Terra Cog Case
Cog Global Positioning System (GPS), since its inception in the late 1990’s, has steadily built up a strong relationship with key accounts and customers. It has been catering to a serious outdoor enthusiast’s market with its existing vector based graphics GPS having high durability, precision and some value added features. Our competitor- Posthaste’s GPS prototype called “BirdsI” having static satellite imagery (different from the usual simple vector graphics GPS existing in the market) has been a success since its introduction in October 2006.
Despite positive reviews and keen consumer interest during the unveiling of “BirdsI”, the TerraCog management decided not to go ahead with satellite imagery in its GPS, showing probable signs of complacency and inability to understand consumer psyche.
In mid 2007, eventual success of “BirdsI” and repeated customer requests prompted TerraCog to review its decision and finally come up with “Project Aerial” – its own GPS with satellite imagery, to be built on its existing GPS. Mr.
Tony Barren’s initial price estimation of $550 and the latter revised price of $475 (obtained by 8% cost-cutting on minor technical changes by the design and production team), were perceived to be too high for competitive positioning of Aerial (considering BirdsI’s market price of $400 and Garmin’s expected price of $395) by the Sales team.. BirdsI’s two-year market advantage and Aerial’s high pricing of about $475 can threaten Aerial’s sales prospects.
On the other hand, cutting down on cost can imply a compromise in quality and jeopardize our goodwill and loyal customer base.
Although Mr. Cory Wu’s repeated questioning of the high product price can be suggestive of a further scope of cost cutting in the hardware design and production or else a total lack of departmental coordination. Further, Mr. Becky Timmons, Chief Financial Officer, has strongly advised against any relaxation in margin, considering fuel price rises, our declining sales figures and market share, despite overall GPS market growth.
The departments are in a deadlock over their individual objectives, viewpoints and intended product prices. Exhibit-1] Without any clear consensus on the course of action, we are in a stalemate situation in this crucial Project Aerial, a project of utmost importance to TerraCog GPS. Problem Statement: Should TerraCog GPS abandon project Aerial? If not what should be the pricing and promotional strategies to compete with the existing satellite imagery GPS’? Options: ?Launch Aerial at $475 with aggressive marketing and effective distribution. ?Give 6 months time to the product development team for design improvements and cost reduction. ?Shelve Aerial, and venture into new underserved GPS sub markets.
Criteria for evaluation: •Recapturing lost market share.
•Profitability •Long term benefits Evaluation of options: ?Launch Aerial at $475 with aggressive marketing and effective distribution. •Recapturing lost market share The higher pricing of Aerial by about $75 can act as a deterrent in regaining its lost market share to Posthaste’s “BirdsI”. It will also pose difficulty in obtaining retail shelf space. An effective and aggressive marketing strategy along with efficient distribution network can help TerraCog regain its lost market share. Profitability A reasonably good margin has been maintained in the $475 pricing of Aerial, so the venture might be profitable if the volume of sales go up.
•Long term benefits TerraCog can have a complete grasp of the GPS (satellite imagery) market, if Aerial ousts “BirdsI” in the longer run. It can also set the base for future exploration in different segments. Customer faith and loyalty might be firmly re-instated. There can be a loss of image if Aerial does not do well and can affect its existing customer base. Give 6 months time to the product development team for design improvements and cost reduction. •Recapturing lost market share Given the required time, the product development team is optimistic about coming up with superior product with probable cost reduction to take on “BirdsI”.
Both these would place Aerial in a more competitive position with respect to its competitor. TerraCog is already late in launching Aerial in the market by two years. Another six months can provide “BirdsI” an opportunity to further consolidate its market position and increase its market share.
In that case, it will be all the more difficult for Aerial to recapture its lost market share. •Profitability The superior quality product design and a competitive price can boost the sales up and ensure good profits to TerraCog.
•Long term benefits The delay in coming up with Aerial might not go down well with the existing customer base. They may perceive TerraCog as a company finding it difficult to come up with innovations. It may send negative signals to them and result in loss of faith in TerraCog. ?Shelve Aerial, and venture into new underserved GPS sub markets. Recapturing lost market share There is a high probability that TerraCog will lose more market share if it does not launch Aerial, as the trend in consumer needs suggests that GPS market has been shifting towards more visually appealing satellite imagery.
A focus on new underserved GPS submarkets like cycling and fitness applications can open up new avenues but at the same time, it can shut the existing ones. As the new product will need sufficient time for development, recapturing market share in the near future would be a distant possibility. •Profitability
Aerial project might not be profitable due to its higher pricing. Dropping the project also does not ensure profitability. Risk is always associated with new ventures, so the profitability from new sub markets would depend on a range of factors including customer demand, product quality, marketing and market situations.
•Long term benefits Dropping project Aerial can raise serious doubts over credibility of TerraCog. It might lose its advantage in the existing market segment it has enjoyed over these years. This also can affect the image of the company.
On the other hand, the new ventures can propel TerraCog to a new direction and expand its market reach. Recommendation: Launch Aerial at $475 with aggressive marketing and effective distribution. Action Plan: ?Employ shrewd marketing tactics to cover up the higher price by highlighting key and extra features of Aerial.
?Use promotions, advertisements in electronic and print media to attract customer attention in promoting Aerial as a sophisticated, high-end satellite imagery GPS with higher reliability, precision and navigation skills. Offer high initial incentives to dealers and distributors to ensure retail sufficient shelf space and fair competition. Word count-1080 Exhibit: Exhibit 1. Production and Product design Sales Finance Suggested Price1)$550 2)$475 $425 $500 Objective No compromise in design and product cost to maintain high quality and functionality Low selling price to be able to compete on price front. No compromise in margin due to expected fuel price hike and declining market share