Marketing Case Reader

Contents
ARTICLE: At Amazon, Marketing Is for Dummies........................................... Error! Bookmark not defined. CASE STUDY: The evolution of Crocs, Inc.: will Crocs face extinction? ......................................................... 2 CASE STUDY: Optimizing the advertising budget for a regional business: the case of cycle world. .......... 11 ARTICLE: Beyond Porter .............................................................................................................................. 28 CASE STUDY Gelato natural S.A.(CASES)(Case study) ................................................................................. 31 CASE STUDY : The Hawthorne Organization. .............................................................................................. 38 (WEEK EIGHT) Indian Motorcycle Company: strategy for market reentry. ................................................ 53 (Week Nine) CASE STUDY: Nine Dragon Theme Park: marketing strategy in China................................... 63 (Week Eleven) Pizza Wars ........................................................................................................................... 73 (Week Twelve) Shiseido: becoming an insider in the perfume business in France .................................... 78 (WEEK FOURTEEN) Patagonia: climbing to new highs with a smaller carbon footprint. ........................... 88 (WEEK FIFTEEN) Going to market with a new product: St. Lawrence Island, Alaska. ................................ 92

CASE STUDY: The evolution of Crocs, Inc.: will Crocs face extinction?
Droege, Scott, and Lily C. Dong. "The evolution of Crocs, Inc.: will Crocs face extinction?" Journal of the International Academy for Case Studies 15.3 (2009): 9+. General OneFile. Web. 28 June 2010. BACKGROUND: THE BIRTH OF CROCS The birth of Crocs began in May of 2002, when three friends from Boulder, Colorado went sailing in the Caribbean. This was a rather unremarkable event in itself. However, soon their names, Lyndon "Duke" Hanson, Scott Seamans, and George Boedecker, would become well-known in the footwear industry. The thing that made this sailing trip stand out lay in the hands of one of the friends, or rather on his feet. Scott Seamans had purchased a pair of foam clogs in Canada. Impressed by their performance while boating, the three friends began visualizing the perfect boating shoe. They envisioned shoes that were comfortable, functional, and durable. This led them to the idea of Crocs. Crocs are made from proprietary closed-cell resin material, which the company often refers to as croslite, that feels nearly weightless. In fact, a pair of the largest size of Crocs available weighs less than six ounces. The closed-cell resin softens with body heat and molds to the shape of the foot. Also, because the material is closed cell, it's anti-microbial so it virtually eliminates odor. To add to their functionality, the soles are non-marking and slip resistant and don't hold mud or debris and the ventilated toe box is designed so that air, water, or sand can filter through the shoes. Crocs are extremely easy to maintain and can be sterilized, bleached, or washed in a washing machine. They are also ideal when it comes to comfort standards, with features like built-in arch support, orthopedic heel cups, circulation stimulation nubs on the insoles, and supportive orthopedic molded soles. Although Crocs has been able to patent the basic design, problems remained. The weakness of the patent is such that competitors can easily copy the basic elements of Crocs' products with only minor modification. Nevertheless, Crocs believed its niche market would value the "original" and would hesitate to switch to competitors. Early, on, this was a correct assumption until Crocs gained momentum. As the market niche was developed, however, Crocs had the market to itself. One reason is not so much related to the relative weakness of its patents, but to the idea that competitors viewed Crocs as ugly shoes that would not appeal to a broad customer base. This bought time for Crocs to establish a foothold. Hanson, Seamans, and Boedecker decided to turn their ideas into reality and focus on developing and marketing their innovate footwear. They leased their first warehouse in Florida, chosen because of its location "specifically so we could work when we went on sailing trips there," Hanson says. "From the

get-go, we mixed business with pleasure." While it may not have been the traditional business strategy, their mixture of business and pleasure worked and the reality of Crocs began to form. Crocs began marketing its shoes at a November 2002 boat show. Crocs were originally intended to be sold to boaters, because of their slip proof, non-marking sole and the fact that they are waterproof and odor resistant. However, this market soon expanded to include gardeners, healthcare workers, waiters, and other professionals who had to be on their feet all day. This market began to encompass markets Crocs had never considered. Over the course of a year what had started out as simply an idea on a sailing trip evolved into one of the greatest footwear phenomena of the decade. As the popularity of Crocs rapidly increased, its founders began to realize just how much potential the company had. "I ran day-to-day operations," Hanson said. "During the day, I would answer the phones and handle the required paperwork to set up the business entity wherever we were doing business. After dinner, I'd come back and enter orders until I fell asleep in my chair." Soon Hanson realized that even working sixteen hour days the three friends could not keep up with the demand by themselves. This led Crocs to make the company's first office hire, TeganSarbaugh. The number of employees would continue to grow exponentially in the years to come. In an effort to help the company reach its greatest potential, the three founders made one of their best hiring decisions and brought in Ronald Snyder as CEO and President of Crocs, Inc. Snyder was a former Flextronics executive and an old college friend of Crocs' founders. He was asked to do some consulting for the new company and soon realized the promise Crocs held. Snyder decided on a revolutionary business distribution model for Crocs. The established methods of distribution forced retailers to order shoes months in advance and buy in bulk. Instead, Crocs allowed retailers to order only several weeks in advance and to order as few as twenty-four pairs of shoes. This strategy encouraged consistent pricing by preventing the problem of overstocking and having to sell Crocs on clearance. More importantly this strategy catered directly to customer needs by allowing Crocs to deliver currently popular styles and colors quickly to customers. In 2004, Snyder made one of the most beneficial business decisions in the history of Crocs. Snyder decided to buy Finproject NA, a Canadian manufacturer who made Crocs and owned the formula for their proprietary material, the closed-cell resin known as croslite. Upon their purchase Crocs, Inc. gained control over manufacturing and timing. Snyder describes this as a "eureka" moment. "We had everything required to take the company to the next level," he says. "Proprietary processes, proprietary material, intellectual property, and distribution." THE IPO AND GROWTH OF CROCS Four years after it was founded, Crocs, Inc. became a publicly traded company. There were several reasons why the company owners chose to go public. Firstly, they wanted to untie their assets by exchanging their equity for cash. Also, the public market was more liquid than the private market. One important factor to keep in mind is that Crocs did not go public simply because the company needed

cash, a common action for struggling companies. Crocs' decision to become a publicly traded company did not reflect decline, but rather tremendous growth. The company filed for an initial public offering on August 15, 2005. On February 8, 2006 Crocs announced its public offering. Crocs, Inc. common stock was listed on the NASDAQ stock market the CROX ticker symbol. The initial offering price was to be $13.00 to $15.00 but was revised to a range of $19.00 to $20.00. The first day opening price was $30.00. Since then, CROX has roughly tripled on a splitadjusted basis. During the six month span from January 1, 2006 to June 30, 2006 Crocs, Inc.'s revenues increased from $36.7 million to $130.5 million, an increase of over 350%. The first quarter alone had revenues of $44.8 million, an increase of more than fourfold over the revenues of the first quarter of 2005, which were $11.0 million. Also during the time between January 1, 2006 and June 30, 2006 the Crocs net income went from $6,441,000 to $15,666,000. THE FOOTWEAR INDUSTRY: WHEN CROCS ATTACK Crocs, Inc. has made immense progress within the footwear industry. In its fourth year of business, Crocs already has financial numbers that hold their own amidst companies that have been competing in the footwear industry for decades. Crocs, Inc. is classified as being in the Footwear Industry of the Consumer Cyclical Sector. The following statistics compare Crocs to the Footwear Industry as of December 12, 2006. As the charts above show, Crocs is ahead of the industry in many areas. Its growth rate is over 900% higher than that of the industry. This shows the potential that Crocs has within the footwear industry but also illustrates the risk investors are taking on a concept that may or may not be simply a fad. The hard question Crocs owners must face is whether Crocs is going to fade away like bell bottom jeans or have staying power like Nike athletic shoe lines. The next section considers how the marketing mix addresses some of these challenges. EVOLUTION OF CROCS' MARKETING MIX Products and Target Market Crocs currently targets multiple market segments ranging from boaters to gardeners to simply individuals wanting a comfortable pair of sandals. However, the firm's initial target market was boaters. Crocs' initial foray into the market was an effort to provide a comfortable pair of non-slip boating shoes to a niche market. This target market soon expanded to others who would pay a premium price for comfort. Nurses, retail store clerks, and others who spent most of the day on their feet quickly recognized the value proposition Crocs offered: while expensive, these individuals were willing to pay a premium to avoid the discomfort of traditional shoes. Today, Crocs targets an even wider swath of the market. Crocs' product category advertisements state that Crocs are for "women, men, kid, sports, and everyone." To further broaden their market, Crocs advertises that among these segments, customer will find its products to be comfortable "on the beach, around the house, in the rain, in cold weather, off the

road, for walks in town," and even something that will "look good in the office." Crocs has kept its original characteristics of light-weight, non-slip, brightly colored product lines while created additional styles to accommodate the needs of different consumers. Crocs also offers apparel products such as tshirts, shorts and even women's leggings. Pricing and Distribution Crocs footwear charges an average retail price of $30 per pair. To maintain its image as a premium mix of quality and comfort, Crocs does not utilize incentives to retailers that offer sales promotions. An advantage of this is that Crocs avoids margin squeezes often associated with retail price incentives. A disadvantage is that Crocs discourages retailers from using price concessions to help clear out inventory build-ups. Crocs chose to bypass the traditional distribution models of incumbents such as Nike and instead adopt a distribution model with similarities to just-in-time inventory management. Rather than having retailers order large quantities months in advance that might result in clearance sales, Crocs has allowed retailers to order as few as 24 pairs of shoes. Shorter waiting periods and smaller order quantities allow retailers to accommodate changing consumer tastes and deliver the most current styles available. In addition to conventional retail distribution channels, online distribution is another major tool Crocs utilizes. Up to this point, Crocs has managed to avoid the channel conflicts that often arise when suppliers bypass retailers by offering products directly via the internet. However, as competition heats up, retailers could potentially opt for lower-priced alternatives to Crocs in response to Crocs online distribution. Promotion Most marketers will agree that brand name itself is the most direct economic tool for promotion. A successful brand name should be simple, meaningful, easy to pronounce and easy to remember (Keller 1998). The brand, "Crocs," was derived based on the water-repellent nature of the materials used, the toughness of the products to withstand the elements while still fitting like a skin rather than a traditional shoe. The major promotion tools Crocs has been using are online promotions and magazine print ads. Online promotion is achieved by displaying customer testimonials about how customers enjoy wearing Crocs footwear. For example, Lena ANG wrote, "We've just returned from a winter holiday in Perth. Though it was cold, we were pleasantly surprised that our Crocs could still keep our feet warm even without socks. Our Crocs took us to the farms, deserts and even the sand dunes. I must say that they came in handy when we did our sand-boarding activities at the sand dunes. We didn't have to carry all the sand back to our hotel in our shoes. "The customer's story explains the usage benefits of Crocs shoes and reduces doubt that Crocs might be good only for boating and gardening. Crocs website also provides a list of "shows and events" the company attends at different cities and towns across the US during the year so that it can capture exposure and publicity with minimal expense. Crocs also uses press releases and public relations to create good will among consumers through designing events such as "breast cancer

awareness month" when they donate five dollars to the Breast Cancer Research Foundation for every pair of a certain style purchased through the company website. Crocs' print ads are often found in magazines such as Curve. CURRENT CHALLENGES: THE EXTINCTION OF CROCS? The Crocs brand has become a general term to describe brightly-colored, lightweight shoes similar to Kleenex as a generic term for facial tissue. However, the market has become filled with more and more 'imposter' Crocs. These shoes are being sold in a wide range of stores, from small retail stores to massive chains including the formidable retailer, Wal-Mart. These imitations are often more easily accessible than Crocs as well as less expensive. While a basic pair of Crocs sells for around $30, imitation Crocs can be found for as little as $5. Another challenge Crocs is facing now is competition from strong footwear brands such as Sketchers. Sketchers has launched its new "Cali Gear" product line with more styles and weight similar to Crocs. With the advantage of Sketchers' established distribution channels, the Cali Gear brand has easily taken the in-store display spots in all the major retailers such as Sears and FredMeyers. It is a head-on competition with Crocs. Cali Gear captured more distribution channels while Crocs seems to be holding the specialty product retailers. Even though Crocs has made great efforts and achieved success in expanding its product lines to attract a wider range of customers, its distribution channel remains relatively limited, especially in comparison to competitors such as Sketchers. Combating Challenges One factor giving Crocs, Inc. an advantage over imitators is its customer loyalty. Crocs fans are the company's best method of advertisement. The hoards of satisfied customers claim that no other shoes can replace their Crocs. In fact, some of these customers claim that they were convinced to buy Crocs by other Croc wearers. The shoes attract attention and when this attention is expressed the owners communicate their passion and loyalty for the brand. 'Imitation' Crocs don't have this wide-scale loyalty and word of mouth advertising. However, are Crocs fans enough to keep the company afloat in world full of predators? Crocs, Inc. has already taken steps to defend its status. As of April 3, 2006, the company had received four patents issued by the U.S. Patent and Trademark Office. These patents cover a range of utility aspects of most of Crocs footwear, as well as design elements of their more popular styles, including the Beach, Cayman, Nile, and Highland models. Additional patents have been filed regarding some of Crocs other shoe styles. Also, the company has either filed for or received a number of other patents covering its styles in other areas of the world, including European Union, Asia, South America, Australia, and Canada. In addition to patents, Crocs, Inc. has also filed complaints with the U.S. International Trade Commission and the U.S. Federal District Court against eleven companies that manufacture, import, or distribute products that Crocs, Inc. believes infringe upon company patents. In a recent ITC compliant, Crocs requested an order that prohibits all future imports of these infringing goods as well as prohibiting

further sale of infringing goods that are already present in the United States. As of June 2006, Crocs had already settled in three lawsuits involving infringements on its patents. Inter-Pacific Trading Corporation, Inc., Shaka Holdings, Inc., and Acme EX-IM, Inc. were all found guilty of infringing on patents held by Crocs, Inc. These companies were forced to abandon or modify their current shoe designs to avoid infringement in the future. Ron Snyder, the CEO and president of Crocs, stated: "We are very pleased to have the unique qualities of our footwear recognized by the issuance of these patents. We take great pride in the design and construction of our products and receipt of these patents demonstrates the level of innovation we have applied to our footwear. We also take very seriously our responsibility to protect this intellectual property. Although consumers have clearly demonstrated their desire for the genuine Crocs brand, it is incumbent upon us to fully protect our intellectual property and we will do so in every appropriate instance where we believe our intellectual property is being infringed." Crocs, Inc. already has plans to increase its sales and beat out their competitors. The company has expanded to include a wide range of products in addition to shoes. Customers can now purchase Crocs apparel, umbrellas, knee pads, beach towels, and sunglasses. One of Crocs' current projects is to open its own retail store in New York City. The 1,600 square foot store will be located in the upscale SoHo district. Crocs has also begun producing specially branded Crocs for companies such as Google, Tyco, and Flextronics, as well as for sports teams like the L.A. Lakers. At least seventy colleges have preordered more than half a million pairs of Crocs made in their respective school colors. One of Crocs' major endeavors is targeted toward maintaining its youth market. The company has recently made a deal with Walt Disney to produce Disney Crocs. The first of this line, featuring Mickey Mouse shaped holes, have already been released. More designs in the Disney line are planned including Mickey Mouse and Friends, Winnie the Pooh and Friends, Disney Princesses, Disney Fairies, as well as Pirates of the Caribbean and Disney Pixar's Toy Story and Cars. Others will be released in accordance with the release of new Disney movies. Snyder predicts that this strategy will "help offset the copycat factor." Crocs management hopes to increase its market overall by giving customers an ever wider range of choices. In the spring of 2007, Crocs added nine new models to its collection. These models include a high heel, a new flip flop style, and versions similar to the more traditional Crocs, except in two-tones and patterns. In addition, a modified color palette is available including new colors like celery, lavender, cotton candy, and sea foam. One recent financial endeavor came when Crocs, Inc. acquired the membership interest of Jibbitz, LLC. Jibbitz specializes in the customization of Crocs, including accessories such as bracelets for Crocs and charms that fit in the holes of Crocs. The purchase price of Jibbitz was $10 million, but, based on Jibbitz's future earnings targets, it has estimated potential revenues of an additional $10 million. Ron Snyder commented "We are very excited about this acquisition as we believe Jibbitz represents a tremendous strategic fit for our company. We look forward to leveraging each organization's strengths in order to fully capitalize on the many new and exciting growth opportunities in our future."

Crocs customer loyalty and multiple attempts to expand and satisfy its target market shows Crocs potential. However, despite Crocs' efforts to protect its products patents and lawsuits, competitors remain a very real threat. The questions that must now be asked are: how can Crocs stay ahead of competitors? Will Crocs be able to maintain its status at the top of the food chain or is it an endangered species that fades into extinction? REFERENCES Anderson, Diane. 2006. When Crocs attack. Business 2.0, November 1. Bosley, Elisa. 2004. Crocs rock. Footwear News, February 9. Crocs, Inc. 2006.S.E.C. 10K Filing. December 31. Fidelity Investments. 2007. Company research highlights: Crocs, Inc. August 8. First Call. 2007. First Call earnings valuation report: Crocs, Inc. August 1. Keller, Kevin Lane 1998.Strategic Brand Management. Upper Saddle River, New Jersey Matson, Tia. 2007. Crocs, Inc. extends sports licensing business with addition of Major League Baseball. Crocs, Inc. Press Release. July 19. Matson, Tia. 2007. Crocs names U.K. Footwear Brand of the Year. Crocs, Inc. Press Release. July 7. Crocs, Inc. 2007.S.E.C 10Q Filing. March 31. Hudson, Kris. 2007. Crocs on the catwalk. The Wall Street Journal, Feb, 13. Jackson, Candace. 2006. Clogs put their best foot forward. The Wall Street Journal, July 22. Pickett, Debra. 2006. Flip-flopping on Crocs. Chicago Sun-Times, June 30. Russak, Brian. 2006. Marketing highs. Footwear News, Sept. 15. Scardino, Emily. 2006. Brand of The Year Award. Footwear News, December 5. S&P Compustat. 2007. Company reports: Crocs, Inc. July 9. Thomson Financial. 2007. Crocs, Inc.: Company in context report. July 21. Scott Droege, Western Kentucky University

Lily C. Dong, University of Alaska-Fairbanks Table 1: Valuation Ratios Description Company Industry

P/E Ratio Trailing 12-Months (TTM) 35.74 21.49 P/E High--Last 5 Yrs. NM 27.69 P/E Low--Last 5 Yrs. NM 14.10 Beta (Stock Price Volatility) NM 0.76 Price to Sales (TTM) 6.11 2.00 Price to Book Most Recent Quarter (MRQ) 9.45 4.00 Price to Tangible Book (MRQ) 9.97 4.48 Price to Cash Flow (TTM) 31.33 17.80 Price to Free Cash Flow (TTM) NM 24.76 % of Shares Owned by Institutions 85.48 68.19 Description Sector S&P 500

P/E Ratio Trailing 12-Months (TTM) 19.36 20.64 P/E High--Last 5 Yrs. 31.37 37.82 P/E Low--Last 5 Yrs. 13.99 14.72 Beta (Stock Price Volatility) 1.09 1.00 Price to Sales (TTM) 1.41 2.93 Price to Book Most Recent Quarter (MRQ) 3.59 3.92 Price to Tangible Book (MRQ) 6.42 7.20 Price to Cash Flow (TTM) 12.77 14.56 Price to Free Cash Flow (TTM) 30.22 32.40 % of Shares Owned by Institutions 55.20 68.39 Table 2: Growth Rates Description CROX Industry

Sales (MRQ) vs Qtr. 1 Yr. Ago 190.76 20.87 Sales (TTM) vs TTM 1 Yr. Ago 242.50 12.20 Sales--5 Yr. Growth Rate NM 9.45 EPS (MRQ) vs Qtr. 1 Yr. Ago 143.59 6.98 EPS (TTM) vs TTM 1 Yr. Ago 245.63 7.48 EPS--5 Yr. Growth Rate NM 18.79 Capital Spending--5 Yr. Growth Rate NM 0.91 Description Sales (MRQ) vs Qtr. 1 Yr. Ago Sales (TTM) vs TTM 1 Yr. Ago Sales--5 Yr. Growth Rate EPS (MRQ) vs Qtr. 1 Yr. Ago EPS (TTM) vs TTM 1 Yr. Ago EPS--5 Yr. Growth Rate Sector S&P 500

8.29 15.97 9.32 16.71 7.96 9.90 5.49 23.85 21.81 23.52 12.95 15.71

Capital Spending--5 Yr. Growth Rate Table 3: Profitability Ratios Description Gross Margin (TTM) Gross Margin--5 Yr. Avg. EBITD Margin (TTM) EBITD--5 Yr. Avg. Operating Margin (TTM) Operating Margin--5 Yr. Avg. Pre-Tax Margin (TTM) Pre-Tax Margin--5 Yr. Avg. Net Profit Margin (TTM) Net Profit Margin--5 Yr. Avg. Effective Tax Rate (TTM) Effective Tax Rate--5 Yr. Avg. Description Gross Margin (TTM) Gross Margin--5 Yr. Avg. EBITD Margin (TTM) EBITD--5 Yr. Avg. Operating Margin (TTM) Operating Margin--5 Yr. Avg. Pre-Tax Margin (TTM) Pre-Tax Margin--5 Yr. Avg. Net Profit Margin (TTM) Net Profit Margin--5 Yr. Avg. Effective Tax Rate (TTM) Effective Tax Rate--5 Yr. Avg. Table 4: Financial Strength Description Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) Description Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) CROX CROX

3.38

5.73

Industry

55.67 43.75 NM 41.82 28.38 15.19 NM 13.70 26.19 13.53 NM 11.19 26.39 13.60 NM 11.14 17.36 8.86 NM 7.40 34.23 34.70 NM 34.70 Sector S&P 500

30.64 45.17 30.80 44.89 12.19 23.06 11.34 20.85 8.49 20.26 8.14 19.00 8.46 18.95 7.64 17.17 5.58 13.67 4.92 11.67 31.70 30.49 36.86 31.84

Industry

2.62 1.94 3.45 3.13 0.01 0.06 0.01 0.11 91.98 18.32 Sector S&P 500

1.34 1.22 2.12 1.73 1.43 0.58 1.55 0.73 7.22 14.77

Gale Document Number:A209407534

CASE STUDY: Optimizing the advertising budget for a regional business: the case of cycle world.

Bai, Lihui, and Paul Newsom."Optimizing the advertising budget for a regional business: the case of cycle world." Journal of the International Academy for Case Studies 16.1 (2010): 73+. General OneFile. Web. 28 June 2010. Full Text:COPYRIGHT 2010 The DreamCatchers Group, LLC

CASE SYNOPSIS This case illustrates a challenge that many regional private business owners face as their business grows, that is, marketing their services. Lance Landis is a retired professional cyclist who started a regional sport cycling business about three years ago, and although he has valuable skills necessary to repair and sell bicycles, he has no business education training. In the past, Lance has relied on word-of-mouth marketing, but has recently decided to market his business in some magazines. Lance is uncertain to as the most appropriate magazines to advertise in and has hired the company you work for, Keels, to help him determine which magazines best utilize his marketing budget. This case shows the value of (1) using statistics to help optimize managerial decisions, (2) marketing research, and (3) being able to think through a problem when it is not well structured, which is usually the case in the real business world.

INTRODUCTION After a productive career as a professional cyclist, Lance opened Cycle World in Seattle, WA, U.S.A. Seattle is located in the northwest corner of the U.S.A. and is a city that seems to become more environmentally conscience every year. And with the recent increase in gas prices, his firm will hopefully continue to grow. Lance is now contemplating marketing his business in some magazines to help his business to continue to grow. However, he lacks sufficient skills necessary to make an informed decision. Currently, he has developed a list of magazine names. Table 1 shows Lance's list of magazines. Lance is aware of his lack of marketing skills and is uncertain to as the most appropriate magazine to advertise in. To help him make a more informed decision, he has hired Keels Inc., a company you work for as a media planning consultant. To better understand Lance's business, you suggest a meeting with him at your firm's headquarters in downtown Seattle. THE MEETING At the meeting Lance shows you his list of magazines. And during your discussions it becomes clear that Lance strongly believes some magazines are more appropriate to advertise in than others, even though he admits lacking any evidence supporting his conclusions. In fact, he eventually yells at you and tells

you to just advertise in the magazines he is suggesting. You quickly realize that the meeting is getting out of control and suggest a break.

