Wharton Business School -LINA GOMEZ - MKTG 411

Make up Post: Comparison of Toyota, Coca- Cola and Wal-Mart strategy.

2005-06-25T19:38:00.000-07:00

The marketing strategy that a company adopts gives the success in its industry position. Well known companies such as Coca-Cola (soft drinks), Wal-Mart (retailing) and Toyota with the introduction of the Prius (auto hybrids) have the largest market share in the industry and employ several market leader strategies (pg.577).

In product development (pg.323), the investment in R&D is essential not only for Toyota, who plans to have all of its vehicles to be hybrid- electric by 2012, but also for Coca-Cola who employs a hybrid brand structure and wants to extend brands for new products such as new Coke and C2. Wal-Mart on the other hand uses product mix and private brands such as Sam`s Choice (beverages) and Spring Valley (food products) to have enough and exclusive selection of products, resulting in greater store traffic and loyalty.

When setting prices, Toyota use a product quality leadership (pg.348), the Prius had captured the largest demand of hybrid auto market, charging high selling prices for new and used cars ($20,975 - $26,940), resulting in a production and sales increase. In contrast to, Wal-Mart uses market share leadership, in its effort to be low cost producer (pg.350) and EDLP, is force to find innovative ways to take costs out of the supply chain. Wal-Mart uses its buying power and information about consumer buying habits to force vendors into squeezing their costs and keeping their profit margins low(Always low Prices). While Coca- Cola has current profit maximization estimating the demand and costs at different prices (penetration in price sensitive foreign markets) and choosing the right price to maximize shareholders value and profits.

In reference to place, Toyota used for the Prius a centralized inventory system based on orders taken from consumers (selective distribution pg.413), but now due to the high demand Toyota is considering to manufacture its hybrid vehicles in United States and returning to the dealership-based placement. On the other hand, Coca-Cola employs an intensive distribution (pg. 413) to make the product globally available, it opened a new bottling factory (Somalia) for door to door distribution. As a result, it attracted more businesses, stabilized the economy and increased sales in the international market. In the same way, Wal-Mart with 3,500 stores worldwide, uses intensive distribution and logistics partnerships (pg.425) to improve customer service and reduce channel costs. Despite of unsuccessful locations in some countries such as South Korea, Wal-Mart continue as discount retailer leader in many countries.

In promotion, Toyota is based on the type of product and PLC utilize direct marketing to corporate buyers and give them a detail information about the Prius, personal selling (training sales people), public relations to expand high credibility (environmentally friendly vehicle) and sales promotion (cash and tax rebate incentives up to $2000). Wal-Mart spend over $US100M annually on marketing and advertising, establish a push strategy toward communities to market their products and on-line platforms to move virtual customers into the physical stores. Coca- Cola use Television to have mass- market coverage, also partnerships with sports, TV Shows, outdoor events and celebrities to improve the market position and change the consumer behavior.

In the global market, Toyota, Coca-Cola and Wal- Mart have used effective marketing strategies triggering growth, brand positioning and a competitive advantage to deliver more value and satisfaction to their consumers.

FINAL TEAM POST: TOYOTA PRIUS STRATEGY

2005-06-22T22:17:00.000-07:00

Take the opportunity to read our final strategy for the Toyota Prius. It is the perfect combination from our experts in product, place, price, promotion, segmentation& global and marketing & society .

Excellent job team!!!!!!!!

Extra Credit 2: My blog in some search engines...

2005-06-21T18:47:00.000-07:00

I found my blog in two different sites, here are the URL`s.
Google
http://www.google.com/search?hl=en&lr=&biw=792&q=wharton+business+school+mktg+411

Technorati
http://www.technorati.com/search/LINA%20GOMEZ

Related Blog Entry II: Andre`s It is deja vu all over again or has coke learned its lessons

2005-06-21T12:08:00.000-07:00

Pleasing every taste! Coca- Cola world`s most valuable brand, a company with an excellent position to grow in every non-alcoholic in beverage category by extending established brands, providing new innovative products, packages and experiences. Last year, Coca-Cola reported revenues of $6,643 millions in North America. Despite of an incident occurred in UK with the Dasani Water, Dasani reported a unit case volume grotwh up to 10% in North America according with Coca-Cola`s 2004 report.

