Maytag-Hoover Free Flights Promotion - USA Essay Example

 

Maytag-Hoover Free Flights Promotion

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(a) Short Summary of the Case:

Maytag was founded by F.L. Maytag during the 1900s and emerged as the top ranking company selling washing machines. Witnessing lots of ups and downs over the years, the apex management during the regime of Daniel Krum, CEO, made a decision that the company could not remain as a specialty producer carrying out business solely catering to the premium end of the laundry market. Maytag embarked upon a strategy to have a dominating position in the U.S. appliance industry. The strategic decision was taken to increase its scale by acquisition within the appliance industry by means of debt and sale of stock. During 1988, understanding that the U.S. domestic appliances market had attained maturity, the apex management of the newly formed Maytag Corporation made a decision to expand the organizational growth strategy into the global arena. The company offered around 1 billion dollars in cash and Maytag stock for Chicago Pacific Corporation — CP, the owner of the Hoover Company. Through this move, Maytag entered into the “global home appliance market with nine manufacturing facilities spanning across UK, France, Australia, Mexico, Columbia and Portugal”. (Maytag Corporation, 1996-Back to Basics)

Hoover was a familiar name around the world for its floor-care products and across Europe and Australia for its washers, dryers, dishwashers, microwave ovens and refrigerators. However before the acquisition, the global revenues of Maytag were too tiny to even report. During the later part of 1992 and initial part of 1993, in order to increase its sales, the European division of Hoover began a marketing promotion by offering its customers free international air tickets when they bought appliances for an abysmal low value of $150. The excessively liberal offer evinced such an overwhelming response from the consumer community that Maytag Corporation was compelled to shell out in excess of $72 million from 1992 to 1994 towards sales and administrative expenses associated with the promotion. The marketing promotion turned into a public relations fiasco since people registered complain that they were facing problems obtaining their free flights promised under the promotional campaign. Three British people representing the Hoover Holiday Pressure Group participated in the annual shareholders meeting held in Newton. The named the marketing debacle as “Hoovergate” and threatened to report about their problem to the Ralph Nader’s group in case their problem remained unanswered. Maytag-Hovers sacked three top ranking executives of Hoover Europe division and set up a Task Force to look at the situation and handle the problem. (Maytag Corporation, 1996-Back to Basics)

 

b) Description of the market problem:

From the very launch of the Hoover’s free flights promotion during Aug1992 there were doubts about the veracity of the promotional offer and whether it would really work. Nearly two years down the line the doubts became true. Initially planned to transfer a surfeit of vacuum cleaners and washing machines piled up in Hoover’s warehouse, it culminated in bleeding the company 48 million pounds and loss of reputation. The promotion was a marketing goof-up from the start. In exchange of a mere 100 pound on any Hoover product, one could get return flights tickets to Europe for free. But the catch is one has to go through the rigmarole of conditions stated in fine print apart from saving oneself from getting entangled with Hoover’s travel agents who will try to sell something extra designed to counteract the cost of promotion. As a marketing exercise it might have been laid with defects from the very beginning, nevertheless Hoover took time to understand the magnitude of the problem and very quickly things started deteriorating. (Hoover’s free flights fiasco recalled)

At the time while the travel agents of Maytag-Hoover for the European promotion strived to adjust with the vast response, Hoover took a decision to initiate a second promotion in the USA. The ads given in TV for the US promotion reminded customers from the European offer to dispatch their vouchers and claim their flights. The ads given had a tag-line “Two return seats: Unbelievable”. (Hoover’s free flights fiasco recalled) Immediately Hoover was flooded. The numbers did not aggregate and as the Press began to go into details, Hoover found themselves embroiled under a surge of bad publicity. Sardonically, this transformed into a more popular offer. The customers were sent one more reminder to dispatch their applications and things deteriorated further. Taking the help of pressure group, thousands of customers started taking Hoover to court. Shortly the company realized that it is struggling with court battles across the country in small claims courts. (Hoover’s free flights fiasco recalled)

 

c) Solutions and your commentary on the solution:

