Aqualisa

Aqualisa

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Problem Statement

Aqualisa launched the most significant shower innovation in recent British history: the Quartz shower. The shower provides significant improvements in terms of quality, cost, and ease of installation. In product testing, the Quartz shower received rave reviews from both consumers and plumbers alike. However, early sales of the Quartz have been disappointing. Now, the company is faced with some key issues about whether to change the channel strategy, promotional strategy, and the overall positioning of the product (niche or mainstream product) in the context of his existing product line.

Situation Analysis

Company: Aqualisa, 3rd in the shower market with 18% coverage has had a successful marketing strategy, which allowed it to enjoy 25% net return on sales and a growth of 5% to 10% in a mature market. They have effectively segmented their markets and have products that cater to each segment's needs (product range of 9 models covering the three types of showers used in the UK, ranging between 230 and 670). Their channel relationships are strong and positioning has helped them achieve a good brand name in the market. The company used the shower max (specialized product similar to Aqualvalve at lower priced than the before mentioned) to penetrate the developer's market.

Company's Strengths

* Strong reputation in the shower market

* Highly profitable company

* High quality products

* Excellent service

* Strategic use of Gainsborough brand to penetrate low cost market

Company's Weaknesses

* Only available in 40% of trade shops, 25% of the total showrooms, and 70% of total outlets

* 10% defected products

* Competition is catching up in product quality

* Considered as an expensive brand

Costumers: Broadly speaking the customers in the individual market segment have one common feature; they could identify problems in current showers which were poor pressure, varying temperature and breaking down. Within this individual customer category there are sub-segments based on varying needs.

Following the description of the customer categories is a discussion of the behavior of plumbers, which is essential to understand the true nature of the market. Although they are not the end consumer, their role will be significant for Aqualisa when creating an effective marketing strategy.

Value Customers: Customers in this category are mainly concerned with low price and convenience. While style or looks is not their primary concerns, functionality plays an important role. Price is very important to this category as they do not like to spend money on solutions that require excavations (as they would increase installation costs).

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Hence, ease of installation is very important to them. The consumers' decisions are largely influenced by the plumber - either the plumber selects the shower or advices them on the type (not the brand). Final installation was usually carried out by the plumbers. This also includes a category of customers called DIY, consisting mainly of landlords and apartment dwellers - who install and select their own showers.

Standard Customers: Customers in this category are mainly concerned with reliability and performance. Assuming that they fall in the middle of the two categories, style would be a consideration but not important. They also rely on the individual plumber to not only recommend or select a product for them but eventually install it. Products offered by Aqualisa for this category are Gainsborough, Aquavalve 609 and Aquastream Thermostat ranging from 155 to 670, offering better quality and state-of-the-art technology.

Premium Customers: Customers in this category expected performance and service as a base criteria to be on their qualifying list of products. Style is what dominated their selection. They usually shopped at showrooms which had technical experts to explain the various product options and help them in evaluating and selecting the right product. Being better informed than the other two segments, plumbers had very little influence on this category. The showrooms also offered installation service. The only product offered by Aqualisa for this category was Aquastyle at 230.

Developers: Customers in this segment are quite price-sensitive and require showers that are reliable, stylish and flexible i.e. those that could work in multiple settings. They do not require showers that have premium valves because the new homes are built with high-pressure systems. Also, they do not rely on the individual plumbers while making purchase decisions. However, they do have relationships with the plumbers who will install the showers that the developers select. Aqualisa offered the ShowerMax brand to this category at a significantly lower price than their other products and fewer features.

The Plumbers: Although the plumbers are not Aqualisa's prime customers, they have huge influence on the individual market segment, especially the value and standard customers. Their major concern is reliability, performance and ease-of-installation because they would have to bear the costs of any unforeseen problems. Hence, they would familiarize themselves with a product brand. They are quite loyal to the brand that they have chosen and are apprehensive of any product innovations.

Collaborators: Aqualisa has a 20-person sales team who sold to distributors, trade shops, showrooms, developers and plumbers. (DIY sheds represent 36% of the shower market sales trade shops 47%, and trade shops and showrooms 17%) Currently, they spend 90% of their time on maintaining exiting customers, only 10% on developing new customers. Team has a long-standing relationship with a group of loyal plumbers- "our plumbers".

Context: Aqualisa Quartz was developed in reaction to customer dissatisfaction with the poor quality of showers on the market, in addition to the company's need to innovate in order to differentiate itself from the competition and maintain competitive advantage.

Alternatives and Recommendation

Aqualisa's marketing team discussed three options for the marketing strategy for Quartz. The three options they came up with were; targeting consumers directly, target Do-it-Yourselfers, and target developers. The three alternatives have advantages and disadvantages as shown in Exhibit 1.

