Marketing Plan for Himalayan Product Line, part of The Leisure Group Situation Analysis (Himalayan Industries Market

Analysis) Customers: Hikers and Campers represent majority of the customer base for Himalayan products. The back pack market is driven by affluent Americans who can spend on leisure products as well as by people who have time to do leisure activities. Competitors: Back Pack Market is a highly competitive market space. Himalayan participates in the high price segment which in dollar volume constitutes about 60% of the total market but the low price segment commands the highest volume, primarily met by imports from Japan and France. In the high price segment, Kelty and Camptrails are the main competitors. Camptrails uses small middle men to distribute products to retailers and mass merchandisers. They also allow private labeling of their products. Kelty used direct & dealer methods to move products from manufacturing location to retailers and mass merchandisers. Kelty and Camptrails charge 37% & 50-55% markup respectively. Due to superior designs, Kelty has the highest customer rating while Camptrails is the lowest among Kelty, Camptrails and Himalayan. Weakness: Himalayan has a weak marketing department which has led to flat sales over the past few years. The 3 years contract with Bears Archery Company hasnt helped in improving sales as expected. Although Himalayan has some brand value, it has not been able to exploit certain market segments such as young people who are the major consumers for leisure products. While their products are sold mainly in specialty stores, they have a very weak presence in mass merchandiser and sporting goods stores. Due to addition of Bears Archerys 25-30% margin on top of Himalayan Industrys margin of 25%, the price for their product was high and this caused customers to move to other competitor brands. From an operations point of view, tight capacity

in the sewing department presents an issue to increasing sales. Also, Himalayan doesnt have warehouse in the Mid Atlantic and New England area. Strength: Himalayan industry participates in a market which has the potential to grow by 25% in the next few years, mainly due to higher disposable income and increased leisure activities. Although Himalayan holds only 5% market share in the high price segment, based on the market research, it appears that Himalayan has good customer brand image which will help in growing the market share through mass merchandiser. From a product perspective, Himalayan products have patent coverage. Moreover, Himalayan Industries uses a special heat treating process for Aluminum frames which keeps it apart from the rest of the back pack competitors. Their facilities are very efficient and technologically up to date. Good inventory management control has been exercised. Environment: In 1969, the environment was very conducive for growth in back-pack market. In the past few years, Camping has become very popular in the past few years. Also, due to crowded campgrounds, more people resorted to back packing to get away from the crowd. States and counties established trails as outlets for recreation which stimulated demand for back packs. Back packing clubs were forming at an increasing rate which helped in creating a group of loyal customers for back packs. Objectives and Core Strategy (for Leisure Group with respect to Himalayan Products) Objectives: As a standalone entity, due to cash flow situation, Himalayan industrys objective should be to ensure that a minimum profit is made. Since Leisure Group acquired Himalayan, the objective for Leisure Group will be to increase market share and improve Himalayan brand recognition. In order to improve market share, Leisure group will have to penetrate mass

merchandiser and sporting goods stores. Himalayan can implement professional operations management and shared sales resource to reduce cost of goods sold. Customer Targets (Segmentation): We can segment the market into five different categories. Price segmentation: The customers in this segment pay more attention to price. High and low price will be the two levels in the segment. People who are willing to pay the higher price want to know the value gained by paying a higher price. Since Himalayan participates in the high price market, it is important that the value of using Himalayan back packs such as light weight, durable, water resistant, is explained clearly to the customers. Life style segmentation: This segment divides the market into people who camp vs stay in cabins, spend time in the city vs wilderness and Outdoor vs Indoor enthusiast. The market research suggests that 45M Americans camped at least once in 1969 and 2.2M Americans backpacked in 1969. Leisure group should target this growing number of outdoor enthusiasts with their back pack products. Demographic Segmentation: Dividing the market based on age, sex and income helps in identifying the section of people who needs to be targeted. Market research suggests that men are more inclined to go camping, Young people tend to go camping and hiking and affluent people who have disposable income buy more leisure products. Geographic Segmentation of households: Based on the market research, Pacific and Mountain regions have the highest percentage of households who buy back packs, possibly due to availability of many campgrounds and hiking options. Also, North East & Mid Atlantic regions show higher percentage (12% and 10.9% respectively) of households buying back packs compared to National average of 11%. It will be beneficial for Leisure group to target the customers in these regions to generate higher growth in the back pack sales. Activity based segmentation: Out of the high price back pack market, 40% of the high price back pack market is for activities that happen during the day ( smaller Day Packs needed)

