Report to the Executive Board May 5, 2011 Prepared by: Chris Holcombe President and VP of Market Research firstname.lastname@example.org Corey BonnetteVP of Advertising and Brand Management email@example.com Janet Hardin VP Brand Management and Finance firstname.lastname@example.org Stan Gurevich VP of Sales Management and Finance email@example.com
Escher Year 2 Report Page 2Year 2 ResultsFinancial Performance With the additional $5 million investment by the board going into Q5, Escher was able tomake a $3.5 million investment in R&D to support the Mosaic brand. The company was alsomore aggressive with opening new sales offices, which created a regional dominance in China aswell as increased spending in sales force and advertising. These investments along with strongbrand, ad and price performance allowed Escher to grow its top line to $17.9 million by Q8. Thestrong sales demand yielded cost of goods sold reductions, improved the overall profitability anddelivered net profit by Q7 (Appendix A,B). Escher also delivered a return on investment of 41%by Q8 and maintained a strong cash position of $2.2 million going into Q9 (Appendix C).Market Performance Escher’s mission was to be the technology leader in personal computers with primaryfocus in the Innovator market and secondary focus in the Work Horse market. Based on data bythe end of Q8, Escher had leading market share (32%) of the Innovator segment and 24% sharein the Workhorse segment (Appendix E). Brand Judgment was very good for all Escher brands intheir target markets, ranging from 72 to 84, yielding a fairly balanced profit contribution fromeach of the brands as well as a surprising cross-over in market demand for Mosaic-MBA. 45% ofthe profits in Q8 were generated by Escher’s regionally dominant Chinese offices followed bysingle offices in Europe and the U.S (Appendix F). Overall Escher raised its balanced scorecard to 1.62, driven by solid scores in marketingeffectiveness and investment in the future (Appendix D). While the company still has acumulative net loss of $4.1 million, the executive team is confident that the current marketing
Escher Year 2 Report Page 3plan will yield continued net profits and a full return on investment within Year 3 (Appendix C).Company and Strategy EvaluationStrengths As stated in the company mission statement and the Q5 board presentation, Escher was tobe the technology leader in personal business computers. This commitment to core values provedto be one of the firm’s strongest assets. Time and resources went into perfecting the Innovatorbrands and as a result, Escher was one of the first companies within the Innovator market toscore favorably in Brand Recognition and Judgment. Escher also proved to be the first company to score highest in the Work Horse segmentwith its brand Mosaic-MBA. While developing the new product, the executive team anticipatedsome Work Horse crossover. The Q7 market reaction surpassed expectations in terms of WorkHorse scoring and sales. After studying the Q7 customer mix (Appendix G), the marketing planwas then slightly modified. Mosaic-MBA would be marketed in Q8 solely as a Work Horseproduct while retaining Innovator prices. The decision represents another core strength of thecompany, that of quick market response. As a result, Mosaic-MBA became the most profitablebrand and in terms of advertising, received the highest ad judgment rating in the Work Horsesegment. By the end of Q8, Escher had the largest increase in Work Horse sales (Appendix H)compared to its competitors while still maintaining its Q7 customer mix (Appendix I). Another example of Escher’s ability to respond to fast-paced market changes can befound in the failure of the brand Ascend. Escher tried to enter into the Cost Cutter market in Q5,hoping to obtain increased profit margin and a boost in overall sales. After one quarter, the teamstudied the poor brand ratings in comparison to its competitors, completed a cost-benefit analysis
Escher Year 2 Report Page 4of what it would take to obtain favorably scorings, and ultimately decided to drop the brand. Thedecision represents not only awareness of the market but also the commitment to core values.Escher was to be the technology leader. Targeting a Cost Cutter market was not in line with thefirm’s mission statement. Another key competitive advantage is the early dominance of China. By being the first tomarket, Escher established brand loyalty and high sales numbers. To date, China continues to bethe most lucrative region.Weaknesses The most substantial weakness of the company and its marketing plan was conservativecaution in regards to spending, which was addressed in the Q5 briefing. The executive team hassince made a point to invest their available funds into R&D, global expansion and aggressiveadvertising campaigns. Year 2 showed a dramatic increase in advertising spending, placing firstor second in number of regional and local ads (Appendix J). As mentioned in the FinancialPerformance section, over $3 million went into R&D. However, financial tentativeness reared its head again when the team decided to delaysome R&D to Q10 instead of introducing new features in Q9. As a result, the most aggressivecompetitors Kiwi and megaTRONIC made signifiant gains in Innovator brand scoring and sales(Appendix K and L).Escher Going ForwardFuture For Q9, the company opened two new sales offices in Chicago and London with plans toexpand further into Europe and the U.S in Q10. While there is tough competition in both of those
Escher Year 2 Report Page 5regions, Escher has seen consistent sales increases (Appendix M), indicating some untappedpotential. As its Mosaic product lines continue to score well, the executive team anticipatesconsistent sales in Q9 and a strong sales increase in Q10 when R&D completes. Escher will introduce new brands in Q10 with features that can cross over into both theInnovator and Work Horse segments. Planned improvements include an un-interruptible powersupply that increases reliability for Innovator brands Mosaic-ENG and Mosaic-3, and a Plug nPlay feature that will bolster the already well-selling and well-performing Mosaic-MBA.Lessons Learned The executive team acknowledges that financial tentativeness kept the company fromgrowing and expanding as fast as its most aggressive competitors Kiwi and megaTRONIC. Withtime, it became apparent that market leaders set precedence for various brand functions, even ifspecific features were not shown as highly favorable in market research. By being tooconservative, Escher allowed Kiwi and megaTRONIC to obtain strong footholds in Europe andthe U.S., which have higher price points per product, and to make significant gains in theInnovator segment by the end of Year 2. Furthermore, more attention should have been placed upon brand profitability in earlierrounds. Escher was forced in the first part of Year 2 to expand into other regions to increase salesand profitability. While there was a modest boost in net margins, Escher could have significantlyreduced its cumulative net loss had the regional expansions been coordinated with highlyprofitable products. The executive team considers the Travelers market a missed opportunity. By the middleof Year 1, there were no competitors reaching out to Traveler customers. The team debated
Escher Year 2 Report Page 6expanding into that segment but ultimately decided against it. The current industry leader (Kiwi)entered the Travelers market and remains the only company selling to that segment. Such adominance paid off well for Kiwi.