Coca-Cola has become such a giant that even a successful new product doesn’t have much impact on sales (like Coke with Lime and C2). Entering new markets is currently the only way to grow. Major acquisitions (those large enough to make Coca-Cola larger) are being denied by regulators under monopolistic laws. So what does Coca-Cola do in the meantime? It continues to advertise its world-leading brand.

People assume that Coca-Cola is certain to succeed indefinitely, and due to an incredible distribution channel, a strong Coca-Cola business should indeed be present for a long time. However it may have to re-think its major product: sodas. What if 50 years from now Coca-Cola's leading product was healthy? The company already had to make a major change to its leading product at the beginning of the century.

“Coca-cola was originally promoted as a drink "offering the virtues of coca without the vices of alcohol." Until 1903, a typical serving contained 60mg of cocaine. Today, it still contains an extract of coca leaves. The Coca Cola Company imports eight tons of coca leaf from South America each year” Source: Cocaine.org.

Tastes change. Over the past 10 years, American culture has become more health-conscious about the effects of soft drink consumption. So what all of us will be drinking as we grow older, and what we will want our children to drink? This is the “billion dollar” question that Coca Cola is trying to answer by launching new products.

Extra Credit 1: Expanding David Gong`s Post

2005-06-20T22:54:00.000-07:00

As a Price expert in this class, I had decided to expand David Gong post, Wal-Mart price strategy is EDLP and it promises everyday low prices on everything it sells. In contrast, Kmart`s recent attempts to macth Wal-Mart`s EDLP strategy failed (pg. 361). Wal- Mart uses the value price approach as the right combination between price and quality.

I found that for the fourth year in a row, Wal-Mart, the U.S.'s largest company is the world's biggest retailer, according to Fortune Magazine. Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric. The scale can be difficult to comprehend. Wal-Mart sold $244.5 billion worth of goods last year and employs over 1.2 million people. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined. As a comparison, in 2003, the GDP of Canada was $856 billion, Mexico was $626 billion, and Israel was $110 billion... (Source:The World Bank Group). The bottom-line is that the American market economy is free. It is all about producing things consumers want to buy without price nor geographical restrictions (pg.379). Wal-Mart is offering consumers a wide range of goods at rock-bottom prices. It is, therefore, meeting the market test.(market penetration pricing pg. 371).

The Wal-Mart model is a double-edged sword though. On the one hand, Wal-Mart is probably the most efficient company in the history of American business. It's pushed a low-cost, global-sourcing model to different degrees. It's created suppliers that produce goods cheaper than they ever could before. One can say that poor people need cheaper goods but that is ignoring that people are not just consumers, but they also are workers. And Wal-Mart, in its promise to lower consumer costs, is participating in the lowering of worker standards. Why waiting to save the necessary amount to purchase a quality item when a copy is available at Wal-Mart for a discounted low price?The flip side of that model is that this has come at the cost of U.S. jobs that are actually moving offshore, and even Wal-Mart's own suppliers are concerned that by pushing costs down so low, companies can no longer be profitable.

To read more about this topic, please visit Snap, CNN, Wal-Mart Strategy.

Related Blog Entry I: KiHuk`s Walmart`s Place Issue

2005-06-20T22:25:00.000-07:00

Making reference to KiHuk`s post and his article about Walmart`s place issue. The market had placed Walmart as one of the biggest business in the world. The announcement of the opening of a Wal-mart superstore in a New York Neighborhood, Queens, has created a lot of agitation. Labor movement sees, small businesses, city officials are getting together against it, and the store is already becoming an issue in this year's mayoral campaign. The city has more than a dozen discount stores already, so one could ask why not Walmart? Wouldn’t it help leverage pricing among them by adding a competitor? Isn’t it the fundamental principle of perfect competition?