THE BREAK During the break you re-direct the conversation to the operations at his bicycle shops and the selling process that he uses. This re-direction of the conversation turns out to be a pivotal point in your relationship with Lance. Interestingly, during his explanation of his selling process, Lance unknowingly offers some important information that you think can be very useful. In fact, you interrupt him to ask him to better explain the survey that he has his customers fill-out after purchasing a bicycle. Lance explains that his market research contains the following information on 180 customers: (1) the product line of bicycle purchased (novice=1, intermediate=2, advanced=3), (2) gender (male=1 or female=2), (3) education level (1=no high school diploma, 2=high school diploma, 3=some college level work, 4=college degree, and 5=graduate work or degree), (4) marital status (1=single and 2=married), (5) yearly income, (6) the number of times per week the bike is used, (7) the number of miles per week the customer rides, and (8) fitness level (1=poor shape to 5=excellent shape). During the break you ask Lance if you can have this database of customer information and he agrees. He gives you his flash drive and you download the database onto your computer. After coming back from downloading the data, you explain to him that his survey information is going to be really helpful in formulating a better solution to his advertising problem. Lance smiles and seems pleased. He then states that he knew most bicycle shops kept records on their customers and so he did too, but he didn't know what to do with the data he was collecting. He is glad that his market research is going to be useful. Table 2 shows the complete results of his customer survey.

THE MEETING CONTINUES After the break the atmosphere in the room is very different and during this time you show Lance a database that Keels subscribes to. It contains the following descriptive statistics on the subscribers for all magazines on Lance's list: (1) age, (2) percent male, (3) education, (4) salary, and (5) level. Table 3 shows the database. You explain to Lance that age is the average age of the magazine's subscribers, percent male is the percentage of the magazine's subscribers that are male, education is the average level of education (BA=bachelor degree, HS=high school diploma, and Tech=technical certificate from a trade school), salary is the average salary of the magazine's subscribers (in thousands of dollars), and level (1=none, 5=very active) is the average activity level of the magazine's subscribers. After showing Lance your database of magazine demographic information, you explain to him that his customer database and your magazine database may arrive at the same magazines to advertise in that he is suggesting, but you want to perform some additional analysis to make sure. You tell Lance that it should only take a few days to do the analysis, the meeting ends, and Lance goes back to Cycle World.

AFTER THE MEETING After the meeting with Lance you go to another scheduled meeting where you learn that Keels has upgraded their magazine database that you just showed Lance. The upgraded database as shown in Table 4 has the following additional variables: (1) circulation, (2) advertising price per issue, and (3) people per dollar. Your boss explains that circulation is the number of monthly magazine subscribers, advertising price per issue is the cost of advertising in the magazine, and people per dollar shows how many subscribers will potentially see an advertisement in the magazine per dollar spent on advertising. Simply put, it is circulation divide by advertising price per issue. You believe that you can use this information to increase the effectiveness of Cycle World's marketing budget. After learning about the new variables in the database you call Lance on his cell phone to let him know that Keels has purchased additional information on the magazines you discussed at your meeting. You explain to him that this investment by Keels will help optimize his advertising budget. Again, Lance is pleased and is excited to learn hear from you in a few days. YOUR MISSION You are a young media planning consultant who is gaining experience in the area of helping attract and retain new clients for Keels Inc. Lance, the owner of Cycle World, is hiring you to help him put together an effective magazine advertising campaign. Lance wants to advertise in two magazines per product line and has an advertising budget of $1,500,000 per year. Initially, he said that he plans to divide the funds equally among the three product lines. In your report and presentation you should: * Create a list of potential magazines to advertise in based on Lance's list of magazines that he showed you during the meeting. This is solution number one. * Use Lance's customer database and Excel to compute the average for the following variables by product line (novice, intermediate, advanced): age, education, income, times/week, miles/week, and fitness. Moreover, compute the number of customers and percent of total sample by product line as well as the standard deviation of age and the standard deviation of income by product line. Note that you can use Excel's pivot table function to compute these statistics. * Use Lance's customer database and Excel's pivot table to compute the percent of male and female customers by product line. Again, you can use Excel's pivot table function to compute these statistics. * Comment on customer demographics by product line using your results in 2 and 3. Make a recommendation that will increase the effectiveness of Cycle World's advertising budget. * Using the magazine database you showed Lance and based on your analysis thus far, find some magazines that have subscriber demographics that are similar to the demographics of Cycle World's customers. Use a search range that is plus or minus one standard deviation from the average.

* Make a recommendation to Cycle World based on your analysis in 5. * Using the upgraded magazine database and your analysis thus far, find some magazines that have subscriber demographics that are similar to the demographics of Cycle World's customers and maximizes the number of subscriber's per dollar cost of advertising per issue. Again use a search range that is plus or minus one standard deviation from the average. * Make a recommendation to Cycle World based on your analysis in 7. * Write-up a magazine marketing plan for Cycle World. CONCLUSION

This case is a way to introduce students to statistics for decision making. The case shows students that (1) descriptive statistics can help solve real-life problems, (2) Excel is a powerful and convenient tool that can help solve real-life problems, and (3) rational and quantitative analysis is important in the decision making process. In this case, the search ranges in Figure 6 and 7 are a key step to the solution process and combining ads for the novice and intermediate product lines saves Cycle World 1/3 of their budget. As for the evidence of teaching effectiveness, student feedback on a survey that we conducted immediately after this case is positive. Our survey from 46 students indicates that 80% of students plan to use Excel to solve problems in future classes; and 77% of students understand the importance and limits of statistics in a decision making process, the importance of critical thinking, and the efficiency of Excel.

REFERENCES Gray, J. Brian & Lawrence H. Peters (1984).Business Cases in Statistical Decision Making. Upper Saddle River, NJ: Prentice Hall. LihuiBai, Valparaiso University Paul Newsom, Valparaiso University

Table 1

Magazine Alive Bus World Chinese Cooking Comp Tech Country Cooking Crafters Creative projects Cycle Time Electronics oday Entrepreneur's Day Family Living Fashion Flair Fisherman's Line Gourmet's Kitchen Naturalists Outdoor Fun Parent's Digest Runners' World RV Country Software Review Sporting World Sports Line Today's Cyclist Today's Home Video Traveler's Digest Who' Hot Movies Who Hot Music Who Hot Sports Woman's World Today Wood Crafters Table 2 ID Product 1 2 3 4 5 6 7 8 9 3 3 3 3 3 3 3 3 3 22 22 23 23 23 24 24 24 24 Age 1 1 1 2 1 1 1 2 1 Sex 4 4 4 4 4 4 5 4 4 Education marital 1 1 1 1 1 1 2 1 1

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

24 25 25 25 25 25 25 26 26 26 27 27 28 28 28 29 29 29 30 30 31 33 34 35 38 41 42 44 47 48 19 20 20 20 21 21 22 22 23 23 23 23 23 23 24 24 24 25

1 1 2 2 1 1 1 2 1 1 1 1 2 1 1 1 1 2 1 1 1 2 1 1 1 1 1 1 1 1 1 1 2 1 2 1 1 1 2 1 2 1 2 2 1 2 1 2

4 4 5 5 4 4 5 5 4 4 4 5 4 4 4 4 3 4 5 5 4 4 4 4 5 5 4 4 4 4 3 3 3 3 3 3 4 3 3 3 4 4 4 3 4 3 4 4

2 2 2 2 2 2 2 1 2 2 1 2 2 2 1 1 2 2 2 2 2 2 1 2 2 1 2 2 2 2 1 1 2 1 2 2 2 1 2 2 1 2 2 1 2 1 1 2

58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1

25 25 25 25 26 26 26 26 26 27 27 27 28 28 30 30 31 31 31 31 31 32 32 33 33 33 33 34 34 34 34 35 36 37 37 37 38 38 40 41 42 46 50 18 19 19 19 20

1 1 1 2 1 2 1 2 2 2 1 2 2 1 1 2 2 2 1 2 2 1 1 1 2 1 2 2 2 1 1 2 1 2 1 2 2 1 2 2 1 1 1 1 1 2 1 1

3 3 4 3 3 3 3 3 4 3 3 4 4 4 3 4 4 3 4 4 5 4 4 3 4 4 4 5 4 4 3 3 4 4 4 4 4 4 4 4 4 4 4 3 3 3 2 3

2 2 2 2 1 1 2 2 2 2 1 2 1 1 1 2 2 1 2 2 1 1 2 2 2 2 2 1 2 2 1 2 2 1 2 2 2 2 2 1 2 2 2 1 1 2 1 2

106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

20 21 21 21 21 22 22 22 22 23 23 23 23 23 23 23 23 24 24 24 24 24 25 25 25 25 25 25 25 26 26 26 26 26 26 27 27 27 27 27 28 28 28 28 29 29 29 29

2 2 1 1 2 1 2 2 1 1 1 2 1 2 2 1 1 2 1 1 1 2 2 1 2 2 1 2 1 2 1 1 1 1 1 1 2 1 2 2 2 1 2 1 2 1 2 2

3 3 3 3 3 3 3 4 3 4 4 3 4 4 3 3 4 4 4 3 3 4 3 3 3 3 4 4 4 3 4 4 4 4 4 4 3 4 3 3 4 3 3 3 4 5 3 4

2 2 1 2 2 1 2 1 2 2 2 2 2 1 2 1 1 1 2 1 2 1 2 2 2 2 1 2 1 2 2 2 2 1 2 1 2 1 2 2 2 1 2 1 2 2 2 2

154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

30 31 31 31 32 32 33 33 34 34 34 35 35 36 37 37 38 38 38 39 40 42 43 45 46 49 50

1 1 1 2 2 1 2 2 1 2 1 2 2 1 2 1 2 1 1 1 1 1 1 2 2 1 2

3 3 3 4 4 4 3 3 4 3 4 3 5 2 3 4 3 3 4 4 3 3 4 4 4 4 4

2 1 2 1 1 2 1 2 1 1 2 2 1 1 2 2 2 1 2 2 2 2 2 1 2 2 2

ID Income Times/wk Miles/wk Fitness 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 26000 34000 29000 37000 33000 29000 39000 36000 32000 30000 30000 40000 39000 42000 47000 51000 50000 46000 3 4 4 3 4 4 4 5 5 4 4 5 3 6 6 3 4 5 120 200 140 100 100 100 80 200 160 120 160 200 100 180 240 170 100 180 5 5 5 4 5 5 5 5 5 5 4 5 3 4 5 5 3 4

19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66

42000 57000 61000 63000 64000 52000 61000 32000 59000 63000 73000 70000 62000 67000 64000 64000 74000 57000 62000 63000 74000 18000 19000 20000 24000 20000 20000 19000 24000 22000 24000 30000 30000 28000 26000 30000 26000 33000 34000 30000 28000 36000 32000 30000 28000 30000 28000 34000

4 4 3 6 7 4 5 7 6 4 5 6 4 3 4 3 6 4 4 4 4 3 2 3 3 5 2 2 4 3 3 3 4 3 2 2 3 3 3 2 3 2 5 3 2 4 3 2

160 100 100 180 180 150 180 300 280 160 150 260 200 150 360 150 200 200 160 120 180 60 50 100 90 200 40 50 100 90 80 90 120 70 50 60 80 100 100 80 120 40 100 90 60 160 100 50

5 3 4 5 5 5 5 5 5 4 5 5 5 5 5 5 5 4 5 5 5 2 3 3 3 4 2 2 3 3 3 3 3 2 2 3 2 4 3 4 4 2 2 3 3 3 4 3

67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114

30000 33000 30000 34000 35000 30000 35000 41000 31000 36000 35000 50000 43000 37000 37000 34000 35000 37000 32000 47000 42000 49000 36000 37000 34000 37000 33000 45000 42000 44000 41000 47000 38000 41000 16000 18000 17000 19000 21000 19000 21000 19000 21000 23000 22000 21000 22000 21000

2 4 4 4 4 3 3 3 4 3 2 1 4 3 4 2 3 3 3 3 3 3 2 2 3 3 2 4 3 3 3 3 2 2 4 3 2 3 2 3 3 3 5 2 3 3 3 3

40 120 80 120 100 50 90 70 100 90 60 20 120 90 160 80 90 90 70 90 80 80 50 50 60 90 80 80 100 80 80 90 40 60 120 80 70 90 50 70 80 90 150 90 90 70 80 80

2 3 2 4 3 2 3 3 3 3 3 1 3 3 4 3 3 3 4 3 4 3 2 2 2 2 3 2 3 3 3 3 2 3 4 3 3 3 2 3 3 3 4 3 3 2 3 3

115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162

24000 26000 20000 25000 24000 20000 24000 26000 27000 29000 30000 27000 31000 33000 30000 27000 25000 26000 26000 28000 29000 36000 37000 35000 22000 29000 34000 30000 38000 30000 31000 36000 36000 38000 38000 35000 50000 31000 34000 31000 38000 38000 30000 31000 36000 39000 31000 35000

3 3 4 3 4 2 4 4 4 5 4 2 2 3 2 2 3 3 2 3 3 4 2 3 2 4 3 3 3 2 2 2 3 3 4 3 3 2 4 4 3 2 2 3 3 2 3 4

50 80 110 100 120 40 120 100 100 200 120 50 80 80 60 50 90 120 50 90 120 120 50 90 70 140 90 70 90 60 60 70 110 100 120 60 90 40 100 150 90 50 50 120 90 40 90 180

1 3 3 3 3 2 3 3 3 5 3 2 3 3 3 2 3 4 2 3 4 3 2 3 3 4 3 2 3 3 3 3 3 3 3 3 3 2 3 4 3 2 2 4 3 2 3 5

163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180

36000 33000 43000 49000 29000 23000 31000 38000 36000 40000 42000 44000 38000 37000 41000 43000 40000 47000

2 4 3 3 4 3 3 2 2 3 4 3 4 3 3 3 4 3

70 90 100 90 100 90 80 60 60 80 140 70 110 70 80 50 100 70

2 3 3 3 3 3 3 3 3 3 4 3 3 3 4 2 3 3

Table 3 Magazine Age % Male Education Salary Level

Alive 26 45 BA 26 5 Bus World 30 70 BA 50 4 Chinese Cooking 38 30 HS/BA 34 3 Comp Tech 34 92 Tech/BA 37 2 Country Cooking 32 20 HS 20 2 Crafters 32 30 HS/BA 34 3 Creative projects 28 20 HS/BA 32 4 Cycle Time 29 65 BA 60 5 Electronics Today 42 90 Tech/BA 42 2 Entrepreneur's Day 26 90 HS 27 3 Family Living 30 55 HS/BA 31 3 Fashion Flair 20 10 HS 14 4 Fisherman's Line 50 90 HS 34 3 Gourmet's Kitchen 46 60 BA 56 3 Naturalists 38 60 BA 45 3 Outdoor Fun 27 55 HS/BA 30 3 Parent's Digest 28 50 HS/BA 29 2 Runners' World 43 70 BA 38 5 RV Country 57 69 HS/BA 28 2 Software Review 28 70 BA 48 4 Sporting World 28 52 HS/BA 31 4 Sports Line 35 76 HS 28 4 Today's Cyclist 25 10 HS 22 2 Today's Home Video 32 40 BA 36 2 Traveler's Digest 46 60 HS/BA 44 4

Who' Hot Movies 29 45 HS/BA 29 2 Who Hot Music 22 30 HS 18 3 Who Hot Sports 25 80 HS 22 3 Woman's World Today 28 10 BA 34 3 Wood Crafters 42 85 HS/BA 42 3 Table 4 Magazine Age % Male Education

Alive 26 45 BA Bus World 30 70 BA Chinese Cooking 38 30 HS/BA Comp Tech 34 92 Tech/BA Country Cooking 32 20 HS Crafters 32 30 HS/BA Creative projects 28 20 HS/BA Cycle Time 29 65 BA Electronics Today 42 90 Tech/BA Entrepreneur's Day 26 90 HS Family Living 30 55 HS/BA Fashion Flair 20 10 HS Fisherman's Line 50 90 HS Gourmet's Kiechen 46 60 BA Naturalists 38 60 BA Outdoor Fun 27 55 HS/BA Parent's Digest 28 50 HS/BA Runners' World 43 70 BA RV Country 57 69 HS/BA Software Review 28 70 BA Sporting World 28 52 HS/BA Sports Line 35 76 HS Today's Cyclist 25 10 HS Today's Home Video 32 40 BA Traveler's Digest 46 60 HS/BA Who' Hot Movies 29 45 HS/BA Who Hot Music 22 30 HS Who Hot Sports 25 80 HS Woman's World Today 28 10 BA Wood Crafters 42 85 HS/BA Magazine Salary Level Circulation

Alive 26 5 830,000 Bus World 50 4 820,000 Chinese Cooking 34 3 230,000 Comp Tech 37 2 880,000 Country Cooking 20 2 650,000

Crafters 34 3 550,000 Creative projects 32 4 980,000 Cycle Time 60 5 790,000 Electronics Today 42 2 950,000 Entrepreneur's Day 27 3 1,080,000 Family Living 31 3 1,210,000 Fashion Flair 14 4 750,000 Fisherman's Line 34 3 560,000 Gourmet's Kiechen 56 3 970,000 Naturalists 45 3 630,000 Outdoor Fun 30 3 940,000 Parent's Digest 29 2 1,050,000 Runners' World 38 5 820,000 RV Country 28 2 790,000 Software Review 48 4 750,000 Sporting World 31 4 890,000 Sports Line 28 4 950,000 Today's Cyclist 22 2 540,000 Today's Home Video 36 2 700,000 Traveler's Digest 44 4 1,120,000 Who' Hot Movies 29 2 890,000 Who Hot Music 18 3 810,000 Who Hot Sports 22 3 750,000 Woman's World Today 34 3 940,000 Wood Crafters 42 3 590,000 Magazine per Issue Ads Price People/$

Alive $36,800 23 Bus World $36,900 22 Chinese Cooking $31,000 7 Comp Tech $36,800 24 Country Cooking $34,800 19 Crafters $30,100 18 Creative projects $36,800 27 Cycle Time $34,500 23 Electronics Today $35,200 27 Entrepreneur's Day $39,200 28 Family Living $39,400 31 Fashion Flair $32,700 23 Fisherman's Line $30,200 19 Gourmet's Kiechen $36,300 27 Naturalists $31,500 20 Outdoor Fun $35,100 27 Parent's Digest $38,900 27 Runners' World $36,900 22 RV Country $34,500 23

Software Review $31,900 24 Sporting World $35,200 25 Sports Line $35,300 27 Today's Cyclist $31,900 17 Today's Home Video $34,000 21 Traveler's Digest $38,300 29 Who' Hot Movies $36,300 25 Who Hot Music $36,500 22 Who Hot Sports $34,100 22 Woman's World Today $37,000 25 Wood Crafters $31,400 19

ARTICLE: Beyond Porter

Larry Downs http://www.contextmag.com/setFrameRedirect.asp?src=/archives/199712/technosynthesis.asp

So many of today's strategic planners have been raised on Professor Michael Porter's "Competitive Advantage" that the 1980 book feels as comfortable as Dr. Spock's guide to rearing children once did. But the world of commerce that Mr. Porter describes is disappearing rapidly. As important as the Porter methodology is, the time has come to move on. Mr. Porter himself has recently written that "developing a strategy in a newly emerging industry or in a business undergoing revolutionary technological change is a daunting proposition." He just doesn't happen to believe, as I do, that digital technologies have thrown nearly every industry into a new era of competition in which none of the old rules are valid. Competitive advantage, according to Mr. Porter, requires sustainable leverage over the "Five Forces"-buyers, suppliers, competitors, new entrants, and substitutes. The Porter view of a cost-cutter like WalMart, for example, is that its scale forces suppliers to give up profit margin. Federal Express offers such valuable services (guaranteed next-day delivery, convenient pickups, package tracking, etc.) that buyers will pay a premium price. Achieving and keeping competitive advantage was hard enough. But now it's even harder. Mr. Porter's style of planning assumes predictable--or at least identifiable--competitors and business partners, including customers. He also assumes business environments that tend to stay in place while you experiment on them. But these assumptions are no longer viable. The problem is that three New Forces--digitalization, globalization, and deregulation--are overwhelming the traditional five. The New Forces, whose effect can be seen most visibly in the movement of business activities from the physical world to the world of global computer networks like the Internet, require a new strategic framework and a set of very different analytic and business design tools. Here's how the New Forces change everything: DIGITALIZATION: As computing power and communications bandwidth become cheap enough to treat as disposable, you'll soon have far more information about your competitors, suppliers, and customers. The rise of public networks will make that information more widely available, increasing the possibilities for collaborating and competing.

The result of this information explosion won't just be more/better/ faster. Instead, the result will be vastly changed markets that involve unfamiliar, unpredictable competitors and partners that mutate even before you get comfortable with them. Shopping mall developers, for instance, have spent decades developing competitive advantage by managing real estate acquired based on the traditional criteria--location, location, and location. Now, out of the blue, comes the rapid digitalization of commerce. Electronic malls can offer a broader array of products than any physical mall and are open 24 hours a day, seven days a week. Nontraditional competitors--such as Barclay's Bank in the U.K., which has launched its BarclaySquare Web site--now have malls that put them in the "real estate" business with little investment in infrastructure. Barclay's closely aligns its goals with those of its merchant customers by forgoing rent and charging just the regular transaction fee as their credit card agent. Physical malls even lose on location, because electronic malls are conveniently located wherever the customer (and his Internet device of choice) happens to be. Whether it's a bank or some other type of company that makes electronic commerce take off, those who use the Five Forces model and who base their thinking on today's industry structure will never see the change coming in time to maintain advantage. The disruption caused by digitalization is also already rippling through associated industries, such as advertising, construction, customer service, and distribution. GLOBALIZATION: The world is rapidly migrating to one very large network, whose attraction is irresistible. Improvements in distribution logistics and communications have allowed many local businesses to become global ones overnight--including discount distributors of everything from contact lenses to bathroom tiles. It is also now common for companies to draw on a global network of partners and suppliers. Customers, meanwhile, are happy to engage in border-less shopping for everything from entertainment to software to cars and electronics. So, competition has kicked into overdrive. Meanwhile, for time-sensitive processes, organizations in industries as varied as manufacturing and high finance take advantage of the rotation of the earth by passing work back and forth between Asia, Europe and the Americas, allowing for true 24-hour operations. Again, the result is disruption on a scale that the traditional approach to strategy just can't handle. DEREGULATION: The current mania for deregulation reflects a belief by governments and regulated industries alike that the disease (open, international competition) is better than the cure (laws to protect local economies). This shrinking of government can be seen in the airline, communications, utilities and banking industries in the U.S. and Europe; in the passage of GATT and NAFTA; in the development of the European Union; and in the dramatic collapse of the highly regulated economies of the former Soviet republics. The open market, which adopts information technology more quickly than did industries with a legacy of regulation, is becoming a viable alternative for many activities. The change is contributing to the radical shrinking, outsourcing, and restructuring of traditional enterprises.

