Harvard Case - Liza Davis and the Bargain Hunting Customer
"Liza Davis and the Bargain Hunting Customer" Harvard business case study is written by F. Asis Martinez-Jerez, Lisa Brem. It deals with the challenges in the field of Accounting. The case study is 14 page(s) long and it was first published on : Sep 9, 2010
At Fern Fort University, we recommend Liza Davis implement a multi-pronged strategy to address the changing customer behavior and maintain profitability. This strategy involves a combination of cost optimization, product differentiation, and customer segmentation. By leveraging activity-based costing and financial analysis, Liza can identify areas for cost reduction and allocate resources effectively. Additionally, she should explore product innovation and pricing strategies to cater to different customer segments, including the bargain-hunting segment.
2. Background
This case study focuses on Liza Davis, the owner of a successful furniture manufacturing company, 'The Furniture Gallery.' The company has traditionally catered to a high-end market, but recent economic changes have led to a shift in customer behavior towards bargain-hunting. This shift poses a challenge to Liza's business model, which relies on high margins and a focus on quality craftsmanship.
3. Analysis of the Case Study
Financial Analysis:
- Profitability: The case study highlights declining profitability due to the shift in customer demand. Liza needs to analyze her financial statements, particularly the income statement, to understand the impact on margins.
- Cost Structure: Using cost accounting techniques like activity-based costing, Liza can identify cost drivers and allocate costs more accurately. This will help her understand the true cost of different product lines and identify areas for cost reduction.
- Cash Flow: Liza needs to ensure adequate cash flow to manage operational expenses and potential investments in new product lines or marketing initiatives.
Strategic Analysis:
- Competitive Landscape: Liza needs to understand the competitive landscape and identify competitors who are successfully catering to the bargain-hunting segment. This analysis will help her understand market trends and potential strategies.
- Customer Segmentation: Liza needs to segment her customer base to identify the needs and preferences of different groups. This will allow her to develop targeted marketing campaigns and product offerings.
- Growth Strategy: Liza needs to develop a growth strategy that considers the changing market dynamics. This strategy should include options for expanding into new markets, developing new product lines, or acquiring competitors.
4. Recommendations
Cost Optimization:
- Activity-based costing: Implement activity-based costing to identify and allocate costs more accurately. This will help identify areas for cost reduction and improve profitability.
- Process Improvement: Analyze manufacturing processes to identify inefficiencies and implement lean manufacturing techniques. This can lead to cost savings and improved productivity.
- Supplier Negotiation: Negotiate better pricing with suppliers and explore alternative sourcing options to reduce material costs.
- Inventory Management: Implement robust inventory management systems to minimize waste and optimize stock levels.
Product Differentiation:
- Product Innovation: Develop new product lines that cater to the bargain-hunting segment while maintaining quality standards. Consider offering more affordable options or introducing value-added features.
- Product Design: Review product designs to identify areas for cost reduction without compromising quality. This could involve using alternative materials or simplifying designs.
Customer Segmentation:
- Market Research: Conduct thorough market research to understand the needs and preferences of different customer segments. This will inform product development and marketing strategies.
- Targeted Marketing: Develop targeted marketing campaigns to reach specific customer segments. This can include online advertising, social media marketing, and direct mail campaigns.
- Customer Relationship Management (CRM): Implement a CRM system to track customer interactions, preferences, and purchase history. This data can be used to personalize marketing messages and improve customer satisfaction.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Liza's company has a strong reputation for quality craftsmanship. This core competency can be leveraged to develop new product lines that cater to the bargain-hunting segment while maintaining quality standards.
- External Customers: The changing customer behavior towards bargain-hunting requires a shift in strategy. By implementing cost optimization and product differentiation, Liza can cater to this segment while retaining existing customers.
- Competitors: Liza needs to analyze competitors who are successfully catering to the bargain-hunting segment. This analysis will help her identify potential strategies and competitive advantages.
- Attractiveness: The recommendations are attractive because they focus on improving profitability and maintaining market share. Implementing activity-based costing and process improvements can lead to significant cost savings. Developing new product lines and targeting specific customer segments can increase revenue and market share.
6. Conclusion
Liza Davis faces a significant challenge in adapting to the changing market dynamics. By implementing a combination of cost optimization, product differentiation, and customer segmentation, she can address this challenge and maintain profitability. This strategy requires a commitment to financial analysis, strategic planning, and customer-centric decision-making.
7. Discussion
Alternative strategies include:
- Acquiring a competitor: This could provide access to new product lines, customer segments, and distribution channels. However, this option comes with significant risks and financial implications.
- Focusing solely on the high-end market: This would require a significant shift in marketing and product development strategies. However, it may not be sustainable in the long term if the high-end market continues to shrink.
Key Assumptions:
- The market for high-quality furniture will continue to exist, albeit in a smaller segment.
- Liza's company has the resources and expertise to develop new product lines and implement cost optimization strategies.
- Customers are willing to pay a premium for quality craftsmanship, even if it means paying slightly higher prices.
8. Next Steps
- Implement Activity-Based Costing: Conduct a comprehensive cost analysis using activity-based costing within the next 6 months.
- Develop a Product Innovation Strategy: Identify potential new product lines and develop prototypes within the next 12 months.
- Conduct Market Research: Conduct thorough market research to understand the needs and preferences of different customer segments within the next 3 months.
- Implement Targeted Marketing Campaigns: Develop and launch targeted marketing campaigns to reach specific customer segments within the next 6 months.
By taking these steps, Liza Davis can successfully navigate the changing market dynamics and ensure the long-term success of 'The Furniture Gallery.'
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Case Description
Liza Davis, an upscale women's fashion retailer, is reeling from worldwide recession and lower demand. Should the company target the fast growing bargain hunter segment or hold the line on price discounts to preserve its brand image? Customer profitability calculations show that the bargain hunting customer loses money--does that mean the company should ignore this customer in favor of full-price shoppers?
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