Believe it or not, American business has been through this before. The Great Atlantic & Pacific Tea Co., the grocery-store chain, was dominating the U.S. market in the 1920s and 1930s with a dominance that has likely never been duplicated. At its peak, A&P had five times the number of stores Wal-Mart has now (although much smaller ones) and owned 80% of the supermarket business. Some of the antipredatory-pricing laws in use today were inspired by A&P's attempts to muscle its suppliers.

By reading the interview of Ray Bracy, Wal-Mart's vice president for federal and international public affairs, one can understand that the battle will be extremely difficult against one of the biggest company on earth.

Topic Post III: People cutting their expenses to save money !

2005-06-19T22:15:00.000-07:00

An article found in CNN Money" Slowdown in consumer spending looms", mentioned according with economists the different reasons why people are cutting their expenses in order to save some amount of money to buy a house, pay their bills, debt and face the increases in interest rates to finance their loans.

Consumers want to supply their primary needs in order to have a better level of life, one of the main needs is to buy a house and the real estate market is passing for an unstable time. Based on location, size, distribution, neighborhood market value and other factors, consumers choose the most appropriate house that meets their needs according with the income available for this basic good. Buying opportunities for a house are fewer every day, prices are getting higher and the real estate fees that some companies charge to finance houses are out of range (consumer perceptions of price and value pg. 354).

Consequently, the consumer must be informed about the mandatory fees to be paid at the moment of finance a house. One way to save money in mortgages, bills and debt is if customers have an outstanding credit line, there are many programs and sites(Getsmart.com) for people eligible to reduce their interest rates, to refinance their homes (lowerMyBills.com) or for taking out home equity loans. Despite of the intentions of many people to buy a house, the cirscuntances make this dream hard to be true in a near future. The income available after the families pay their monthly expenses is being reduced by cost of live or inflation factors that affect mostly the low-middle class people`s economy.

People also is concern about the level of debt they have in an expanding economy face, it is inconceivably hard to "get ahead" of credit card debt. It is incredibly easy to fall into the cycle of "buy now pay later" credit card convenience. With so many adults struggling with credit card debt, it would seems that we would be cautious. Instead however, we are creating future generations who also enjoy the power of buying vs. the pricing power( value pricing pg.361) . Are credit cards for teens an idea whose time has come, or a way for greedy corporations to tap into a lucrative and yet, financially unburdened, demographic? According to marketers, comparing the marketing of today with the marketing of yesteryear is like comparing a BB gun to a smart bomb; it's enhanced by technology, honed by child psychologists and brought to us by billion of dollars. In the new millennium, marketing executives are insinuating their brands into the fabric of children's lives. They want--to use industry terms--'cradle to grave' brand loyalty and to 'own' children." This should be quite alarming in an era where as adults we can barely swim financially afloat.

TEAM POST: PRICE OF TOYOTA PRIUS

2005-06-14T21:31:00.000-07:00

The Introduction to the market

The Toyota Prius is one of the world's first commercially mass-product hybrid automobiles. Manufactured by Toyota, the Prius first went on sale in Japan in 1997. The car was introduced to the worldwide market in 2000 and almost 160,000 units had been produced for sale in Japan, Europe, and North America by the end of 2003. The Prius (2000–2003 models) is certified as a Super Ultra Low Emission Vehicle (SULEV) by the California Air Resources Board (CARB). The 2004 model is certified as an Advanced Technology Partial Zero Emission Vehicle (AT-PZEV), which means it earns PZEV credits, as opposed to it being a Zero Emissions vehicle part of the time.

The Prius has been hugely popular in the United States, some consumers wait months to buy the vehicle, with a high demand since its introduction to the market, which has created a price increase (price elasticity, Kotler and Armstrong pg. 355). Newer designs have come with more conventional appearance and are less expensive, often appearing and performing identically to their non-hybrid counterparts while delivering 50% better fuel efficiency. The Honda Civic Hybrid appears identical to the non-hybrid version, but delivers about 50 mpg. (US). The redesigned 2004 Toyota Prius improved passenger room, cargo area, and power output, while increasing energy efficiency and reducing emissions. The Toyota prius is a full hybrid car because it can run on the engine, the batteries or a combination of both. Toyota`s goal for the Prius is to reduce the amount of emissions it produces and to be as energy-efficient as possible.

