Market Orientation & The Clean Queen Situation

The case opens with an 8:15 AM meeting among several key people at the Danbury, Illinois plant of the Floor Care Products Group of Atlas Industries Worldwide. The group consisted of the following persons:

Dave Matters: Chief Design Engineer (CDE) Jack Davis: General Manager, Danbury Plant (GM) Molly Hudson: Product Manager, Clean Queen Floor Care Products (PM) Bart Simpson: National Sales Manager, Floor Care Products (NSM)

Jack (GM)

Thanks for coming down today, Pete, Molly… Let me introduce you to Dave Matters, our new Chief Design Engineer. He’s joined us from Hoover where he has had 14 years experience in product design and 5 years as product manager. I’ve asked Bart to give us a quick history of the Floor Care Group. Dave will spend the next few days pouring over old reports, but Bart can bring you up to speed for our immediate problems. As you all know, our annual marketing plan is due next month. The corporate targets are higher than ever and we’re going to have to do some fancy footwork to keep with the program. You all know what I think of this “annual exercise”, but Corporate seems to be getting more and more insistent upon having our participation in this.

Bart (NSM)

Thanks, Jack. [Pete switched on the overhead projector and placed a transparency on the glass.] As you can see, we haven’t been growing in units shipped during the past few years. The total numbers are a bit deceiving, however. They mask the fact that our upright line has maintained a respectable 5% per year increase in units (in a market that’s only been growing about 3%). But that increase has been more than offset by our loss of position in canisters. The problem is even more serious because our gross margin on canisters is larger than uprights, so we have been unable to meet profitability targets.

Background: Clean-Queen Vacs

1948 – First Clean-Queen canister vac’s introduced on the west coast 1951 – National roll-out for canisters complete to all 48 states 1962 – 1,000,000th Clean-Queen Canister shipped 1969 – Clean-Queen Upright cleaner introduced in western region; national roll-out by 1971 1970s and 1980s – Average 6% annual growth in units shipped; 5% growth in revenues and contribution 1990s – growth in units shipped stalled; zero overall growth (canisters losing ground; uprights gaining; net zero

Jack (GM) We all have our theories about what’s wrong. I think… [Bart interrupted before Jack could finish]

Bart (NSM)

The problem is really very simple. It’s price. Our units average $10 to $25 more than comparable Hoovers, Eurekas and Kenmores. We’re hearing the same thing from our wholesaler distributors and chain purchasing agents. Our sales reps have been trying to sell our units to retailers based on features, but the retailers say all the customer cares about is price. And, ours is higher. They don’t think our units have the “sales floor appeal” to command a higher price. So, the retailers are selling them at a smaller mark-up just to move them. Re-orders get harder and harder to obtain. We need a full line of canisters at lower price points. I really don’t care if it’s the same machine or a totally new design. The customer is talking and the words I hear are all the same: PRICE. Our’s has to be lower if we ever expect to get back on the “plus-side” at corporate.

Jack (GM) Dave, as you might have guessed, Bart and I have been through this before. I tend to disagree with Bart’s assessment. First of all, we’ve never shipped junk like some of our competitors have. I won’t name names to protect the innocent. Our engineers estimate that their motors have 10% less peak power and 30% shorter mean expected operating life. We’re committed to building a quality product and have made money at it before. I just can’t see us compromising on quality at a time like this; every week some news magazine or radio talk show criticizes American companies for poor quality.

Molly (PM)

I agree Jack. I’ve studied our line versus our competitors. We’re higher than many of the “majors”, but we still are cheaper than the “niche” products like the Rainbow. We have a quality product; we need to keep our quality high. The trouble is, the customer just doesn’t know it. Salespeople on the retail floor are not knowledgeable enough to sell our quality products. We need to communicate our story to the customer. I’d like to have enough of an advertising budget to get our story out for once. Telling our story won’t be easy. I’ve got two proposals, one for $1.5 million which should achieve the reach and frequency needed for re-establishing our quality image. The other is a “bare-bones” program that will sacrifice national coverage to make sure that sufficient frequency is obtained in the top markets. If the results are as good as I think they will be, we should have little trouble getting the rest of the budget next year.

Bart (NSM)

You know how I feel about that, Molly. I’d love to have you back our sales effort with some real advertising for a change. That, plus more realistic pricing, would really get our units shipped in the ball park. But how are you ever going to get those millions for advertising, especially given the losses from last year? I can just see Henry [CEO at Atlas Worldwide] now. “Sure, I’ll approve the ad campaign. Just show me some proof that your campaign will add $15 million in sales.”

Jack (GM) Dave, we’ve done all the talking. Any questions?

Dave (CDE)

Not right now. I do have something else to show you. During my first month on the job I’ve met with the engineering group. We kind of let our imaginations run wild one day. after some really wild ideas (ultrasonic vacuum cleaners, for example), we got serious and developed a rough concept for what we’re calling a “third generation” floor care product. It combines the best features of our canisters and uprights into a single machine. [Dave takes out a packet of engineering sketches showing various details of the new cleaner. He passes these around the table.] Here’s a rundown on the concept.

Concept: The Futura I Dual-Clean Machine
Case: sleek, black plastic Motor: 5 hp; 4 speeds 18 piece attachments with on-board storage Convertible – upright for rugs, canister for hard floors, upholstery and other tasks Power-Drive transmission – self-propelled, both forward and reverse

Molly (PM) Dave (CDE)

Sounds like you’ve been busy during your first month.

I have. And the engineering group is really excited about this.

Jack (GM) Tell her the bad news, Dave.

Dave (CDE)

Well, it is expensive. But like Jack said, American consumers want quality and they’re willing to pay for it. This product can reestablish Clean Queen as the quality leader in floor care.

Bart (NSM)

Oh, yes! Just what the world needed. A $650 vacuum cleaner when we can’t even sell the ones we have for half of that. You technical types are all cut from the same pattern. Great on blue-sky, but you run into trouble when reality sets in. My sales people don’t get paid when product doesn’t move. If I showed them this idea, I’m not sure whether they’d laugh or cry!

Jack (GM) All right, ladies and gentlemen. This isn’t getting us any where. All we’ve accomplished so far is to raise each other’s blood pressure. I think I hear the coffee cart coming. Let’s take a sanity break and come back in 15 minutes.

As a team, first identify what is wrong here. Leverage ideas from Chapter 1 of the textbook. Next, decide what you would recommend for Queen Clean and why. Review the Marketing Effectiveness Review survey for ideas about what market oriented firms do. Once you have your answer ready, post it in Angel. Then, you are welcome to review other teams answers and revise your submission until the deadline.