecasting of HDTV by Zenith was successful. However, they should have focused more on building adoption models so that more and more people accept and use the product and spread a good word of mouth, so that further sales can be achieved and a permanent customer base is acquired. The data they collected was relevant and was efficiently used, also we’d like to suggest to use the secondary research along after a successful Aspect Ratio study.
Question & Answers
Q1. How much existing information on TV buyers can be
used to assess the HDTV market?
Answer 1)
In the Case-Study according to the exhibit 3:
1. The sales of the large screen TV’s (20 inches) steadily increase from 2.2 million
units in 1975, to 9.73 millions in 1998.
2. Projection TV sales to dealers increased from 265,645 units in 1985 to 301,784
units in 1989.
3. It is also seen that in 1990 98% of US households were owning a color tv.
4. The major brands like Thompson , Philips, Sony, and zenith were competing
against each other with Thompson having the highest market share of 22% .
5. Zenith conducted a research of non-zenith buyers, the reason for them buying
other brands could be very beneficial to capture them
6. Also in the early days Colour TV Set’s took time to set in but today 98% of the
US population has a colour TV
7. They can also get valid and relevant information from the dealers and retail
outlets as they are the people who are indirectly and directly respectively
connected with the customers
Based on all the above information which was available it would be very useful
for the HDTV to be launched in the market.
Q2. What are the forecasts of HDTV demand from 1992-
2000?
Answer 2)
The EIA was forecasting that HDTV would penetrate 25% of all US households by
the end of Twentieth century. Zenith predicted that there would be around 10%
penetration of total TV industry by 1999. Their findings showed that HDTV
penetration would be same as color TV , however a much slower penetration was
predicted.
Although color TV had a slow early growth,
1. By 1990 it had penetrated 98% of all households
2. The VCR had a faster penetration rate, had become volume driven with low
margins
3. Camcorders ,however , existed in only 10 % of households and had a good profit
margins with the retail price of 1000$.
4. Projection tv had penetrated 4% of US household, with an average retail price of
$2500.
5. It remained to be determined whether the penetration curve for HDTV would be
like a color tv , VCR’S , projection tv.
6. Also the forecasting included that the NTSC sets would continue to be sold even
when HDTV was introduced.
So basically there are 3 possibilities by which we can forecast HDTV from 1992-2000
Pessimistic Scenario
HDTV broadcast issues are not resolved.
HDTV sets are not readily available.
Quality HDTV programming is not available.
Consumers do not see the benefit in paying higher price.
Sales will suffer and HDTV would only be able to penetrate 3-4 % of US households. It
would be a mix of the early penetration pattern of color TVs and projection TV.
Most likely Scenario
Sales are slow initially.
Sales pick-up after as good HDTV quality programs are available.
Consumers slowly become willing to invest in a HDTV.
Sales would follow the pattern of the color TV with slow initial sales but high penetration of
US Households as the time progresses.
Optimistic Scenario
Broadcast Standards are readily adopted.
TV stations invest in new equipment and HDTV shows are available.
HDTV sets are readily available.
Consumers think the superior sound and picture quality is worth the higher price.
Sales would follow the pattern of the VCR with high penetration rate
Q3. Should Zenith do the Aspect Ratio Study?
Answer 3)
Yes Zenith should do the aspect ratio study because of the following reasons:
1. HDTV is associated with the new aspect ratio of 16:9 leading to wider screens
which also has these benefits:
a. Visibly different because of its wider shape.
b. Can be easily distinguished.
c. Uses the latest technology
d. Images are more sharper and clearer
2. This would enable them to be able to determine changes in consumer behavior
at various price differentials
3. This would enable them to be able to determine changes in consumer preference
with different program content.
4. This would enable them to be able to determine changes in consumer
preferences with different diagonal sizes.
5. Also responses would clarify the company about the :
a. Overall performance
b. Their degree of performance
c. Willingness to purchase
d. Other methods of preference
6. They would understand how respondents made tradeoffs among the various
features under investigation and would be supplemented by cross-tabulations of
responses by various demographic segments.
Q4.What additional market research should be done to assess
market potential / consumer preference for HDTV?
Answer 4)
The alternative proposals for HDTV marketing research are:
1. Dealer research:
Zenith has not yet done any formal HDTV research with the dealers, as it had just
asked them informally about market preferences. They also did not have access
to the syndicated dealer data. This is important as a group is familiar with the
consumer preferences and realistic buying situation.
2. Secondary source research:
This is the data from the commercial marketing research firm. The marketing
Department could analyze all existing data about consumer adoption of recent
consumer electronic products. They would also estimate the size and growth of
HDTV industry in various scenarios.
3. HDTV innovators and qualitative research on early adoption :
This research would consist of series of focus groups with innovators and early
adopters of consumer electronic products. These identifications could be based
on demographical or psychographical characteristics. Also by exploring
expectations on product, pricing, promotion, and placement.
4. HDTV /NTSC – TV preferences test:
This was the joint analysis with thousand respondents who viewed actual
working models of HDTV and NTSC monitors under various pricing scenarios.
5. HDTV consumer awareness/ HALLO EFFECT survey: A quantitative survey could
investigate the consumer awareness after the introduction of HDTV. Also it would
access HDTV’s overall brand image, brand awareness, and purchase consideration
rates of non-HDTV products.
6. Competitors Research: A quantitative survey of the competitors such that what sort
of Market Segmentation they are targeting, quality of product attributes they
include, Pricing strategy they offer, etc
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