Executive Summary
Gome Electrical Appliances: Competing for Channel Leadership tell us a story about the legendary development of Gome Electrical Appliances. Its low price sales strategy and the countermeasures toward the price control of the color television price alliance to maintain channel leadership. This case analysis identified two major problems of market strategies Gome took in the channel leadership battle, provided two recommendations, and then analyzed the feasibility of the recommendations.
General highlights of Gome:
Gome, founded by Huang Guangyu, in 1987 as a little shop selling only imported home appliances in Beijing. In 1996, following the emergence of domestic brands, Gome adjusted its operational structure and shifted its focus to domestically produced, joint-venture brands. From early 1990s, Gome has expended rapidly and established its top position in China’s home appliances market. Gome pursued a retail plus low prices operation strategy from the very beginning. Dealing with manufacturers directly with guaranteed sales volume, centralized purchase and decentralized sales obtained concessions and higher level of rebates from suppliers and hence low costs, which in turn contributed lower retail prices and larger sales volume. Gome has established a positive cycle of capital and goods.
Strike against price control by Color TV Price Alliance
Realizing that fierce price war in China’s color television industry brought them ever-decreasing profit margins hard to bear, in 2000, some core members of the color TV industry formed a price alliance intended to stifle the price war and re-establish their leadership in the value chain of home appliance. Responding to the price control, Gome initiated its powerful strike by lowering the price of Prima’s (a member of the alliance) color televisions to an extent lower than the price laid down by the alliance. The consumers’ response confirmed Gome’s low prices strategy at the beginning, while the allied manufacturer’s once again signal of price control was obviously aimed at Gome’s defiant market strategy.
Major problems for the low price strategy in the channel leadership battle:
1) Consumption pattern has changed and low price alone doesn’t always work.
With the intensifying competition in the home appliances market, China’s consumers’ consumption behavior was gradually becoming rational and mature. They would pay more attention to product quality and after-sale service, and the price factor was becoming less influential. To keep pace with the times, only focusing on low price is far from enough to maintain channel leadership.
2) Gome’s defiant market strategy may suffer attack of suppliers’ alliance, and give the competitors opportunity.
Nevertheless, it must “defend” its current market share if not increase it, by maintaining premium quality and develop innovative products. The marketing mix strategies will effectively achieve targeted revenue and profitability in the near future.
...2013). Cisco channel sales and inspiration in the age of internet. Contemporary Logistics, (12), 14-30. Retrieved from http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/1468933047?accountid=3783
First and foremost, it’s essential that the appliances are addressed. Appliances are the “age spots” of a house. As a result of planned obsolescence, products such as refrigerators and dishwashers are meant to be replaced every ten to fifteen years. This leads to the innovation of new ideas during product manufacturing. For example, when manufacturers released stainless steel refrigerators, the once-popular white models with the convenient ice distributer quickly became outdated. This illustrates a simple rule: investing in new appliances is one of the quickest ways to make a home feel as though the builders recently made the finishing touches and packed up their tools. They instantly modernize the house. This is the reason new appliances weigh so heavily in a buyer’s decision ...
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Liang, R. (2013). Cisco channel sales and inspiration in the age of internet. Contemporary Logistics, (12), 14-30. Retrieved from http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/1468933047?accountid=3783
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