There are approximately 332,500 households in the greater Tucson area, which includes suburbs such as Green Valley, Ina, and South Tucson. Virtually all of these households have TVs, VCRs, etc. Tucson Electronics segments its market into product categories that reflect the estimated number of each electronic device currently being used in the greater Tucson area, since each of these devices may fail at any time and require our services. In addition the growth rate of each product emplaced in the home is based on the current sales growth of each product. Presently, the fastest growing product, in terms of sales, is the DVD player. It is anticipated that the DVD will replace the VCR within the next three to five years as movie rental stores replace their existing VHS movies with DVD. The largest segment is the home and car stereo segment, since usually a household has more than one of these systems. The company will be focusing on servicing all of these systems, and not focusing on one over the other.
Tucson Electronics has segmented the households in the Tucson area as follows:
Tucson will target the following segments.
Middle class couples without children. This group will tend to have a higher disposable income since they have two incomes but do not have the expense of children. They prioritize socializing and spend a fair amount of time entertaining in their home and in the homes of their friends. For this reason they will spend more on their electronic equipment.
Single men living alone or with roommates. This group is not the largest segment for us, but potentially one of the most profitable, since single men tend to prioritize their home entertainment equipment. They will spend a greater percentage of their income on high-quality TV and stereo equipment.
Baby boomers. Baby boomers are reaching the age where their children have left home and they have more disposable income than when their children were young and living at home. They are more tech savvy than the generation before them and appreciate the good things in life. They like to spend time in their homes, now that the children are out of the house.
The market demand for electronics repair has been relatively stable over the past decade. With the advent of DVD players, the market is seeing more highly trained technicians needed. As technology progresses, long-term planners within this market expect to see new opportunities for electronics repair quickly arise. Such devices as cellular telephones, PDAs and other new electronics may have a role to play in the people who have a broad vision in this field.
Much of the electronics repair industry analysis is contained in the competitive comparison section. However, the key points are that the industry is highly competitive and that most firms have little power to affect the forces that influence them or to affect the price levels that the market determines. In essence, Tucson Electronics operates in a purely competitive environment where the demand curve is horizontal. In other words the company is free to service electronics at maximum capacity without effecting the price or demand for its services. With this type of environment, and with customers seeing such services as a "commodity" the only strategy open to companies in this field is the low cost leadership approach.
Tucson Electronics is fortunate in that Janet Munroe, Mr. Munroe's wife works in cost analysis for Wal-Mart, one of the country's best low cost companies. Mrs. Munroe has agreed to furnish cost analysis services to Tucson Electronics for free.
The low cost leadership strategy will not be simple to achieve. Realistically speaking, because of the fragmented nature of the industry, Tucson Electronics will only seek a low cost leadership in the Tucson region for the first seven to ten years of operations. In order to capture this position and achieve its benefits of high market share and profitability, the company is expected to have higher start-up costs and lower profits within the first few years as the company invests in better and more efficient facilities and equipment than most competitors and engages in aggressive pricing to capture market share. The company will rigorously evaluate every aspect of the company to improve efficiency and lower costs. Mrs. Munroe is preparing an analysis of the company's value chain and cost drivers to identify where costs can be lowered and which aspects of the business Mr. Munroe must focus on. It is expected that management will expend a great deal of energy in cost management and the reduction of things such as marginal customer accounts and marketing expenses. Once in operation, management will concentrate on developing established procedures that will create the most effective service experience. Finally, as part of this low cost leadership strategy, the company plans to vertically integrate to include original sales and broad services that will spread costs and serve all major customer types so as to build volume.
Customers traditionally purchase services in this industry because of effective advertising and reputation. The customers wish to be reassured that they will receive prompt and reliable service and have an understanding service representative will listen to their problems and seek to solve them in a fast and professional manner. Therefore image during the entire service experience is crucial to maintain word-of-mouth marketing and keep a low curn rate. Currently the largest problem that faces small firms is product/service awareness. By the use of effective and widespread advertising, Tucson Electronics expects to be able to capitalize on the weakness of the the "mom and pop" outfits style of passive promotion (such as Yellow Page ads) and to leverage greater product awareness into higher market share. There is no seasonality to this industry although there is some slight increase in servicing sales during the Christmas season.
As stated before, the electronic repair industry is highly fragmented. In fact, there are so many small providers that any company in this industry is facing a purely competitive environment. Approximately 23,700 electronic repair firms exist in the country today. Firms within this field range in sizes from the "mom and pop" outfits such as Dave's Electronics and Kachina Repair in downtown Tucson to regional companies like Magnolia Hi-Fi and the national chains such as Circuit City. Not all of these firms are purely repair outfits. In fact all of the larger firms make the majority of their revenue in original sales. It is these companies that have the largest market share and have the opportunity to compete by differentiating on customer service or product/service range.
As stated before, Tucson Electronics will seek a low cost leadership approach in the local Tucson region first. Its goals are not to directly compete with the larger companies who could effectively out compete Tucson Electronics. Instead, the company will seek to outprice the local "mom and pop" outfits and acquire their market share in order to then compete with the regional firms. There are eight such "mom & pop" firms that will be Tucson Electronics' main competitors in its first few years of operation. They are: