Case Analysis: Verbatim Challenges 3M for Market Leadership

 

- Statement of Problem -

Verbatim achieved to become the second largest supplier of the floppy diskette in 1991 and could achieve a market share of 15.2 percent in that market, which was placed right behind the 3M’s market share of 15.5 percent.  The competition with market leader, 3M, reached to the point where it was neck-to-neck and the competition with other rival suppliers was soaring up to a high intensive level.  The problem, Verbatim was facing, was how to be able to become the market leader in the floppy diskette market and the overall computer media market in the highly competitive environment. 

 

- SWOT Analysis -

The following Table is the brief summary of Verbatim’s SWOT analysis, and each item is explained further with respect to each environment, situation and trend. 

 

 

 

Strength

• Access to needed capital infusion ~ Being a part of chemical division of Japanese conglomerate, Mitsubishi Kasei, allowed Verbatim to have an ease access to capital infusion that had been limited under Kodak’s ownership.  This allowed concentrating on the intensive R&D to enhance the existing products and develop new products.
• Solid position in the target market ~ Verbatim achieved market share of 8.59 percent in 1991, which was placed behind 3M and Hitachi/Maxell.  In1992, Verbatim achieved a market share of 15.2 percent, which was right behind the market leader, 3M, of 15.5 percent.
• Ability to innovate and improve products ~ Teflon coating process (1987), preformatted diskettes (1987), colored disk jackets (1988), and nonmetallic shutter (1990) were all initially introduced by Verbatim in the market.
• Ability to provide quality products ~ Verbatim’s reputation for quality products was highly recognized and the company was able to establish the strongest position in the OEM market supplier as a result.

 

Weakness

• Lack of brand recognition ~ Even though Verbatim was one of the most influential market challengers, its brand recognition is not as strong as that of 3M and Sony, which were the world’s recognized companies. 
• Lack of brand share of mind ~ The top-of-mind awareness survey showed 3M had 45 points, while Hitachi/Maxell had 24 points and Verbatim had 23 points.  22-point-difference between Verbatim and 3M was obviously affecting the difference in the sales.
• Lack of strong advertisement ~ Verbatim advertising expenditure was approximately three times smaller than that of 3M, recording $976,481 in 1989.  3M could, by far, build strong brand recognition in the market, which had already existed before. 

 

Opportunity

• Strong growth in computer media market ~ The computer media market’s sale increased from $1.2 billion in 1989 to $1.8 billion in 1990, recording 50 percent growth rate.
• Growing trend in SOHO (Small Office Home Office) ~ The actual number showed that more than 26 million Americans performed job-related work at home and this number was expected to increase to 35 million by 1993, indicating a growing trend in SOHO market.
• Potential growth in optical market ~ Although, the magnetic disks were the dominant products for computer media market, accounting for 68 percent of the whole market, there existed a potential need for optical products that could store much higher capacity.

 

Threat

• Negative impact being caused by the recession ~ The recession in 1991 was causing low consumer confidence and rising unemployment, which led to the change in consumer spending behavior on personal computers.  The sale of floppy diskette and other storage products have a direct correlation with the sale of personal computer.
• Severe competition on price ~ Data storage products are highly commodity base so that the operating margin erodes very rapidly and drastically as a result.  The average price for all 5.25�E#060;/span> floppy disks fell over 50 percent from $1.00 to $0.43 in five years during 1985 to 1990.
• Intense and fierce level of competition ~ A number of competitors were involved in data storage industry and trying to get ahead of other competitors.  Major competitors include from highly recognized companies such as 3M, Hitachi/Maxell and Sony to newly entered companies. 
• Breakthrough in technology ~ Any technological breakthrough could change the whole way of doing business, especially in the computer-related market in which computer media market was involved.

 

- Alternatives -

The first alternative is to keep targeting and attacking 3M to be the market leader by increasing expenditures on advertising and promotion, fully utilizing the advantage Verbatim acquired from Mitsubishi Kasei.  The primary purpose and advantage of this alternative is to establish more profound position in the market recognition, especially in the floppy diskette market, to further take an advantage of the strong-growing computer media market growth.  The market leader tends to gain the most profit in the situation where the market itself is growing, which is exactly what was happening in 1992.  By tying to establish more solid market position in the market, Verbatim may be able to become the market leader and enjoy the lucrative position.  The disadvantage is apparently the high advertising expenditure Verbatim have to incur, however, this can be somewhat offset by the strong backup from Mitsubishi Kasei.