Impressive enough on their own, the New Forces feed off each other. Digital technologies make it easier to manage larger numbers of buyers and suppliers, thus speeding up globalization. As the economy becomes more global, countries find they need to roll back more regulations if they want to participate profitably. As deregulation takes hold, previously protected companies find they have to step up sharply their strategic use of digital technology. And the whole cycle starts over again. What results is a fundamental redefinition of markets--and the pace of change is accelerating. The international telephone market, for instance, was neatly segregated for decades among heavily regulated national carriers. But technological improvements led by leased data lines, satellites, and automated callback systems gave customers a way around the high monopoly prices they were being charged. Governments responded by deregulating. Companies then began expanding internationally, as evidenced by British Telecom's attempt to buy MCI. Now, with competition intensifying, telecommunications companies are investing more in technology. One telecommunications expert was quoted in the New York Times as saying that customers will save $1 trillion in phone costs over the next 10 to 12 years because of increased competition. While commercial banking isn't as far along, the pressure is building for a similar upheaval. Banks invested in technologies such as ATMs, telephone banking, and now Internet banking largely as means for cutting costs. As electronic banking improved, banks found that customers derived little value from in-person branch banking. So, two years ago, Security First Network Bank opened a bank that operates only on the Internet--becoming the first virtual bank. While banks are ferociously merging to reduce the number of branches they operate, Security First doesn't have any. Deregulation will now pick up speed. Competition will spread throughout the U.S., then the world. Soon, your choice for basic checking may be the savings and loan down the street or your very own Swiss bank account. No doubt the foremost difference between strategy in the Porter world and in the world of the New Forces is in the role of information technology. In the old world, technology was a tool for implementing change. Planners decided how they wanted the business to change, then tossed requirements over the wall to the I/S department. This approach largely fails today; in the future, the problems will get worse. Executives in every department must learn that technology has become far more than an enabler of new business strategies. Technology has become the essential disrupter of markets and operating models. Technology, in other words, isn't the solution. It's the problem.

CASE STUDY Gelato natural S.A.(CASES)(Case study)

Smith, D.K. "Skip", et al. "Gelato natural S.A." Journal of the International Academy for Case Studies 14.3 (2008): 1+. General OneFile. Web. 28 June 2010. Document URL http://find.galegroup.com/gps/infomark.do?&contentSet=IACDocuments&type=retrieve&tabID=T002&prodId=IPS&docId=A179779963&source=gale&srcprod=ITOF& userGroupName=aacpl_itweb&version=1.0

Full Text:COPYRIGHT 2008 The DreamCatchers Group, LLC

CASE SYNOPSIS Ariel Davalli is the Vice President of Gelato Natural S.A., a company which (at the time of the case) was selling Chungo (it's high-quality homemade ice cream) from several locations in the northern suburbs of Buenos Aires, Argentina. Based on high demand for its products from individual consumers living in the northern suburbs, the company invested $2,000,000 U.S. dollars to significantly increase the capacity of its factory. This $2,000,000 expansion was funded by borrowing $750,000 U.S. dollars (the loan comes due in four years) and by shifting the local-currency equivalent of $1,250,000 of working capital into fixed assets. Unfortunately, just as the expanded factory started production, the economic environment in Argentina deteriorated significantly. In addition, the exchange rate of the peso with the U.S. dollar fell from 1-to-1 (at the time of the loan) to 3-to-1. Currently, demand for Chungo is stagnating, and the new factory is operating at only 30% of capacity. Additional data and information in the case include:

1. For Argentina: Historical overview, a sample of recent statistics from the World Bank, and (for benchmarking purposes), comparable statistics for the United States. 2. On the company: Historical overview, current performance, and numerous factors impacting that performance. 3. Characteristics of the company's current strategy, including descriptive information on the product line, characteristics of the distribution system, information on the promotion and pricing strategies the company is currently using, etc.

4. Characteristics of the current competitive situation. 5. Detailed data on the attitudes and behaviors of buyers of homemade ice cream in Argentina.

THE SITUATION Looking at the figures for Gelato Natural S.A.'s most recently-completed month, Ariel Davalli was stunned by how quickly the performance of and prospects for his company had changed. Several months ago, demand for Gelato Natural S.A.'s homemade ice cream had been so strong that the company had borrowed US$750,000 (repayable in four years, in US dollars) and tied up the local currency (pesos) equivalent of US$1,250,000 in working capital to finance an overall US$2,000,000 program to double the capacity of their ice cream factory. The purpose of this expansion was to ensure that the factory would be able to keep up with demand from its customers living in the northern suburbs of Buenos Aires, Argentina. During the time when the new factory was under construction, however, Argentina defaulted on its overseas debt (i.e., the country declared bankruptcy), and demand for Gelato Natural S.A.'s "Chungo" brand homemade ice cream fell dramatically. Looking again at the figures, Davalli saw that utilization of the expanded new factory was currently 30% of capacity. Because the value of the peso had now fallen from "one peso = one dollar" to "three pesos = one dollar," the amount of revenue and profit (in pesos) needed to repay the US$750,000 loan had tripled. "Unless we figure out a way to dramatically increase revenues and profits," Davalli thought to himself, "this company will follow Argentina into bankruptcy."

THE COUNTRY At 2.78 million square kilometers (larger than India, approximately 1/3 as large as Brazil), Argentina is South America's second largest country. The country is 3,500 kilometers long (2,170 miles), and 1,400 kilometers (868 miles) wide at its widest point. While the climate ranges from tropical in the north to sub-antarctic in the far south, most of Argentina lies in the temperate zone. Similarly, while the landscapes range from jungles to glaciers, a significant portion of Argentina consists of fertile alluvial plains covered in grasses and known as "pampas." In the west (that is, in the rain-shadow created by the Andes mountains), these grasslands are quite dry. In eastern Argentina, however, the pampa receives adequate rainfall, is one of the best agricultural areas in the world, and is intensively farmed (soybeans, plus wheat, corn, sunflower and other grains) and ranched. Other parts of the country support a wide variety of additional agricultural activities, including the growing of fruits (including grapes for wine), tobacco, sugar cane, and vegetables. Patagonia (the southern quarter of the country) has a cool, wet climate, and supports some agriculture plus a large sheep-raising industry. Given all the above, it is no surprise that the production and processing of agricultural commodities accounts for a substantial portion of total economic activity in Argentina.

Institutionally, Argentina is composed of 23 provinces and the Buenos Aires Federal District. Since 1995, the president and vice-president are elected for 4-year terms and can be re-elected once. The bicameral national congress has 72 senators (three from each of the above areas) serving 6 year terms. The lower house has 257 deputies, proportionately elected and serving 4 year terms. Because greater Buenos Aires makes up more than 40% of Argentina's total population, the city's influence on the lower house is very large. There is a federal judiciary system, and a nine-person supreme court. In addition to the federal institutions, there are provincial institutions. In Argentina, each province has a governor, a legislature, and a judicial system. Across the country, the major political parties are the Justicialist Party (Peronists), the Radical Civic Union (UCR), the ARI Party (Alternative for a Republic of Equals); and the Federal Recreate Movement (RECREAR).

THE PEOPLE

Prior to the arrival of the first Europeans, the area which has become Argentina was lightly populated. Starting in 1506 and continuing for the next 300 years, most of the immigrants coming to Argentina were Spanish. While African slaves were brought to Argentina in the 17th and 18th centuries, they were very susceptible to a variety of problems which disproportionately impacted the poor (wars, yellow fever and other epidemics, terrible living conditions for the poorest members of society, etc.), and relatively few of them survived. Beginning in the late 19th century and continuing on through the first third of the 20th, 3.5 million new immigrants arrived in Argentina, mostly from Spain and Italy. However, many other nationalities are represented in Argentina's millennium population of just over 37 million people, including the Welsh (primarily in Patagonia), the British, the French, the German, the Swiss, various Eastern Europeans, and Chileans. Indian peoples make up about 15% of the population. Ninetythree percent of the population is Catholic, 2% is Jewish, and 2% Protestant; yet, at 1%, Argentina has one of South America's lowest population growth rates. A few additional statistical characteristics of Argentine and its people, together with (for benchmarking purposes) comparable figures for the United States can be mentioned:

THE ECONOMY With a Gross Domestic Product (GDP) of 483 billion dollars and its population of only 37 million, Argentina has a GDP per capita of approximately US$12,500. Historically, a very substantial portion of this economic activity has been based on agriculture and/or ranching plus related (for example, food and/or meat processing) activities. By the year 2004, however, 53% of Argentina's GNP was services-related, 36% was industry-related (food processing [including meatpacking, flour milling, and canning] is the largest industry), and only 11% was directly accounted for by agriculture. International trade in goods accounts for 18% of GDP; this figure is approximately evenly split between

imports and exports. Major exports include soybeans, wheat, corn, flax, oats, beef, mutton, hides, and wool. Principal imports include machinery, metals, and other manufactured goods. The chief trading partners are the United States, Brazil, Italy, and other European countries. One might think that a country so richly endowed in natural and human resources should be extremely prosperous. However, in 2002, Argentina was unable to meet its debt obligations. The debt and debt service levels for Argentina in 2000 suggest the magnitude of the problem Argentina faced; those figures were as indicated below:

THE COMPANY

Gelato Natural S.A. was founded in 1973 by Ariel's father, Enrique Jorge Davalli. The sole activity of the company at this time was the manufacture and sale of a small selection of high-quality homemade ice cream flavors from one location (Av. San Isidro 4598, Nunez) in a northern suburb of Buenos Aires. These ice creams were sold under the brand name "Chungo." Since its inception, the primary target market for Chungo has been families and individuals falling in the "ABC1" categories. Characteristics of these purchasers include: High levels of purchasing power, culturally sophisticated, buyers interested in innovative flavors and quality products, people interested in recreation and pleasant moments, families who want to enjoy ice cream in a very comfortable store, families accustomed to having ice-cream (as a dessert) at home, sophisticated customers who make decisions in terms of new sensations (flavors, names, innovative combinations), etc. In Argentina, 80% of consumers classified in the ABC1 category live in Buenos Aires. Since the company's beginning in 1973, the product offered by Gelato Natural S.A. has been very consistent: a top-quality homemade ice cream. Over the years, the only changes in the product line have been the addition (from time to time) of new flavors of ice cream. Some of the new flavors developed over the years include: Dulce de LecheBombom, Malaga al Rhum, Quinotos al Whisky, Super Sambayon con Almendras, Tiramisu, Tramontana, YemaQuemada, Trisapore, Spaghetti Pasta, Mascarpone con Frutosdel Bosque, Gianduia, Manzana, Melon, and so on. In any case, Gelato Natural S.A. started out making (and continues to make) one and only one high quality homemade ice cream. However, over the years, a number of different changes have been made to other aspects of the business, including the following:

1979: The appearance of the store and the brand image were both revised. Changes made at this time included: (1) Remodeling of the building and the equipment, plus replacement of the original Formica furniture with stainless steel; and 2) White uniforms became mandatory for all workers.

1986: The building next to the store was purchased, and both the existing store and the new property were remodeled. Most of the changes in layout were in the manufacturing area. 1989: Ariel joined his father in working for Gelato Natural S.A., first as assistant manager and later as business store manager.

1990: The old building was torn down, and replaced by a new building with a retail store in the front and a production room in the back. A second retail store was opened in Belgrano, at Olleros 1660. 1993: The company opened another retail store in Belgrano, at Virrey del Pino 2500. 1993: After four years as business store manager, Ariel became Vice President of Gelato Natural S.A. 1994: Construction of the US$2,000,000 new factory began in the area of Nunez. A 1000 square meter piece of land was acquired with the purpose of building a fully-equipped plant with the latest technology. 1996: The company opened its new manufacturing plant facilities. Also, two additional stores were opened in the northern district: (1) Belgrano, at the intersection of Cabildo Avenue and Olazabal Street; and (2) Palermo, at the intersection of Avenue Bullrich and Libertador. By the end of 1996, in other words, Chungo was selling its homemade ice creams from five different locations (San Isidro--Olleros--Virrey del Pino--Cabildo--Palermo), all of which were located in the northern suburbs of Buenos Aires. Over the years, the prices of various forms of ice cream in Argentina have increased considerably. However, the relationship between the price of ice cream from big factories (i.e., industrial ice cream) and the price of homemade ice cream like Chungo has remained fairly constant. Usually, homemade ice creams sell for a bit more than twice as much per liter as industrial ice creams. Historically, Chungo has not utilized a lot of radio, television, and/or print advertising. Much of the advertising is by word of mouth, that is, satisfied customers sharing their experiences and reactions with friends and neighbors. The promotional tool which Chungo does attempt to use intensively is publicity, that is, reports by newspapers and/or television or radio on various aspects of its business (for example, the opening of a new shop, the introduction of new flavors and the naming of these flavors for family members, etc.). Chungo does print small promotional flyers listing phone numbers and flavors which customers can pick up at the shop and take home with them. Chungo has introduced a continuity program (the Fildelization Customer Card), to reward faithful customers for their multiple purchases. Chungo also has special promotions for frequent customers; an example would be giving birthday gifts to loyal customers. Finally, Chungo does get involved in helping sponsor cultural events organized with neighborhood association/institutions.

THE ICE CREAM INDUSTRY IN ARGENTINA

There are many manufactures of ice cream in Argentina. However, all manufacturers fall into one of two categories: (1) Producers of industrial ice cream; or (2) Producers of homemade ice cream. Differences between these two product categories can be illustrated by comparing Chungo to industrial ice cream. The batch size for an industrial producer of ice cream is approximately 1000 liters, and a batch can be produced in about one hour. Because a lot of air is blown into industrial ice cream, one liter weights approximately half a kilogram. For Chungo, on the other hand, batch sizes are 120 liters, producing one batch takes a couple of hours, and (because no air is blown into the ice cream) each liter of Chungo weighs 50% more than a liter of industrial ice cream. Prices for industrial ice cream are in the range of 10-12 pesos per liter, while prices for homemade ice creams are in the range of 24-28 pesos per liter. Ice cream is very popular in Argentina, especially in the summer (that is, December-March). In the winter, however (that is, June through September), demand for ice cream usually falls dramatically (i.e., by nearly 50%). While this does not create big problems for large diversified retailers (other products which do sell well in winter will offset the decline in purchases of summer products like ice cream), it does create problems for companies like Gelato Natural S.A., where ice cream is the only product. Ariel Davalli would be very interested in adding a few products which would sell well in the winter and therefore offset the seasonal nature of the ice cream business and the revenues it generates. Another reason for his interest in adding products besides ice cream is that per capita consumption of ice cream in Argentina (3.5-4 liters per year) is lower than per capita consumption of ice cream in some neighboring countries (per capita consumption of ice cream in Chile is six liters per year).

CONSUMERS IN ARGENTINA AND THEIR BEHAVIORS Shopping behaviors of consumers in Argentina are somewhat different than the behaviors of consumers in the United States. In the U.S., consumers are likely to go to a Wal-Mart or a large supermarket and do one big shopping trip each weekend. During that trip, consumers will buy not only frozen and canned goods plus other packaged goods, but also fresh goods like bread, fruit, and vegetables. In Argentina, on the other hand, while consumers may make a large shopping trip to a large shopping center or supermarket on the weekend for frozen and/or canned and packaged goods, they are likely to buy fresh products (bread, fruit, vegetables, etc.) every day from small shops located in their immediate neighborhood. As regards ice cream, shopping behaviors of customers in Argentina also differ somewhat from those of customers in the U.S. In the U.S., a very large portion of all ice cream purchased (both industrial quality ice cream as well as upmarket brands such as Hagen-Das, Ben & Jerry's, etc.) is sold in bulk packages (for industrial ice cream) or pints/quarts/half-gallons (premium brands) through supermarkets. In Argentina, however, consumers purchase ice cream in three separate ways: (1) Impulse purchases of bulk containers of industrial ice cream at supermarkets and of small containers of homemade ice cream in supermarkets, gas stations, movie theaters, etc.; (2) Destination store purchases, where the individual drives or walks to an ice cream outlet and then enjoys ice cream there (in cones or cups) with friends and/or family; and (3) Home delivery, where customers finish up dinner and then (for dessert) call their

local ice cream store and place orders to be delivered (by motorcycle) to their house. By volume, the amounts of ice cream purchased by consumers in Argentina these three ways are approximately 55%, 30%, and 15%, respectively.

THE COMPETITION As indicated earlier, ice cream products in Argentina fall into one of two categories: (1) Industrial ice cream; and (2) Homemade ice cream. Supermarkets are full of industrial ice creams; however, those products are not serious competitors for homemade ice creams like Chungo. Chungo's most serious competitors fall into two categories: (1) Local homemade ice creams like Chungo; and (2) High-quality imported ice creams like Hagen-Das. Chungo's primary local-brand competitors include brands such as "Freddo," "Munchis," "Volta," and "Persico." Like Chungo, these local competitors offer very high-quality homemade ice creams in a variety of flavors, from small shops located in the upmarket suburbs of Buenos Aires. Prices for these brands are very similar to the prices charged by Chungo. As for preferences, some consumers have a preference for the flavors offered by one brand or the other, but basically, all of these ice creams are quite similar and very delicious. Like Chungo, all of these local competitors do offer home delivery (by motorcycle), for customers living close to a shop who call in their orders. The case of Hagen-Das in Argentina is different. Prior to the economic downturn in Argentina, HagenDas ice creams were imported from France. After the peso lost two-thirds of its value, the cost of importing from France was too high, and General Mills (the U.S. multinational company which owns Hagen-Das) stopped selling ice cream in Argentina. Rumors indicate, however, that General Mills is eager to begin manufacturing ice cream in Argentina and/or Brazil. If General Mills does this, it is very likely that they would re-introduce Hagen-Das and sell their ice cream in Argentina using that brand.

THE CHALLENGE

Assume you are Ariel Davalli. How will you "dramatically increase" revenues and profits, so as to ensure that Gelato Natural S.A. does not follow Argentina into bankruptcy? D.K. (Skip) Smith, Southeast Missouri State University Carlos Aimar, University CAECE Ariel Gustavo Davalli, Gelato Natural S.A. Rafael Barbero, University CAECE

CASE STUDY : The Hawthorne Organization.

Morrisette, Shelley, and Louise Hatfield."The Hawthorne Organization." Journal of the International Academy for Case Studies 15.7 (2009): 103+. General OneFile. Web. 28 June 2010. Full Text:COPYRIGHT 2009 The DreamCatchers Group, LLC

CASE SYNOPSIS

John Jones has been CEO of The Hawthorne Organization since 1990. During this time the firm has been on a roller coaster ride with plenty of ups and downs. The marketing research industry is savagely competitive and requires huge investments in technology, human resources, and sales and marketing. Unfortunately, The Hawthorne Organization has made a few bad bets along the way, for which it has paid a huge price. While The Hawthorne Organization is respected and considered one of the leaders in the industry, John has not been able to substantially differentiate its brand or products, or increase margins or profits. The numerous strategy and organizational changes have wrecked havoc on Hawthorne employees and operations. Now John Jones must decide what he should do next with his family-owned business.

INTRODUCTION James Collins founded Hawthorne Research Company in 1939 in a small town along the soon to be constructed commuter train corridor between Princeton, NJ and New York City. This track has become known as "Research Row" because it is home to many of the nation's oldest and most recognized marketing research firms. Today Research Row is to survey research as Detroit is to automobiles, Hollywood is to movies, and Silicon Valley is to high tech. Jim migrated to Research Row after completing his graduate degree from the University of Wisconsin in 1933. This area was to become the research, public opinion polling, and household survey hothouse for advertising and PR industries concentrated in New York City during the pre-war years. Many young and talented social scientists gravitated to this area to take advantage of this new growth industry, which was on the cusp of a massive expansion, and Jim Collins would help shape and mold the growth and composition of the industry. During the war years (i.e., 1941-1945) Hawthorne Research and the new industry "treaded water" as the United States and all of her institutions concentrated on winning the war against fascism. Once the war was over the US economy began the longest and greatest economic expansion ever. This expansion was

driven by insatiable consumer demand for all types of goods--cars, cosmetics, white-goods, furniture, clothing, electronics, etc. The age of mass-production and mass-advertising was underway and businesses needed information on the giddy and expanding new-middle class, who now possessed tremendous disposable income for the first time in nearly 20 years. Hawthorne Research became one of the most prestigious research houses in the nation. The company's client list included a who's who of consumer-goods companies, advertising firms, and PR organizations. Its work and reputation was considered unassailable. Jim Collins was known as a great social scientist and researcher and his company grew at a healthy, if not spectacular rate, from 1946 through 1975. Jim Collins was not a great businessman and never tried to maximize the value of his company. Instead, he was thrilled to make a very good living, while working at something he loved. While the firm was well known and well regarded it never made huge profits even though it had the highest project rates and margins in the industry. This was due to Jim Collins' lack of business-side concern and attention.

Yet, until 1981 Hawthorne Research had always made a profit and its clients, employees, and other stakeholders were extremely happy and satisfied. The company had always been operated in a highly moral and ethical manner. Jim never took projects that dealt with harmful products such as beer, alcohol, tobacco products, or any other companies or products he considered outside his moral code. Additionally, he refused polling projects for all political candidates, organizations, and parties. Finally, he would not accept PR work from firms who represented clients or companies he felt were outside the mainstream of American values. Because of Hawthorne's reputation and quality work these practices had never hurt the company. In fact, they reinforced the reputation of Hawthorne Research as the "white-shoe" company of choice for consumer research and public polling. By 1985 things had begun to spiral downward at Hawthorne. Jim Collins was now 76 and while still active in company operations, was suffering from health problems. Additionally, the company was beginning to show a lack of leadership and dynamism, because of Jim's age and health. For example, PCs and new statistical software were revolutionizing the research industry and Hawthorne was not investing in the new technology or the new breed of market researcher who thrived in this environment. Consequently, the firm was beginning to lose clients, projects, brand equity, and most importantly money. In 1986, revenues dropped to $37 million--down nearly $6 million from its high water mark in 1982. Hawthorne lost $2 million for the year. Jim Collins realized that he needed to figure out what to do with the firm he had worked a lifetime to build and nurture. His children had no interest in taking over the reins of the company, but were very concerned that full-value be extracted from its sale or transfer. Because of these issues Jim Collins began an intensive search for a possible partner to help save his beloved company either via sale, merger, or investment. He had never thought about a succession plan, and now he was forced to determine the future of his company. The suitors were numerous--competitors, conglomerates, entrepreneurs without any industry experience, and even clients made pitches for Hawthorne. But Jim Collins could not find a partner that he felt fit his exemplar of what Hawthorne was and would be. He insisted that the partner still maintain

Hawthorne's high ethical and industry standards, its high quality practice methods, and its old-school way of client engagement. He felt that this was the only way the new company could remain true to its character and stay the great company that it was. As Jim continued to field offers the firm continued to list badly and his family began to worry that the once valuable company might be forced under. In early 1987 Jim Collins suffered a minor stroke. Although mentally he was unaffected, he lost some mobility and his energy and vitality were greatly sapped. It was then that he realized that he must quickly deal with the fate of his company.

