ICON ACOUSTICS Distribution Case Study

1
ICON ACOUSTICSDistribution Case Study

• Set M
• Team C
• Ryan Gordon
• Christina Jia
• Kyla Karakochuk
• Shelley Morgan
• Alex Shaw
• Jasmine Wong

2
Agenda

• Problem
• Facts Assumptions
• Research
• Competitive Intelligence
• SWOT Analysis
• Alternatives
• Solution
• Plan of Action
• Summary

3
Problem

• How can Dave Fokos expand his distribution
• channels of Icon Acoustics to gain a larger
  market share and higher profits?

4
Facts

• Stereo equipment is a global market
• 3 billion annually in North America
• 335 stereo speaker makers
• 100 manufacturers low to mid-range
• 235 manufacturers high-end

5
Facts
6
Facts

• Icon Acoustics started by Dave Fokos
• Degree in Electrical Engineering
• Designed speakers at Conrad Johnson
• Dave wants to enter the high-end speaker market
• Dave has no distribution channel
• Most manufactures distribute through stereo
  dealers

7
Facts

• Dave caters to the audio addicts
• Well educated people who love music
• People who are obsessed with their high-quality
  stereo products
• Dave is the only employee at Icon
• He designs, develops, builds, ships, markets,
  administration duties
• Currently renting a facility in an Industrial
  Park

8
Facts

• Supporters invested 189,000 in Icon
• Dave invested 10,000 in Icon
• Dave spent over 40,000 on
• Distinctive stationary
• Business cards
• A single brochure
• One display advertisement
• In debt - 50,000

9
Facts

• Dave developed two speaker models
• Parsec
• Height 1.2 meters
• Weight 45 kg
• Floor Standing
• 1,795 per pair
• Lumen
• Height 45 cm
• Weight 11 kg
• Stand mounting
• 795 per pair

10
Facts

• Dave plans to introduce two new speaker models
• Micron
• 2,495 per pair
• Millennium
• 7,995 per pair

11
Facts

• Icon pays for shipping and return freight
• Federal Express
• 486 parsec (one pair)
• 30 day in home, no obligation trial
• Custom trademark on each speaker
• Advertising in trade magazines, and at trade
  shows
• Ex. Hi-Fi Show in New York

12
Assumptions

• Dave has the consumers interests in mind
• Dave will be happy to make a sustainable profit
• Speakers are worth double if sold at a
  traditional dealer
• If Dave wants to expand his market he will have
  to spend more money

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Assumptions

• Depending on the distribution channel, Dave may
  have to share his profits
• Icon products are sold within North America
• Longer shipping delivery could bring down costs
• Fed Ex 4 day delivery 108.06 per pair
• Icon Acoustics needs a new distribution channel

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Assumptions

• Dave believes this will be a break even year
• Wants to expand internationally
• Dave will need help developing selling his
  speakers
• Dave assumes dealers are unnecessary in the
  distribution process

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Research

• Commercial Electronics
• High-end distribution centre
• selective distribution
• Sells Bang Olufsen and Boston Acoustics
• Future Shop
• Mid to high-end distribution centre
• Selective to exclusive distribution
• Sells Monster THX

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Research

• Signature Audio
• High-end distribution centre
• Exclusive distribution
• Sells Focal, Triangle, Sonus Faber
• Federal Express
• Worldwide courier company
• Parcels/freight shipping
• 4 day delivery 108.06 per pair of Parsec
  speakers

17
Target Market

• Businesses and consumers interested in high-end
  audio equipment
• Audio Addicts
• Musicians/DJs
• Venue Owners

18
Competitive Intelligence

• Bang Olufsen Speakers
• Prices 1,500 - 25,000/pair
• Made in Denmark
• Distribution through Bang Olufsen of Canada
• Exclusively distributed by Commercial Electronics
  in BC

19
(Focal)

• Prices 500 - 150,000/pair
• Made in France
• Distribution through Canadian distributor in
  Montreal
• Selectively distributed by Commercial Electronics

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• Prices 2,000 - 6,000
• Made in Peabody, MA USA
• Exclusively distributed by Commercial Electronics

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(Triangle Acoustics)

• Prices 1,000 - 34,000
• Made in France
• Exclusive distributed by Signature Audio

22

• Prices 2,000 - 60,000
• Made in Italy
• Exclusively distributed by Signature Audio

23

• Price 1,800
• Made in USA
• Distributed exclusively by Future Shop

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SWOT - Strengths

• Dave is well trained and educated
• Identified market niche audio addicts
• High quality custom made speakers
• Line Extension (Micron, Millennium)
• Loyal investors

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SWOT - Weaknesses

• Not a well-known brand name
• No employees
• In one day Dave can only build and ship
• 2 pairs of Lumen
• 1 pair of Parsec a day
• Increase in price of supplies

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SWOT Weaknesses

• Borrowed 50,000 from the bank
• Only offers high-end speakers
• Limited target market
• Lacks distribution channels

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SWOT Weaknesses

• Prices do not reflect quality
• No warranty
• High distribution costs
• 30 day in-home no obligation trial