and 50% of the market is for activities that happen overnight or expedition ( larger Packs needed). Competitor Targets (Positioning/Value Proposition): Camptrails and Kelty are the two key competitor targets for Leisure groups back pack products. Kelty has the highest rating from customer for back pack design and Camptrails has the lowest rating. Both of them dont have dedicated sales team who can add value to the buyer or the customer. At the low end of the price range, the competition is mainly imported goods for which the only appeal to the customer is that the product is available at an affordable price. Pricing the products too low will lead to a situation where the customers brand perception of Himalayan product will diminish. Instead, Leisure Group should position the Himalayan products based on the following Assigning specific district salesman and product specialist for each product of Himalayan will help in providing better technical support for the buyer, in this case the retailer and will help in positioning the back packs to meet the customer needs Himalayan products are lighter than competitor products as well as it is durable and water resistant due to nylon material. Programs Product Decisions: Back pack at the retailer should be segregated based on the nature of the activity, demands of the activity and type of person carrying the bag. Since products in mass merchandiser stores need to sell by itself, focus should be given to the product positioning in the store shelfs. Since customer needs to know why he would pay a premium for the Himalayan products, it is critical to bring out the advantages and value propositions of each back pack and

make it available for the customer to review and select. Each product should have the advantages of using Himalayan back pack attached to it. Advantages are 1) it is lighter - you can enjoy hiking, 2) It is durable can withstand the rigor of back pack camping, 3) It is water resistant rain or shine, you can hike and camp. A small description on what type of activities that the back pack can be used for as well as a scale showing the size and fit details should be attached to the product for consumers review. The brand name should be maintained the same as it is now. Since Himalayan products have some traction in the industry, changing the name now will confuse the existing customer and negatively impact the revenue growth for the next two years. Customers would be able to make up their mind better if they can try the product out in the store. For this reason, Himalayan products should not be sold in boxes to the consumer. The products can be shipped in boxes to the store to protect the shipment but should be kept out of boxes in the store. In order to provide better consumer experience, each product should have a unique label which can explain the advantage that can be obtained by using that product. For a back pack used by a day hiker, space and weight of the product might be one of the considerations. So, the product label could be designed as Ergo light day pack from Himalayan Industry. Distribution Decisions: Leisure group should follow an indirect channel by using their sales force to promote the products into all three Mass merchandiser, Specialty store and Sporting goods stores. Since Specialty stores have the highest volume now, it will be good to maintain the presence in the stores. It also helps in servicing existing loyal customers who go to specialty stores to buy their preferred brand. To improve market share and brand recognition, an intensive level of market coverage should be followed. The products should be made available in all mass merchandiser and sporting goods stores within the next 2 years. For the first one year, goal

should be to penetrate the same merchandisers and sporting goods stores who buy other Leisure Group products. In the subsequent years, more merchandisers and sporting goods stores should be added provided adequate sales force is available to cover. Geographically, based on the market research, more outlets should be targeted in the New England/Mid Atlantic, Pacific and Mountain regions. In order to expand business to the Mid Atlantic and New England regions, it is critical for Leisure Group to move the warehouse from Michigan to New York or New Jersey within the next year. They should look to open a new warehouse in West coast if need arises. Pricing Decisions: Currently, Himalayan products are sold with a markup of about 50%. Without clear understanding the value of the product, consumers believe the price is too high. In order to penetrate the mass market and get mass merchandisers on board, the mark up should be reduced to 35-40%, in line with the competitors. For the specialty stores, the markup should be reduced to 45%. The key is to remove the perception that the Himalayan products are expensive. Specialty stores customers attach value to brand and hence instead of making a larger price reduction, the benefit of the Himalayan products need to be brought out strongly, thus increasing the value for the customer. Since a whole new market will be addressed through Mass Merchandisers outlets, positioning products at market price and placing more emphasis on the benefits will improve the perception that there is a lot of value in using Himalayan Brand. Since the back pack sales are seasonal in nature with peak sales occurring between April and August, price discounts should be given for sales happening during non peak seasons to improve sales. This will also help drive the demand for back packs from winter activities such as skiing. Back packing clubs are on the rise and growing at a rate of 25% per year. In order to capitalize on this growth, price discounts (10-20%) should be offered to clubs if the club would use only Himalayan brand back packs.

