Sandy Bloomberg formed the company in 1972 and the company faired well

in the 1970s and 1980s

A specialty retail store of middle and high end audio and video consumer
electronics.
From a 13-store chain with $ 35 million annual sales in 1991, it expanded to
a 21-store chain with $ 82 million in annual sales in 1996.
Operates in a highly price-focused competitive market of New England in
USA.
The company had adopted major promotional strategies, which included
Automatic Price Protection (APP) policy, implemented from 1993. Tweeter is
the only company to ever have adopted APP
Competition - Lechmere, Circuit City, Wiz and Tweeter are the main
competitors in electronics business. Lechmere is in direct competition for
Tweeter as its major customers are Tweeters target customers.

To analyze the viability of the continuation of the Automatic Price Protection

(APP) strategy currently employed by Tweeter Inc. in view of the changed
environment, especially after its ineffectiveness in making a significant
impact on sales of its acquired subsidiary, Bryn Mawr.
What should it do to change the customer perception that it was an
expensive brand ?

Strength
High end, High quality electronic
goods
Knowledgeable Sales Force
High levels of customer service
Member of PRO to get best retail
prices
EDFP strategy
Automatic Price Protection
Premiere facilities like sound proof
audio room

Opportunity
Market was growing at CAGR of 5.6%
People will come to tweeter if price
were not an issue as per survey
Decline of competitor- Lechmere
30% retail margins

Weakness
Perceived to be with selective high end
goods
Loyal market is only 10% of overall
market share
Local chain of stores with small store
space
Limited selection of Low End products
Increasing payouts due to APP
RPP covered for only 100% as against
110% of competitors

Threat
Increase in price competition
Entry of big players
Effectiveness of APP
Price perception of customer
Competing against lower end product
stores

Retail Level Stores

1. Speciality Stores(tweeter , bryn mawr,cambridge)
- good to excellent customer service
- high salesperson knowledge
- medium to high end products, smaller size
2. Electronic Superstores (Lechmere, Circuit City, WIZ)
- moderate to good customer services
- varied sales person knowledge
- all major product lines , larger stores
3. Department Stores
- Poor customer service
- limited sales person knowledge
- limited entry & middle level products
4. Mass Merchants
- Little to no customer service
- very little sales person knowledge
- geared towards value brands only

5. Ware house Clubs

- No customer service
- Product selection is limited
- Good Values on good quality equipments
6. Mail Order Houses
- No service , catalogue or ad based
- Prices attractive but shipping can be expensive

Customer
1. Entry-level customers
- buying the cheapest item in given
category
- relatively indifferent to product quality
- indifferent to customer service.
2. The price biter:
- Very Cognizant of price.
- concerned with product quality and
customer service also
- Focused on best deal.
3. Convenience customer
- Shopping convenience most important
- Price, product and service quality are
secondary
4. The Quality/Service and customer:
- High levels of product quality concerns
- customer service was of primary
concern
- Price was secondary

In the late 1980s, the bottom fell out of the electronic market and caused
price wars with local competition.
To aid the price-based competition, Tweeter joined the Progressive Retailers
organization in 1988, a buying consortium founded in 1986. As a result,
Tweeter was able to obtain prices from manufacturers that were comparable
with those obtained by it is larger competitors
This organization kept the retailers market from dropping out from under
them. They did this by setting price standards up that nobody who sells
certain brands and models of products can sell them below a given price at
which they all agreed to.
Tweeter would monitor the weekly sales ads of all the major local papers and
cross reference that with sales within 30 days; and if a customer paid more
for a product than the sale price, Tweeter would refund the difference. At
first, this strategy was good, but as larger competition moved in, Tweeter
began writing more and larger checks. By December, 1995, Tweeter in total
had written 29,526 checks to the tune of $783,863.
This strategy nearly drove the company into bankruptcy. The company still
faces unremitting problems

In 1993 , Tweeters sales and profitability began to deteriorate . After a

survey on focus groups which majorly indicated that customers who were
aware of tweeter perceived it to be more expensive than others.
Customers indicated that they would consider buying at Tweeter if price was
not an issue.

Three Pronged Attack :

Abandonment of Sale 1. Do away with the weekend sale to stop competing with lower end product
competitors.
2. Use Every Day Fair Pricing Strategy to set competitive prices

Automatic Price Protection :

1. Tweeter would itself track for lowest prices within 30 days of purchase among
market competitors.
2. Tweeter would mail the check of difference if there was lower price to customer.

