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Business Studies Honours
New product Development: Bringing Innovations to Market
Assessment: Vipp A/S (Designer Trash Bin Company)
What is the problem?
Written by Asta Young-Smith
Matriculation number: s0566397 Word count: 2442
Date: 20/03/08 Tutor: Prof. John C. Crawford
Table of contents:
1. Nature of Demand: Page 3 2. Extent of Demand: Page 3 3. Nature of Competition: Page3 4. Environmental Climate: Page4 5. Stage of PLC: Page 4 6. Cost structure of Industry: Page 5 7. Skills of the Firm: Page 5 8. Financial Strength of Firm: Page 5
1. Key opportunities: Page 6 2. On Balance, the Situation is: Page 6 3. What is the problem?: Page 7
1. Alternative 1.: Page 7 2. Alternative 2.: Page 8 3. Alternative 3.: Page 8
Decision: Page 9
1. Nature of Demand There is always a great demand for cheap and simple design trash bins and other bathroom wear, and there is a growing demand for the high quality luxury commodities. Vipp, a family run business, has been producing high quality design trash bins for many years and it grown to be a success. The demand for supporting luxury products had been growing too. ‘After decades of subsistence revenues, Vipp had increased production 30-fold and staff 16-fold to meet the accelerating demand from around thirty national markets’1 The Vipp bins earned its success with the help of family member’s dedication to business and also through intense advertising at charity shows and exhibitions. There are many nice trash bins around but most of them do not have the same DNA as Vipp bins do.
2. Extent of Demand
The company has a variety of products within their product line. The Vipp bin come in different sizes and colours and is the main product that company sells within Europe. The other products that had been created by Vipp are: toilet brushes, soap dispensers, plastic bags for bin, and towels. In 2005 the annual production volume reached 50,000 bins and in 2006, Vipp was best known in Denmark, where it sold 22,000 bins per year. The company exports to 30 countries, mostly in Europe, also Canada, Japan, United States, New Zealand, and South Africa.
R. D. Austin, D. Beyersdorfer, , ‘Vipp A/S’, Harvard Business School, December 19, 2006
3. Nature of Competition The Vipp firm is not trying to compete with the large-scale producers. The main competitors within their niche market are businesses, which are selling similar quality designer products. This enterprise is not a volume-driven, but design-focused company. In order to maintain their high margins they have to have a sexy product which is distributed through the right channels. The owners of the company are not concern with the imitators who are making a very similar design product. Those imitators do not have designers or PR and they can run on low margins. ‘It’s cheaper to imitate than when you actually invent.’2 They know that there are many good ‘cans’ out there, but Vipp try to compete on the lifestyle and DNA that their company have. The 90% of Vipp’s business comes from individual customers, who buy their products from the design shops. Those customers are the ones that appreciate good design. The owners of the company believe that their future competition will be other luxury brands like for example Armani Home. Therefore the Vipp Company will always be competing within their niche market full of products that provide exactly the same service. However, with its quality product which has been put together by talented craftsmen, it might be able to sustain the competition and gain a valuable market share for Vipp products. 4. Environmental Climate At this moment in time there are no legal actions being taken against or on behalf of Vipp firm. 5. Stage of PLC The Vipp enterprise is going through the growth stage as the company has established its distinctive competences and enjoys some product-market success. In this stage, the emphasis is put upon achieving rapid sales and realising advantages accruing to larger scale. All functionally based structure is established, and authority is delegated to different family members and procedures are formalised. At this stage still there is a high level of uncertainty and it is crucial for the company to monitor the market place and adapt initial strategies to major changes. The Vipp Company continuously faced
R. D. Austin, D. Beyersdorfer, , ‘Vipp A/S’, Harvard Business School, December 19, 2006
with problems like managing sudden company’s growth, matching demand increases and maintaining cash flow.
6. Cost Structure of Industry It is difficult to comment on the company’s cost structure, as there are no data available in this case study.
7. Skills of the Firm The Vipp enterprise is a family run business, which has been very successful in creating very high quality products. Jette’s Egelund (CEO) experience in human recourses and father’s contrasting examples helped her to develop a style conducive to the need to hire and keep great people. The company has a small in-house design group which is led by Morten Bo Jensen, also a team of craftsman who are very dedicated to the work they do, which is putting bin parts together and creating the high quality goods. The Viip also has three people in Public Relations, which helps the company to promote awareness of their products in the press, with dealers, and with end customers. The company is also good in advertising the firm through various charity events, and exhibitions, attracting more and more design-conscious consumers who are on the look-out for a stylish waste bin for their bathrooms and kitchens. The largest event to take place in Vipp’s history was in April 2006. Vipp got invited to exhibit at Carrousel du Louvre in Paris. Chilean designer Mauricio Clavero created some challenging art experience by using Swarovski crystals and Sicis mosaics. This exhibition tours major cities throughout Europe and helps Vipp company to advertise their products.
