Clique pens case analysis

Introduction

• Clique was founded in 1922• Originally produced fountain pens• Switched to ballpoint pens in 1960s • By 1980 Clique was valued at $17

million• Pen industry = No brand loyalty• Gross margins drop from 42% in 2010

to just over 36% in 2012

Company objectives

The Clique Pens Writing Division of US Home have experienced a 6% decline in the gross profit margin within 2 years, which made it critical for the president of the company to implement a new plan that could increase gross profits, work with retailers and motivate consumers. The company is confused whether to satisfy the needs of the retailers or the customers.

Clique Dilemma• Debate between VP Marketing (Chen) and VP Sales

(McMillan) for use of the MDF• They need to compromise and come to a final decision

to grow Clique's brand equity

Marketing VS Sales

Marketing:

• Consumer oriented MDF• Consumer driven discounts• Price increase• Minimise deals with retailers

Sales:

• Discounts to retailers• MDF used to increase shelf

space• Retailers will no take a price

increase

Customers and market demand• Currently 20 billion pens and pencils sold world wide• Good news: digital age did not kill sales• Sales would expected to grow 2% per year

Consumers:

1. Customers are not price sensitive

2. Consumers de not differentiate between products

3. Clique should target retailers

Retailer needs:

1. Quality of Clique products

2. Reliability of service/ Inventory

3. Offer incentives

Competitor analysis:

1. Threat of substitute products

2. Buying power

Channels and competitors

• Pens and pencils were sold in many types of retail outlets such as supermarkets, mass retailers,drug stores, warehouse clubs, department stores, and specialty stores.

• Current have 50 major competitors in the market• On average, Clique allocated 15% of its total promotional

budget to advertising, 30% to consumer promotions, and 55% to trade promotions. Clique's competitors used similar allocations.

• Our competitors will continue to work on thin margins, and we'll lose to them. They aren't spending as much on advertising either, so they have a real advantage on us now, and you're proposing that we give them further advantage.

Poter's Five Force Analysis

Industry Rivalry:Industry rivalry is at its peak because there are a number of manufacturers who are competing on prices and trade discounts.

Substitute:Since their are very small differences between different brand's products, all these pens or pencils could viewed as a substitute in the industry. Bargaining power of

Buyers:In this industry the bargaining power of the buyer is moderate to high because to sell out their products, a manufacturer needs to offer high trade discounts to retailers to get a shelf space.Both the retailers and consumers have no switching costs to other products which also increase their power.

Bargaining Power of Suppliers:The bargaining power of suppliers is low, because every manufacturer has a unique formula to produce and design the final product. Suppliers are only responsible for providing the raw material, which also has a fixed price in the industry.

Threat of new entrants:It is a mature market, and already have a lot of competitors in the industry, so the threat of new entrants could be ignored.

Retailer model one: StapleThe buyer at Staples gets a bonus heavily weighted to his realized gross margin, so discounts off our wholesale are extremely important to him.

Current discounts:• volume allowance 5.5%• warehouse allowance 3%• stocking fee 1.5%• wholesale price $0.94• cost $0.46

Marketing MDF? yse!

Sales MDF? yes!

1. Coorperate with Staple to expand market, increase sales volumes.

2. Give Staple some discount to keep competitive among competitors.

Retailer model two: Wal-martThe buyer at Wal-Mart pretty much lives with a set margin, around 35%, but is rewarded for obtaining things that affect cost, like warehouse allowances, roll-back promotions, and center-aisle programs.

If I went to the Wal-Mart buyer with MDF funds, she'd just laugh and tell me to discount our price more.

Marketing MDF? no!

Sales MDF? yes!

Wal-mart already have a great brand image.

All Wal-mart need is profit, profit, profit.

So, we should provide discount, discount, discount!

Retailer model three: WalgreensThe buyer at Walgreens has a bonus with a component that rewards dating and payment discounts.

Marketing MDF? may be no!

Sales MDF? yes!

Just last week our Midwestern regional manager had the chance to buy out a competitor at Walgreens if he had had funds available to do so

1. They really care about the discount. So, sales MDF is necessary.

2. Just-in-time.

3. Marketing MDF may help, but they may don't like it.

The price waterfall in 2012