Alarm Force Alarmforce Must Make Marketing Decisions

Alarm Force

AlarmForce must make marketing decisions with respect to AlarmFog, a new high-end security product it has developed. AlarmForce has become a market leader in home security through a cost leadership strategy. AlarmFog adds an element of innovation to that strategy, but the manufacturing cost is high. However, there are some new markets that can be developed, in addition to offering AlarmFog as a complementary product to the company's installed base.

The AlarmFog should be priced at manufacturing cost. Matlin is proposing to price well below cost, but such pricing would erode the firm's profits entirely. The fog can be marketed both to new customers such as small businesses and cottage owners, in addition to being offered to current customers. The existing distribution channels and marketing media can be used, as the product is sold and serviced the same way and to much the same customer base as the existing AlarmForce product. The company's monopoly on this technology will allow it to earn monopoly rents, and complementary positioning will allow AlarmForce to maintain its cost leadership brand positioning.

Situation Analysis - AlarmForce has grown rapidly to become a leading player in home security in Canada. The company has adopted a price leadership strategy in order to build market share, and has been successful with this tactic. The market is growing, mainly due to the efforts of AlarmForce. There are a number of large competitors, mainly focused on the commercial market. These include ADT, Chubb and Honeywell but the there are also around 5000 small competitors in this highly-fragmented market. Each of these security firms has the financial strength to develop a competing device to AlarmFog. There currently is no market for a fogging security product in Canada, although the technology has been introduced in the commercial sector is Britain.

Matlin must determine the best way, if any, to market AlarmFog in Canada. AlarmForce has built its business as a low cost provider of security solutions, with simple and effective equipment. The basic equipment has been marketed for free as a loss leader, with the company earning profit on the monthly service contract. Matlin is considering a similar strategy for AlarmFog.

There are a few new potential customer groups for the AlarmFog product. One of these is for consumers in rural or cottage areas. In these areas, police response time is slower than in urban areas, so these consumers may need additional protection. In particular, cottage owners may have valuables in their cottages, but spend most of the year anywhere from 2-4 hours away from their cottages. Another new potential market is the commercial market, which currently constitutes only 17% of AlarmForce's business. This market often turns to higher-end solutions, and AlarmFog may be the type of innovative, high-end solution that AlarmForce needs to break into this market.

Marketing Strategy -- The product is AlarmFog. The key product decision is whether or not to proceed with marketing this product. The product has been refined by the research and development team at AlarmForce, but is a risky launch because the public is unfamiliar with the product and there remains some unresolved liability issues. However, if Matlin feels that this product is viable, he should pursue it.

Pricing is the biggest challenge with respect to AlarmFog. The device costs $600-700 to manufacture. Matlin is considering a price point of around $300, which would make the price a loss leader. This price point is congruent with the company's position as a cost leader. However, AlarmForce would lose substantial amounts of money with the product. If AlarmFog was purchased by 2000 consumers the company would lose $600,000-$800,000 on the device and would need to make that money back with a monthly service fee. The company's profit for 2001 was $677,711, so pricing AlarmFog in this way might help the company establish market share, but it would erode profits.

It is worth considering that since there are no competitors, AlarmForce would have a monopoly on this technology and typically that would imply the company can earn monopoly rents on the product. The low cost strategy in its regular service was specifically designed to win market share in the face of strong competition. Thus, AlarmFog is subject to different economic conditions. AlarmForce should price at a level where it covers the cost of producing the product, since it is a higher-end solution. Pricing at a loss might also convey the wrong impression to consumers, that AlarmFog is cheap and risky. The price elasticity of demand therefore needs to be tested in order to set the best price.

The channel strategy would be the same as the current AlarmForce channel strategy. The company would market its products but drive customers to the call centre. The promotion strategy could also include existing AlarmForce customers, allowing the company to leverage its large installed base. The installation strategy would also mirror the current methods, so there are few adjustments that AlarmForce would need to make to introduce AlarmFog. The promotional strategy should roughly mirror the previous strategies used by AlarmForce. The existing promotional channels would be utilized, with the addition of internal sales. The promotional message should focus on both introducing the product and assuring customers with respect to the product's risks. AlarmForce has previously enjoyed success by building communications around identifying and addressing customer concerns, and this approach should also be taken with AlarmFog.

With respect to brand strategy, AlarmFog should be positioned as a complement to the existing AlarmForce product. For one, AlarmFog can be sold to existing customers. As well, the two can be bundled in order to earn more revenue from new customers to help offset the cost of the AlarmFog. Matlin is concerned about the impact on brand image if the AlarmFog is expensive, but he need not worry. The product is unique and high-end, so it can command higher prices in the market. As long as the pricing on the basic AlarmForce product does not change, consumer perceptions of the company will not change.