Our marketing strategy is designed to support our successful entrance into the competitive PDA market. We plan to build brand awareness and image while emphasizing our competitive superiority based on innovation quality, and value. Using all elements of the marketing mix, as well as service and internal marketing, we will educate our targeted segments about the features and benefits of our new PDA and motivate purchases by first-time users as well as PDA owners seeking to trade up. Although television advertising is not affordable under start-up budget constraints, we \vill use radio, online, and other media to reach our targeted segments in creative and effective ways.
The following sections examine our mission, marketing and financial objectives, target markets, positioning, strategy, marketing-mix elements, service and internal marketing, and marketing research plans.
Sonic's mission is to produce and market high-quality, value-priced PDA products that enable U.S. consumers and business users to use voice recognition to organize data and stay in touch whenever and wherever they choose. As this mission indicates, we have chosen to operate in the U.S. market for handheld computing devices. Our core competence is producing quality electronics with innovative features, notably the incorporation of unique voice recognition technology for hands-free operation.
We define our vertical scope as manufacturing Sonic-branded products for distribution through a network of select online and computer retailers and office supply superstores in the top 50 U.S. markets. Geographically, our scope initially covers the 50 states; in later years, we will consider expanding to the Canadian market and, if demand is strong, beyond.
Achieve first-year unit sales volume of 240,000, which represents a projected market share of 6 percent with one model in product line.
Increase second-year share to 10 percent, based on sales of two models in product line.
Generate 40 percent brand awareness within the consumer target market and 50 percent brand awareness within the business target market by the end of next year.
Arrange for distribution through Amazon.com and through the leading computer and office-supply retailers in the top 50 U.S. markets within 3 months, followed by distribution coverage in the remaining major metropolitan areas within 6 months.
Sonic's primary financial objectives are to:
Restrict first-year losses to less than $10 million and seek a 10 percent profit on second-year sales of the original product.
Achieve first-year total sales revenue of $60 million, based on an average wholesale price of $250 per unit.
Earn an annual rate of return on investment of 15 percent after taxes within the first 4 years.
APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 145
On the consumer side, the primary target market is middle- to upper-income professionals who need one portable device to coordinate their busy schedules and communicate with family and colleagues. These consumers prefer lower-priced PDAs with expandable memory and functionality. The secondary consumer target is college students and graduate students who want to organize their school, work, and personal schedules, input and access information at any time from any location, and stay in touch with family and friends.
On the business side, the target market is mid- to large-sized corporations that want to help their workforce stay in touch and input or access critical data on the go. These buyers want durable, powerful, easy-to-use PDAs that can operate customized business applications. The secondary business target consists of entrepreneurs and small business owners who need to stay in touch and organize their busy schedules at all times. A possible tertiary business target is medical users, doctors and nurses who want to reduce paperwork and quickly update or access patients' medical records.
Using product differentiation, we are positioning the Sonic PDA as the most versatile, convenient, value-added model for personal and professional Use. We are focusing on the voice recognition system as the main feature differentiating the Sonic PDA from all other competing models, because it provides versatility and convenience.
Because of the intensely competitive nature of the market, our most important strategy relates to the need for clear differentiation to position Sonic as the most versatile, convenient, value-added model for personal and professional use. Supporting that positioning, key points to be emphasized include:
versatility (the ability to use any Palm-compatible peripheral or software application; the incorporation of /vIP3 music functionality; case wardrobe as a standard feature)
value-added (retail price of about $350; standard features that are only available on competing high-end models or as user-installed options)
We will move toward our marketing and financial objectives using a variety of product, pricing, promotion, and distribution programs. The following sections are a sample of our marketing-mix programs to support the PDA introduction.
Our basic PDA model, to be introduced at $250 wholesalel$350 estimated retail price per unit, incorporates voice recognition system for hands-free operation; wireless Web access; /vIP3 capabilities; use with Palm-compatible peripherals for expanded functionality; use with Palm-compatible software applications; slots for additional memory; black/white sharp text display screen; full range of organization and communication
__ •• _~_._10.. ~ __ 146 APPENDIX 2 Sample Marketing Plan: Sonic Personal DigitalAssistant
functions, including calendar, address book, memo pad, world clock, Web browser, email program, and expense organizer; cradle for synchronizing data with PC; and interchangeable case wardrobe of different colors and patterns. The product will be sold with a full I-year warranty; repairs will be provided on a contract basis by a nationwide service organization.
We will focus our research and development efforts on creating a more compact, powerful high-end model for introduction the following year. This second model, to be priced at $350 wholesale per unit, will have even more standard features that are currently available only as options on competing models, including color display, cell phone functionality, and GPS locator functionality. This product will be accompanied by a special subscription offer of cell phone service (arranged through partnerships with regional service providers).
The Sonic brand is an integral part of our product strategy. The brand and logo (Sonic's distinctive yellow thunderbolt) will be displayed on the product and its packaging, and reinforced by its prominence in the introductory marketing campaign. The packaging will protect the product from damage in transit and incorporate security features so the boxes can be displayed store shelves as well as in store showcases. It will also include a competitive comparison chart emphasizing the product's unique features and value-added benefits.
Our introductory PDA model will carry a first-year average retail price of $350, which is in the mid-range of the market yet offers unusually high value for so many standard features that are optional on competing models. We expect to lower the price of this first model when we expand the product line by launching a higher-end model in the second year. According to our first-year financial objectives, we plan to limit our losses to $10 million or less. Our pricing objective is to support the sale of 240,000 units in the fIrst year and achieve our market-share objective of capturing 6 percent of the U.S. PDA market.
Exhibit A2.5 shows the features and approximate price levels (which can vary from retailer to retailer) of selected mid-level and high-end PDA models being marketed by Palm and Handspring; none of these currently include voice recognition capa-
Competitor Model and Features Price
Palm m500 (monochrome screen, expansion slot for
memory cards, organizer features, cradle for data exchange)
Palm m505 (color screen, expansion slot for memory cards,
Treo 270 (keyboard, cell phone, color screen, Web-browsing
and e-mail, organization features)
Visor Prism (color screen. cradle for data exchange, organizer
features, expansion slot, e-mail function, speaker and
APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 147
bilities. As a result, such competitive comparisons support our strategy of value-added pricing.
To encourage retailers to stock our PDAs in larger quantities, Sonic will extend payment terms for an additional 30 days for volume orders. We will also support cooperative advertising 'by channel partners that agree to specially feature the Sonic product in their display ads, catalogs, and Web sites.
One set of marketing objectives to be supported by promotion activities is to generate 40 percent brand awareness within the consumer target market and 50 percent brand awareness within the business target market by the end of next year. To achieve these objectives, we will create a multimedia advertising campaign to build brand awareness and differentiate the product from competitors. We also will emphasize trade sales promotion to support our distribution strategy and develop a high-profile product launch strategy to generate publicity and media coverage.
Highlights of our initial 6 month promotion activities:
January. We will initiate a $500,000 trade sales promotion campaign to educate dealers and generate excitement for the product launch in February. As part of this trade push, we will exhibit at the major consumer electronics trade show and invite head-to-head comparisons with leading PDA competitors to showcase the speed and convenience of our product's voice recognition capabilities. We will also provide Sonic PDAs to selected product reviewers, opinion leaders, and celebrities as part of our public relations strategy to generate prelaunch buzz. In addition, our training staff will work with sales personnel at major retail chains to explain Sonic's features, benefits, and competitive advantages. Finally, we will work with key channel partners to initiate sales activities targeting the corporate PDA market.
February. We will start an integrated printJradiolInternet campaign targeting professionals and consumers. The centerpiece of this campaign will be a competitive comparison ad for print and online media showing how much faster Sonic PDA users can accomplish tasks using voice recognition, compared with traditional PDA models. This multimedia campaign will be supported by point-of-sale signage and demonstrations as well as online-only specials.
March. As the multimedia advertising campaign continues, we will add consumer sales promotion tactics such as discounting selected accessories to encourage purchases during a period when sales are traditionally lower. We will also distribute new point-of-purchase displays to generate retail excitement and continue supporting the corporate sales activities of our channel partners.
April. Our main focus this month will be on a trade sales contest offering prizes for the salesperson and chain that sells the most Sonic PDAs during the 4-week period. To support this contest, we will launch a new trade ad campaign emphasizing Sonic's unique features and value-added pricing.