Prices - Sales

Hybrid vehicles deliver better mileage and less pollution by switching between a gasoline engine and an electric motor. The vehicles have become increasingly popular with the rise of gas prices.

An R.L. Polk survey of 2003 model year cars showed that hybrid car registrations in the United States rose to 43,435 cars, a 25.8 % increase from 2002 numbers. California had the most hybrid cars registered with 11,425, which may be partially due to its higher gasoline prices and emissions rules, which hybrids generally have little trouble passing.

The number of hybrids sold by Toyota and Honda is quite different. Honda, which offers Civic and Accord hybrids, sold 26,773 hybrids in the first 11 months of last year alone. Toyota has sold a cumulative 306,862 hybrids between 1997 and Nov. 2004 and Honda has sold a total of 81,867 hybrids between 1999 and November 2004.[1]. In 2005, Toyota has sold 43,686 Priuses up from 17,564 sedans sold during the same period a year ago. The automaker has said it plans to double to 100,000 the number of Prius cars for the North American market this year(Forbes.com June 2/2005).

The Prius has an estimated performance of 60 mpg. in city and 51 mpg. on the highway by the EPA a higher performance comparing with the Honda Civic Hybrid that get about 46 mpg. in city and 51 mpg. in the highway, according with the EPA. A study made by Edmunds.com, indicated that hybrids such as the Prius can cost more to own than gasoline powered vehicles over five years when it is used for 15,000 milles of annual driving. The Prius costs $5,283 more than a Toyota Corolla over the five years including costs such as financing, fuel and repair. It is concluded by Edmunds that the costs of the Prius is more expensive to own than the Corolla as long as the price of the gasoline is below $5,60 a gallon. In addition, using the True Cost to Own tool from Edmunds.com, consumers can estimate the total five year cost of buying and owning a car in this case the 2005 Toyota Prius.

An article found in CNN, shows the impact of the used prius in the market and how some owners of 2004 and 2005 models can sell their car for prices above of the original sticker price. The cost of a new Prius ranks from $20,975 to $26,640. Exclusivity is one factor that directly affects the market, the demand of the Prius rises causing an increase of the price. Every day, consumers want to own the vehicle for different reasons such as gas prices, comfort, environmental issues, tax benefits and so on. Toyota is responding to the demand by increasing the production of the Prius and being able to reduce the waiting time to deliver the vehicle.

Other factors might contribute to the reduction of the costs of hybrids. Economies of scale in the meantime could reduce the manufacturing costs, but the replacement cost of the battery pack of the Prius is expected to have a significant increase for the future. Another factor to consider is once the demand satisfy the market, the value of used Prius is going to decrease because of the higher maintenance costs.

Some economic benefits of owning a hybrid car are:

- The purchase of hybrid cars qualifies for a $2000 tax deduction on the IRS 1040 form for the year of2003. The deduction reduces by $500 each year until it reaches zero. HR 1308 Sec. 319 proposed the phasing out of the deduction to put on hold for the year 2004 and 2005 (hybrid car buyers can enjoy the $2000 deduction before the phasing out resumes at $500 in 2006).

- Some states, e.g. California, exempt hybrid cars from the biennial smog inspection, which costs over $50 (as of 2004).

- Hybrid cars can go on certain toll roads for free.

-Many states give tax credits to hybrid car buyers.

All of these factors should be considered carefully by vehicle buyers. Some experts in the field recommend that no more than 20 percent of household budgets should be used to cover automobile expenses ( The Washington Times June 10, 2005).

Topic Post II: Choosing the Wrong Pricing Strategy Can Be a Costly Mistake

2005-06-02T20:40:00.000-07:00

In an article written by two professors of Wharton’s Marketing department Jagmoham S. Raju and Z. John Zhang, they discussed the importance in the development of price strategies and ways to set prices. For a long time, pricing has been a center of discussion into the business environment. One of the major issues in a company is being able to calculate the right price for a specific product and set this price as a competitive advantage in the target market. As many economic factors and conditions could affect the performance of the market such as deflation, which cause a price reduction, high level of competition, consumer perceptions of price and value, demand of the product and the price elasticity – how will the demand respond to a price changes -. These are external factors that affect directly pricing decisions (Kotler pages 352-356).