Communications Decisions: For Himalayan brands to gain the brand recognition, it is important that the sales force communicates the value of Himalayan brand back packs to the buyers. This can be done in many ways. The following describes the recommended communication strategies o Hold product training sessions for buyers (mass merchandisers and sporting goods) o Create a brand logo (Himalayan logo) and advertise it prominently on the back pack o Consumer advertising in newspapers, magazines, pamphlets which talks about the advantages of using Himalayan brand. Light weight perfect for long hikes; Water Resistant perfect for fishing expeditions; Durable long term use, value for money; Advertisement should also include price discounts available in various retail outlets. Point of purchase program o Place back packs in various mass merchandise stores near the payment area and promote the advantages of using Himalayan back packs; Provide flyers to customers for them to take home and review the advantages of using Himalayan back pack. Comparisons should be made to the competitors products and the value proposition clearly explained to the customer. In order to help customers make the correct choice of back packs, strategic placement of back packs in the hunting department or hiking department will help the customer better understand which packs will suit their activity. Effort should be made to convince the buyers to allocate shelf space for the back packs in each leisure activity department.

Marketing Budget:

Currently operational expense is about 15% of the total annual sales for

Leisure Group. With the addition of Himalayan Industry, majority of the expense will arise from building the sales team and promotional activities. The total expense for marketing/sales will be $140,000 (Exhibit 2), without considering the expense of opening a new warehouse and
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expanding the sewing capacity. Mr Mack will continue to serve as a vice president of Himalayan industries and could oversee the product development and marketing activities. Mr Collins will serve as the operation manager, reporting into Mr Mack.

Should Leisure Group Acquire Himalayan Industries now? Leisure Groups acquisition decisions were based on a list of acquisition polices, related to distribution, brand recognition, industry position and operation characteristics. The need for Himalayan products to enter the mass merchandiser distribution channel to grow revenue matches Leisure groups strategy. In addition, their products had a certain level of brand recognition. Patent Coverage coupled with a special process that is used for aluminum frame making makes Himalayan industries more attractive. With only 5% market share, they lagged behind their competitors mainly due to lack of good sales and marketing force. Himalayan Industrys strong inventory management techniques and efficient operations offered fewer opportunities for improvement in gross margin. In order to increase revenue, sewing capacity has to be increased by hiring more workers or increasing # of shifts and this increases operating expense over time. Based on Exhibit 1, it appears that the percent incremental revenue growth rate of Himalayan industries within Leisure Group doesnt meet the min 15% criteria in 1971. Assuming 25% growth in back packs industry and an aggressive growth in Himalayan market share, Himalayan revenue is only 5% of total group revenue. Although, the back pack industry is in a mid-late growth phase with a projected growth rate of 25%, the lack of significant cost savings to improve gross margin makes the acquisition less promising with regards to earnings growth potential. Although Himalayan Industry satisfies the acquisition policies in the overall sense, from a continued growth perspective, Leisure Groups acquisition of Himalayan doesnt look promising and hence Leisure Group should not acquire Himalayan Industries.
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Exhibit1 %incrementalrevenuegrowthratefromHimalayanIndustries
BackPackmktsize HimalayanMktshare HimalayanRevenue LeisureGrouprevenue %Himalayanrevenue incrementalrevenuefrom Himalayan Includingjuvenilesales totalincrementalsalesfrom himalayan Incrementalrevenuefrom otherproductlines %ofincrementalhimalayan revenuetototalincremental revenue

18000 5% 900 39694 2%

22500 28125 35156.25 43945.31 8% 10% 15% 20% 1800 2813 5273 8789 49617.5 62021.88 77527.34 96909.18 4% 5% 7% 9% 900 500 1400 1013 500 1513 2461 500 2961 3516 500 4016

9923.5 12404.38 15505.47 19381.84

12%

11%

16%

17%

Exhibit2

MarketingBudgetperyear
Activity HireProductspecialistforback pack Hiredistrictsalesmanager HireDistrictsalesassociate SpendforSalesPromotion, adverstisement,pointof purchaseprograms,Brand recognitionactivities Number 2 1 2 Budgetperyear $20,000 $20,000 $20,000 $60,000

Spend on Market research activities to identify new customer trends and needs

$20,000 $140,000

Cost of increasing the sewing capacity and opening a warehouse in New York will increase spending in 1970. Due to lack of market research details, cost information is not available.