May. We plan to roll out a new national campaign this month. The radio ads will feature celebrity voices using the voice recognition system to operate their Sonic PDAs. The print ads will show these celebrities holding their Sonic PDAs. Coordinated point-of-purchase displays will carry through the theme and graphics of the national campaign.
June. Our radio campaign will add a voice-over tag line promoting Sonic PDAs as a graduation gift. We will also exhibit at the semiannual electronics trade show
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and provide channel partners with new competitive comparison handouts as a sales aid. In addition, we will tally and analyze the results of our first customer satisfaction survey for possible use in future promotions and to provide feedback for product and marketing activities. Finally, we will work with the top retail chains to plan holiday season promotions and new corporate sales drives.
Our channel strategy is to use selective distribution to have Sonic PDAs sold through the best-known computer stores and online retailers, starting with the top 50 U.S. markets. During the first year, we will add channel partners until we have coverage in all major U.S. markets and the product is included in all major electronics catalogs.
This phase-in· approach will allow our training staff to familiarize retail sales personnel with our PDA's unique features and benefits. We will put special emphasis on key points of competitive differentiation, including our unique voice recognition system. In support of our channel partners, Sonic will provide demonstration products, detailed specification handouts, and full-color photos and displays featuring the product. We will also arrange special trade terms for retailers that place volume orders.
Channel partners will be able to access Sonic's Web-based system to place orders, check on inventory and shipments, and receive information about trade promotions and other details. Sonic will ship all orders via air or fastest available method to ensure minimal stock-out situations. We also will work with channel partners to plan optimal order quantities and ensure adequate stock levels for peak sales periods.
SERVICE AND INTERNAL MARKETING
Sonic plans a multifaceted service strategy. Buyers will receive a I-year warranty on parts and labor, witb repairs handled by a nationwide service provider on a contract basis. The service provider will be trained by Sonic engineers and will provide Sonic with weekly reports on service issues so we can quickly identify any problems and address tbem through manufacturing or design adjustments. To ensure tbat customers are receiving the expected level of warranty service, we will conduct quarterly customer satisfaction surveys.
Sonic will provide comprehensive training and point-of-sale service for retail partners. Customers and retailers will be able to contact service support 24 hours a day, 7 days a week, on the Web or by calling a toll-free hotline. Sonic will also survey a sample of customers monthly and annually to track service satisfaction and pinpoint areas for improvement. Our director of service quality, who reports to the CEO, is responsible for establishing appropriately high service quality standards and ensuring that the company consistently meets those standards, backing up our brand image.
To build internal support for the product launch and improve internal knowledge of our target markets and their needs, we will use internal marketing as follows:
Conduct monthly staff meetings to update the entire company on current plans and achievements.
Issue a weekly bulletin via e-mail to communicate each week's activities and any
changes that are being made.
Invite staff members to beta-test pre-production models and offer feedback.
Coordinate joint planning of marketing and production schedules.
Provide recognition and rewards for exceeding planned sales levels.
APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 149
Sonic is using marketing research to support marketing planning in a number of ways:
Product development. Through concept testing, surveys, focus groups, and market tests, we have identified and incorporated the most highly valued features and benefits of a PDA product. As we plan for our second PDA model, we are collecting additional data on usability, quality and value perceptions, and new features needed by consumer and business users. We are continuing to measure and analyze customers' attitudes toward the Sonic brand compared with those of Palm, Handspring, and other competitive brands.
Marketing communication. We plan to measure brand awareness before, during, and after our major national marketing campaign begins. In particular, we want to determine the effectiveness of each medium in reaching the targeted audience and stimulating response. We also want to analyze how customers receive and interpret each message so we can refine our communications for more impact.
Customer satisfaction. Customer satisfaction is critical to creating a buzz through positive word-of-mouth communication. Therefore, we are planning comprehensive studies to gauge customer satisfaction with the initial Sonic PDA model and with warranty services; this will help us quickly identify any product or warranty service issues that require immediate attention.
Pricing. To support the pricing process for our second Sonic model, we will conduct marketing research to test different offerings at different price levels and to examine the role of pricing in helping Sonic compete with specific rival models.
Total first-year sales revenue for the Sonic PDA is projected at $60 million, with an average wholesale price of $250 per unit and variable cost per unit of $150 on unit sales volume of 240,000. On a quarterly basis, we project sales of $8 million, $12 million, $11 million, and $29 million, based on cumulatively higher business sales and a spike in year-end consumer PDA sales .