RESEARCH LEADERSHIP SELECTION CORPORATION

William Jones enrolled at the University of Iowa in the fall of 1941 with his heart set on becoming a history teacher. He had grown up on an Iowa farm and represented the dreams and hard work of his family. That fall as he walked the Iowa campus he felt that "he had died and gone to heaven". Little did he know that his life was about to be turned upside down. When the Japanese bombed Pearl Harbor in December 1941, Bill immediately enlisted in the Navy. He spent the war aboard a destroyer in the Atlantic--hunting subs. He returned to Iowa in the fall of 1945 a changed man. Gone were the dreams of becoming a history teacher. Instead, Bill decided that he could best serve mankind by helping organizations select, train, and develop leaders. He became fascinated by this idea as a young enlisted man in the Navy. He closely studied the officers and NCOs and their leadership abilities and problems. He felt that helping organizations of all kinds find and develop great leaders would be his life's work. Thus, he changed his major to psychology and began his journey. 1952 was a big year for Bill Jones and family. First, Bill finished his doctorate and joined the Iowa psychology faculty. Next, Mary Jones, Bill's wife and high school sweetheart gave birth to their second child--a boy named John, who joined Karen who was born in 1950 (another daughter Linda was born in 1957). Finally, Bill launched Research Leadership Selection Corporation (RLSC). Bill Jones started RLSC as a way of realizing his dream of helping organizations select, train, develop, reward, and nurture leaders for all kinds of organizations. Bill had always been an entrepreneur at heart and his "basement" company allowed him to follow his dream. Within a year Bill was forced to lease office space and begin hiring employees to handle the increased business volume. In 1967 Bill Jones left his teaching position at Iowa to focus entirely on RLSC. The company had annual revenues of $15 million and Bill felt that his company could make a huge difference and impact on society. The company's core expertise was providing selection expertise for all types of positions and organizations. In other words, RLSC scientists developed selection interviews (or instruments) for organizations to help them select, hire, promote, train, develop, and motivate individuals in all types of situations. Besides the normal types of selection projects--managers of all types, sales people for all levels and products, supervisory personnel, executives, teachers, principals, and nurses--RLSC worked

with unusual organizations to help select clergy, professional athletes (i.e., NBA, NFL, and NHL), pilots, and even nuns and priests for the Catholic Church. During the next 20 years RLSC continued to grow and prosper. Revenues topped $140 million in 1985. Bill Jones had expanded RLSC into many other areas of business and organizational research--survey, consumer behavior, marketing, and advertising, to name a few. But RLSC's strength remained selection research, although it had successfully extended its core business into the lucrative areas of employee and customer satisfaction tracking. Bill Jones had also launched several other periphery businesses that had been failures. These included a software company, a mobile phone company, franchising child development centers, and a travel agency. These business failures drained capital from RLSC. Additionally, RLSC had failed in many research businesses such as syndicated research, consumer panels, and public polling. Still RLSC was highly successful, and Bill felt that they needed to build or acquire broader skill and product sets if the company was to really grow beyond the core selection business. The selection business offered fabulous margins because once an instrument was created it could be sold many times to many different clients--write once, sell many. This business model (i.e., the subscription model) was much different than the traditional research model--write once, sell once (i.e., the client model). The problem was that the growth was in the client model businesses, while the greater margins were in the subscription model businesses. Unfortunately for both business models, competition was savage--there are literally hundreds (sometimes thousands) of competitors for most types of research. Additionally, because the industry was reaching maturity, consolidation was the watch-word for survival. Size, scope, and efficient operations mattered in the industry because human resource, technology, and overhead costs were escalating and competition was holding down revenues. Industry growth rates were in the 3% range during the 1980s and early 1990s. In October 1987, Bill Jones, his son John (i.e., President of RLSC) and Trey Kramer (i.e., Chief Legal Officer) traveled to Hawthorne Research headquarters to meet with Jim Collins and the investment firm that brokered the event. The rapport between Jim and Bill was instant, warm, and filled with admiration. Both were farm-boys who shared common values and were considered leaders in their fields. By the end of the day the broad outline of the purchase was established. Both gentlemen made personal commitments to ensure that the new company would include the best of both firms and would continue to uphold the highest standards of conduct and quality work. All concerned felt that the outcome was perfect for all stakeholders.

THE HAWTHORNE ORGANIZATION Bill Jones knew that the Hawthorne brand had more equity than RLSC, so naming the new company The Hawthorne Organization was a no-brainer. Bill pleaded with Jim Collins to stay involved with the new company. He also encouraged many of the Hawthorne executives and key people to remain with the new company. All agreed that the transition, while painful for many, was accomplished with compassion,

credibility, and excellence. The Hawthorne Organization hit the ground running and the future looked bright for all involved. RLSC had a far superior (and larger) sales team than Hawthorne Research. Bill Jones had used all of his expertise to select, train, motivate, and nurture the finest group of account executives in the industry. Once this juggernaut took over and was encouraged to cross-sell Hawthorne products to RLSC clients and RLSC products to Hawthorne clients, revenues increased by 20%. In 1988 sales for the new company were $202 million. The next year they were $243 million. Although profits were disappointing, all felt that this was a temporary problem. The financial structure and strategy of The Hawthorne Organization was all RLSC. The new company continued to be 100% employee owned. This made for great PR, but in reality Bill Jones owned 87% of the company. The remaining 13% belonged to employees who purchased stock through special plans and options. Bill Jones had no intention of taking the company public or pursuing other avenues of equity financing. Instead, he employed debt to finance growth and operations--the company was highly leveraged, because he wanted control of The Hawthorne Organization. The debt situation only got worse with the purchase of Hawthorne Research. RLSC agreed to pay $35 million for the troubled company. For tax purposes RLSC paid the $35 million (plus interest) to the Collins family over the next ten years. Thus, cash flows would be severely constrained for the next decade and The Hawthorne Organization would be in a very risky financial situation (at least until the buyout was completed). Additionally, RLSC (now The Hawthorne Organization) had poor accounting and control systems due to a lack of investment--Bill perceived accounting as a necessary evil. Costs were not tracked to specific projects, but to divisions and then only on a yearly basis. Overhead was allocated to divisions based on the prior year's sales. This led to some creative sales, cost accounting, and divisional managing. Inside the firm it became known as "out running your fixed costs". Division managers executed the strategy because they made the most money, even though many times it hurt the bottom line of the firm. Because overhead costs were allocated to each division based on the prior years sales, it meant that if managers increased sales significantly the next year their division was only allocated overhead costs for last year's sales. Therefore, this year's additional sales were "overhead free" of charges (at least to the division). This meant that many sales were made that actually lost money for the company, even though they appeared profitable to the division. This behavior was a function of the lack of investment in accounting and control systems, and Bill's desire for growth and market share. In early 1990, Jim Collins died a few months shy of his 81st birthday. All members of The Hawthorne Organization mourned his passing. Additionally, Bill Jones decided to step down as CEO of the company. Bill was now 67 and wanted to spend his remaining years writing, conducting research, and spending more time with friends and family. He remained Chairman of the Board of Directors, but gave up all executive duties and perks. He took a small, non-descript office in the Old Building at the Iowa City home office and began writing his first of four books. John Jones was named CEO & President of The Hawthorne Organization. All stakeholders felt a little uneasy with the three changes 1990 brought to the organizational structure of The Hawthorne Organization.

LEADERSHIP AT THE HAWTHORNE ORGANIZATION: A CASE OF TOO MUCH FAMILY?

All three of the Jones children were in key executive positions and many felt that they were not chips off the old block. Everyone realized that Bill Jones would be a difficult, if not impossible person to replace, but many felt his children were just average. All three were very nice young people, but not real leaders. Naturally, one did not make these comments publicly, unless one had another job lined up. John Jones had always been the The Hawthorne Organization heir apparent. He was entertaining, selfassured, and someone that everyone immediately liked. John liked to socialize and loved being the center of attention. He enjoyed action much more than cognition or introspection. He had some natural leadership qualities and his parents had given him and his sisters a strong, loving, and secure childhood and outlook on life. Bill and Mary had provided their children everything and had been unconditionally supportive of them. John Jones (and his sisters to a lesser extent) grew-up believing that he would succeed at all things without having to try. This unrealistic view of life and his abilities sometimes backfired. For example, John was a terrible student and flunked out of the University of Iowa twice, and failed to graduate because he refused to work. He joined Hawthorne in 1975 as a junior account executive. He had tremendous sales skills, but was not known as a hard worker. His overall performance was only considered so-so and the watchword for John was talented, but lazy. Still he was promoted constantly through the ranks and was made President of the company at 32. Even with Bill Jones' mentoring and the help of other executives, John, while popular, was considered a very average executive and never extended his self. Karen Jones was John's older sister, and was somewhat jealous of John's position as heir apparent. Karen, like all the Jones, was confident and secure. She graduated from the University of Iowa in 1972 with a degree in elementary education and immediately joined RLSC in the Selection Division. While she was considered bright she was not on the level of the numerous social scientists with doctorates and many years of experience. Still Karen was promoted to Director of the Leadership and Selection Division by the time she was 31. The job was too big for her and she enjoyed only token support from her subordinates. Along the way, Karen married a top account executive at Hawthorne and had a child (Emily, born 1977). Karen's marriage ended in a messy divorce in 1985 that caused deep division within the company. Her former husband left Hawthorne and launched his own consulting company. Karen Jones remained in her leadership position, but was not part of the inner circle of decision makers, although she was a member of the Board. Karen, while outgoing, was not as well-liked as her brother and was considered un-focused and a very poor manager. Most in the company felt that while John was not as bright as Karen, he was far more qualified to lead Hawthorne. Karen outwardly supported John, but those close to the situation felt her resentment of his leadership position. Linda was the youngest of the Jones children. She graduated from the University of Iowa with a degree in elementary education in 1979 and immediately joined Hawthorne. Finding a spot for Linda was not easy. While she was outgoing and popular she did not like sales. While she was bright she did not have

the talent or the inclination to become a social scientist. She luckily gravitated towards operations. She was placed in-charge of interviewing, project management, technology, HR, and regional offices. This was a fortuitous move because these aspects of the organization would grow the most over the next 20 years. By 1993, Linda would become COO of Hawthorne and the heir apparent to John. The trouble was, Linda much like Karen, did not have John's likeability or charm. While she was much more focused and organized than Karen, she was considered only an average administrator. Thus, Linda would be much like all of the Jones children--too small for the job. She was a member of the Board and was involved in all company decisions. The rest of the executive team at Hawthorne can only be considered outstanding in every manner. Bill Jones had used all of his skill and abilities to find, select, and train individuals throughout the organization. The mantra for Hawthorne was--select, train, and let people do what they do best. It was carried out to the fullest. Typical of this attitude was Tony Michaels, a young highly talented sales professional and manager. Tony joined RLSC in 1979 and became EVP of Sales and Marketing in 1989. Tony was considered a smart, savvy, hard-charging, businessman who led a group of talented sales professionals. He was one of only three non-family employees to sit on the Board of Directors. Gary Anderson was Executive VP of Research and a wise, kind, smart, caretaker of the organization. He joined RLSC in 1967 the day after he completed his dissertation. Bill Jones was the Chair of his dissertation committee. Bill would have left Iowa in 1965 or 1966, but wanted to stay until Gary finished his doctorate. Both left the University of Iowa in 1967 to work full-time at RLSC. Gary was Bill's favorite student and both were incredibly close. Gary worked as a scientist in leadership, selection, and marketing research. While he was highly respected as a researcher, his true talents lay in his ability to inspire trust in others. He was a natural leader and everyone at The Hawthorne Organization felt that Gary was the salt of the earth. He was the most loved executive at The Hawthorne Organization and all members of the Jones family deservedly trusted him and his council. The research staff at The Hawthorne Organization was considered outstanding overall, but had special expertise and talent in leadership and selection research and consulting. Gary Anderson had been a Board member since 1980.

Trey Kramer joined RLSC in 1985 as Chief Legal Officer. Prior to this he was a corporate attorney with an Iowa City law firm. He received his bachelor's degree in history and his law degree from the University of Iowa. He was considered an excellent attorney and Bill Jones valued his insights and abilities. Besides all legal issues at The Hawthorne Organization, Trey was also responsible for accounting, finance, and international operations. Trey Kramer was considered an excellent manager and was respected within the organization. He became a Board member in 1988. The Board of Directors had three outside members. The most important was Robert Darcy. Bob Darcy was President of M&T Bank and was considered an excellent businessman and banker. His company supplied much of the debt financing for The Hawthorne Organization. He had known Bill Jones for 20 years and they were good friends. Darcy's Board seat was a direct result of his bank's financial involvement with The Hawthorne Organization, but he was also a wonderful source of business knowledge and acumen. The other two outside members of the Board were long-time friends of Bill

Jones. Randy Thomas was a local entrepreneur who had met Bill Jones in 1970. Peter Morris was a retired administrator from the University of Iowa. He met Bill Jones in graduate school. Both Peter and Bill had worked on research together and their families were very close. Thus, Randy Thomas and Peter Morris were very close to Bill James. While both were intelligent and able men, they were placed on the Board to offer their advice, but not to rock the boat. There were many other talented and creative employees and managers at The Hawthorne Organization. Several members of the research staff were considered experts in their fields. Division managers were all strong performers. The IT, HR, and other support divisions were all filled with quality managers and staff. Thus, The Hawthorne Organization had many strengths--a quality brand, great products, a strong, well trained, and motivated sales organization, leading-edge researchers, and an excellent and deep cohort of managers and employees. In 1990 the firm faced a bright if uncertain future. While the company was highly leveraged and operated in a mature industry with low-growth prospects, all members of the Board felt the company stood poised to dramatically expand its operations. The leadership of The Hawthorne Organization (i.e., the Board) would need to formulate a plan for growth and profits and then lead its execution.

IN SEARCH OF GROWTH AND CASH FLOWS By 1990 John Jones had been President of The Hawthorne Organization for six years. Bill Jones gave his CEO position and the operation of the company to his son. While he was always available to help his son, he let it be known that the torch had been passed and that John was now in charge of The Hawthorne Organization. John knew that the company needed a growth strategy that would throw off enough cash to service the firm's substantial debt and also internally fund the desired growth. After a series of meetings and strategy sessions John and the other Board members decided to launch a new and different customer service delivery model. It was called "expanding the footprint" and was a bold move. It would require creation of six, full-service regional offices to get closer to the customer. Both RLSC and Hawthorne Research had been stand-alone companies with a few account reps working out of home offices in distant areas of the country. John's new plan required The Hawthorne Organization to open large, full-service offices in Atlanta, Chicago, LA, Houston, Denver, and Washington, DC, along with the current home office in Iowa City (also called "the factory") and the New Jersey office (i.e., formerly Hawthorne Research). The new offices would have sales, research, IT, and support staff and three of them would have special call centers (i.e., Atlanta--Afro-American, Houston--Hispanic, and LA--Asian). The rational for this plan was to cut down on travel and keep contact employees near the customers. It also raised the Hawthorne flag throughout America. Although sales increased during the three-year implementation and many customers liked the idea of being close to Hawthorne's sales, consultant, and research staffs, the costs of the plan wiped out much of the profits and absorbed cash like a sponge. Each office had to have support, IT, and HR personnel (along with full-service sales, consultant, and research staffs). Also the cost for communications

equipment and infrastructure links to the home office was expensive. Finally, rent and office start-up costs were pricey. By 1992 John realized that he needed to augment the footprint strategy. Although sales would reach $340 million and EBIT would be $15 million--this profit would not support interest, principal, taxes, and growth cash needs. The Hawthorne Organization had to continue to draw down on its line of credit. John Jones decided a new plan was necessary to break the firm's need to constantly borrow capital. This new plan was called "$1billion in sales by the end of the millennium". The plan called for The Hawthorne Organization to grow from $340 million to $1 billion in sales in eight years. To accomplish this goal it would be necessary to pursue only big research projects, and that usually meant working with big national or international organizations. The tag-line for this strategy became "1,000 clients each spending a million dollars a year". It sounded so doable and non-threatening that Board members and most Hawthorne employees readily embraced the new policy. But like all policies the devil is in the details, and this plan would shake the ethics and character of The Hawthorne Organization to its core.

The biggest problem with the new strategy was the change in scope of projects. Both companies (i.e., RLSC and Hawthorne Research) had always taken small projects from small to medium sized companies. "A small project with a high margin could be just as profitable as a large project with a small margin" had been a company mantra. Still this was just a saying and because the firm did not track project cost information, no one really knew if the statement was true or not. The Hawthorne Organization had numerous small to medium sized clients with research projects less than $75,000, many were less than $50,000. John Jones believed that these small projects (and the small companies) did not fit the expanded scope of The Hawthorne Organization. He felt that undertaking many small research projects (even with high margins) increased overhead costs dramatically and, thus, pulled down profits. His solution was to refuse to work on small client projects. This change in policy had many exceptions and, thus, was confusing to the sales and marketing team. For example, a small job could be sold to a large non-client company to establish a relationship, but could not be sold to a former customer or small non-client because there was no potential for additional large projects (i.e., one-off projects greater than $500,000 were considered large). What was even more confusing was that large clients always expected The Hawthorne Organization to conduct their smaller research projects. For example, a major telecommunications company client might have a $4 million a year customer satisfaction track, and expect Hawthorne to conduct 20 small, one-off projects during the year. The Hawthorne Organization could not just take the huge track and refuse the small projects, thus, there was no way of ridding the company of small projects--they are part of the business, and clients of all sizes need the flexibility to conduct small, specific, one-off research. At first this change caused a great deal of angst amongst the sales team, but they quickly adapted to a new incentive program that paid higher commissions for bigger projects.

The outcome of this change in policy and focus on large projects and clients was considerable. First, many of the firm's old, small clients were jettisoned. Next, the focus on large national and international organizations became complete. Third, the average size of a research project increased dramatically. Fourth, sales continued to increase, but at a decreasing rate. Next, sales person's salaries jumped dramatically and were the highest in the industry. Sixth, margins and profits collapsed. By 1994 it was apparent that although the new strategy was working in many areas, it was not producing greater profits and The Hawthorne Organization was still borrowing money. John Jones felt that the only way to win this race was to push harder and expand the footprint to the world. Because of increasing globalization and the rise of multi-national firms John felt that the best position for Hawthorne was to become the only global research company in the world. This would give Hawthorne a competitive advantage with large, multi-national firms who needed to conduct research across national borders. Hawthorne would become the one-stop research store for all international companies. It could also guarantee quality and comparability across all research and have one point of contact. Thus, John decided to extend Hawthorne's focus to large companies that needed to conduct research across the world. This extended strategy was a direct break with the way research companies had operated in the past. Most large, established research firms were not global--most relied on affiliate companies in other parts of the world. For example, a US research company would have an affiliate in the UK, France, Japan, Mexico, and so forth. If a client needed a project conducted in another country the US firm would contact the affiliate and structure the engagement and contract. The same was true for research firms in other countries. Thus, research companies did not have to invest in international offices, but could still service international clients. The problem with this situation was the lack of quality control and accountability. John Jones' wanted to create 15 international Hawthorne offices. The plan called for acquisition where possible and building where needed. In the next two years Hawthorne offices opened in London, Frankfurt, Madrid, Santiago, Rio, Mexico City, Tokyo, Hong Kong, Singapore, Taipei, Toronto, Beijing, Sydney, Budapest, Warsaw, Seoul, and Delhi. While there were many success stories and clients appreciated Hawthorne's global reach, it was also a time of hard lessons learned. For example, Hawthorne opened an office in Moscow, but closed it after three months because mafia gangs threatened to injure or kill employees unless protection money was paid. Consequently, Hawthorne was forced to move its Russian office to an affiliate firm in Lithuania. Additionally, the firm had to learn to conduct marketing research in different cultures. Hawthorne understood phone survey research, but this methodology did not translate to countries like China and India. This brought on problems with sample design, such as how representative was the sample of the prescribed sample frame? Also Hawthorne had no competitive advantage over other research houses conducting research in many countries, because they had to adopt new and different data collection tactics. Another problem was that the Hawthorne brand did not translate to other countries--even countries like Germany and Spain. For example, because of strong privacy laws, telephone research in Germany had to be conducted from the UK because it was too costly to conduct the interviews from Germany. Thus, Hawthorne had no brand equity outside the USA. Also, people in countries such as China and Russia were wary of being interviewed, due to government repression. Next, Hawthorne had to align itself with several partners

that made operations difficult. For example, to open an office in China, Hawthorne entered into a partnership with the Chinese government where The Hawthorne Organization made all of the capital investments, but owned only 49% of the organization. Additionally, a government official was in charge of the operation and he knew nothing of marketing research and had to consult with government officials on every aspect of the business. The Chinese government officials did not care much about profits or cash flows (i.e., these concepts were alien to them), instead they focused on growth of the partnership and the number of workers employed. The Hawthorne Organization was naive about international operations and paid a huge price. By the end of 1996 The Hawthorne Organization was in drastic shape. Although the US economy was skyrocketing and domestic sales and profits were way up (i.e., overall firm sales were $501 and EBIT was $23 million) the international expansion had drained all cash flows and borrowing capacity. The firm was on the precipice of going under. John Jones called a Board meeting in December to discuss the shortterm cash crunch. Bob Darcy was unable to secure additional credit financing and suggested bringing in equity investors. After considering several equity offers, Bill and John Jones decided to raise cash in a highly unusual manner--they would invite executives and senior managers to become Hawthorne Partners. All executives and key employees would be allowed to purchase up to $500,000 of Hawthorne stock at a special price and the transaction would be financed via personal loans at M&T Bank. This plan accomplished many objectives. It raised badly needed cash. It tied executives and key employees to Hawthorne's success. It kept the company 100% employee owned. It was quick and very inexpensive. It helped cleanup the balance sheet. Finally, while it diluted the Jones family ownership, it did not decrease their power within the organization. Given the situation, executives and key employees had little choice but to purchase the stock. To refuse this offer would have been a sign of sedition. Consequently, nearly all of the approached executives and key employees made the stock purchase (and the one's who did not, began looking for a new job). One manager said it was much like "Bill and John Jones asking their followers to drink the Cool Aide". The stock purchase plan raised $15 million and saved the company, but left hard feelings within the firm. While The Hawthorne Organization had dogged a bullet, moral within the Board and the firm was plunging. It seemed that the company was not making progress even though the economy and industry were booming. Consequently, non-family members of the Board (i.e., Trey Kramer, Gary Anderson, and Tony Michaels) and Bob Darcy suggested that The Hawthorne Organization abandon its current strategy and focus entirely on cash flow generation and repairing the balance sheet. They approached Bill and John with a plan that included three objectives; 1) purchase and implement a project cost system and enterprise software, 2) close or consolidate non-profitable offices, and 3) reward sales and operations associates exclusively on profitability of projects. FOCUS ON EFFICIENCY AND ACCOUNTABILITY John Jones hated the idea of standing still--focusing on margins. However, even he could see how close the company had come to bankruptcy. Thus, he agreed to let Trey hire a new CFO with the expressed goal of implementing a project cost system and complete accounting controls and reporting capabilities.

Trey hired Steve Andrews who had prior experience with a large financial services firm. Steve Andrews demanded and was given carte blanche for the new system's implementation. Software consultants and accountants lived at Hawthorne headquarters for four months. Training took another three months, but by 1998 The Hawthorne Organization could track specific project costs, employee productivity, overhead allocation, and profits for the entire company. Reports allowed managers to spotlight problems with objective data. The system revealed many of the sales, pricing, and operation problems facing The Hawthorne Organization. For example, it was not the size of the project that determined its profitability, but how well it was managed to project specifics. In other words, a lot of projects were unprofitable because "scope creep" occurred. This meant that client extras were freely given away because they had not been tracked. Given this information the company began to refocus its sales and marketing efforts. Sales and operations associates began to be rewarded based on profits and this caused salaries to drop by an average of 20%. The Hawthorne Organization had always paid its employees extremely well, but this new incentive plan caused many marginal performers to leave the company. It also tied performance to pay and that was the rub for many associates. The new plan was typical of compensation programs utilized in the industry and it forced Hawthorne employees to realize that the good old days of hiding were over. It was a blow to many in the organization. The Hawthorne Organization never had a retention problem. In fact, yearly, fewer than 2% of employees left the organization, but now the turnover rate reached 20% in the sales department (which is typical in the industry). By the end of 1999 Hawthorne was financially stable. Sales for the year were $479 million and EBIT rose to $25 million. John Jones had elevated Trey Kramer to President of The Hawthorne Organization. Many believed that this move saved the company, but those close to the situation agreed that Steve Andrews had played a bigger role in bringing "sense" to executive decision making at The Hawthorne Organization. Steve Andrews was a financial and MIS whiz, but left The Hawthorne Organization in 2000 because he did not feel appreciated by the Jones family. He and John Jones constantly argued. Steve usually won the battles, but in the end lost the war. John still launched new products and services--education and training classes for executives, a benchmarking product, and a syndicated product for measuring advertising consumption in American newspapers. None of the new products was a home run, but all at least made money. Still John's dream of Hawthorne being a billion dollar company was dead and he chafed to again grow the company. Most members of the Board and many employees looked back at the last decade as one of lost opportunities. The go-go 90s were a gold mine for the research industry. Many companies doubled their research capacity. Profits were generally extremely high. Most firms invested heavily in new interviewing technologies, the internet, software, new reporting methodologies, and computer data processing capabilities. Because The Hawthorne Organization had focused on international and domestic office expansion, it missed making needed infrastructure investments. All members of the Board agreed that The Hawthorne Organization needed to make major technology and human resource investments over the next two years to remain competitive. Additionally, it was agreed that the company must continue to focus on margins versus growth.

