Davis Enter the Mass Market With the Case Study
- Length: 4 pages
- Sources: 3
- Subject: Business
- Type: Case Study
- Paper: #49592521
Excerpt from Case Study :
Davis enter the mass market with the Eggsercizer? Why or why not?
The three types of marketing strategies available to any company are mass marketing, niche marketing and skimming. The method that Davis at the moment is adapting is skimming. Why? He seems to rely on the trade shows and the occasional retailer who is interested in the product and skims the surface of the market potential. His product is a niche product that has applications in more than one sector. Thus the company has not been able to establish a niche yet. The aim of mass marketing is to capture a large segment of the market and retain it, either by a slow penetration process or by a rapid program where the market is captured by creating a mass awareness and demand. (Avlonitis; Papastathopoulou, 2006)
The methods of the rapid or the slow penetration requires many variables that build up cost and investment outlays. The mass market penetration can be achieved only by heavy expenditures and backup capital that can sustain such expenditure. It also requires a unique promotion program. (Mullins, 2005) It is shown that the company does not find a method of assessing the demand for the product basically. Will it be possible to create a broad-based demand for the product, which is the first requisite of mass marketing? The attempts so far in the case study have shown a dismal failure. Therefore mass marketing will deplete the already poor finance of the company and achieve nothing. The company must not attempt the mass market penetration at all at this stage. Davis must step up to niche marketing which is ideal because of the lower cost and the ability to target a particular segment. (Avlonitis; Papastathopoulou, 2006)
This helps in forecasting the demand early and schedule production accordingly. There are already three niche markets explored by the company. Marketing and selling activities must be confined to the niche markets which can be on a national level. Since the company lacks capital and it is struggling to reach a global market that part of activity has to be wound up.
2) Does Davis need to change his organization? Should he replace the Marketing Manager with another marketing manager, or should he handle the marketing himself?
The change in the organization is a must, even though replacing the marketing manager may not solve the problem. Lastly Davis taking the role of marketer will result in catastrophes. The reasons for the statement are simple. The organization that seeks to market a product to niche market and create vast demand is painfully understaffed as seen from the chain of command and operation charts. The need is to create a new model that would help in rejuvenating the company and creating a better business capability. Considering if the change in the organization is a must, it can be shown that as such the organization lacks motivation and structure. The definition of the business of the organization is vague. There is no proper motto and goals.
So the requirement is to revamp the company in such a way that it gains a separate identity in the market. This is also important to attract investment and in future public funding. The motto and the goals of the industry the company serves must be found in a revamped mission statement that is created. The environment of the market is changing on a daily basis and this is brought about by the daily changes in technology and thus the systems theory that says first the internal aspect of the company ought to be remodeled and the exchange processes ought to be redefined itself is facing a change in the way the reorganization of organizations is attempted. Secondly the sales manager has dissatisfaction as many managers are not able to implement changes. (Burke; Lake; Paine, 2008)
The motivation is lacking and the problem basically is that the control of the present operations and aspiration of Davis are at logger heads with what the manager perceives is the ideal method of operation. Thus changing the manager is not going to solve the problem and Davis taking on the marketing is adding another burden to his work in which he is not seen to be competent. Contrary to the current thinking, Davis must expand the company with the inclusion of more staff and the induction of specialists who can assist in goals setting and market intelligence with the necessary support is needed. It is also correct for Davis to take the help of consultants to create a more dynamic company as consultants who come from outside would have an unbiased view of the company situation.
3) Should Eggstra Enterprises issue stock or use debt financing? Explain your rationale for your recommendation.
Revamping the company and aggressively pursuing the niche market require a greater outlay in the capital and cash flow. To this end the company must borrow or generate capital and also ensure that when the company proceeds with the new motto and goals there is ensured a continuous cash flow. For both of these there is a need to increase the capital layout of the company. In such cases the primary step is to take the cost of debts and the cost of equity and the weighted average point of the cost of capital to see if there is a possibility of financial leverage. If the cost of the debt is low, and the return from the investment increases then there is a leverage obtained and this is calculated with taking the debt costs and the capital costs and its average. (Gitman, 2007) The answer to the question whether the company must go in for debt finance or equity finance can be answered by using the pie theory. (Jaffe, 2004)
The capital equity ratio is built up in a pie model where the sum of all financial claims of the firm or the debt and equity can be the value of the firm and if we designate it as v, V=B+S where B. is the market value of the debts and S. is the market value of shares. The pie thus must be sliced between equity and debt. (Jaffe, 2004) Thus going in for both options balancing the costs of one with that of the other is the best option in this case.
4) Under what circumstances and at what time should Davis consider selling the company?
Davis can consider selling the company under two circumstances, one being the happy circumstance wherein companies that are in the health field find the product attractive and therefore can sell out at a premium if that is possible. The other side of the coin is where the company heads for a loss such that not only the product becomes unviable but also there is an increasing debt and reduced cash flow. In that case if the ratio of expenses and debts are more than the inflow on a 60-40 basis, that is the debts increase on a basis of 6% computed for any period of time and there is no increase in revenue that can match it or is more than that the company can be sold to a more affluent corporation or merge it with another. That is one way of getting over debt and ending up an unviable project. In this case the machine which is patented can be sold with the patent rights which must cover some of the costs and cushion against liabilities. In both these cases the winding up can begin. The balance sheet presented shows that as of now the company has not reached the stage because there is some liquidity and a possibility of rising funds by selling equity or by borrowing further.
5) Had you been Davis, what would you have…