HBR case analysis of : When new product and customer loyalty collide. A brief scenario of US shoe industry in 90's.

1. When new product and
customer Loyalty collide
Case Analysis by Raj Kumar Singh

2. Situation Analysis
Henry Carson CEO of Pacer athletic shoes is confused after reading a letter from one of its loyal
customer. Henry started product line expansion to compete with new companies with deep pocket.
However his new offering did not go well with few of his old and loyal customers. Also to compete with
other big boys he started spending huge amount in advertising. But advertising is not paying enough and
his market shares are decreasing day by day. Also he has started the product development for new
segment of customers like casual walker. This situation has forced him to rethink his decision of
expansion. The questions which are looking straight in to his face are:
1) Is the decision of new product expansion is correct?
2) Is the timing correct?
3) Should he reconsider his decision for those loyal customer who want earlier offerings?
4) Where did he go wrong in this transition?
5) How could he possibly correct thing going wrong?
6) Should he stop the product development for new segment and concentrate on the existing product
portfolio?

3. Company Introduction
In 1970 Henry Carson started Pacer Athletic Shoes. His aim was to manufacture
shoes focused on professional runners like himself. At the beginning the company
could produce 80 pairs. By growing at a steady speed in 1990 the company
reached in a position to produce 1000 pairs per day. It employs 46 persons and has
a revenue of $ 10 million. It has got a status of midsized company. It has
outsourced its manufacturing to South Korea.
http://fundumarketing.com/when-new-product-and-customer-loyalty-collide/

4. Industry Scenario
In 1990 the Athletic shoe market was growing at great speed. This attracted attention of
many big shoe manufacturer. All of them wanted to have a pie of this booming segment. As a
result of more and more player entering the segment the competition was getting stiffer. This
brought option for the consumers and threat for the like of Pacer who were prominent in this
niche segment.
http://fundumarketing.com/when-new-product-and-customer-loyalty-collide/

5. SWOT analysis of Pacer
Strength
Hands on experience by CEO as a professional runner.
A good base of existing loyal customers.
Player in niche market.
Have advanced in running shoe technology
Weakness
Small player compared to others who are present in larger
segments.
Limited product portfolio.
Weak Market research appetite
Low product differentiation
Opportunity
Existing loyal customer could be used as early adopter for
new segment shoes. So good base of Net Promoter.
Expertise of running shoes could be horizontally deployed to
other segments.
Threat
New entry of bigger player in their niche market eating up their
share.
Limited product offering could affect their revenue badly.

6. Product Life Cycle
http://fundumarketing.com/when-new-product-and-customer-loyalty-collide/
As per Marketing Guru Kotler the life of any product can
be divide in to 5 stages:
1) Product Development
2) Introduction
3) Growth
4) Maturity
5) Decline
Pacer’s employees need to ascertain: at which stage their product is
hovering and depending on that only they should decide their
product present and future. This can easily be ascertained by
conducting a market survey among their customers.

7. Customer Loyalty
Customer loyalty can be differentiated into following levels:
1) Contact
2) Lead
3) Prospect
4) Customer
5) Client
6) Supporter
7) Advocate
Pacer should find out which of their customers are advocate and involve them in
new product process, so that any dissatisfaction can be filtered. This process will
help to stop anynegative emotion, shared by Cal Linden in this letter.

8. Conclusion- When New Product and Customer Loyalty
Collide
Pacer’s CEO should have done few market survey to come out of the situation and his
confusion which is created due to a letter from one of his loyal customer. Following could
possibly be a way out:
1. Analysis of product lifecycle stage for existing product: Henry could get a simple survey
conducted to know which product has started to decline and which one could still hold on to
customers’ expectations. This survey could help him to plan his product portfolio accurately

9. Conclusion- When New Product and Customer Loyalty
Collide
a) Involve his product advocates in new product development process: Henry must take inputs
from his loyal customers while designing new products. Their feedback will drive the
designing team on actual need of that particular segment.
b) Update the product line as per changing customer behaviour: Pacer team must collect
information from market about changing customer behaviour demand. As the information
level increases customer demand changes. Paces need to keep their product line as per the
current demand.

10. Conclusion- When New Product and Customer Loyalty
Collide
a) Product DNA: Since Pacer is into manufacturing running shoes, they can adopt this as their
DNA and design a proper differentiate product line which can cater to several segment
under racing group of customers.
b) Product line width and depth: To compete with new and bigger companies Henry too has to
widen his product line width. Each product should have decent depth line to cater to every
demand of the customers. But each product must be positioned to right target of customer.
Else Pacer team would keep getting such kind of letters.

11. Conclusion- When New Product and Customer Loyalty
Collide
a) Better market research/probable customer input during design: Pacer team should conduct
frequent and better market research tools to involve probable future customers. They can adopt
customer psychometric test in which one needs to display product to selected set of customer
before product launch. They can also use product seeding technique in which they can give few new
under design shoes to customer for use. They need to collect feedback from these customers
periodically and modify the product accordingly.
http://fundumarketing.com/when-new-product-and-customer-loyalty-collide/

12. http://fundumarketing.com/when-new-product-and-customer-loyalty-collide/