The next alternative is to focus more on the home office market, which was showing a strong growth despite the negative effect of 1991-92 recession.  A tremendously rapid pace in the computer technology kept the price of personal computer decreasing and made personal computer much more affordable to consumer market, which led a growth in home office market.  This trend would grow along with the technological development in computer-related products and gave a good opportunity for Verbatim to find another strong revenue source.  As a result of this alternative, Verbatim can obtain higher brand share of mind, which is needed to improve to become a market leader.  The main disadvantage associated with this alternative is that Verbatim may lose some sales from the business market.  Since the business market usually does not show much fluctuation in demand by the negative economic environment, loosing some sales from business market is one of the things that Verbatim wants to avoid. 

The third alternative is to pursue and put effort in developing the optical market.  As Verbatim has shown before its ability to innovate and improve quality products, it may be possible to take an initiative in this new market with a strong market position.  A great deal of progress in information technology and computer products sometimes brought an overflow of information, therefore, corporations needed to manage, organize and store the information in most effective way, which requires a high capacity of storage ability.  Floppy disks, which are the primary products for Verbatim, cannot effectively solve this problem because of its limited capacity of storage capacity, but the optical products can be the ideal solution for this problem.  Optical products are also in the introduction stage so that building a strong position in the optical market can be the future star product and ultimately the future cash caw product.  On the negative side, Verbatim might loose its strong position in the floppy diskette market, moreover, a huge amount of capital investment is required to develop optical products and change the manufacturing process.

The last alternative is to take the integrated-strategy, combining the three previous alternatives into one.  Of obvious importance here is to produce and attain overall synergetic effect to be the market leader in the computer media market.  By diversifying Verbatim’s concentration, Verbatim can extend its product portfolio and serve wider variety of customers, however, two important adverse effects deserve mention here.  First, by taking the integrated-strategy, Verbatim may loose its strength in a certain market product, being a kind of average supplier without no strategic strength in the computer media market.  Other is that it may suffer from a cannibalization effect by offering different products in the same computer media market.

 

- Recommendation -

The recommendation I would suggest as a consultant for Verbatim is to take the fourth alternative with a few specific considerations. 

 

- Implementation -

In order to implement the integrated-strategy, Verbatim needs to advertise to build more solid market recognition even it increases the advertisement expenditure.  Since some of the major competitors have a lack of consistency in their advertising message, which derives from the fact the computer media market is not the only target market for them.  Verbatim can take an advantage of it and differentiate by communicating and sending the advertising message, saying it is the supplier that thoroughly concentrates on the computer media products to create superior brand image.  The advertisement expenditure can be, in a certain extent, supported by Mitsubishi Kasei, whose desire is to become much stronger in the computer media market by investing heavily in the present with a perspective to a long-term profitability. 

The next thing that Verbatim should conduct is to build broader marketing channel to satisfy the consumer market.  Consumer market, as mentioned before, is expected to rise in a rapid growth rate due to the affordable price of personal computer.  The considerable importance here is to build a solid relationship with retail stores such as Staples, Office Depot and Sam’s Wholesale, effectively promoting Bonus brand and DataLife brand and their reliability supported by the lifetime guarantee.  Five regional managers need to strive to build the relationship by efficiently managing eight sales representatives that regional managers supervise.  As Verbatim a whole, too much emphasis on customer market could erode the sales from business market so that Verbatim needs to balance out the optimal weight on each segment. 

In terms of the optical market, this could be the potential lucrative sale source in the future from the fact that corporations are trying to computerize their internal system so that a large capacity of storage ability would be needed as a result.  So far, none of the competitors has accomplished to build a solid position and taken the initiative in this optical market, which leads to motivate to pursue that position.  In addition, depending solely on the magnetic products is risky in someway that can be another reasonable idea to pursue the new market opportunity.  Verbatim needs to invest a huge amount of R&D expenditure to develop new optical products, utilizing the advanced technology from what both Verbatim and Mitsubishi Kasei have developed and acquired.  R&D and Production Department are primarily responsible for this arena. 

The worst scenario of taking the integrated-strategy is the cannibalization effect that adversely erodes the bottom line of the Verbatim’s sales.  In order to avoid this worst scenario, Verbatim needs to precisely seize and understand the level as well as the stage of each product’s life cycle, which is relatively very short in the computer media market.  Marketing Department needs to collect the relevant and up-to-date information on what is going on in the market place and Accounting Department can give an insight by analyzing the financial date.  In addition, by always focusing on customer needs and wants, Verbatim can mitigate the degree of the cannibalization effect.  Without an intensive customer focus, the integrated-strategy definitely cannot be accomplished.  Consequently, the ultimate goal is the customer satisfaction and to be the market leader in the computer media market.