From the analysis of this case we determine that Quartz is a niche product. We recommend that Quartz should target the specialized bathroom retail stores, captivate the plumbers' attention, and raise product awareness amongst consumers. While plumbers tend only to recommend products they know well, retailers will be happy to take on products that stand out in showrooms, particularly if they are highly functional and easy to use as well as attractive. As we believe that Quartz is a niche product, the specialized retails stores will be the place where the demand will be created for this product. These stores are more likely to recommend a new, innovative or high-end product than a large merchant. In order to ensure a strong increasing market penetration, plumber's attention should be grasped. Costumers in the shower market know little or nothing about the products they buy, so they are strongly influenced by their plumber's advice. It is important to note that plumbers install 54% (972,000 installations) of the showers in the UK and Aqualisa's management has the goal of selling 46,800 (2.6% of shower market) showers in a year to break through the mainstream. By convincing just 20% of the 10,000 plumbers, to recommend Quartz to their costumers, the end result would be 58,320 (972,000 showers x 20% of plumbers x 30% installation of Quartz) Quartz showers installed. Once the plumbers realize this product satisfies their needs, the word of "Quartz being a great product" will spread amongst the small plumbers' population quickly.

It is also important that Aqualisa does not lower Quartz proposed price for two reasons: to avoid cannibalism towards Aquavalve (bestseller for Aqualiza) and create lower installation costs for consumer Quartz offers good value for the end customers not only in terms of product features but also price, even though it is their highest priced product. Comparing Aquavalve value to Quartz Standard: a typical installation of Aquavalve will take from 1-2 days. Assuming that plumbers charge on an average 70/hour (including labor and materials for excavation) and it takes 12 hours to install, customers would pay 840, over and above the retail price of 390 - the total being 1230. Assuming similar labor charges (even though excavation is not required), and 6 hours installation time for Quartz - a customer pays approximately 420 for installation - the total cost being 420 + 850 = 1270. Hence, the total cost for the customer is fairly the same in both cases. In addition, they receive a product that is much advanced and better in all respects. Thus, it is suggested that Aqualisa maintains its current price for Quartz and use the above value proposition in targeting customers to show then benefits gained.

Implementation Plan

Quartz will be positioned as the easy to install, most aesthetic, advanced and unproblematic shower. Quartz is an improvement over Aqualisa's existing product range. However, it is safe to say that Quartz is an entirely new product because of the advanced capabilities offered by it in terms of features, performance and flexibility. The launch of a new product requires awareness. The customers need to be educated about the product and its features. As pointed out in the case, customers are generally unaware of product features and have limited knowledge. Hence, Aqualisa should use its existing brand image and awareness in the market to launch the ad campaign for Quartz and build product awareness. It is agreed that the costs will be high and is a risky proposition. But, still by the end of the current year Quartz will make profits, which can be used to finance the ad campaign (see Exhibit 2). This should be viewed as an investment and not as a cost; since Quartz is going to lead Aqualisa's market for other electronic product innovations and success of Quartz will give Aqualisa the first mover advantage in the market. Along with this ad campaign Aqualisa should distribute 3000 free Quartz packages (shower samples with brochures, information on installation and benefits of Quartz) to the plumbers. This will encourage plumbers to at least recommend and install one Quartz shower to their costumers. Once this is done as mentioned before "spread of word" will work within the plumber population. Finally Aqualisa, as a niche product, should place the products in the specialized bathroom retail stores. Quartz allows high margins (88% on Quartz standard and 87% on Quartz pumped) for retailer and is a very attractive product to carry. The company should use half of its sales force to convince these retailers to take Quartz in their shelves. Finally, as mentioned in the recommendation section, Quartz's price should remain at what is proposed.

Exhibit 1

Consumers Directly Do-It-Yourself Developers & Plumbers

Advantages

- Getting directly to treat with the final customer

- Lower dependence from plumbers

- Smaller bargaining power from customers

- Raise company's image

-Product awareness - Easy to install (no need for plumbers)

- Depend on the final consumer

- High quality product, with great design

- Avoid problems reaching the plumbers - Develop trust and loyalty of the customers that try the product

- Gain influence in the decision makers of the market

- Securing a number of sales through the year

- Low advertisement cost

- Develop a large volume distribution channel

Disadvantages

- High advertisement costs

- Need of informed and good salesmen force at reasonable cost

- More difficult to convince plumbers to buy the product

- Make a large consumer campaign (very expensive)

- Place a premium product in an inferior segment

- Could damage Quartz's image

- Harder to sell the product

- Possible discount on price

- Need of informed and good salesmen force. Reasonable cost

Exhibit 2

Current Year Selling 15 Selling 30-40

1st 6 months 2nd 6 months Totals

Sales $ 1,345,500 $ 3,139,500 $4,485,000

Costs $ 538,200 $ 1,255,800 $1,794,000

Marketing costs @ 6% of sales $ 80,730 $ 188,370 $ 269,100

Costumer services costs $ 40,365 $ 94,185 $ 134,550

EBIT for 1st year $ 686,205 $ 1,601,145 $2,287,350
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