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SWOT - Opportunities

• Expanding to international level
• 3 billion dollar market
• Received great reviews in trade magazines
• 5 calls a day / 1 in 7 a sale

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SWOT - Threats

• Dealers mainly sell products that have high brand
  equity
• Growing industry of portable music players
• Advancing technology
• Problem with suppliers

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SWOT - Threats

• Increased competition for high-end speakers
• 235 manufacturers
• 10 market
• Competition from foreign markets
• USA
• Japan

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Alternative 1

• Indirect Selective Distribution
• The use of more than one, but fewer than all, of
  the intermediaries who are willing to carry a
  companys product

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Selective Distribution (Indirect)

• Signature Audio Commercial Electronics
• Advantages
• Close relationships with reputable distributors
• Option of choosing best channel members
• Do not need to spread their effort over many
  outlets
• Disadvantages
• Less product visibility
• With competitive value pricing, profits may be
  limited
• Share a portion of profits with distributors

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Alternative 2

• Indirect Exclusive Distribution
• Giving a limited number of dealers the exclusive
  right to distribute the companys products in
  their territories

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Exclusive Distribution (Indirect)

• Signature Audio
• Advantages
• More control over price, promotion, credit and
  services
• Enhances image
• May allow for markups
• Disadvantage
• Limited number of dealers could limit the
  clientele
• With market skimming prices, their target market
  is limited
• The exclusive distributors may want substantial
  profit share

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Alternative 3

• Direct Indirect Hybrid Distribution
• A multi-channel distribution system, in which a
• single firm sets up two or more channels, to
• reach one or more customer segments

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Hybrid Distribution (Indirect Direct)

• Indirect Signature Audio, Commercial Electronics
• Direct Website, Toll-Free Number, Catalogue
• Advantages
• Increased product exposure
• Larger sales potential
• Broad distribution channel allows for anyone to
  sell it
• Disadvantages
• More channels complicate distribution
• Potentially generates distributor conflict
• Product may be viewed as less exclusive, and less
  valuable

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Solution

• Icon will use direct and indirect hybrid
  selective distribution to gain a larger market
  share and higher profits.

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Plan of Action
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Years 2 - 4

• Eliminate in 30 day in home, no obligation trial
• There will be a one-year limited warranty on all
  products
• Hire new employees
• Introduce Micron and Millennium

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Indirect Hybrid Distribution

• Signature Audio
• Commercial Electronics
• Competitive Value Pricing
• twice the price of current price
• markup 100

41
Direct Hybrid Distribution

• Company Website
• Advertising
• Product information
• Purchasing products
• Free delivery
• Biography on Dave Fokos

42
Direct Hybrid Distribution

• Catalogue
• Free information
• Products
• Prices
• Store locations
• Company
• Distributed to
• Past and current clientele
• Available at the distribution locations
  (Signature Audio and Commercial Electronics)
• Distributed twice a year to promote new products

43
Years 5 - 10

• Large, loyal customer base
• Increasing profit margins
• Well known reputation
• Extensive product development enhancements
• Continue indirect direct selective distribution

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Plan B

• Indirect Exclusive distribution
• Signature Audio
• Promote a high quality image
• Become a specialty product
• Allow higher pricing and a higher profit
• More control over the marketing mix
• Will limit target market

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Course Concepts

• Product development
• Product Lifecycle
• Price
• Target market
• New product
• Distribution centre
• Line extension
• Retailer

• Competitive Value Pricing
• Exclusive distribution
• Selective distribution
• Hybrid distribution
• Direct distribution channel
• Indirect distribution channel
• Advertising
• Market skimming price

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References

• Armstrong, G., Kotler, P., Cunningham P.,
  Mitchell P., Buchwitz, L. (2004). Marketing. New
  Jersey Pearson Prentice Hall.
• FedEx Canada (November, 2006) Website
  www.fedex.com/ca
• Jeremy. Personal Interview. Commercial
  Electronics. November 1st 2006
• Signature Audio Ltd. (October, 2006)
  Websitewww.signature audio.com
• Sonus Faber Past (2006). Retrieved November 4,
  2006 from http//www.sumikoaudio.net/sonus/prod_gu
  arneri_memento.htm sumikoaudio.net
• Sonus Faber (2006). Retrieved November 4, 2006
  from http//www.sonusfaber.com/index.html
  sonusfaber.com
• Sonus Faber (2006). Retrieved November 4, 2006
  from http//www.sumikoaudio.net/sonus/index.htm
  sonusfaber.com/
• Signature Audio Ltd (2006). Retrieved November 4,
  2006 from http//www.signatureaudio.com/
• Triangle Electroacoustique, France (November,
  2006) website www.triangle-fr.com 

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Presentation order

• Intro Shelley
• Problem Shelley
• Facts Alex
• Assumptions Kyla
• Research Christina
• Target Market Christina
• CI Jasmine
• SWOT Shelley
• Alt 1 Alex
• Alt 2 Kyla
• Alt 3 Jasmine
• Solution Christina
• Plan of Action Ryan
• Plan B Ryan
• Close Ryan