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Market evidence suggested that the Clearwater market was becoming more price
sensitive. But there had been a decline in promotional expenditure by Watatreat
accompanied by increases in investment by competitors. Overall promotional expenditure
in the market was estimated to have been £400,000, £450,000, and £450,000 over the
past 3 years, with Watatreat spending £100,000, £80,000, and £80,000 over the same
period. The market was highly influenced by promotion with a 5 per cent advertising
expenditure leading to a 7 per cent increase in sales, and 15 per cent to 12 sales
improvement. All these figures assumed that the advertising expenditure was optimally
spent. The draft marketing plan for Clearwater for the next year forecast an expenditure of
£100,000, and though this could be changed, senior management were generally unwilling
to see substantial increases in promotional expenditure because of the cash flow demands
of the rest of the business, and the need to achieve the highest possible profit margin in
the cash cow component of the consumer water filter sector.
Promotional expenditure in the sophisticated market had been negligible with the majority
of effort being placed in public relations activity. It was thought that the sophisticated
market was far less price sensitive than the standard, but there was insufficient market
information to determine what the elasticity was. The launch plans for the Iceberg included
£50,000 for promotion.
Some of the major outlets were also of the view that the competitive gap between
Clearwater and the competition was widening and this would need to be reflected in the
pricing of the product. When asked to rate quality of product, consumers had ranked
Watatreat Clearwater at a higher level than in a previous survey. The research, with
current findings and (previous findings in brackets) against an average of 100 are provided
as follows: Diamond 112 (114), Crystal, 105 (105), Silent Spring 106 (104), Flowmaster,
103 (105), Clearwater 98, (92). Market surveys had also suggested that the new Iceberg
had a substantial quality edge over the competition with a quality perception of 112 based
on the market average of 100.
The distribution channels for water filters had changed over the years with multiple outlets
gaining share against the independents. The trend over the past 3 years by percentage
share, by store, was as follows: Bruckner 12, 12, 13; Copeland 13, 12, 12; Stockhausen
16, 15, 17; Nielsen 11, 11, 11; Corelli 9, 10, 11. The remainder of the market was supplied
by independents. There was no price control operating in the market, though the majority
of outlets tended to take their prices from the price leader, Stockhausen. Stockhausen had
managed to increase its market share over the past 3 years by promoting heavily, an
investment achieved by increases in retail prices accompanied by a steady widening of
retail margins, up from the basic 33 per cent on gross - 50 per cent mark up on cost - that
it had historically achieved on water filtration products. Though the average retail price had
grown by 9.5 per cent, wholesale prices had only increased by 7.0 and this 2.5 per cent
differential had been a feature of the market over the past 3 years. Watatreat appeared to
be suffering particularly acutely from the discount activities of the major outlets, with a
wholesale price to such outlets only increasing from 9.7 to 10.2 over the last year. The
pattern for Iceberg was entirely different. As volumes in the specialist outlets went up, their
margin demands had tended to decline from 60 to 55 per cent.
Given the importance of the multiple retailers, a steadily greater proportion of Clearwater's
overall sales were achieved with the maximum volume discount - 10 per cent - with only
26 per cent of sales being achieved at a lower rate. It was likely that Iceberg would sell
mostly with low rates of discount because of the distribution structure. It was anticipated
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