Change in Marketing Mix :

1. Since moving away from sale strategy , it started focusing away from print media
to radio & TVs
2. Focus on Tweeters price competitiveness and APP.

Customer Base (Exhibit 8 )

80%
70%
60%
50%

Entry Level

40%

Price-Biter

30%

Convenience

20%

Quality / Service

10%
0%
Total Market

Tweeter

Lechmere

Circuit City

Market Share ( Exhibit 5)

1992

1994

1996

64.2%
53.9%

33.0%

41.6%

36.0% 35.6%
18.6%

7.4%
0.0%
Lechmere

Circuit City

2.8% 2.7% 3.6%

Tweeter

0.0% 0.0% 0.6%

Cambridge Sound Works

Others

Others

Product Mix

10%
Car Stereo

TV's 40" and

under
14%
Camcorders
4%

14%

Maximum Contribution in Video

Category is from color TVs under 40
In Audio Category , Major Contribution
is from Speakers .

Video Others
17%

Audio Others
20%

CD Players

Speakers

7%

14%

Product Pricing Comparision of

Tweeter with Market (Exhibit 13)
27" Color Television
Multiple CD Player
Camcorders

23

13

8
3

5
1
Exclusive

Better

1
Loser

4
0
Matched

- More than 56 % of the items are

exclusive.
- Out of the remaining items
Tweeter is better on only 6.5 % of
products
- Tweeter is costlier on 48 % of the
common items in market
- On the remaining 45 % items ,
Tweeter is as good or bad as the
market.
Why would the Public Perception
change ??

The APP cost has increased substantially over the 3 years !

This will greatly affect the bottom line if we keep continuing at this rate.
If Tweeter was following Fair Pricing , why this increasing APP ??

Net Profit vs APP (Exhibit 7 & 12)

3,000
2,702

2,500
2,000
1,500

1,387

Net Profit

1,000

APP

500
-

79.46
1993

(500)
(1,000)

(661)

261.47
1994

442.93

1995

APP compensation maximum in Nov-Dec every year

Time of Year End Sale for competitors who are big players or stores playing
on cost margins.
APP is affected by what the competitors are doing to Tweeter !

$ Value of Checks (Ex-11)

200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000

40,000
20,000
-

$ Value of Checks

It is easy to change prices but it is difficult to change price perception!

High-End Products
Small, Upscale
Stores

Past Price
Image

APP
+

Tweeters
Price Image
-

Superior
Customer Service

+
-

No Sales
Limited Advertising

EDFP
(Everyday Fair Price)

Eliminate the need for extensive, price-based search: Consumers

indicated that if price were not an issue, they would prefer to buy
at Tweeter.
Break the wait for a sale buying mentality: Under APP, consumers
have less incentives to wait.
Convert potential or free-riding customers: APP eliminates the
need to travel to another location.

Smoothes demand over time: APP eliminates the cyclical buying

patterns of sale-based retailing.

Creates positive word-of-mouth (since word-of-mouth has a

significant impact on buying behavior).

As per customer survey , the price efficiency of Tweeter is not recognised/

accepted .
Shift from print media to TV & Radio may not have been successful in
reaching out customers , who rely mostly on newspaper Adv to assess prices.
Tweeter is not competing on value pricing but is just following Market Based
Pricing.

Also , By competing on price in a sensitive market , it is allowing competition

to do damage to its bottom line because of APP.
With the Failure of APP at big Brawn , it was becoming evident that APP alone
can not guarantee sales increase.
In case of Tweeter , it may be due to increase in no of stores and decline of
other competitors in the market.

Tweeter should focus on its line of products and should not try to compete
with Circuit City and Lechmere in mass pricing/product segment.

The mass market being very price sensitive will keep driving the margins for
Tweeter down.
Tweeter should try to advertise its value deal to customer rather than only
APP. It may come up with some value combo to express the cost of service
and installation at customer site.

Buyers guide should have the comparison between the prices of the products in different stores

As 80 % of the consumers had the misperception that Tweeter was more

expensive than other stores

It should distribute buyers guide with comparison of competitors price.

It should include overlap products in its portfolio which can demonstrate the
stores price competitiveness.
It should focus on the Specialty/Service and The Price Biter customer
segments with improved customer service and high quality, high end audio
components and video equipment.
It should continue with the modified APP policy as sales have increased after
introduction of the marketing strategy.