8. Financial strength of the Firm
In 2005, revenues rose 45%. By June 2006, the annualized growth increased to 56%. In autumn the same year, the company was going to launch the new towel collection
and some other products, which are believed, would have projected a growth of 80% for 2006. In June of 2006, the Vipp bin, displayed in Danish Design Centre, sold for €149 to €500. The prices would always depend on bin size, geography, and retailer. Other products like Toilet Brush sold for €129, Soap dispenser for €75, and Plastic bags from €5. In general the company is growing very fast. This leads us to believe that financially the firm is doing very well. The important part is for the firm to sustain its rapid growth and continue to expand their new product range, which might help the company to exceed bin revenues within the next five years. There is limited information on the company’s financial status, so it is difficult to decide on their financial strength. Problems/Oportunities 1. Key opportunities One of the key opportunities for Vipp enterprise is to continue developing a broader product line which could be later diversified for the whole home. But to do that they have to bring more resources and develop more capabilities into the business, who will be able to give Vipp some new ideas and help with the growth. Also by creating more resources and capabilities, company could start entering many untapped markets with many influential buyers around the world. Another opportunity could be approaching business-to-business clientele. It has been done before in Vipp’s history and it could be done again. They would need to approach architects or hotels and restaurants that are at the high end of the market. As long as there is a relationship between the old products and the new products, there will be always a story and a lifestyle attached to its brand. 2. On Balance, the situation is On balance the Vipp’s main focus at the moment is in promoting their brand and new products externally, because it is influenced by the fact that the products had been developed by a company which has its roots in advertising, like for example the charity show in Paris where Vipp had received good press coverage and also Louvre exhibition which travels around selected luxury
shops in Europe and the U.S. However, the Vipp company has not clearly identified the product value attributes before moving to the next innovation. What it really means is that preoccupation of keeping pace with the rapid growth has led to a lack of attention to market research, as well as the temptation to enter too many markets simultaneously.
1. What is the Problem?
Vipp’s problem lies in marketing research. Alternatives Alternative 1. Abolishing or altering contract concept Vipp need to abolish or make some alterations to their contract concept. Stemming from Vipp’s ‘store-in-store’ concept, the contract would require dealers to take the whole range of available products and display them in accordance with Vipp standards. Smaller companies may not be able to hold the full range of products through lack of shelf space. There could also be the lack of budget to stock Vipp’s full range. In addition, Vipp’s idea of how to present their products in smaller stores must conform to that of the owner/manager. Similarly, larger stores have their own merchandisers who decide on shelf space usage and displays. Trying to force companies to devote space for the product and telling them how to present it may have negative effects. Vipp would find their influence significantly reduced as cause of these factors, and would have to alter their contract concept accordingly. Offering the products to new markets, using a sale or return policy would significantly heighten Vipp’s chances of having stores take the full range. They may even attempt to abolish the contract for smaller companies in a lesser financial position. They could issue merchandising information as a suggestion and not that of a contracted order. Finally, Vipp could use personnel to liaise with stores to suggest a layout face-to-face, increasing the likelihood of the company following their directives.
Alternative 2. Invest in resources for carrying out market research Vipp need to invest more in resources to market research and act upon its findings to increase its control over the market. Different markets need a different marketing approach to appeal to different consumers. Marketing research was conducted in the packaging design of Vipp, but the all white packaging design did not report back positively. Customers felt the product “disappeared” on the shelf. Vipp disregards this as it is aiming for a sense of identity with its packaging design. They aim to compete for more shelf space by adding more products and “pushing out” other companies’ displays, therefore creating larger displays and increased brand recognition. However, it would be very difficult to achieve this if the customer feels the brand is “invisible”. They could use a “trial and error” method to test various packaging designs. In addition, Vipp would benefit by liaising with potential customers to layout their ideas and gain feedback. There is a need to produce adequate advertising and point of sale material in order to convince businesses of their aims to expand within their stores. For example, if they are going to proceed with white packaging, they need adequate in-store point of sale to help promote the product for the customer. Vipp have to realise that they will have very little control over shelf space within outlets which they have to react to the feedback of retailers in order to maximise sales for all involved.
Alternative 3. Diversify Advertising Budget Vipp needs to spread out their budget for advertising to cover numerous sectors as opposed to selective ones. They had so far a great success through recognition in the charity shows, exhibitions, also through the artist’s designs on their bins. But this way of advertising lacks in interaction with the market place. This artistic, extravagant mean of advertising has always benefited
Vipp. However, they are deep rooted in style and fashion. Dramatic changes in fashion may not produce the longevity which Vipp needs. Much of the interest and hype around the Vipp brand has been built up by the media interest and by chance opportunities (such as exhibition entrance). These are out with the control of Vipp. Marketing ploys such as the expensive concept of the salon rely heavily on the media “storm” which follows such original product promotion ends when the storm dies down. Although the salon provides a good base to display the products, however, the idea of specifically designed buildings to showcase their products would be highly expensive and it is too localized an advertising tool once the media storm rests. From having bad experiences in earlier marketing techniques, such as the use of agents, Vipp is reluctant to go down the same route again. This failed largely due to the agents not being supported by an advertising campaign due to a lack of funding. With funding now in place Vipp are in a position to financially support such a campaign. Reverting to fundamental marketing techniques such as agents backed with appropriate advertising campaigns would considerably lower the risks and financial costs of more exclusive, more expensive means of advertising. Using agents would allow Vipp to gather further information about market differences and how to further promote the product, and relay information on how competition are promoting their products. Furthermore using agents allows for face to face contact with the customer and consumer. This would allow Vipp to gain a more detailed analysis of the market place than simply showing the product off in a few selected locations. Vipp need to control both the length of time advertising runs for and what markets in which they reach. Current forms of advertising do not give sufficient control.
Decision It has been decided that Vipp should follow with the alternative three, as it will help the company to better understand the market place. If the company will follow the proposed alternative they will have a better understanding of how the market place operates relative to its products. Being able to identify market and trends related to their inventions, they will be able to promote their new
products by cultivating the market place and by attracting and keeping their new customers. If they start gathering and analysing market research information, the Vipp will have no difficulty determining if their marketing plan is in line with their competitors, and what adjustments they have to make in order to improve the overall competitiveness. The other two alternatives would provide only a short term solutions for the company.