Clique Pens Pricing: The Writing Implements Division of U.S. Home
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Clique Pens has experienced a 6% decline in gross profit margins over the past 2 years. There is a debate between the VP of Marketing and VP of Sales over how to allocate the marketing development funds (MDF) budget. The VP of Marketing wants to use MDF for consumer discounts and promotions to build brand equity, while the VP of Sales wants to use it for trade promotions and discounts to retailers. They need to compromise on a plan to satisfy both consumers and retailers. The pen industry is highly competitive with 50 major competitors. Retailers like Staples, Walmart, and Walgreens have significant bargaining power and prioritize discounts and incentives from manufacturers. Clique will need to decide how
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Clique Pens Pricing: The Writing Implements Division of U.S. Home
- 1. Clique pens case analysis
- 2. 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
- 3. 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.
- 4. 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: • 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
- 5. 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
- 6. 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.
- 7. 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.
- 8. Retailer model one: Staple The 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 1. Coorperate with Staple to expand market, increase sales volumes. 2. Give Staple some discount to keep competitive among competitors.
- 9. Retailer model two: Wal-mart The 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. Wal-mart already have a great brand image. All Wal-mart need is profit, profit, profit. So, we should provide discount, discount, discount!
- 10. Retailer model three: Walgreens The buyer at Walgreens has a bonus with a component that rewards dating and payment discounts. 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.
- 11. The price waterfall in 2012