Quetzels Inc. - Case Study I

The Actual Case

Quetzal Collections, Incorporated has been approached by a mass merchandising store chain to offer a range of its products, in particular its replica products. Currently, Quetzal’s major business is in the trade of authentic artifacts. Quetzal is faced with the question of whether or not this proposal is a desirable alternative/addition to its current business structure.

1. Analysis of the Current Situation

Current business concept and clientele of Quetzal Collections, Inc.

Quetzal Collections, Inc. is an established dealer of native crafts originating in the Americas and Africa. Quetzal’s primary business is in authentic artifacts such as jewelry, pottery and wood-carved products. A minor share of its sales product is gained through dealing with high- quality replicated artifacts which are modeled after authentic items. The production of replicas is managed by Quetzal, which employs native craftspeople in the corresponding countries of origin.

Quetzal has earned brand name status, and has established a reputation of overall high quality standards and authentically looking replicated products.

Quetzal provides its products in a two-level price range. Quetzal provides collectors with original artifacts, while serving decorators and gift buyers with its replicated offerings. Most business transactions are conducted through direct customer contact such as showings. Moreover, Quetzal’s products have been distributed through a number of specialty dealers and a few exclusive department stores, and have been offered in two of those department stores’ Christmas catalogues.

Key environmental factors / industry trends

Quetzal’s sales department states a gross sale product of $ 20 million with a growth rate of 20% annually. According to the firm’s sales manager, the trend for customers’ demand in Quetzal products is positive. However, the supply of authentic artifacts is constraint by a decreasing availability of authentic goods and new governmental export restrictions, which have been proposed in order to preserve national heritage.

Increasing competition, providing lower quality and sometimes fake products, has lowered existing market standards and prices, and has negatively influenced Quetzal’s business reputation. Distribution channels such as mass-merchandizing used by competing companies expand the market to a new clientele.

SWOT-Analysis

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The SWOT analysis highlights on the one hand the successful development of the Company in the last decade (annual sales growth of 20%) and on the other hand the general limitations of the market and the increased competitive pressure.

In the Quetzal’s favor internally are its strength of an experienced management, well developed customer and supplier relationships, high reputation of it’s brand and their high quality products, a consequent high quality oriented and well developed manufacturing (replicas) and distribution system to serve the limited but growing market and excellent and long term experiences in authenticity control.

The main important external opportunities are the current growth of the market (information gap, but likely for replicas in mass market and, due to a change in consumer preferences from abstract to more concrete artwork), a well developed image and long term customer, a supplier and distributor relationships in the increasing competitive market.

Among unfavorable factors, the main weaknesses and threats are the limited production capacity (assumption, because information not depth!!) for replicas, the narrow product lines, the increased competition and the threatened reputation of the whole industry through “fake” products and unserious competitors, and finally the limited development opportunities due to the limited and foreseeable finiteness of supply (authentic artifacts), which threatened the efficiency of the core competency of Quetzal in the future and the long term survive of the company .

2. Key problems

a) Quetzal’s major business is dealing in authentic artifacts, and only a minor share is devoted to selling replicas. The offer by the mass-merchandizing department store would require a complete restructuring process of current business procedures. Can this be achieved? Does it serve the goal of underlying business concept?
b) Through the current legal trade regulations, future transactions between Quetzal and the countries from which Quetzal buys the artifacts are likely to become complicated. Can Quetzal secure sufficient supply of authentic artifacts in the future?
c) Increasing competition has decreased Quetzal’s sales margin. The brand name Quetzal and the overall market image is affected by the appearance of fake products. How can Quetzal protect its quality standards?
d) Mass merchandising as a new distribution channel raises the issue of whether to change, adapt or strengthen Quetzal’s current business concept. Which marketing strategy is required?

3. Identify and Evaluate Alternatives

There are five feasible alternatives:

1. Reject offer and keep current strategy,
2. Reject offer and change current strategy,
3. Full acceptance,
4. Acceptance under reservations and
5. complete new strategy.

1. Reject the offer and keep current strategy

Not to participate in the mass merchandising and no change in strategy issues is possible only in the short run. In the near future the firm has to face an even more decreasing shortage of authentic artifacts. This original key business will vanish and the foremost production and distribution of replica requires a change in key competences.

On the other hand, existing distribution channels (world wide web, x-mas catalogues, etc.) promise additional sales. Mass merchandising does not put Quetzal Collection, Inc. strategy on risk. The firm is still in the position to have positive margins, although there is an increasing competition.

2. Reject the offer and change the current strategy

The rejection is combined with a fundamental change in strategies. New products have to be introduced like current arts under consideration of for instance ethical and cultural perspectives. The distribution channels have to get expanded. There are no costs assessable, but the additional costs are likely to be covered very easily. Quetzal Collection, Inc. would keep its customers and can gain new ones. It reacts appropriately to changing customer demands as well as to changing accessibility to their products. They kept the image and brand name and used their knowledge in the market and the broad network.