THO made major technology investments in 1999 and 2000. The company gained tremendous capacity and productivity, but the costs were high. Once again, cash flows were drained. However, by June 2000, the company was poised to begin growing again. Its debt situation was manageable, its internal control systems were first-rate, technology and human resource investments had increased productivity, its products and services were now competitively priced, and margins and profits were on the increase. John Jones announced a plan to once again pursue international clients with a very competitive set of services. Then a series of three events crushed the possibilities of the plan and nearly knocked The Hawthorne Organization out. First, the high-tech market crashed. The NASDAQ market index dropped from nearly 5200 to 1200 and this caused business investment and confidence to evaporate. Marketing research is driven by business investment and confidence, thus, the industry went into a depression. Second, Bill Jones was diagnosed with cancer and only given three months to live. In November, he died and his passing was a terrible blow to everyone affiliated with The Hawthorne Organization. Luckily a financial succession and estate plan had been previously executed which included insurance, trusts, and gifts, so there was no financial hardship on the family or The Hawthorne Organization. Finally, the terrorist attack on the World Trade Center in September 2001 pushed the country (and the world) into a recession and further depressed the research industry. Performance for 2001 reflected the impact of these three events--sales slumped to $398 million and EBIT was just $9 million. Additionally, The Hawthorne Organization had to layoff employees for the first time in the company's history. In 1992 earnings had been $15 million, so this situation was a real blow to everyone at Hawthorne--it seemed to many that the company was regressing. Although the company was not in the dire conditions of 1996, it still had substantial debt and the situation had to be managed carefully. During the next five years Trey worked hard to manage margins and costs. Tony Michaels tried to rally the sales and marketing team, but many top-performers left the company because of falling commissions. Tony left Hawthorne in 2003 to take the COO position at another research firm. Gary was faced with the toughest job since most of the layoffs were made in the research and operations areas-not enough work to keep folks busy. The substantial layoffs demoralized the once very proud research company.

The period from 2001-2005 can best be described as "the blue period". Because of the industry slump, sales and profits cratered. The company was forced to become more efficient. This caused a complete shift in corporate culture. An example of this was the emphasis placed on project managers. Prior to 1998, the project manager position was considered a necessary, but not critical, function at The Hawthorne Organization. These individuals were responsible for taking projects from the sales team and steering them through the factory until data could be delivered to researchers and analysts for final report creation. The schedule included survey creation, computer piloting, interview slotting, quality assurance, data coding, file creation, cross-tab development, and data file delivery to researchers and clients. With the advent of the new cost accounting and control system this position was elevated to "Profit and Project Manager". In other words, project managers became the individuals that tracked

costs and controlled projects. This was a complete departure from the prior power structure at The Hawthorne Organization where sales and research drove projects and the company culture. By 2005 project management and accountability drove the new culture at Hawthorne.

This situation would have never happened prior to the new cost accounting system. The sales team sold projects (and specified deliverables) and the researchers delivered the project. Project managers just made sure the trains ran on time. But now project managers make sure that just project deliverables are delivered. Thus, sales people cannot over-promise and researchers cannot over-deliver. This puts more pressure on both of these groups. Now selling is much tougher because the sales team cannot give client freebies to close a deal and researchers cannot pad their timesheets with extra analysis. Instead, project managers are given the authority to deliver to project specs and force both of these groups to be much more accountable and this has dramatically changed the culture at The Hawthorne Organization. It is no longer the self-assured, freewheeling, entrepreneurial company, where all things are possible. Instead, it is a more accountable, cautious, skeptical organization. WHAT NOW? Today John Jones is faced with many decisions. The Hawthorne Organization had an encouraging 2005-sales were $408 million and EBIT was $17 million. The International Division made a profit for the first time and did not need capital to finance operations. Sales for Pan-national projects were up by 40% since 2002 and all signs pointed to increased sales and profits from all international offices. The international plan looks to be finally ready to pay big dividends. Domestically, things are looking up as well. While 2006 will not be a great year for The Hawthorne Organization, there is every indication that it will be much better than 2005. So industry and economic conditions are improving. John and other Board members feel that there is tremendous unlocked value in the firm, but have not been able to figure out how to get to it.

Financially, The Hawthorne Organization is in very good shape. The firm has become very efficient and has total control of costs, pricing, margins, and employee productivity. Debt is manageable once again. Cash flows are positive and improving. Still the company has been mired in a decade of contraction and crisis. Company sales are down nearly $100 million from their peak in 1996 and EBIT are down $8 million from their peak in 1999. Still all executives feel that financially The Hawthorne Organization is better off than it has been since 1987. Unfortunately, numerous real problems face The Hawthorne Organization. First, the firm has lost a great deal of brand equity. While the name Hawthorne still means quality and integrity, it no longer dominates the industry as it once did. Its products no longer lead the pack. For example, other research companies have focused their value chains and successfully differentiated their products--Gallup, Harris, and Pew in public opinion and polling, Hewitt in selection and leadership, Forrester and Gartner in syndicated high-tech research, NPD and NFO in panel research and online panels, J.D. Powers in customer satisfaction, Mercer and Bain in benchmarking, and Maritz in employee satisfaction research.

The The Hawthorne Organization brand and products are no longer considered cutting edge. The Hawthorne Organization is just one of many research companies that are not considered special or different. Another problem facing the company is the lack of leadership talent. Gary Anderson is scheduled to retire in 2006. Trey Kramer will be 61 and has indicated that he would like to step down from the President's position. Linda Jones-Tyler is not considered a strong leader. Other key employees and managers either left the company during the last decade or are considered too near retirement to be effective. The once deep cohort of possible leaders has been depleted by lay-offs, turnover, or retirement. Due to a decade of contraction, new blood has not been brought in to keep things churning. Today the company needs an infusion of new talent with new ideas. The final problem facing the company is the uncertainty of the industry. The future of the industry is impossible to predict. For example, what methodology(ies) will be employed to reach and survey consumers? The terrestrial phone system method is now becoming obsolete, because people screen calls or refuse to participate in surveys, or use cell phones exclusively. So what will replace phone survey research--Internet, internet panels, TV set-top boxes, or something else? Because it is impossible to determine what technology or partner (i.e., ISPs, cable company, or platform) will win, all research companies must hedge their bets--which is expensive. Additionally, competition will only get fiercer and capital investment in technology, human resources, and sales will continue to put pressure on margins.

John Jones must decide where he wants to take The Hawthorne Organization. At 54 he still has the desire to lead the company, but if he decides to continue he must rebuild management, develop new products and services, and re-create the "buzz" that once surrounded the Hawthorne brand. After 16 years of ups and downs, he still believes he can succeed at making the company great, but others are not so sure and feel he should look at all options. This case is based on observations and knowledge the authors have gained about the research industry over the last 25 years. All of the facts, companies, characters, and incidents are fictitious and any similarity to events or persons living or dead is purely a coincidence. Shelley Morrisette, Shippensburg University Louise Hatfield, Shippensburg University Gale Document Number:A219003006

(WEEK EIGHT) Indian Motorcycle Company: strategy for market reentry.

Droege, Scott. "Indian Motorcycle Company: strategy for market reentry." Journal of the International Academy for Case Studies 15.1 (2009): 55+. General OneFile. Web. 28 June 2010. Document URL http://find.galegroup.com/gps/infomark.do?&contentSet=IACDocuments&type=retrieve&tabID=T002&prodId=IPS&docId=A209347581&source=gale&srcprod=ITOF& userGroupName=aacpl_itweb&version=1.0 Full Text:COPYRIGHT 2009 The DreamCatchers Group, LLC

CASE SYNOPSIS This case presents a an iconic U.S. firm, Indian Motorcycle Company, with a rich history that has ceased production three times in the past century and compromised the authenticity upon which the brand is based through a variety of ownership changes and market challenges. Indian Motorcycle Company most recently disillusioned consumers and distributors in 2004 by suddenly ceasing production, leaving distributors without products to sell, and leaving customers with unenforceable warranties. But currently, the British private equity firm, Stellican Limited, is attempting to restore the brand. Two of Stellican's partners, Steve Heese and Stephen Julius, have taken active management roles in the new Indian Motorcycle Company. Both have experience in reviving struggling brands. Indian will soon begin production of a motorcycle model, the Indian Chief, which hearkens back to the 1930s. Yet with three failures in its past, it is uncertain whether Stellican can bring the Indian brand back to life. Students must decide whether the reentry of this nostalgic brand will be successful in the highly competitive heavyweight cruiser segment of the U.S. motorcycle industry.

INTRODUCTION Steve Heese and Stephen Julius, partners in the venture capital firm Stellican Limited, have faced similar challenges before but their current challenge is among the most difficult. They intend to resurrect Indian Motorcycle, a failed brand with a rich history. Despite a recent botched endeavor to regain its place among the motorcycle "cruiser" market, Indian Motorcycle once again will attempt to capture the market's attention. Stellican Limited has purchased the rights to the Indian Motorcycle name. Stellican is not new to brand revival; the firm previously brought back to life other firms with bleak outlooks. Riva is an Italian yacht manufacturer with a 160-year history that nearly failed until Stellican acquired it. Chris Craft is an

American boat manufacturer that Stellican revitalized. Even a dying Italian soccer franchise, Vicenza Calcia, found its footing after Stellican injected it with capital and took an active management role in rejuvenating the franchise. Still, will this collective experience be enough to challenge entrenched and emerging competitors in the American motorcycle industry? Julian believes he and Heese can accomplish this: "Great brands, if you do the right things with them, if you manage to fulfill a promise to the brand by creating a beautiful product, then the brand equity will come flooding to the surface very, very quickly. What Indian needs is to be treated right. Its past needs to be respected but its future needs to be recognized. If you can produce a blend of contemporary products which hark back and takes cues from the past, then you'll have a winning product."

LEGENDS AND STORIES Factors setting Indian Motorcycle apart are the legends and stories embedded in its past. For example, its first corporate sale was to the New York City Department of Police. Police in New York had a recurring need to capture horses that had gotten away from their owners; Indian motorcycles provided the solution with motorcycles that were quick enough to round up the horses.

As the U.S. entered World War I, the military had a dire need for reliable and agile transportation. Indian Motorcycle agreed to suspend its production of consumer motorcycles to supply the defense department with over 41,000 motorcycles to meet the need. This sparked the firm's reputation as a company committed to patriotism and sacrifice (even though they profited greatly from the military contract). Indian Motorcycle again received a Department of Defense contract in World War II, further reinforcing this image. A competency Indian Motorcycle gained during World War I was the ability to make extremely nimble and responsive cycles despite the reputation it later gained as a heavy, lethargic cruising motorcycle. Among its early models, however, the Indian Scout was noted for excellent handling. Stunt riders frequently chose the Scout as the preferred model for wall-of-death stunts where riders would ride horizontally in a large enclosed wooden cylinder. This wall-of-death stunt is still performed today at the Sturgis Motorcycle Rally in South Dakota, the largest annual motorcycle rally in the U.S. Much later, Indian Motorcycle gained attention when its bikes were used in Hollywood productions such as Terminaor 3, Cat in the Hat, and Scooby Doo 2. Recently, The World's Fastest Indian recounted the life of Burt Munro of New Zealand who set the motorcycle world speed record in 1967 on a 1920 Indian Motorcycle he had rebuilt over a number of years.

A CHECKERED PAST OF THREE FAILURES

The First Ending, 1901-1953 Indian Motorcycle was the first company to mass produce motorcycles in the United States beginning in 1901, two years before current market leader Harley-Davidson Motor Company. Two bicycle racers, George Hendee and Oscar Hedstrom, founded the firm and in just three years Indian Motorcycle received the Gold Medal for Mechanical Excellence just as Harley-Davidson was getting off the ground. This was the same year Indian Motorcycle came out as the leader of Great Britain's Reliability Trial, a 1,000-mile endurance race. By 1914, the firm had 3,000 employees producing over 32,000 motorcycles annually at its Massachusetts seven-mile long assembly plant commonly referred to as "the wigwam." Although the original name of the firm was the Hendee Manufacturing Company, as model lines were expanded and eventually included motorcycles such as the Indian Chief, the Scout, the Warrior, and the Arrow, the firm took on the Indian Motorcycle name. While the firm had no direct connection to American Indian tribes, each new model name was an effort to be emblematic of U.S. heritage. In 1938, Hap Alzina, owner of an Indian Motorcycle distributor, narrowly missed beating HarleyDavidson's land speed record at the Bonneville Salt Flats in Utah by only 1 mph (although Burt Munro set the record on an Indian in 1967). This slight miss in 1938 became prescient of Indian Motorcycle's future. The firm's profitability and liquidity began to unravel as competition from Harley-Davidson and other motorcycle manufacturers, together with the substitution threat from Henry Ford's Model T automobile, resulted in pricing pressure within the industry. In addition, the Great Depression followed later by World War II hurt American consumers' discretionary income reducing sales of nonessential consumer purchases. This combination of competition, substitute products, and reduction in consumer discretionary income magnified Indian Motorcycle's liquidity and profitability problems. At the end of the Great Depression, E. Paul DuPont acquired Indian Motorcycle and saved it from bankruptcy. This coincided with the latter part of the art deco period in American history and influenced DuPont's motorcycle styling concerns. Indian Motorcycle under DuPont's direction incorporated art deco styling with its now-classic deep fender skirts, seat fringe, and the look that became associated with historical biker traditions. In 1945, Torque Engineering Company acquired Indian Motorcycle from DuPont. Increases in consumer spending after World War II were not enough to buoy sagging motorcycle sales forcing Torque to divide the firm into the Atlas Corporation as the manufacturer and Indian Sales Corporation as distributor. However, this restructuring initiative was unable to restore the company to its former profitability. Production in the Massachusetts plant was discontinued in 1953.

The Second Ending, 1954-1985

The private British firm, Brockhouse Limited, bought the rights to the Indian Motorcycle name and its remaining assets in 1954 after U.S. production ceased. Brockhouse ran an ad in the U.S. stating: "After many moons ... a brand new Indian." This ad was intentionally designed to capture the Indian Motorcycle tradition and continue the trust American motorcycle enthusiasts had placed in the firm. Brockhouse maintained Indian Motorcycle's U.S. distribution network but moved production to England through a joint venture with Royal Enfield, a British motorcycle manufacturer (now located in India). Rather than producing "a brand new Indian" as promised, Brockhouse simply rebranded Royal Enfield motorcycles. Royal Enfields that were shipped to U.S. distributors bore the classic Indian Motorcycle badge with Indian script on the gas tank. This was an attempt to capitalize on the Indian Motorcycle heritage while also leveraging the market popularity of British motorcycle manufacturers such as Triumph, BSA, and Norton. These firms were gaining market share in the U.S.; Brockhouse believed that branding its motorcycles to link the past with the present was key to increasing sales among American bikers. Brockhouse's Royal Enfields continued the tradition of purloining Native American history by introducing new models with names such as the Tomahawk, Apache, and Fire Arrow. However, U.S. bikers quickly recognized that the new Indians were not traditional American motorcycles but rather British bikes with different names. Although other British bikes had a loyal following in the U.S., the Royal Enfield Indians soon became known as a "knock-off" brand. Among U.S. bikers, authenticity was among the most important features. A British motorcycle feigning an American tradition had difficulty penetrating this core biker market. Toward the end of the 1960s, Brockhouse realized its strategy was failing. The Indian brand had mostly disappeared as the distribution network dried up from lack of sales. At this time, Floyd Clymer, a wealthy American who had been an Indian Motorcycle distributor, a motorcycle racer sponsored by Harley-Davidson, and owner of the renowned Cycle trade magazine, attempted to save the brand. Clymer valued the traditions set by Indian Motorcycle in its pre-1954 era and attempted to restore the authenticity by reviving the Indian Scout model. Clymer wanted to improve the quality as well as restore the brand to its roots and this, paradoxically, led to its downfall. Clymer utilized a German-built frame that was state-of-the-art at the time but combined this with an older model engine. This attempt to link the old with the new, although advertised heavily, never gained the momentum to even make it to production. Clymer then took a different approach and targeted the sport bike market composed of motorcyclists who were less steeped in loyalty to American motorcycle brands and instead were more impressed with performance regardless of country of manufacture or origin. Clymer put together an Italian highperformance frame sourced from Italjet with a top-of-the-line engine sourced from Royal Enfield. Additional parts were sourced from other German, Italian and, and British firms. After producing less than 100 of these motorcycles, Clymer died, leaving the vision of an Indian-branded high-performance sport bike unfulfilled. Clymer's attorney, Alan Newman, took over where Clymer left off. But rather than aiming for the largebore cruiser market, Newman saw more potential in the minibike and small transportation market. He

opened a factory in Taiwan and sold 20,000 bikes in the 1972-1973 model year. While not near Indian's peak during its glory days--its single year record sales were set in 1913 at 32,000 units--this was still a profitable venture. Newman cashed out in 1977 by selling the rights and assets to American Moped Associates, a firm that continued production in Taiwan until selling in 1982. By this time, the original concept that had gained such popularity in the first half of the century was far removed from the then-current production model. Indian Motorcycle had lost its authenticity and now was just another small bike producer competing with Honda, Kawasaki, Yamaha, Suzuki and other mass producers. What was left of the Indian Motorcycle brand folded in 1985 as competition compressed profit margins and contracted market share. The Third Ending, 1998-2004 Murray Smith, backed by $22 million in venture capital funding, bought the Indian Motorcycle trademark in 1998. Production began promptly in 1999 with the Indian Chief, a large cruiser model designed to replicate the famed model of the art deco era. The board of directors, however, fired Smith after only one year when the board and Smith clashed over the strategic direction of the new venture. Smith wanted to leverage the Indian Motorcycle brand into a restaurant franchise and develop a line of Indian-branded cologne and other merchandise. The board believed the most promising approach was to focus initially on the motorcycle itself rather than diversification into other product and service lines. In 2000, the company achieved sales of $90 million. In 2001, Frank O'Connell, formerly a top management member at both Reebok and then Gibson Greetings, bought private equity firm Audux Group and subsequently injected $45 million into Indian Motorcycle Company thereby acquiring a controlling interest in the firm. Smith told Fortune magazine, "To bring back a legend is the sexiest thing in the world." Also in 2001, Indian Motorcycle Company reintroduced the Indian Scout and the Indian Spirit, both smaller than the Chief but still targeting the cruiser market. The company believed the best strategy was to get production up quickly by assembling outsourced components with intentions to subsequently produce major components such as a proprietary engine as the firm developed. Engines were originally sourced from S&S Cycle, an American manufacturer, while Indian's R&D engineers were designing a motor. The new proprietary engine was introduced in the 2002 model year.

"To bring back a legend is the sexiest thing in the world" but it may also be the impossible dream, at least at this point in Indian's evolution. During the 2004 model year, Indian produced only 40 motorcycles then suddenly announced it was discontinuing business. This left bikers who had purchased Indian motorcycles since 1999 with no authorized service dealers and warranties that no longer had any backing. Distributors were left with no bikes to sell. Once again the reputation of Indian Motorcycle was tarnished.

THE CRUISER SEGMENT OF THE U.S. MOTORCYCLE INDUSTRY The new Indian Motorcycle Company is now thinking carefully about segmentation within the cruiser niche of the U.S. motorcycle market. Harley-Davidson is the incumbent with historical similarities to Indian but with a huge market lead and a very established distribution network. Harley-Davidson-among the most recognizable brands in the world--currently has 49% of the heavyweight, or cruiser, segment of U.S. motorcycle sales. Victory Motorcycles is a division of Polaris started in 1998 that can, along with Indian and Harley-Davidson, claim that it is an American motorcycle company with headquarters in Minnesota (this tends to have consumer appeal in the cruiser market segment). NonU.S. firms that target the motorcycle cruiser market such as Honda, Yamaha, Kawasaki, and Suzuki have established a strong following among cruiser buyers. These firms have taken styling cues from HarleyDavidson and combined them with distribution and manufacturing scale to drive cost reductions. Still, these manufacturers' motorcycles tend not to have the esteem of the market leader, Harley-Davidson, within the cruiser segment of the market. Boutique firms such as Orange County Choppers and Mad Dog make custom, one-of-a-kind motorcycles. For example, Orange County Choppers recently built a chopper with a built in guitar amplifier for Hartley Peavey, founder and CEO of the acoustic industry specialty firm Peavey Electronics. These custom motorcycles tend to have considerable esteem and status among bikers; however, the one-off custom manufacturing process eliminates the scale efficiencies of the mass producers. Prices can be more than ten times as much as a top-of-the-line Harley-Davidson or Victory motorcycle. Thus, the boutique firms aim for the upscale market within the cruiser segment of the motorcycle industry. The cruiser segment of the U.S. motorcycle industry is growing by about 5%. Higher growth areas are overseas. The European cruiser segment, for example, is expanding at a 14% rate although analysts predict this will slow over the next few years. All manufacturers except the boutique firms are taking advantage of this disparity by enlarging overseas distribution networks. Still, U.S. personal discretionary income is high relative to many other parts of the world; U.S. sales currently generate 30% of total motorcycle manufacturer revenues even though the U.S. accounts for only 7% of global motorcycle unit volume. The new Indian Motorcycle Company has future plans to expand into international markets, but the near-term strategy is to focus reintroduction in the U.S. This is as much a practical concern as a market concern; a driving priority for Indian is development of a network of dealers in the U.S.

Several factors are likely to affect the U.S. cruiser market. Consumer confidence is a key economic driver of sales. If personal income rates stagnate and unemployment rates increase, discretionary purchases such as motorcycles will be hit hard. Some analysts believe an aging baby boomer population will dampen demand for future U.S. motorcycle sales as health problems prohibit the ability of some among this demographic group to ride motorcycles (the average age of motorcyclists is currently 42-years-old). On the other hand, as baby boomers retire they also gain increased free time to ride motorcycles. In either case, only 1.1% of U.S. bikers ride their motorcycles to work providing support that, for many individuals, motorcycle purchases are discretionary rather than necessary. Economic and demographic factors that can constrain discretionary income thus can have a heavy impact on motorcycle demand.

PREPARING FOR REINTRODUCTION After Indian Motorcycle Company failed for the third time in 2004, Steve Heese, president, and Stephen Julius, chairman, purchased the rights to the Indian brand name through the venture capital firm Stellican Limited. However, they realize it will take much more than simply leveraging the brand of the past to build a successful company for the future. Both executives are well aware of Indian's past successes and failures. Still, they are firmly committed to bringing back the iconic legacy. Stellican has recently backed up this commitment with $30 million of additional funding beyond that paid for the initial brand name rights. Julius states: "This capital increase is a clear demonstration of our significant commitment to the successful future of Indian Motorcycle. It ensures that the Company has the proper financial foundation. However, the success of Indian Motorcycle will not be based on capital alone. Recruiting a world-class management team and following the appropriate business strategy are paramount." Currently, Indian has a 40,000 square foot manufacturing plant in Kings Mountain, North Carolina with room for expansion of up to 125,000 square feet. Steve Heese, as Indian's current president, brings substantial experience in reviving deteriorated brands. He is a partner with Stellican Limited and also president of Chris Craft, a formerly struggling boat manufacturer Heese was able to reposition Chris Craft as a stable manufacturer in the boating industry. Stephen Julius is chairman of Chris Craft. The combined talent of the Heese-Julius management team makes Indian Motorcycles a formidable competitor if they can overcome the mistakes of the past. Both Heeseand Julius were involved when Stellican Limited turned around the Italian yacht manufacturer Riva and the Italian soccer franchise Vicenza Calcia. Together, Heese and Julius bring decades of cumulative experience to successful brand reentry. Yet, it will take more than these two executives to successfully bring the Indian back to life. Heese and Julius were successful in recruiting Geoff Burgess as Vice President of Product Development and Engineering. Burgess, ironically, was previously Director of Product Development at S&S Cycle from whom Indian sourced its engines in 1999 and 2000. Getting Burgess to join Indian was a major win. In addition to his work at S&S Cycle, Burgess has held product development posts at Victory Motorcycles, Global Motorsports Group, and others. As of May 2007, Indian had employed only 14 engineers but plans to increase this to 200 in the near future. Recently, Indian hired Nick Glaja, a 27 year veteran in the motorcycle industry, as Vice-President of Engineering.

