Case let: Tweeter

Tweeter was a small upscale retailer of consumer electronics in the New England area of Boston,
MA, which had grown from 13 store chain (USD 35 million) in annual sales in 2001 to 21 store
chain with USD 82 M in annual sales in 2006. The CEO attributed the growth largely to the
implementation of the Automatic Price Protection (APP) which was introduced in 2003. Under
APP, Tweeter automatically refunded the check to a consumer if an item purchased at Tweeter
during the past 30 days was advertised for a lower price by a competitor.
Tweeter’s stores were on an average 6000 Sq.ft. and enjoyed a good reputation for high quality
customized stereo equipment and components. Initially appealed to avid hobbyists and
audiophiles. Tweeter also had high end video equipment, principally in the form of CTV’s. It
offered good customer service and had very knowledgeable salesforce. Tweeter did not carry
entry level products. Instead, it carried middle and high-end stuff. It had a 3.6% market share in
2006.
Tweeter had recently purchased a controlling stake in another regional consumer electronics
retailer, Bryn Mawr. Like Tweeter, Bryn also implemented APP, but had failed to see any
significant improvement in the sales. Recently, ‘The Wiz’ opened a store in the New England
area of Boston with this 50,000 Sq.ft store. Wiz was a national chain, highly renowned, highly
competitive discount retailer.
Consumers:
The consumers displayed the following general characteristics;
a. They actively thought about the product one or two months before actual purchase.
b. They visited multiple retailers prior to purchase. Newspaper ads, prior experience and
word-of-mouth influenced selection of the stores.
c. Virtually all consumers delayed purchase until they saw the desired product or class of
product advertised in a newspaper.
d. 4 out 5 consumers felt Tweeter was more expensive than competitors. If price was not an
issue, most consumers preferred to buy from Tweeter.
e. 1 in 3 came to Tweeter to figure out what to buy and then went to competitors to get
better price.
Competitive landscape:
a. Lechemere: region’s most popular retailer of consumer electronics and home appliances.
Had 28 stores, each store averaging 50,000 sq.ft. Many in Boston considered it the only
place for buying TV’s and audio equipment. Known for its fair price. Had 35.6% market
share.
b. Circuit city: nation’s largest consumer electronics retailer. Had 15 stores in the Boston
New England area. Approx. 30,000 sq.ft store and 06 smaller circuit express stores with
3000 sq.ft area. Enjoyed good reputation for knowledgeable salesforce and good service.
60% sales came from video and audio products. Had 18.6% market share.
Sale, Sale, Sale:
Lechemere had initiated series of weekend sale campaigns in which the prices were cut on select
items (upto to 20%) on Friday to Sunday. Before introducing APP, Tweeter as well as other
competitors followed Lechemere. As a result, weekend sale became a commonplace. Many
retailers were advising consumers not to buy products on weekdays. It was then, that Tweeter
decided to abandon Sale and introduce APP. With it, Tweeter also changed its media mix from
newspapers to radio, TV and direct mailers. Tweeter spend 8% of its gross sales on marketing.
Tweeter started mailing buy guides, a 50 to 100 pager seasonal buyers guide, produced four
times a year. Its databased contained 325,000 individuals. 270,000 of these had made purchases
in the last 18 months. By the end of the year, Tweeter had mailed 29,526 checks totaling USD
780,000. As part of APP, Tweeter was paying the difference in the amount.
Going forward:
Tweeter had to decide on the following two issues;
a. Should it continue with APP?
b. Why was APP not working at Bryn?
Table 1:
Customer Total market Tweeter Lechemere Circuit city
segment
Entry level 50% 5% 40% 35%
Price baiter 15% 20% 10% 35%
Convenience 25% 5% 40% 15%
Quality / service 10% 70% 10% 15%

Table 2:
2000 2003 2006
Components (sales) 1.9M 1.6M 2.1M
Consumer electronics 23.8 B 27.2B 32B
industry (sales)
Tweeter 39.5M 43.7M 65.5M

Questions:
1. From a consumer behavior point of view, what might be the primary issue that Tweeter is
trying to address with APP program?
2. What are the different ways to assess the consequences of automatic price protection
program? Has it worked for Tweeter? Why? Why not? Should Tweeter continue with
APP?
3. In the case context, what is the fundamental difference between relative price comparison
and absolute price comparison? Explain.
4. APP was not very successful at Bryn? In your view, what might be the reason(s)?
5. How do you think mass media advertising and assortment might have contributed to the
long-held price perception that “Tweeter is expensive”?
6. Should Tweeter worry about ‘The Wiz’? Why? Why not?