The crux of the problem remained elsewhere as by the summer of 1992, Maytag had to suffer from unsold inventory of vacuum cleaner and washing machines. In order to flush out its excess stock and recover a 10 million pounds deficit, the company started the promotion of offering two return tickets from principal cities of Europe. The exchange rate during that period was US $ 1.98 per British pound. There was no way the promotion could yield returns as the price of two return airfares from Europe to Britain is more than 100 pounds which translates to US$198. In my opinion the promotional offer was available on all Hoover and Maytag products, nevertheless it has all the while considered as a vacuum promotion since the manner in which the advertisement was given and most importantly the low cost of entry of the promotion through the purchase of vacuum cleaner as vacuum cleaners are available for half the price of an airline ticket. (A Bloody Dust Up)

Hoover had other plans and believed that the promotional offer would work because of three factors. (i) Consumers would purchase, however they might fail to enjoy the benefits of the offer due to the red tape ingrained in its redemption (ii) The Sales Representatives of the Dealer would successfully up sell consumers with accessories or more costly models. (iii) The representatives of the travel agency would sell more travel extras to the hapless customers who practically attempted to redeem their free-ticket offers. While the offer was announced, one cannot exercise control on it. Whether it is correct or not, companies are observed as reasonable ploy in these types of situations. It translates to ‘Let the seller beware’. (A Bloody Dust Up) It is a fact that consumers are smarter than what they appear. Understanding that they are for a bargain, consumers of Britain started buying Hoover vacuums in huge numbers and the result being sales going through the roof. The main facility of Hoovers at Scotland in Cambuslang started working extra hours with additional manpower to meet the huge demand for its products. (A Bloody Dust Up)

Realizing that they have hit a jackpot, the management at Hoovers pumped up the volume with a follow-up promotion in which they offered two return tickets from the U.S. Ads in TVs served as the reminder for the initial offer, and made huge publicity for the new offer with the caption “Two Return Seats: Unbelievable”. (A Bloody Dust Up) Interestingly, the tagline ““Unbelievable” does not even start to narrate the happening that followed immediately thereafter’. (A Bloody Dust Up) Understandably slippage is inversely linked to the value of the offer. The higher the value, the lower happens to be the slippage. For example the slippage factor on a $1 detergent rebate is enormous as it is just $1. Slippage on a $300 computer rebate is negligible as it commands a very high value. Nobody is going to forget the fact that someone owes them $300. One might be contemplating that this is common sense, but it escaped the attention of everybody at Hoovers. (A Bloody Dust Up)

The next promotion which is the second in the series not just unleashed a fresh bout of demand, it also made to wash out every hapless person who failed to remember to redeem about the first offer. The travel agents at Hoover’s were flooded with consumers who were aggrieved because of the delays in redeeming their free airfare vouchers. Instead of desiring to listen regarding the travel upgrades, these consumers demanded their tickets immediately without any further delay. At the time when it became obvious that their demands are not going to be fulfilled, the angry British people hammered a series of bad press for the offers that just catered to push sales and offer fulfillment higher still. (A Bloody Dust Up)

 

d) Update on events, company and/or markets via research:

The Hoover Company which is the front ranking company in the floor care space is now a division of Maytag Corporation. Hoover boasts of complete line of products at premium as well as popular price points, inclusive of upright, canister, and stick vacuum cleaner; hand-held, wet-dry, and deep cleaners; floor polishers and shampoorers as also central vacuum systems. The company is also into commercial vacuum cleaner and extractors. The highest selling Hoover products consist of WindTunnel group of vacuums, the Hover Bagless upright vacuum and the SteamVac deep cleaner. The manufacturing facilities of Hoover consist of three in Stark County, Ohio and a single each on Texas and Mexico. However the sales of the company are confined to the N. American market. Following a series of events, in January 1989, “Chicago Pacific came into Maytag’s fold at a price of $1 billion which is a manufacturer of Microwave Ovens, Refrigerators, Washers, Dryers, and other appliances”. (The Hoover Company) Chicago Pacific had just thwarted a hostile takeover by an investment group for which it drove to hunt for a friendly buyout. (The Hoover Company)

Besides, Maytag also was looking forward to evade corporate raiders in the rapidly consolidating international appliance market. Being the fourth largest manufacturer following General Electric, Whirlpool and White Consolidated Industries, Maytag appeared an attractive acquisition. Maytag could visualize that the acquisition of Chicago Pacific not only would thwart the corporate take-over bids by adding $500 million in debt to its balance sheet, but will also open up its markets to foreign shores with the attractive Hoover franchise. As Maytag was not a player in the global market, Hoover was present in 8 nations with 13 plants which were engaged in “manufacturing vacuum cleaners, washers, dryers, refrigerators, dishwashers, and micro ovens and making a strong distribution presence in the UK and continental Europe as also down under in Australia”. (The Hoover Company)

The buyouts lend Maytag its presence in the global market which it needed. During 1991, Hoover restructured its business in the UK and Europe by the name of Hoover Europe. Capital infusion to the tune of $25 was made to the plant inside Wales that started manufacturing new washers and dishwashers. During 1993, Hoover even consolidated its all vacuum cleaner production in Europe at its Scotland plant and shutting its plant in France. During the later part of 1990s, Hoover together with Maytag started a program known as Lean Sigma which was a judicious amalgamation of lean manufacturing which laid emphasis on reducing waste and the ever popular Six Sigma- which is a quality improvement initiative seeking to enhance quality by lowering the number of defects besides starting to manufacture innovative new products. During 1997, the company launched the WindTunnel range of standing vacuum cleaners that had a novel head design which proved more efficient at sucking dirt. This successful range was expanded to cover a self-propelled model in 1998.  (The Hoover Company)

 

e) Current company and/or product status in the marketplace:

Maytag is a Fortune 500 company having its headquarters in Newton, Iowa with 15 production facilities across the United States and Mexico. Lately named as one of USA’s most admired companies, Maytag Corporation is a $4.7 billion company in the home and commercial appliance space with its headquarters in Newton, Iowa. Presently having a workforce of 18,000 employees throughout the world, Maytag’s commitment to growth through innovation has been total. The main brands of the company are Maytag, Hoover, Jenn-Air, Amana, Dixie-Narco and Jade. In the marketing of major appliance, Maytag is a leader within the industry, having a complete range of washers, dryers, dishwashers, refrigerators and cooking products under various brand names such as Maytag, Hoover, Jenn-Air and Amana. In the floor care segment of the market, Hoover occupies the leadership position in N. America and the floor care brand with the maximum consumer recall and buying choices. (About Maytag Company-Corporate profile)

In the commercial products range, Maytag’s Dixie-Narco brand enjoys the leadership position in chilled soft drink and specialty vending machines. Jade cooking products are accepted throughout the food service industry which is preferred by food professionals. Maytag’s presence inside the markets across the world consists of sales operations in Canada, Australia, Mexico, Puerto Rico and UK. Maytag International’s products are popular in 86 nations throughout the world. The company’s export sales and marketing, licensing of brands, and international JVs are synchronized by the Maytag International based in Schaumburg, Illinois. Apart from this, a business unit of the Maytag Corporation by the name of Maytag Services which is a repair service catering to all brands  serves and manufactures models of home appliances and commercial equipment at the same time maintaining the company’s established reputation of reliance and service potential. (About Maytag Company-Corporate profile)

 

 

References

 

About Maytag Company-Corporate profile.

<http://www.maytag.com/mths/our_company/about_maytag.jsp?Failed_Reason=No+BVCookie+present+to+retrieve+the+session.&com.broadvision.session.new=Yes&Failed_Page=%2four_company%2fabout_maytag.jsp&L1=1&L2=0&cs=0>

 

A Bloody Dust Up. 1 October, 2005. Promo Magazine.

<http://promomagazine.com/mag/marketing_bloody_dust/>

 

Chan, Angela. Hoover’s free flights fiasco recalled.  13 May, 2004.

<http://news.bbc.co.uk/1/hi/business/3704669.stm>

 

Maytag Corporation, 1996-Back to Basics.

<http://www.public.iastate.edu/~jdhunger/581Su99/Maytag96.doc>

 

The Hoover Company.

<http://www.fundinguniverse.com/company-histories/The-Hoover-Company-Company-History1.html>

 

 

 

 

 

 

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