Indian will begin with only once model line, the Indian Chief. The Chief may have a few product variations, but near-term plans include only this single model. Future plans are not yet definitive but will likely include other model lines such as the Scout.

Indian has been marketing its introduction rather quietly. The top management team realizes that Indian's most recent failure in 2004 was in part due to over-promising and under-delivering. The current team is attempting to avoid making promises that seem too ambitious, worrying that potential consumers, and especially distributors who remember when the former Indian Motorcycle Company left them hanging, will see the new Indian Motorcycle Company as just a specter of the past. Instead of aggressive advertising, the new Indian has utilized a grass roots model. The company has been catering to current Indian owners groups such as the Iron Indian Riders Association. Indian has also taken the unusual step of promising availability of a new 2009 Indian Chief for a $1,000 deposit made through the company website. The uniqueness of this is that potential buyers will not know the final price, motorcycle specifications, or any other details until production begins even though they must pay their $1,000 deposit upfront.

FUTURE CHALLENGES The company claims in a recent press release:

"There is a considerable consumer base for a premium line of motorcycles under the Indian Motorcycle brand, which has an almost cult-like status amongst many consumers. The company will focus on supplying genuine, American made, motorcycles which are beautifully designed, made of the highest quality materials, reliable and supported by a qualified dealer network." This presents some assumptions, however. Those who remember first hand the "cult-like" status of the original Indian Motorcycles are well into their 60s or beyond given that the last of the "authentic" Indians were produced in 1953. No doubt there is a consumer base that desires premium motorcycles, but will Indian be able to penetrate markets with established incumbents such as Harley-Davidson? The recent rebranding by Yamaha of its Star motorcycle line competes in this same market space. A relative newcomer to the cruiser market, Victory (owned by Polaris) has also established a strong foothold in this same target market with excellent quality ratings by J.D. Power and Associates. Will another newcomer such as Indian be able to achieve quality levels at the outset necessary to win over consumers and distributors who were burned by Indian's sudden closure in 2004? And will a single model line in the near term, the Indian Chief, be enough to convince potential customers and distributors that Indian is here to stay? Stephen Julius has promised that "this is a 10, 15, 20-year project, this is not a 12-month project ... There's no magic to this. We've just got to do it right, slowly, carefully, take our time and not think that it's going to happen overnight." Julius points out that the problem with the most recent Indian Motorcycle during the 1999-2004 period was that "they just felt that it could be done instantly and it can't." Given this history, why has Stellican Limited chosen Indian when there are numerous other investment alternatives?

Indian has failed on numerous occasions in the past, yet the top management team of Steve Heese and Stephen Julius has succeeded in similar situations just as often. Combined with the motorcycle product development expertise of Geoff Burgess and the engineering expertise of Nick Glaja, Indian has a highly competent group leading its strategic initiatives. With the financial backing of Stellican Limited, Indian may once again have a chance to pierce the American cruiser market segment. Still, is this enough? Heese and Julius now face the combined challenges of moving from design to development, creating a distribution network, and regaining the confidence of the American cruiser market despite past failures. Stephen Julius recently reported to potential customers: "We are honored and inspired by your patience and continued commitment to the resurgence of Indian Motorcycle. We feel certain that we will surpass your expectations with our world-class staff, sound engineering platform and selection of dealers committed to premium service." Time will tell.

REFERENCES

Arabe, Katrina C. (2005, January). On a roll, motorcycle industry hums along. Industrial Market Trends, 23-24. Argus Research Company. 2007. Harley-Davidson Analyst's Notes, 1-4. Anonymous.(2007, April).Motorcycle industry analysis. Channel Trend, Inc., 1-18. Cherng, Eric. 2003. The global motorcycle industry. Stanford Technology Ventures Program, 1-13. Columbine Capital Services, Inc. 2007. Polaris Inc. Company Report, 1-36. Barron, Kelly. (2001, September).Uneasy rider. Fortune, 17-21. Ford Equity Research. 2007. PII Company Report, 1-29. Freedonia Group. 2007. World Motorcycles to 2009, 1-8. Harley, Bryan. (2007, May).The return of Indian Motorcycles.MotorcycleUSA, 49-52. Indian Motorcycle Company. (2006, September). Indian Motorcycle announces $30 million capital increase. Press release, Sept. 13. Indian Motorcycle Company. (2006, July). Indian Motorcycle Company announces new home. Press release, July 20.

Indian Motorcycle Company. (2007, February). Update to the Indian Motorcycle community. Press release, February 14.

Kiley, David. (2007, August).Best global brands. Business Week, 56-64. Standard & Poor's. 2007. Harley-Davidson Inc. Sub-Industry Outlook, 1-6. Standard & Poor's. 2007. Polaris Industries Inc. Business Summary, 1-4. Thomas White Global Capital. 2007. PII--Company Report, 1-7. U.S. Department of Transportation. 2004. Motorcycle transportation fact sheet, np. Scott Droege, Western Kentucky University

(Week Nine) CASE STUDY: Nine Dragon Theme Park: marketing strategy in China.
Zhang, Jindong, et al. "Nine Dragon Theme Park: marketing strategy in China." Journal of the International Academy for Case Studies 14.3 (2008): 97+. General OneFile. Web. 28 June 2010.

Full Text:COPYRIGHT 2008 The DreamCatchers Group, LLC CASE SYNOPSIS

This case examines the development and role of destination marketing in the China tourism industry in general and in the theme park in particular. A case study of Nine Dragon Theme Park in Beijing, China is demonstrated to explore the detonation marketing development. The China tourism industry has effectively merged its service with that from local attractions to the development of global and modern theme parks. This study provides a comprehensive viewpoint for China destination marketing development and strategies.

INTRODUCTION

In the past 20 years, tourism has had rapid growth and has become a new and prosperous industry in China. At the first stage in the early 1980s, the tourism destinations were famous landscapes, historical sites and big cities. Tourists wanted to travel around, but they had little traveling experience and had few choices of where to go and what to see. The first generation of artificial landscape destination such as theme parks came to the public before and after the year 1990, attracting a lot of tourists because of the high quality and renovation of attractions. The Chinese tourists then were a little more experienced and wanted new and exciting amusement. This kind of destination met their desire and was therefore very successful. With time, however, the taste of the tourists changed away from the artificial attractions back to enjoying nature and selecting a well-organized trip from a lot of choices, including travel abroad. In the process of the Chinese tourism industry development, the theme park experienced a fluctuation of ups and downs. From the first welcome in early 1990 to the following dislike around 1995, to the severe competition afterwards, the theme park has not reached its peaks in China. In fact, any assumed theme park in China can have any chance in competing with Disney, the pioneer and symbol of theme parks. The Nine Dragon Amusement Park Company (NDA) is one of the first joint ventures established in the Chinese tourism industry. This amusement concept was originally influenced by the Disney company,

especially Tokyo Disney World. NDA combined this theme park example with China culture and specific environment and was referred to as the irst Disneyland-like amusement in China. But the finished amusement park does not have the whole theme park design because of the policy restrictions and insufficient capital. The experience of NDA shows to some extent the first generation of joint venture in China.

NINE DRAGON AMUSEMENT PARK

NDA was founded in 1985 as a Sino-Japan joint venture. The Chinese investor is BMTR (Beijing Ming Tombs Reservoir development Company), which is a state-owned enterprise under BWCB (Beijing Water Conservancy Bureau) of Beijing Municipal Government. The Japanese investor is a construction company XGZ, which is among the first foreign companies come to the China market. During the development process, three questions had been discussed before it became a specific cooperative project that could be presented to prospective investors. These questions are: program decision, location selection, and product attractions. The idea of establishing a Theme Park is given birth and encouraged by the success of Tokyo Disney. The Tokyo Disney Park was opened to the public in 1985 and had great success in Japan, more than its effect in the U.S.A, This conveyed a clear message that amusement theme parks would be welcomed and have a large market in Asia. At the same time, there is no Theme Park; even the concept of Theme Park is new in China. So, it is a potential opportunity to develop a theme park in China. In fact, NDA is only one of the two amusement theme parks that the Japanese investor planned to establish in Beijing.

Another idea of Theme Park is consistent to the forecast of the Chinese tourism industry development. A Theme Park would be the next popular concept. Beijing Water Conservancy Bureau is the administrator of water resources in Beijing district, including the prevention and diminishment of flood, drought and water pollution, as well as distribution of water resources. In the early 1980s, with the support of the Beijing Government, this bureau practiced a series of new policies among its approximately 20 management offices. These policies encouraged the subordinates to transfer to market, which resulted in a positive effect both in terms of economy and society. This gave the bureau confidence in a market economy, and made good use of water resources. Ming Tombs Reservoir has the following exclusive advantages in tourism development and was selected as the location of the proposed amusement park. Ming Tombs Reservoir is attractive for tourists in such areas as having a famous history, beautiful scenery, and a favorable location. First of all, it is located in the Ming tombs tourism district and on the way to the Great Wall and Ming Tombs Museum, which are among the most frequently visited tourism

sites in Beijing. Secondly, Ming Tombs Reservoir itself is also world-famous because of its construction history. It a man-made reservoir in a valley between mountains. All of the leaders of the young People Republic of China including Chairman Mao, many officers and staff members in the foreign embassy then in China, many famous Chinese people together with Chinese laborers took part in this construction. There is a memorial with the four most respected leaders inscriptions, a museum with precious photos and items. The dam is still inlaid with the Chairman Mao inscription of ing Tombs Reservoir. The Chinese laborers then still had great respect for Chainman Mao and his colleagues. Thirdly, Ming Tombs Reservoir is the only water scenery around this area and the nearest one from Beijing city, with its clear water against the green mountains, white clouds and blue sky, the reservoir is very scenic in this royal mausoleum area. In summary, Ming Tombs Reservoir has an image mixed with imperatorial mystery and revolutionary worship, combining natural scenery with human creation. With the opening up of Chinese policy in the early 1980s, the international and domestic tourism industry had rapid growth. As per conservative estimates, there are approximately 3,000,000 visitors to this area, including 300,000 from abroad who used this golden tourism line to visit The Great Wall and the Ming Tombs Museum in 1983. Some of them also visited the Ming Tombs Reservoir. In fact, the staff of the Office of the Ming Tombs Reservoir made good use of these advantages and got into the tourism business, first by serving the thirsty tourists with tea water. So, the Ming Tombs Reservoir had the basic and necessary elements needed to develop a thriving tourism industry. In Chinese legend, a dragon is a miraculous monster that controls water and water creatures, in determining whether to rain or not. King Dragons always are very old, having many prince and princess dragons, and the whole dragon family has magnificent palaces underwater. The dragon is also the symbol of the Chinese imperialist. The stories about dragons are always among the most popular because they are full of mystery and wonder.

The originally proposed attractions of NDA included an Underwater Dragon Palace Tour, Northern Border Restaurant of about 5400 square meters and Nine Dragon Hotel of 350 rooms in the original Feasibility Report. Because of policy restrictions and insufficient capital investment, the restaurant and hotel had to be canceled. The Underwater Dragon Palace Tour was designed to include a Palace, an aquarium, a panoramic movie and a show room. The finished Dragon Palace Tour only has a long corridor decorated with a view from the seashore to deep sea, a Dragon Palace with scenes of the aquatic animal waiters and waitresses, the distinguished members in the dragon family, such as king and queen dragon, fire dragon, and water dragon. Transported by motorized vehicles along this corridor, visitors can reach the magnificent Palace and then exit from the tunnel. They can also walk around on the island above the water. By using modern technology, this Dragon Palace Tour built an elaborate world of underwater attractions, so, it was referred to as the first Disneyland-like amusement in China The underwater Dragon Palace Tour was once the major and most successful attraction of this amusement park. The computer simulation ride is another successful attraction. Dragon-boat Racing

and winter-swimming are two special attractions offered in the summer and winter respectively. The other attractions include an aquarium, a water ramp, a Kids City, an F-1 racing ride, holiday cabins, motorboat racing. This is all in addition to the Ming Tombs Reservoir Memorial park and museum. The park also has a restaurant, gift shop, passenger cars, and a travel agency.

DESTINATION MARKETING APPROACH FROM 1990 TO 1995 Destination marketing is designed to identify the target market by the way to collect information about its visitor as well as to audit the destination attractions and select segment that might logically have an interest in them (Kotler, Bowen &Makens, 2003). The objective is to create a brand image for tourism destination that highlights the attractions best features, provides an economic impact to the destination. One of main destination marketing mix to implement is building a new destination. Theme park is a new tourism product under destination marketing approach. The 1970s steered in an era of theme park led by Disneyland and Walk Disney World. More than 100 theme parks have since opened in the United States. Given Walt Disney Company success, many places have sought replication on a smaller scale. Tokyo Disneyland has been success, and a $4.4 billion Disneyland opened 20 miles outside of Paris in 1992. The same concept of destination marketing has been merged into China tourism market. This first period of increase from 1990 to 1995 benefited from the favorable macro environment, the prosperous tourism market, the exciting and attractive programs and the effective management including a successful marketing approach.

After 10 years of China open policy and the first step toward a market model, the Chinese people became more open-minded. They also had more disposable income and travel time. Because of this, travel around the country became more fashionable, which boosted the first golden time of the Chinese tourism industry. Big cities, famous historic places, and scenic tourism areas are the favorite destinations of most tourists in China. As the capital of the current government and six Dynasties, Beijing has combined a long history of modern development, political idealism, and contemporary civilization. Beijing is definitely the priority for most tourists who visit China. On the other hand, the tourism product is very simple. The top tourism destinations in Beijing are Imperial remnants such as The Great Wall, the Forbidden City, and political memorials such as TianAnmen Square. Sightseeing is the overwhelming model within a tourist travel itinerary. At this time, since it is a seller market and the amusement attractions are highly sought after, selling an idea is simple. Even with the ease with which they attracted tourists, NDA still utilized some successful marketing practices. * It is among the pioneer companies making advertisements in the weather report program of the CCTV, one of the highest audience-rated programs in the dominating television in China. This advertisement brought NDA a nation-wide reputation, hence attracting many visitors outside of Beijing.

* It worked hard to become one stop on the ive stops a day bus tour system by its public relationship with government, transport department and numerous bus operators. Since some first class tourism sites are located 50 miles away from Beijing, they are not easily accessible by public transportation. The ive stops a day tour system was established to meet the needs of tourists visiting the world famous sites in China: The Great Wall and Ming Tombs Museum in the northern suburb of Beijing. By being one member of this ive stops one day tour system, visitors from the country poured in every day. * It managed to get in the government support tourism destination lists, participating in the official promotion activities, showing up in the official tourism guides, brochures and handbooks that are distributed in hotels. This gave NDA high visibility and a good reputation. * It made full use of the support, influence and favorable policy from its investors: the government background from the Chinese investor and the joint venture background from the Japanese investor, which supplied NDA with a more favorable and free environment in the Chinese plan economy. * It set up a travel agency and a passenger car group in Beijing City to attract more customers and supply group visitors with more convenience. The company name and logo painted on the cars body is a good moving advertisement of itself.

* It also launched some influential activities, such as hosting the annual dragon-boat races in this reservoir every summer. The newspaper reported this sport, commenting that NDA lost money but gained a good reputation. This successful annual boat racing made Ming Tombs Reservoir the site of dragon boat racing in northern China until now. * There are many new activities in addition to the fixed attractions: from the New Year winter swimming (January 1) in the reservoir to the dragon-boat racing in the summer (Lunar year May 5, about June or July) to the fireworks show on the National Day (October 1), and the Entertainment Show on every Sunday during the summer. * It arranged ample budget and capable employees to accomplish its well-organized marketing strategy and plan by using media, newspaper, advertisement and all resources.

Meanwhile, some new amusement attractions were launched afterward. They included: * The once first class aquarium in the Beijing area was finished in 1993. * The computer simulation ride is another successful attraction, especially among the young people. This Hollywood-like ride lasted only about ten minutes, but was full of exciting and unexpected experiences. It was also one of the first of its kind in China. * Ming Tombs Reservoir Memorial Park and Memorial was included as a part of the tourist activities of NDA.

With a series of powerful marketing campaigns and new products, the Nine Dragon Palace Tour was so successful that there were always a lot of tourists standing in line about two or three hours for this 20minute tour. Over two million tourists visited NDA in the consecutive three years prior to 1995. The brand-new model of amusement program was in the right location, and had the help of good management and sufficient advertisement. NDA achieved great success and profit in the first five years of its existence.

DESTINATION MARKETING APPROACH FROM 1996

The turn of business from 1996 was mainly due to policy change. The Beijing Municipal government decided to cancel the tour system of ive stops a day and replaced it with a suburban public system. This ive stops a day tour system was very welcomed at its first introduction, but was receiving more and more complaints from customers about cheating and bad service. At the same time, with more tourism destinations coming to the market, the Chinese tourism market is getting more mature and more competitive. Tourists had more choices and higher and more diverse demands. So, after a decade of fast growth from the 1980s, the Chinese domestic tourism industry moved to a new stage of stable development. The needs of customers changed from sightseeing anything to selecting things and places worth seeing and participating in. The customers now, unlike the first stage, had a choice. In order to improve its image and meet the new development of the tourism industry, Beijing Municipal government ordered the cancellation of the ive stops a day tour system. In this new public system, there are bus routes from Beijing city to some famous tourism destinations, giving tourists more choices. In the beginning, there were only a few main bus routes covering the most famous destinations, such as the Great Wall and Ming Tombs Reservoir. NDA became a bus stop on a single public line, and it took two hours to arrive. This became very negative to prospective visitors. This change was a definite business setback to NDA. The inconvenient traffic was the bottleneck, spending three or four hours in transit just to have a 20 minute tour is far less attractive for Beijing residents and nearly impossible for tourists outside of Beijing. The once crowded theme park became silent, with only one million visitors to NDA during the year. The reaction of the NDA is direct and simple: it made its best effort trying to convince the government to change this new policy and resume the ive stops a day tour system. The normal marketing was affected.

DESTINATION MARKETING APPROACH FROM 1997

A continued decrease period from 1997 resulted from the mature and competitive tourism market, the poor marketing strategy, and the operation of NDA. Additionally, around the Ming Tombs Reservoir district, more competitors were encouraged by the success of NDA and built their own visitor sites. Apart from the Dingling, more Ming Tombs and other attractions became tourism sites. Even The Great Wall has its competitor: another part of the great wall relic opened to the public in another district. Some of the major competitors were ini Old Beijing City and axwork Museum of the Emperors of the Ming. These new destinations attracted more tourists and gave them more choices.

The domestic Beijing tourism market changed and had some new characteristics; however, the strategy of NDA remained the same. The management did not even realize this change was a trend in China. Instead of adapting strategies and practices to deal with this unfavorable situation, the NDA management focused on persuading the government to change its mind and resume the ive stops one day tour system. Three years were wasted, and NDA missed the opportunity to survive. With the severe competition coming after 1996, the customer dropped to one-third of the level at its peak time; the financial situation kept getting worse; and the morale decreased. Still, the new management kept blaming the unfavorable environment for its failure. They had no more effective marketing strategy than just following the former procedure and did not initiate any new creative efforts. During this period, NDA has to give up its fruitless effort in changing the policy. At this time, a lot of things changed. The biggest problem it met then is its once successful attractions are no longer attractive to the customers as they were before. The new attractions are not as good as it expected. The worst thing is that it has no money to renew its products because both of the investors refused to invest again. * The once successful underwater Dragon Palace Tour was now outdated as the artificial landscape fashion died away. It is also old in decoration and was not maintained well or renew during these years. * The computer simulation ride is still good, but the film has not been changed annually and hence loses the novelty. * The aquarium has no competitive advantage with the two new aquariums in Beijing city in either location or size. * The water ramp, Kids City, F-1 racing ride and motorboat racing are not special from those of the same kind of park. * The holiday cabins in the Ming Tombs Reservoir Memorial park are simple and tough in accommodation and service, and they cannot provide the basic demands for meetings.

* The other activities have been canceled year by year. The Dragon-boat Racing and winter-swimming are the only two special activities that are offered in the summer and winter respectively. Even these are now very routine, and the NDA itself has no interest to continue these activities.

* The restaurant, gift shop, passenger cars and travel agency also are operating at a loss due to an insufficient number of customers.

From the perspective of the management, the most important task is to keep costs low and earn more revenue. So, the marketing strategy and approach of NDA is practiced as follows: * It gave a limited budget and no overall plan in marketing. It gave up any kind of cheap advertising and promotions; it occasionally uses the popular media like TV, youth newspaper. * It raised their entrance fees to each attraction and added a new entrance fee at the main gate; it tried to improve its financial situation by getting more revenue, which drove away some prospective visitors and worsened its reputation. * It determined that its major customers were groups such as school students and staffs in offices and companies, and travel tours from outside Beijing. So, it made a great effort to develop relationships with travel agencies and transport department and car drivers with commission. This partnership would result in the end customers paying more and getting less than they expected. * It managed to receive from the government the title of ducation Base for Patriotism and ducation Base for Science Knowledge in the name of Ming Tombs Reservoir. In order to get the student visitors, it collected about 10 girls to do personal selling targeting to the middle schools in Beijing cities. Because these girls are less trained and work without other kinds of support from the company; they did not achieve the expected results. In addition, the student customers are also less profitable because of the commissions. * It decided to only launch new attractions at low cost or just keep it running. For example, it insisted on using the same film for the computer simulation ride, and replaced the film with another dull one after several years. This strategy made this exciting computer simulation attraction very disappointing. All of the newly launched attractions have the same characters of low cost and low popularity, opposite the spirit of attractions for the theme park. * As the only two remaining activities, The Annual Dragon-boat Racing sometimes combined with the sport game, such as he Minority Sport Game of China and he Oversees Chinese Dragon-boat Racing. Even with the support from these games, the Dragon-boat Racing still could not get the same publicity as it had in the former years. It certainly could not attract visitors in today innovative advertising world. Winter-Swimming in Ming Tombs Reservoir fell to an activity involving several participators for several hours.

DISCUSSION QUESTIONS 1. Identify the destination marketing strategies that apply in each of the three periods in the NDA case. 2. What specific suggestions would you make to NDA for a new marketing strategy, taking into consideration their limited revenue and investor funding? 3. What did you learn from this case regarding the tourism industry in China using a destination marketing approach?

REFERENCES

Beijing Tourism Administration Bureau (1991-1997). The Statistics Yearbook of Tourism in Beijing. Beijing Tourism Administration Bureau (1995). Sample Survey on Domestic Tourism in Beijing. Beijing Tourism Administration Bureau (1996). Sample Survey on Domestic Tourism in Beijing. Beijing Tourism Administration Bureau (1996).The Analysis on the Current Situation of the Tourism Attractions in Beijing. Beijing Tourism Administration Bureau (1998). Sample Survey on Domestic Tourism in Beijing. Dore, L. & Crouch, G.I. (&&&) Promoting destinations: Ana exploratory study of publicity programmes used by national tourism organisations. Journal of Vacation Marketing, 9(2), 137-151. Echtner, C. M. (1995).Entrepreneurial training in developing countries. Annals of Tourism Research, 22(1), 119-134. Feng, R., Morrison, A. M., & Ismail, J. A. (2004). East versus West: A comparison of online destination marketing in China and the USA. The Cornell Hotel and Restaurant Administration Quarterly, 10(1), 4356. Gretzel, U., Yuan, Y., &Fesenmaier, D. (2000).Preparing for the new economy: Advertising strategies and change in destination marketing. Journal of Travel Research, 39, 146-156. Henderson, J. C. (2000). Selling places: The new Asia-Singapore brand. The Journal of Tourism Studies, 11(1), 36-44. Holloway, J. C. (1985). The business of tourism (2nd Ed.). Plymouth: Macdonald and Evans.

Hudman, L..& Hawkins, D.. (1989). Tourism contemporary society: An introductory text. Englewood:Prentice Hall.