According to a research conducted by Raju and Zhang with the economic factors mentioned price strategies are essential for a business success and influence a lot on company profits. McKinsey company said “ there is a lot of room for profit improvement through better pricing strategies” meaning that, if the company find an effective price strategy, not only would be more organize, but also it would improve its performance in the marketplace and the profits gained would produce positive results.

On the other hand, a company has to be committed with the product and understand the importance of setting the price for the product in appropriate time. Statistics provided by Mckinsey demonstrated that reducing fixed costs by 1% conduct to an increase of profitability of 2.3% and a 1% reduction on variable costs result in a rise of 7.8% in profit, but when price is reduced by 1%, it can affect profitability in a negative side by 11%.

The advantage or disadvantage of the product depends of the use of marketing mix strategy (Kotler pg. 348) - price, commercialization, distribution, quality, and exclusivity - . Most of the decisions made from the marketing mix could affect pricing variations. Making an efficient use of the cost based pricing, value based pricing and competition based pricing are general pricing approaches (Kotler pg.357) that companies (Pharmaceutical companies, Auto makers, Wireless companies) can use to predict the changes given by the economy, capturing the market and adding value to the product.

A company has to have a clear vision, keep in mind the opportunities in the market, be confident about pricing decisions and be powerful to stay away from price reductions in a deflationary environment.

Article Choosing the Wrong Pricing Strategy Can Be a Costly Mistake, taken from knowledge@wharton.

Topic Post I : Price and some useful links!

2005-05-30T18:19:00.000-07:00

As a definition Price is the amount of money charged for a product or service, the sum of the values that consumers exchange for benefits of having or using the product or service. Fixed price was used to set one price for all buyers. Nowadays, the internet promises to reverse the fixed pricing trend and take us back to an era of dynamic pricing (pg.345) - charging different prices depending on individual customers and situations.

On the case of Back to future: Dynamic Pricing on the Web (kotler & Armstrong pg.346-347) are discussed the advantages and disavantages of the Ecommerce and dynamic pricing on the internet. The internet is changing the rules for both sellers and buyers.

Sellers can:

Charge lower prices, reap higher margins.
Monitor customer behavior and tailor offers to individuals.
Change prices on the fly according to changes in demand or costs.

Buyers can:

Get instant price comparisons from thousands of vendors.
Find and negotiate lower prices.

Sellers and Buyers can:

Negotiate prices in online auctions and exchanges.

Some web sites allow buyers to compare products and prices quickly and easily.

PriceScan

PriceWatch

Compare

There are some online auction sites making easy for buyers and sellers to negotiate prices on thousands of items such as Ebay, Amazon or sites like Priceline let customers to set their own prices.

Try to use them!

Intro II: Something else about me!

2005-05-23T20:10:00.000-07:00

I grew up in Medellin - Colombia. Well, this city, surrounded by mountains it is a paradise. WHY? Simple: because our essential living is very well cover. This beautiful valley with big and green mountains has an industry well developed. Medellin, is the best place to buy in all Colombia. Medellin is called " The Flower city " but I want to add, a warm city with a spectacular spring weather, delicious food to taste and beautiful places to visit. For those who have an understanding about the Spanish language, try to explore about Medellin in the Tourist Guide.

My School ....

Last year, after four years of being in the United States, I decided to start into the Business Essentials Certificate Program, at Wharton School. A well known school with exceptional instructors and greater opportunities to meet interesting people with different backgrounds and cultures. In this moment, I am taking Introduction to Marketing, setting a blog was a requirement to be updated, develop our team projects and interact with other classmates.

Intro I : Introduction

2005-05-19T11:22:00.000-07:00

Lina Gomez, B. S. in Economics from University of Medellin, Colombia.

I have been in the U.S for almost five years and currently working for a publishing company Grupo Bogota Inc. in the Financial & Administrative Area.