Heavy investments in product development, promotion, and channel support are expected to contribute to a first-year loss of up to $10 million on the initial PDA model. However, longer term projections call for achieving a 10% profit on second-year sales of the original PDA model, a realistic profit level given the lower margins in the PDA market. Break-even calculations indicate that Sonic will begin to profit from the sale of the initial PDA product once sales volume exceeds 267,500, early in the product's second year. At that time, we plan to lower the wholesale price of the first model- in line with standard industry practice-to lower the retail price and increase sales volume.
(Each individual action program will carry its own financial assumptions, managerial assignments, and scheduling, not shown in this sample plan. The full marketing plan also would include a detailed profit and loss analysis for each product. All these financial projections lay the foundation for planning in the manufacturing, human resources, research and development, and finance and accounting departments.)
, Our break-even analysis of Sonic's first PDA product assumes;
• per-unit wholesale revenue of $250 per unit
150 APPENDIX 2 Sample Marketing Plan: Sonic Personal DigitalAssistant
variable cost of $150 per unit
estimated first-year fixed costs of $26,750,000 (including investments in product development and design, manufacturing setup and overhead, marketing, and other fixed costs)
Based on these assumptions, the break-even calculation is:
26,750,000 250 - 150
Projections call for selling 240,000 units in the introductory year; therefore, we will reach the break-even point early in the second year of sales, just when we will be lowering the wholesale price as we launch the higher-end second product in our line.
For our initial PDA model, we project sales to each targeted segment in the first year of product availability as shown in Exhibit A2.6.
In line with these sales projections, we are putting more marketing emphasis on the consumer market while working through channel partners to reach the corporate and entrepreneur market. (Full month-by-month sales forecasts-per channel and per segment-would be provided in an actual marketing plan.)
Consumer market ProfessionalsCollege/graduate students Business market Corporations Entrepreneurs
Unit sales 84,000 48,000
74,000 ..M.QOO 240,000
MARKETING EXPENSE BUDGET
We are budgeting for first-year marketing expenses relating to advertising, sales collateral, point-of-purchase displays, consumer sales promotion, trade sales promotion, public relations, online marketing, channel allowances, travel, marketing research, new product development, sales training and support, shipping, and customer service support. (In an actual marketing plan, this section would include detailed monthly budgets for each of those activities.)
Because Sonic's PDA is a new product, we are planning special control activities to monitor quality and customer service satisfaction. This will enable us to react very quickly in correcting any problems that may occur. We are also monitoring customer service communications to detect any early signs of customer concern or confusion. Other early warning signals that will be monitored for signs of deviation from the plan include monthly sales (by segment and channel) and monthly expenses. In addition, we are tightly controlling marketing schedules to assure timely implementation of
APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 151
planned programs. A contingency plan also has been developed for immediate implementation in the case of severe downward pricing pressure on PDA products.
(The full marketing plan would include a detailed schedule and managerial assignment for every action program and activity, not shown in this sample. For control purposes, an actual plan would also allow for month-by-month comparison of actual versus projected sales and expenses.)
To guide implementation, our complete marketing plan will include detailed week-byweek schedules for each marketing activity and program, including budget and managerial responsibility (not shown in this sample). This will enable us to coordinate and track our resource commitments as planned.
Sonic was founded 18 months ago by CEO Minoru Yamagishi and President Sandra E. Blaine, two former executives of Compaq. The executive team consists of Frederic Somers, chief financial officer; Jane Melody, chief marketing officer; Phillip Goodman, vice president of production; Marc E. Holley, director of human resources; and Dianne Cheskey, vice president of technology.
As chief marketing officer, Jane Melody holds overall responsibility for marketing strategy and direction; she also directs channel sales and all marketing communication and promotion activities, Reporting to Jane Melody in the marketing organization are:
Tony Calella, sales manager, responsible for channel sales, sales training for retail partners, and sales collateral
Caitlin Howard, advertising manager, responsible for supervising both message development and media selection by the advertising agency
Rob Barnet, marketing coordinator, responsible for trade and consumer sales promotion campaigns
Sonic has hired Worldwide Marketing to handle mass and online media advertising. The agency also will prepare trade and consumer sales promotion materials to support our product