Kotler, P., J Bowen, &Makens, J. (2003).Marketing for hospitality and tourism. Upper Saddle River: Prentice Hall. Liu, F. (1998).The Elementary Study on Domestic Tourism Industry in China.Journal of Beijing Commercial College, 61-64. McCole, P. (2000). The role of electronic commerce in creating virtual tourism destination marketing organizations. International Journal of Contemporary Hospitality Management, 12(3), 198-204. McIntosh, R. Goeldner, C. & Ritchie, J. (1995). Tourism: Principles, practices, Philosophies. New York: John Wiley Murphy, P. E. (1985). Tourism: A community approach. New York: Methuen. National Tourism Administration Bureau (1995-1998). Tourism Investigation. National Tourism Administration Bureau (1998).National Statistics Bureau of China, China Tourism Press. Pearce, D. (1989). Tourism development (2nd Ed.). New York: Longman Scientific & Technical. Pyo, S., Uysal, M., & Chang, H. (2002).Knowledge discovery in database for tourist destinations. Journal of Travel Research, 40, 396-403. Ritchie, R., & Ritchie, J. (2002). A framework for an industry supported destination marketing information system. Tourism Management, 23, 439-454. Sciences, I. C. f. S. (1995-1998). Management of Tourism: Renmin University of China. Wei, X. (Ed.).(1995). Tourism Development and Management, Tourism Education Press. Wu, T. (Ed.).(1998). Strategic Thinking on Tourism Development in Beijing, China Statistics Press. Zhang, J. (1998). Strategic Study on Beijing Nine-Dragon Amusement Park.Unpublished Unpublished MBA Thesis. Jindong Zhang, Tourism Bureau of Dongcheng District, Beijing Kuan-Chou Chen, Purdue University Calumet Keh-Wen arin Chuang, Purdue University North Central Denise M. Woods, Purdue University Calumet

Gale Document Number:A179779970

(Week Eleven) Pizza Wars

Distributed freely from www.icmrindia.org

"We are not really competing with Domino's - we're not in the same category. Domino's is more delivery and take-aways, while we offer a complete dining experience in addition to delivery and take-away options." - PankajBatra, Marketing Director, Tricon Restaurants, India. "One has to take risks to reach economies of scale. Domino's also shook up competition when it reached a target of 100 outlets." - HariBhartia, Co-Chairman, Domino's Pizza India.

Pizza Wars: Introduction Until 1996, Pizza in India was synonymous only a bready dough base slathered with some ketchup. Since 1996, there was a proliferation of 'high-priced branded' pizzas in the market, with the entry of international pizza chains. Domino's1 and Pizza Hut2, the two big US fast food chains entered India in 1996. Each claimed it had the original recipe as the Italians first wrote it and was trying desperately to create brand loyalty. Domino's and Pizza Hut - tried to grab as large a slice of the pizza pie as possible. (Refer Table I and II for market shares). While Pizza Hut relied on its USP of "dining experience", Domino's USP was a 30-minute delivery frame. To penetrate the market, both the players redefined their recipes to suit the Indian tastes. Domino's went a step ahead by differentiating regions and applying the taste-factor accordingly. Domino's also made ordering simpler through a single toll-free number throughout the country. Domino's and Pizza Hut expanded their market ever since they entered India. Domino's had grown from one outlet in 1996, to 101 outlets in April 2001. Pizza Hut too, which began with just a single outlet in 1996 had 19 outlets in 2001. Background Domino's entered India in 1996 through a franchise agreement with VamBhartia Corp.3 The first outlet was opened in Delhi. With the overwhelming success of the first outlet, the company opened another outlet in Delhi. By 2000, Domino's had a presence in all the major cities and towns in India. Pizza Hut entered India in June 1996 with its first outlet in Delhi.

Initially, the company operated company-owned outlets. However, keeping in line with its worldwide policy where Pizza Hut was gradually making a shift from company-owned restaurants to franchisee owned restaurants, Pizza Hut made the shift in India too. Pizza Hut had four company-owned franchisees - Universal Restaurants Pvt. Ltd. (Delhi, Uttar Pradesh and Rajasthan), Specialty Restaurants Pvt. Ltd. (Punjab), Dolsel Corporation (Gujarat, Karnataka and Andhra Pradesh), Pizzeria Fast Food Pvt. Ltd. (Pune and Tamilnadu) and Wybridge Holdings (Mumbai). Positioning Wars When Domino's entered the Indian market, the concept of home delivery was still in its nascent stages. It existed only in some major cities and was restricted to delivery by the friendly neighborhood fast food outlets. Eating out at 'branded' restaurants was more prevalent. To penetrate the Indian market, Domino's introduced an integrated home delivery system from a network of company outlets within 30 minutes of the order being placed. However, Domino's was not the trendsetter so far as home delivery was concerned. Delhi based fast food chain,Nirula's was the first to start free home delivery in 1994. But where Domino's stole the market was its efficient delivery record. GouthamAdvani (Advani), Chief of Marketing, Domino's Pizza India, said, "What really worked its way into the Indian mind set was the promised thirty minute delivery." Domino's also offered compensation: Rs.30/- off the price tag, if there was a delay in delivery.4 For the first 4 years in India, Domino's concentrated on its 'Delivery' act. For its delivery promise to work, Domino's followed a 11-minute schedule: one minute for taking down the order, one minute for Pizza-making, six minutes oven-time, and three minutes for packing, sealing and exit. Pizza Hut, on the other hand, laid more emphasis on its "restaurant dining experience." It positioned itself as a family restaurant and also concentrated on wooing kids. Its delivery service was not time-bound. A company official said, "The Pizza making process takes about 20 minutes and since we don't usually deliver to places which are beyond the reachable-in-half-an-hour distance, customers can expect home delivery within 45 minutes." Moreover, analysts felt that Pizza was something that just was not meant to be delivered. Said Vivek Sure, Projects Manager, Pizza PizzaExpress, "If you don't eat pizza fresh, it turns cold and soggy." However, Domino's seemed to have overcome this problem through its delivery pack called 'Domino's Heatwave.'5 Localizing the Menu Since its entry into India, Domino's introduced nine new toppings for Pizzas to cater to the local tastes.6 Different flavors were introduced in different parts of India. Advani said, "The Indian palate is very definitive - people are extremely finicky and choosy, not too willing to experiment. Food tastes vary from region to region. To capture the market, we had to localize flavors." Thus, Deluxe Chicken with Mustard Sauce' and Sardines were confined to the East, Mutton Ghongura and Chicken Chettinad to the South and Chicken

Pudina to Mumbai. Butter chicken, MakhaniPaneer and the ChatpataChana Masala were confined to the North. The campaigns were eye-catching with cartoon characters on the mailers, hoardings and print advertisements where the cartoon characters were aimed at matching varying moods of kids. The Pizza Pooch birthday package was full of fun and excitement. The birthday party included a well-decorated area within the Pizza Hut outlet with several gifts for the children. The party was conducted by a trained host with lots of games, prizes and a special gift for the birthday child. In March 2000, Domino's slashed prices of Pizza by 40%. The price of a regular Pizza with three toppings was cut from Rs.225 to Rs.130. In October 2000, Domino's ran a scheme, where it gave away two pizzas for the price of one, within five days of placing an order. During the same time, Pizza Hut launched a 'one rupee pan deal' scheme. Under the scheme, for every pan Pizza purchased, another was given away for Re.1. In November 2000, Pizza Hut introduced a scheme called 'barahnahin to tera (if not served in 12 minutes, it is yours free)'. The scheme offered a speed lunch in 12 minutes for Rs.89. One second over 12 minutes guaranteed that the customer would get it for free. Domino's supply chain management enabled it to cut costs. In late 2000, it revamped its entire supply chain operations (Refer Exhibit I). This enabled Domino's to slash prices. For instance, the price for a nofrills cheese pizza was down from Rs.75 to Rs.49. A 10" pizza with at least three toppings was available for Rs.119 as against the earlier price of Rs.225. Brand Building Through Advertising Domino's and Pizza Hut initially restricted their ad strategy to banners, hoardings and specific promotions. In August 2000, Domino's launched the 'Hungry Kya? (Are You Hungry)'9 sequence of advertisements on television. A company official said, "We realized that a Pizza couldn't be slotted - it could be a snack; then again, it could also be a complete meal" The only definitive common link between Domino's Pizzas and eating was the hunger platform. The launch of 'Hungry Kya?' campaign coincided with Domino's tie-up with Mahanagar Telephones Nigam Ltd. (MTNL) for the 'Hunger Helpline'. The helpline enabled the customers to dial a toll-free number (1600-111-123) from any place in India. The number automatically hunted out the nearest Domino's outlet from the place where the call was made and connected the customer for placing the order. The number also helped Domino's to add the customer's name, address and phone number to its database. This was followed by Pizza Hut's first campaign on television in July 2001, which said, 'Good times start with great pizzas.'10 The ad was aired during all the important programs on Star Plus, Sony, Sony Max, Star Movies, HBO, AXN, and MTV.11

Pizza Hut planned to spend between Rs.70-75 million on the ad campaign in 2001. Said PankajBatra, "The first ad campaign on TV defines Pizza Hut as a brand, and what it offers to its existing and potential customers. Once the awareness of this message is high, we will focus on other facets of the brand and its offerings." Going Places (Literally) By March 2000, Domino's opened 37 outlets all over India. Between April 2000 and February 2001, Domino's set up 64 more outlets in India. Delhi had the maximum number of outlets - 17, followed by Mumbai with 13. Domino's had the largest retail network in the fast food segment in India- with 101 outlets across 40 cities. Domino's had a tie-up with a real estate consultant Richard Ellis to help with locations, conduct feasibility studies, and manage the construction. It was also looking at non-traditional outlets like large corporate offices, railway stations, cinema halls and university campuses. In early 2000, Domino's had opened an outlet at Infosys, Bangalore, which was very successful. It also had outlets at cinema halls - PVR in Delhi, Rex in Bangalore, and New Empire in Kolkata. By January 2001, Pizza Hut had 19 outlets across India. In a move to expand further, Pizza Hut planned to open an additional five restaurants in Mumbai and 30 restaurants across major cities in India, by 2001 end. Tricon announced that the company would invest Rs.30 million on each of the restaurants. In March 2001, Pizza Hut opened its first three-storeyed 125-seater dine-in restaurant at Juhu in Mumbai. Said a company official, "We are expanding the number of restaurants across the major cities to cater to today's youth which has taken to Questions 1. d 2. df 3. ds

Endnotes 1] By 2000, Domino's had more than 6000 stores in the US and internationally. 2] Pizza Hut was a unit of Tricon Global Restaurants (Tricon) which included Kentucky Fried Chicken and Taco Bell. 3] Promoted by Bhartia brothers - Shyam and Hari - better known for chemicals and fertilizers.

4] In the US, where time management is clearly not the issue and the 30-minute delivery is taken for granted, the Total Satisfaction Guarantee is emphasized more. If one is not satisfied with its Pizza, Domino's either remakes it or gives a refund. 5] It was a hot bag introduced in 1998 that kept pizzas oven-hot till customer's doorstep. 6] ChatpataChana Masala, MakhniPaneer, Butter Chicken, Chicken Chettinad, Chicken Pudina, and Mutton Ghongura, Deluxe Chicken with Mustard Sauce and Sardines. 7] One of the religious communities in India. 8] An animal killed for meat according to Muslim law. 9] A woman suggestively nibbles at her husband's ear as he surfs the Net. Eventually, he asks her in an irate voice: "Hungry Kya?" She nods expectantly, so he advises her to order a Domino's Pizza. A roadside Romeo whistles appreciatively at a young girl. She whips around, grabs him by the collar and asks him in a husky voice: "Hungry Kya?" - and a voice over orders a Domino's Pizza. 10] The ad was woven around the traditional arranged marriage scenario, in which the parents of the girl after finding a suitable boy for her fix up a meeting for them at Pizza Hut. The commercial begins with a man waiting for somebody outside Pizza Hut, and is later seen practicing the way he would introduce himself. Meanwhile, the girl for whom the man was waiting for, arrives and catches him unawares while he was talking to himself. Though both of them seem to be apprehensive of each other, they eventually decide to order food. While the man orders for a veggie supreme pizza, the girl opts for a Pepsi and salad. She is not able to resist the temptation when the pizza actually arrives. The pizza acts as the catalyst and helps them get over their initial awkwardness and shyness. The commercial signed off with a hint that the two of them are planning to share the rest of their lives, with the sign-off line saying, 'Good times start with great pizzas.' 11] Private cable and satellite channels.

(Week Twelve) Shiseido: becoming an insider in the perfume business in France

From Verbek. International Business Strategy Initially founded as a pharmacy in Japan in 1872, Shiseido expanded into the cosmetics business in 1897 by introducing a skin lotion. Shiseido then gradually expanded its product offerings in the makeup and skin care business. It also started to expand internationally, entering the Taiwan market in 1957. By the 1970s, Shiseido had established itself as the market leader in the makeup and skin care business in Japan.29 However, Shiseido was still weak in the fragrance business. At that time, Japan had a limited tradition of perfume use: the fragrance market in Japan accounted for only 1 per cent of the entire cosmetics market, much lower than the 3040 per cent characteristic of most Western countries. Because of its limited tradition of perfume use, Japan lacked domestic fragrance experts and senior management with fragrance business experience. Shiseidos small domestic fragrance market did not prepare it adequately to compete in the international market. In 1964, Shiseido launched the perfume Zen in the US. Driven primarily by the marketing concept of oriental mysteriousness with a subtle fragrance, Zens US sales increased rapidly because of its novelty, but then quickly declined. Because the fragrance market represented about 3040 per cent of total cosmetics sales in Europe and America, Shiseidos lack of a signicant position in the fragrance market also created barriers for the rm to secure strong distribution networks internationally. Thus, in spite of its limited domestic experience with fragrances, Shiseido felt it had to develop strengths in the fragrance business in order to become a truly world-class cosmetics company. In the late 1970s and early 1980s, Shiseido decided to learn more about the international fragrance business. The lack of a favourable domestic environment in Japan pushed Shiseido to seek solutions in the very markets it wanted to penetrate. France was identied as the ideal place to gain expertise, because it was the heart of the international fragrance industry. However, simply being in France did not ensure that the rm would automatically gain access to the local knowledge network. In fact, Shiseido had to spend a long time learning how to become an insider in this industry. Shiseidos initial failures In order to absorb French perfume development techniques, especially the subtle interactions between laboratory development and consumer tests, Shiseido established in 1980 a 50/50 joint venture with the French cosmetics company Pierre Fabre S.A. Faced with substantial market hostility in France at that time, Shiseido chose a joint venture as its entry mode in order to reduce risks, especially in terms of potential nancial losses. At the same time, in order to collect information related to the fragrance industry, it also established the Shiseido Europe TechnoCentre as the eye of its headquarters in France.

Japanese expatriates were sent to the centre to collect vital local information and transmit it to headquarters. Unfortunately, the Japanese expatriates did not have access to the social networks required to gain deep insights into the complex and tacit knowledge aspects of local perfume development and exploitation. Consequently, the information transferred back to Shiseidos headquarters tended to be supercial and did not truly help product development in Japan. Gradually, Shiseido realized that its strategies so far had not made it a player in France. Shiseido learned that, in order to learn the intricacies of perfume development, it would have to become an insider in the French fragrance industry. Becoming an insider To access the required tacit local knowledge, Shiseido decided to establish operations in France to develop and sell perfume in France, rather than simply collecting information there. This involved extensive activity development in France. Local operations (plants and salons) In 1990, Shiseido established a 100 per cent subsidiary in Paris called BPI (Beaut Prestige International) to develop and sell fragrances in France. In 1992, Shiseido also set up a plant in Gien, a town south of Paris. Shiseido also ran salons in France to learn how to provide beauty services. In 1986, Shiseido acquired two high-end French beauty salons, Carita and AlexandreZouari. Carita and AlexandreZouari were among the top ve salons in Paris, the other ones being Alexandre Paris, Maurice Franc and Claude Maxim. In 1992, Shiseido opened a prestigious parlour called Les Salons du Palais Royal (Les Salons) in Paris. These operations helped Shiseido understand the world of sophisticated French customers and the importance of local adaptation. At that stage, Shiseidos products were of high quality from a manufacturing perspective, but they lacked the cultural dimension of a fragrance as a story/concept, which was a crucial element driving French customers tastes. In 1992, BPI launched two perfumes branded after the names of their designers: Eau dIssey and Jean Paul Gaultier. The former was designed by the famous Japanese fashion designer Issey Miyake and the latter by the well-known French fashion designer Jean Paul Gaultier. Both products were manufactured at the Gien plant and marketed to French customers. Building local relationships Shiseido used several techniques to build relationships with major stakeholders in France, including celebrities, journalists, bankers and local communities.

First, Shiseido invited leading celebrities in Parisian high society to its receptions held at Les Salons. For example, the celebrations at the 1992 opening of Les Salons lasted two days, with numerous parties, including a reception for journalists, a reception for VIPs and a reception for bankers. Such events at Les Salons were not only covered by articles in newspapers and magazines, but also widely discussed in Parisian high society. The exposure in the media connected Les Salons and Shiseidos brands with sophisticated customers and supported the rms efforts to establish its brands as premium fragrances. More importantly, this exposure helped Shiseido build strong linkages with beauty and fashion journalists, local celebrities and bankers. Second, Shiseido became actively involved in local communities, especially by sponsoring various cultural events in France. For example, Shiseido was active as a patron for the Festival International de Sully-sur-Loire, where Shiseidos Val de Loire factory was located. Such activities with local communities increased the connection between Shiseido and French consumers. Local hiring Rather than sending Japanese expatriates to direct its French operations, Shiseido hired local experts to manage several important positions throughout the value chain. First, Shiseido hired a French creator, Serge Lutens, to craft Shiseidos overseas brand image. Before joining Shiseido in 1980, Lutens had worked for Christian Dior for 14 years. Serge Lutens contributed substantially to Shiseidos becoming an insider in France, by designing ads and posters that created a mysterious and artistic image for the rm. Even though his work was viewed as too indirect and artistic in Japan, he achieved his goal: his work became well accepted in Europe and America. Second, a French CEO, Chantal Roos, headed BPI. Involved in launching the famous Opium perfume when she was marketing vice-president of Yves Saint Laurent, she was an expert in creative marketing and fragrances, and well known in the French fragrance industry. It was very rare for a Japanese company to hire a local person to head a strategically important subsidiary, but it was a wise move. Chantal Roos brought to the company a much-needed creative and artistic culture. She led Shiseidos credible entry into the French fragrance industry by leading the development of Eau dIssey in 1992. Moreover, she insisted on creating a separate BPI division in each host country to distribute BPIs high-end fragrances.

Finally, Shiseido hired locally at its Gien plant. The plant, although managed by a Japanese president, had a French vice-president. In 1998, the plant employed only six Japanese expatriates out of 180 local full-time staff and 80 temporary workers. By 2005, Shiseido had 12 organizations in France, with 12 Japanese nationals out of 1,300 employees. The local hiring policy helped Shiseido to become a true insider in France. Local success Although the major objective of the French operations was to plug into the local fragrance knowledge, Shiseido did not assess its success simply based on the amount of knowledge transferred back to Japan. Rather, success was assessed by the companys competitiveness in France itself. Perfumes such as Eau dIssey and Jean Paul Gaultier were launched rst in France and marketed rst to French customers. These premium fragrances did very well there. For example, Jean Paul Gaultier Le Mle produced by BPI was the leading brand among mens premium fragrances in France, with a market share of 4.8 per cent in that country in 2005. Among all fragrances in France, Jean Paul Gaultier Le Mle was ranked tenth in 2005 with a market share of 1.2 per cent. This was good penetration, considering that the leading (down market) brand Yves Rocher had a market share of only 2.6 per cent in the same year.30 Similarly, the quality of the perfumes produced at the Gien plant was also evaluated against the French standard of perfume quality. In this context, Chantal Roos was very satised with the quality of Shiseidos products when benchmarked against high prole French rivals such as Christian Diors Svelte. Local decisions Shiseido granted substantial autonomy to BPI, because it realized that Japanese headquarters lacked sufcient understanding of the French artistic style in the fragrance industry. Therefore, product development, packaging and labelling of BPI products were all performed by BPI and the Gien plants R&D division, without intervention from Shiseido. Subsequent developments Brands such as Eau dIssey and Jean Paul Gaultier have given Shiseido a solid position in Europe, and some of the knowledge learned by the expatriates has been transferred back to Japan for the development of future perfumes. In 1997, Shiseido decided to spend $30.5 million building a new plant at Ormes, France, to meet the expected rising demand in Europe for its fragrances and skin care products. In 2004, Shiseido ranked 14th in the fragrance business with a market share of 1.8 per cent still far behind LOreal Groupe, the market leader in fragrances with a market share of 8.9 per cent.31

QUESTIONS: 1. How did Shiseido nally become an insider in Paris? What factors had been instrumental to its initial failure? 2. What does Shiseidos experience imply for those companies not born in a cluster? 3. Which patterns of FSA development did you observe in the case? 4. Drawing on the discussion of Porters single diamond framework versus the double diamond framework, what suggestions would you give Shiseido to help it to develop further its perfume business?

(Week Thirteen) Getting rid of the nickname: Interwho?: Launching Stella Artois as the global brand at InBev (formerly Interbrew)
From Verbek. International Business Strategy Belgium-based InBev, the worlds number one brewer, was formed in 2004 through a complex merger arrangement between Interbrew of Belgium and Companhia de Bebidasdas Amricas (AmBev) of Brazil. Interbrew (we use Interbrew rather than InBev, as most business activities discussed in this case happened during the Interbrew period) traces its origins to a brewery called Den Horen, established in 1366 in Leuven, Belgium. In 1717, the brewery changed its name to Artois when it was acquired by Sebastien Artois, its master brewer. In 1987, Brasseries Artois, then the second largest brewer in Belgium, and Brasseries Piedboeuf, then the largest brewer in Belgium, merged to create Interbrew. In 1988, Interbrew was the 17th largest brewer in the world.15 Before the 1987 merger, both Brasseries Artois and Brasseries Piedboeuf had expanded through acquisitions. Brasseries Artois acquired the Leffe brand in 1952, the Dommelsch Brewery in the Netherlands in 1968 and the Brasseries MotteCordonier in France in 1970. Similarly, Brasseries Piedboeuf purchased the Lamot brewery in Belgium in 1984. Interbrew continued with this acquisition strategy. It acquired Belgian brewers Hoegaarden in 1989 and Belle-Vue in 1990. In the early 1990s, Interbrew expanded extremely rapidly, pursuing more than 30 acquisitions and strategic joint ventures throughout the world. Examples of such acquisitions included Labatt in Canada in 1995, SUN Interbrew in Russia and Ukraine in 1996, Oriental Breweries in South Korea in 1999, and Diebels and Beck & Co. in Germany in 2001. More recent acquisitions included the Malaysian Lion Group in China and the Apatin Brewery in Serbia. Interbrews traditional brand strategy: local branding As a way of managing its large number of acquired rms, Interbrew traditionally left most decisions to local managers, and it even intentionally prohibited the usage of Belgium in its ads. Its slogan was the worlds local brewer. Traditionally, Interbrew applied a geographic structure with major decisionmaking power decentralized to local managers. Following the acquisition of Labatt in 1995, Interbrew managed the group through two geographic zones: the Americas and Europe/Asia/Africa. Although it shifted to an integrated structure in 1999, in less than a year it switched back to a geographic structure with ve regions reporting directly to the CEO. Interbrew allocated major decision-making responsibilities in each country to the individual country teams. Such a decentralized approach was viewed as crucial to Interbrews strategy. Interbrews corporate strategy in the 1990s was to develop a complete portfolioin both mature markets and growth markets through acquiring and developing existing local brands. In both markets, whenever possible, Interbrew focused on acquiring established, high-quality local brands, such as Labatt Blue in

Canada. In some cases, Interbrew acquired local brands, upgraded their product quality and developed them into strong local brands, such as Borsodi So in Hungary and Ozujsko in Croatia. Essentially, the international expansion was brand, rather than brewery, driven.16

In addition, Interbrew identied certain local brands with regional potential and developed them across a group of markets. For example, Hoegaarden and Leffe became leading brands in France and the Netherlands. Interbrew adds global brands In 1998, the executive management committee decided to change strategy and add some global brands to its portfolio, for three reasons. First, consumer demand was expected to converge on a global basis. There was growing demand for premium beers from the rising number of afuent consumers worldwide, as well as increasing demand for low-priced beers from the rising number of poorer consumers. In contrast, the market for mainstream (i.e., expensive and local) beers was expected to shrink gradually. Although the market for global brands was still small, this market was expected to grow in the next few decades. Second, the beer business was becoming more international, and the international media had made it more viable to build global brands than in the past. For example, Heineken, Budweiser and Corona had become global brands. Interbrew believed that a global strategy would add synergies through global advertising and marketing, thereby improving operating efciency. Third, it was thought that a global brand would raise the companys prole, which in turn would boost the companys stock performance. As a downside of its strategy of being the worlds local brewer, Interbrews prole was so low internationally that some beer analysts nicknamed the company Interwho?17 This low prole was thought to damage Interbrews stock performance, with Interbrews stock trading 10 per cent below that of rival Heineken. Thus, reducing its sole emphasis on local strategy and developing some global brands seemed to be the solution to x the rms problems on the stock market and to anticipate expected market changes. An Interbrew annual report explained the new core strategy well: Beer is a business of local brands, so brewers need to be big in local brands, culturally adept at being local. That is the basis of our strategy. Yet if all we had was strong local platforms, it would be good but not great. And if all we had was globally famous names, it would be pleasing but not good enough. With no local platforms, an international brand has to pay its own infrastructure costs. The picture brightens considerably if you have strong local brands with critical scale, which covers overhead costs, then add premium brands on top. This is the more protable way the local platform plus the premium portfolio. In other words, the Interbrew model.18

In 1998, the executive management committee chose Stella Artois as Interbrews global agship brand.