It had a short term loss of 750.000 US $ and an optional loss of 4 mill. US $, which is quite important in such a niche market. Furthermore, the firm risks rejection of new products. Also, limited experience in marketing can influence sales.

3. Full acceptance

Quetzal Collection, Inc. can gain new customers in the mass market in the short run. A starting revenue of 750.000 US $ and optional 4 mill. US $ are on the list. The firm gets a new distribution channel. If this new market pays off, a changing key competence can secure survival.

Because of an decreased sales price of 10% margins drop as well, which has to be seen as a normal procedure. But, still we do have high production costs (superior quality standards) and a cost intensive product has to find its place between soap and coke. The brand name can get devaluated. An increasing competition and a decreasing margin can effect the business negatively.

4. Acceptance under reservations

The firm accepts the offer under the following restrictions:

- Quetzal Collection, Inc. sets the sale prices
- Defines the distribution chains and places
- Defines brand name
- Defines product line
- No authentic product sales.

The firm is in the overall control to protect own interests and can limit the risks. It keeps the brand name and can work on the changing conditions on the markets.

5. Complete new strategy

There are a number of new strategies possible:

- Alliances with competitors with defined control mechanisms:
- Completely new firm for mass production and distribution (a new branch)
- Fusion with competitors
- Licensing

By making up a new strategies, the firm should be able to keep the key competence that is the production and distribution of exclusive and high quality products. Mass production would not weaken the image and position of Quetzal Collection, Inc. Furthermore, a new strategy can free the way towards the introduction of new product lines like current artifacts and can also create a new image like manufacturing under ethical and cultural characteristics.

Quetzal Collection, Inc. was able to keep its customers and brand name. It can also flatten starting losses because of revenues drawn from its key business. The firm can use its network more efficiently and can benefit from improving legal and income environment in the US.

The main disadvantage is the immediate loss of 750.000 US $ and on the longer run 4 mill. US $ optional. The start up costs can be too high to be burdened by Quetzal Collection, Inc. and put the them on risk. Additionally, CEOs lack experiences in marketing new product lines.

4. Select a course of action

The previous analysis indicates that Quetzal Collections, Inc. should take the opportunity to decide and don’t wait to decide on the different strategies discussed in 3. The decision should have the overall aim to secure long time business and to maximize profit optimally in the short and in the long run by updating the existing strategy in the way that a combination on the following steps will be followed on:

a) they will accept the offer by the mass merchandizing department store only under the regulations given in 3.4. and
b) they will adjust the current strategy as discussed in 2.

Following these tasks as combined steps, Quetzal Collections, Inc. would be able to increase existing profit by 4 Mill. US$ in the short run and in addition by updating the existing strategy the profit will probably increase additionally in the short run (also taken investment costs for new product development into account) and in the long run.

The action plan to follow on this strategy could be outlined as follows (actions 1 and 2 should be ideally worked on in parallel):

1. Quetzal Collection, Inc. will develop a contract where all these important issues are fixed and will propose this contract to the mass merchandizing department store. The contract will secure the overall control of the mass merchandizing business of Quetzal’s product by Quetzal Collections, Inc. itself. The business will start only if this contract secures the brand name and the market position of Quetzal’s existing products in the market and will give Quetzal the chance to get additional customers in the mass merchandizing field of the total market. If the contract is signed Quetzal has to follow on different action steps to secure the availability of the requested units for the mass market and therefore has to start directly with necessary actions to secure the quantities of replica, which must be produced by production methods which ideally have lower costs, quality defined and distribution channels secured.
2. Quetzal Collection, Inc. will start with the development of new products e.g current arts under consideration of ethical and cultural perspectives. This is their core business and action plans should already be available how to start with the development of a new production line. These action plans can be followed on taken into account possible enhancements known from further implementations.

The resulting Marketing Mix would be as follows:

Product Strategy: existing authentic products and existing replica, where replica products will be extended. Additional replica products for the mass merchandizing market with comparable quality and lower production costs.

Price Strategy: authentic products and replica for the entire business with the same prices as already fixed. Mass merchandizing products with minimal lowered prices taken into account the reduced production costs, the distribution costs to the distributor and the limited margin in this product field.

Distribution and Sales: for the existing product groups no change in distribution channels and sales actions. For the new product line training of company own staff and handling training of the distributors staff.

Advertising and Promotion: A new advertising and promotion strategy to introduce the new brand name for the mass merchandizing business. The A&P program should focus with highest priority on the current customers by explaining again the product line and by securing for the old customers the exclusivity of the authentic products and the high quality of the replica. For the new product line nearly no advertising and promotion is necessary. Still the focus mainly should be on the high scientific, historically knowledge of Quetzal Collections, Inc.