Launching Stella Artois as the global agship brand Tracing its origins back to 1366, Stella Artois was launched as a Christmas beer in 1920 in its home market of Belgium. In the 1970s it became a strong market leader in Belgium. By the 1990s, though, Stella Artois was considered somewhat old fashioned within Belgium, and it experienced declining domestic sales. However, Stella achieved great success in two international markets, namely the UK and France. Performance in the UK was particularly strong, and by 1998 Stella occupied 7.6% of the lager market share. In 1998, the UK market accounted for 49% of Stellas total brand volume, France 18% and Belgium 13%. Besides these three markets, Stella was also sold in Italy, Sweden, Australia, Croatia, Hungary and Romania through licensing agreements, joint ventures and Interbrew subsidiaries. The initial stage In September 1998, Interbrew started to apply a centralized Stella brand management approach, which quickly faced implementation barriers. Interbrew had operated on a regional basis, and country management teams had become used to making most decisions by themselves. Not all country management teams were convinced it was a good idea to adopt a global approach, especially in those countries where they had already established an image for Stella Artois. For example, in the UK market, Interbrews licensee Whitbread did not want to change its successful reassuringly expensive advertising slogan. In Belgium, Interbrews local advertising program had carefully positioned Stella Artois as a mainstream lager, rather than a premium lager, as designed by the centralized Stella brand management team. Moreover, even for those countries most likely to adopt the global approach for Stella Artois, Interbrew still needed time to improve the coordination system between the centralized management team and country management teams. For the above reasons, Interbrew included only the less established markets in its initial global campaign. The campaign intended to position Stella Artois as a sophisticated, contemporary European lager with an important brewing heritage. The global advertising framework included a television concept and a series of print and outdoor executions that had been researched to be effective across borders. In 1999, with both local and corporate funding, the advertising campaign was rolled out in 15 markets, including the US, Canada, Italy, France and Croatia. In 1999, Stella grew strongly. For example, sales rose by 14 per cent in Croatia, 37 per cent in Hungary and 88 per cent in Romania.19

Switch to a new branding plan Despite making good progress, establishing Stella Artois as a global brand experienced a major challenge in early 2000. Rolling out the brand at the global level required a huge amount of funding in the US market, Interbrews corporate marketing department allocated several million dollars to Labatt USA for launching Stella Artois within the single year 1999. Further market development in the next few years would require additional funding, thereby leading to substantial nancial pressures. At the same time, the benets of a global brand did not appear to materialize in the short run, at least not consistently in every market. Thus, in 2000, Interbrew revised its initial approach to global branding, deciding to be more selective when identifying its global target market for Stella Artois. Interbrew established four strategic lters. First, any potential market targeted had to be a large and/or growing market with a current or potential premier lager segment no less than 5 per cent of the total market. Second, Interbrews resources and commitment had to be sufcient to make Stella one of the top three brands in the local market, and achieve attractive margins after an initial period of around three years. Third, a committed local partner had to be available both to provide highquality distribution and to invest in the brand. Fourth, the success in the chosen markets had to have potential spillover effects beneting the rm in other national or regional markets. These market selection criteria shifted what was included in the global markets for Stella Artois from national markets to around 20 international cities, such as London, New York, Hong Kong, Moscow and Los Angeles. These major cities had a concentration of afuent consumers, potentially allowing Interbrew to benet from scale and scope economies in sales and marketing. The new city-by-city global branding plan required a new management approach. Interbrew established a corporate marketing group, comprised of the brand management team, a customer service group, regional sales managers, a cruise business management group and a Belgian beer caf manager. These group members worked together to identify top cities, develop brand positioning for local execution, design marketing programmes and allocate resources. Because the corporate marketing group was responsible for both the development of core marketing programmes and local support, Interbrew brought all crucial resources under the global brand development director to ensure an integrated effort. Still, the central marketing group had to rely on the commitment of local managers. This was relatively easy to achieve in the case of wholly owned subsidiaries, but not so for licensees and joint ventures. The new global plan also incorporated the launch of Stella in other countries.

In the late 1990s, Stella had already been successfully introduced in various central European urban centres, such as Budapest and Soa, with a large presence of the targeted group of consumers of premium beer. In these cities, Interbrew strictly controlled the choice of distribution channels and promotion programs, choosing only a few high-end bars in order to build up Stellas premium image. Further, Interbrew opened Belgian Beer Cafs in these markets to showcase how to serve Stella Artois, e.g., to serve Stella at 38 degrees Fahrenheit in branded glasses and shaving off foam with a spoon. The Beer Cafs greatly helped Stella Artois build up a reputation as a premium beer. In addition, the stature of Stella Artois in the UK and its marketing programmes there also helped, as the image in the UK was very similar to the global positioning of Stella intended by the corporate marketing team. The new global plan copied this strategy in other markets. For example, in New York, Interbrew chose around 20 of the most exclusive bars, including Madonnas favourites, Chez Esaada and Markt. Stella was priced at about $100/keg, much higher than Heinekens $85/keg, and the media campaign included only prestigious outdoor advertising (e.g., a Times Square poster) and high-end celebrity events. In Chicago, Interbrew opened beer academies to showcase Stella etiquette. These marketing efforts seemed to work very well around the world. Although Stella Artois cost only $1.10 a pint in Belgium in 2002 and was sold in plastic cups, it successfully established its image as a modern, sophisticated lager, selling for as much as $8 a glass in Manhattan. Interestingly, Belgians were surprised by Stellas international image. One Belgian, a 62-year-old Mr De Boek, commented in 2002, In Belgium, Stella is a beer t for old peasants . . . Americans must be insane.20

(WEEK FOURTEEN) Patagonia: climbing to new highs with a smaller carbon footprint.
Rarick, Charles A., and Lori S. Feldman. "Patagonia: climbing to new highs with a smaller carbon footprint." Journal of the International Academy for Case Studies 14.7 (2008): 121+. General OneFile. Web. 28 June 2010. Full Text: COPYRIGHT 2008 TheDreamCatchers Group, LLC CASE SYNOPSIS The California outdoor clothing and equipment company, Patagonia, has set a very high standard for firms seeking to be environmentally sensitive. The privately-held company has created a culture of reducing its impact on the environment through product design and manufacturing, energy usage, and waste management. The case explores the methods by which Patagonia reduces its "carbon footprint" and asks if other firms can follow its lead. "There is no business to be done on a dead planet."

David Brower, Sierra Club Founder A recent United Nations' Intergovernmental Panel report on the environment indicated that the earth's climate is changing quite rapidly. The report stated that global temperature is without a doubt rising, and there is a very strong chance that the reason for the temperature change is manmade pollution in the atmosphere. The eleventh warmest years ever recorded have occurred in the period of 1995 to 2006, with 2006 being the warmest year on record in the United States. The suspected cause of this global warming is the rise in carbon dioxide which traps solar heat and keeps it form radiating out of the atmosphere. Atmospheric levels of carbon dioxide have risen since the dawn of the industrial revolution and correlate with increases in global temperature. Still, not everyone is convinced that carbon dioxide is the cause of global temperature increases, and some argue that warming is part of the earth's natural cycle of changing temperature. An additional debate can be found in the appropriate human response to rising global temperatures. Some have argued that effort should be directed towards reducing the effects of global warming, such as building sea defenses and shifting agricultural production. This argument proposes that attempts to reduce greenhouse gases are simply too expensive and will take too long yield any significant gains. While the debate on the causes of global warming, and the appropriate response to it continues, many activists and politicians have found the issue worthy of their attention and they almost universally argue that global warming is a man-made event. In recent years it has become fashionable to show concern for the environment. With increased concerns about global warming a number of celebrities, politicians, and companies have become

outspoken about the perceived harm human beings are doing to the planet. Celebrities such as Brad Pitt, Leonardo DiCaprio, Susan Sarandon, and many others have staked a claim to environmental friendliness. Former Vice President Al Gore has devoted himself to the reduction of greenhouse gases and other harmful byproducts of industrialization, and has produced a popular documentary on the subject. A number of companies have also begun taking account of their impact on the environment and taking corrective action to reduce negative environmental externalities. One company that has risen above others in its concern for the environment is Patagonia. Patagonia manufactures and sells apparel and equipment for rock and mountain climbing, surfing, paddling, fishing, and running. The company traces its beginnings back to a garage in Burbank, California where a young outdoor enthusiast named YvonChouinard began forging three inch metal strips used for rock climbing. Chouinard sold the strips for $1.50 each out of his car. From his parents' garage he moved the operation to Ventura, California, married, and began to branch out into outdoor clothing and accessories. With his wife as partner, the couple pledged that they would only sell quality goods produced in a socially responsible manner. Today Patagonia is a $270 million privately-held company, known for high-quality outdoor clothing and equipment and a social conscious.

Chouinard is the author of Let My People Go Surfing: The Education of a Reluctant Businessman; the story of his company and its philosophy. Chouinard, who states that he never really wanted to be a businessman, extols a different, and some would say kinder approach to business. The company was an early adopter of progressive employment practices such as flexible working hours and family-friendly practices including day care and after school programs. The company will also provide a sabbatical leave of up to two months with pay for employees who want to engage in environmental activities. Patagonia receives about 900 applications for every job opening. Many of Patagonia's 1,275 employees are like Scott Robinson, who with two MBA degrees and significant European internship experience decided to work for Patagonia stocking shelves, just to be part of this company. Robinson had read Let My People Go Surfing and decided that he wanted to work for an organization that was "driven by values" even if it meant less money and prestige. Patagonia encourages its employees to be creative and to be responsible citizens of the world. One of the early environmental activities the company began was the promotion of organically grown cotton. Patagonia decided a number of years ago to reduce the environmental damage caused by cotton growing when traditional methods are used. Since the company's products at the time used much cotton, this move would be a major step in making the organization more environmentally friendly. Traditional methods of growing cotton, although more efficient, use pesticides and defoliants to increase plant yield. Organically grown cotton is more expensive to produce but avoids these environmentally harmful practices. The use of organic cotton raises the price of the finished product. Likewise, Patagonia has developed a more environmentally friendly wetsuit for surfers that replaces petroleum-based neoprene with recycled polyester and organically produced wool. The price of the Patagonia wetsuit is $470, compared to competitors with neoprene suits priced from $99-175. In addition to being better for the environment, the Patagonia wetsuit is considered warmer than

competitor's products and does not have the typical wetsuit smell some find unappealing. Patagonia now conducts an environmental assessment of all the material it uses for its products. It has created a fleece jacket made in part from used plastic soda bottles and encourages its customers to return old clothing so that it can be recycled. Patagonia discourages its customers from using overnight shipping of its products because this requires that the goods be sent by air, a higher carbon producing mode of transportation. The company's catalog is produced on recycled paper. The company also makes as much use as possible of solar and wind power for its energy needs. Recently Patagonia was awarded the Gold level certification in Leadership in Energy and Environmental Design from the U.S. Building Council for its distribution facility in Reno, Nevada.

Patagonia's distribution center is only the second center to be certified at this level by this organization. The facility uses renewable energy for all its energy needs, used recyclable materials for construction, and has a greatly improved water conservation program in its operation. Patagonia has established or supported a number of environmental projects including the Conservation Alliance and 1% for the Planet, and gives environmental grants to grass root level groups. The Conservation Alliance is a group of firms in the outdoor activities supply business that work together to support environmental causes. The organization, 1% for the Planet is a group of firms that have agreed to give one percent of annual revenue to environmental organizations. Patagonia has also given over $20 million to environmental groups for projects that other donors have rejected. For 2006-2007, Patagonia's environmental campaign was "to investigate the connection between the vitality of human life and marine environment." Patagonia said it wanted to understand how "the vast schools of tuna are like herds of buffalo," or "how bottom trawling is like clear-cutting an entire forest to get a single tree." Some feel that Patagonia could grow even faster if it were to go public. The company has experienced annual revenue growth in the range of 3-8% and Chouinard feels even this may be too much growth. "We could grow the business like crazy and then go public, make a killing. But that would be the end of everything I've wanted to do." Patagonia is slowly increasing its group of devoted customers, and its higher prices have allowed the company to realize operating margins above the industry average. An argument could be made that if Patagonia were to go public and grow sales at a higher rate the company could do even more good for the environment. While companies such as Patagonia have promoted themselves as environmentally friendly companies, many other firms have become actively engaged in sustainability issues, yet have not promoted themselves as "green firms." Anheuser-Busch for example has reduced industrial waste and energy consumption by focusing on its production processes, and has developed a lighter and more efficient aluminum can, however, A-B is seldom seen as an environmentally friendly company. Some feel that the green image may not be a selling point for all consumer groups. It is clear that Patagonia isn't concerned about appearing to be "too green," and the company takes the quote from David Brower (There is no business to be done on a dead planet) seriously. This quote is etched on the front door of the company's headquarters and the message is manifested throughout the company in its practices and policies.

DISCUSSION QUESTIONS 1. Is green business good business? Explain. Why aren't all companies green businesses? 2. What is the difference between green marketing and green business? 3. Can a corporation be environmentally sensitive and still be responsible to shareholders? Is this easier for a privately held company? 4. Do you think all businesses should follow Patagonia's lead in its environmental practices? Explain.

SOURCES

Artz, N. (2007). What does it mean to be an environmentally sustainable company? Maine Today, March 20. Casey, S. (2007). Eminence grace. Fortune, April 2. Hamm, S. (2006).A passion for the planet. Business Week, August 21. Harvey, F. (2007).Urgent call to adapt to climate change. Financial Times, April 7. Holland, J. (2007). How green is your dollar? Diligent consumers have many ways to check out a company's true colors. Knight Ridder Tribune Business News, January 28. Kanter, L. (2006). The eco-advantage. Inc. Magazine, November. Kluger, J. (2007). What now: Our feverish planet needs a cure. Time, April 9. http://www.hoovers.com. Accessed on March 15, 2007.

http://www.patagonia.com. Accessed on March 15, 2007. Charles A. Rarick, Purdue University--Calumet Lori S. Feldman, Purdue University Calumet

(WEEK FIFTEEN) Going to market with a new product: St. Lawrence Island, Alaska.
Roberts, Wayne A., Jr. "Going to market with a new product: St. Lawrence Island, Alaska." Journal of the International Academy for Case Studies 15.1 (2009): 71+. General OneFile. Web. 28 June 2010. Full Text:COPYRIGHT 2009 The DreamCatchers Group, LLC

CASE SYNOPSIS St. Lawrence Island, Alaska, located in the Bering Sea, is actually closer to Russia than Alaska. There is very little economic activity on the island, and the native villages of Savoonga and Gambell are very interested in finding opportunities to generate much-needed cash and employment opportunities for their children. One resource the island has is seaweed. A market study done on behalf of St. Lawrence Island indicates the health food market has been growing over 15%/year and that 30% of health food consumers purchased seaweed vegetables within the past year. One popular seaweed product, kombu, comes from a seaweed available in abundance around St. Lawrence Island. This case describes the channels of distribution associated with this market, along with representative pricing, and asks students to evaluate three channel alternatives open to the St. Lawrence Islanders. The proposed alternatives can be evaluated by a number of criteria, such as economic (cash flow levels and risk), adaptability, and control. Important aspects of channel and buyer behavior uncovered during the market study are available, and may be given during the discussion regarding the alternatives. The case may be introduced verbally and evaluated through the lecture format, or if desired, students may be required to read the case and respond to questions prior to class. This interesting, simple case clearly demonstrates channel members perform functions that someone has to perform, and if a level is cut the functions need to be shifted to someone else. Further, the best channel choice for an organization hinges on the relative strengths and weaknesses of the organization.

INTRODUCTION St. Lawrence Island (SLI) is located more than 100 miles off the mainland of Alaska in the Bering Sea, less than 40 miles from Siberia. Temperature extremes vary from less than 30 degrees below zero to a record 67 degrees Fahrenheit. From mid-November to May the island is locked in Bering Sea ice, and the winds average over 15 mph. Mammals on the island include fox and a large unmanaged reindeer herd.

The reindeer were introduced to the island in 1900. There are no docks on the island, and any materials brought in have to be either off-loaded the occasional barge via small boats or flown into one of the two small airstrips. There are two villages, Gambell and Savoonga, on this isolated island. Interestingly, the distance between the two settlements is greater than the distance between Gambell and Siberia. Fewer than 700 Yup'ik Eskimos live in each village. The people predominantly follow a subsistence lifestyle, hunting and living off of walrus, seal, whales and fish. A very few people hold commercial fishing permits, and there is a small fish processing facility in Savoonga. Cash is derived from selling ivory carvings, archaeological artifacts, and from a few seasonal bird watchers. While most homes in Gambell now are tied into a water and sewer system, at the time of the case a sizable proportion of homes in Savoonga still relied on hauling water and on honey buckets, which are nothing more than sewage pails which must be hauled out and emptied. The residents of St. Lawrence Island need cash for electricity, snowmobiles, rifles, and many other goods. Further, villagers are concerned about the lack of opportunities for the younger people. Young adults often migrate to larger cities on the mainland in the search for employment, and without viable opportunities on the island the communities might wither. Therefore there is a high degree of interest in finding suitable economic opportunities.

NEW BUSINESS OPPORTUNITY An entrepreneurial-minded individual from Fairbanks, Alaska, noted the quantities of seaweed that grew around the island, and suggested that the St. Lawrence Islanders explore the opportunity to harvest and market them. Following up on this suggestion, the Islanders, through the Alaska Department of Community and Regional Affairs, issued a request for proposals. A team was hired to do two things: first, to inventory the types and quantities of seaweed that grow around the island, and second, to explore market opportunities for the seaweed species that occurred in large enough quantities. As it turns out, a very common type of seaweed in the area, genus Laminaria, is used commercially in several ways: for extractives (which is used in beer, frostings, dental material, toothpaste), as fertilizer, as fodder, and for food (kombu). The highest value use is as a food. The Japanese use it to flavor soups and casseroles, have kombu candy, and eat it plain. Koreans, Chinese, and other Asian nations also eat kombu. It should be noted that for Asian kombu consumers a little amount went a long ways; most packaged kombu was in approximately 8 ounce packages. With regard to the food market, a number of options were examined. The possibility of exporting the seaweed to Japan was rejected, given that Japan already has a mature kombu industry and is tightly controlled; one bureaucrat could decide to disallow the importing of St. Lawrence Island kombu at any time. Further, discussions with Japanese industry participants led the research team to believe that the fact that the seaweed came from pristine Alaskan waters harvested by natives would not bestow any

differential advantages to St. Lawrence Island kombu: Industry representatives believe that taste was the most important product attribute, and their assessment of the taste of St. Lawrence Island seaweed was that it was not exceptional, or even above average.

Selling to Asians in America, and to Japanese restaurants in the U. S., was also considered. However, this did not appear to be promising. Japanese restaurants bought supplies from wholesalers that already had adequate supplies and were not interested. Visits to ethnic grocery stores were likewise not encouraging; Korean stores stocked Korean kombu, and Japanese stores stocked Japanese kombu. Uwajimaya, a rather large Asian foods grocery store in Seattle, stocked Japanese kombu in a Japanese products aisle, Korean kombu in a Korean products aisle, and Chinese kombu in a Chinese products aisle. Store personnel said that customers bought products from their home country. One market that appeared to be promising was the U.S. health food market. Health food sales were increasing over 15% per year, health food stores were increasing in number and sophistication, and seaweed products were beginning to be retailed through health food stores. Prices were higher than for Asian-produced kombu, the products came from U. S. companies targeting health conscious consumers, and the field did not appear to be saturated with competitors. Significantly, it was estimated that 30% of health food consumers had purchased seaweed products within the previous year. It appeared that health food kombu was in the introductory, or perhaps the beginnings of the growth stage, of its product life cycle. Based on personal interviews and observations, the typical channel of distribution for health food products is as follows: Raw materials, such as seaweed, go from harvesters/growers to manufacturers, who package, label and sell a final product to wholesalers/distributors, which in turn is sold and distributed to retailers, who sell to final consumers. For an item that retails for $10.00, health food stores typically pay wholesalers/distributors between $6.00 and $7.00. The wholesalers/distributors would typically pay manufacturers between $4.50 and $5.25 for the item. The raw materials costs manufacturers pay to suppliers would run between $2.25 and $3.95.

ALTERNATIVES With this information, a group got together to discuss what the tentative scope of the new business should be. Three alternative models were raised for consideration:

Alternative 1 The first model called for St. Lawrence Islanders to simply harvest, dry, and bundle the kombu for sale to one or more health food manufacturers.

Alternative 2 The second alternative entailed turning the bulk kombu into a final packaged product, which would then be sold directly to retailers. The thought was that St. Lawrence Islanders could cut out the manufacturers and wholesalers, and keep more of the revenue and profit for themselves.

Alternative 3 The third alternative called for selling the final packaged product directly to consumers. In this model, the St. Lawrence Islanders could keep all the revenue for themselves.

CASE QUESTIONS 1. For the first alternative, consisting of focusing on harvesting and selling bulk seaweed to manufacturers, what exactly would the St. Lawrence Island business have to do with regard to the product, pricing, and promotion? Assuming pursuing this would be successful, how many channel relationships would have to be maintained? Success, under this alternative, would depend on what? 2. For the second alternative, which consists of selling a finished product to retailers, what additional tasks and activities have to be done with regard to the product, pricing, and promotion? Assuming pursuing this would be successful, how many channel relationships would have to be maintained? Success, if this alternative is pursued, would depend on what? 3. For the third alternative, which consists of cutting out the retailer and selling the final packaged product directly to consumers, what tasks and activities would have to be done beyond what would be required under the second alternative with regard to the product, pricing, and promotion? Success, if this alternative is pursued, would depend on what?

4. Roughly, what could the new firm expect with regard to sales and costs in the short term, and the long term, under each alternative? Why? What sort of investments in people, equipment, and systems are associated with each alternative? What are the risks under each alternative? 5. What sort of investments in people, equipment, and systems are associated with each alternative? What are the risks under each alternative? 6. Recognizing that additional research is required, which alternative do you think represents the best bet for the islanders? Why? Wayne A. Roberts, Jr., Southern Utah University