26 Pages Posted: 30 May 2017
This case concerns the promotional activities of Nashua Photo, the nation's largest mail-order photofinishing firm. Discount-price mailers (inserted in local newspapers, for example) were used to generate new customers, but also allowed existing customers to pay a lower price. Students must evaluate not only the results of last quarter's 125 separate promotions in light of this "leakage," but also the appropriateness of discount-price mailers within Nashua's marketing mix.
In the summer of 1993, Bob Barton had a lot on his plate. As the new director of new-customer acquisitions for Nashua Photo, the country's largest mail-order photofinishing firm, his immediate task was to plan the firm's promotion activities for the remainder of the year. His long-term goal was to revisit the entire new-customer-acquisition process at Nashua. The previous year Nashua spent several millions of dollars to distribute hundreds of millions of promotional mailers to 94 million households in the United States. Although the company was quite profitable, he wondered whether they were spending too much (or too little) on acquiring new customers.
The U.S. Photofinishing Industry
Americans love to take photos. In 1990, 92% of U.S. households owned at least one camera and purchased slightly over 600 million rolls of 35 millimeter film. On average, 62% of households either bought or processed film during that year. Involvement with photography increased with household income (43% of households with income less than $ 12,000 either bought or purchased film in 1990, compared with 74% of households with income greater than $ 50,000) and with the presence of young children (81% of households with at least one child aged two or under bought film, compared to 55% of households with no children). It was estimated that about 15 billion color photos were taken in 1990.
Amateur photographers tended to buy their film at a discount/department store and get it developed at the drug store (see Exhibit 1). Drug stores usually sent the exposed film to one of a few large wholesale photofinishing laboratories for processing. These wholesale labs were huge photofinishing factories, built to process large amounts of film quickly, professionally, and at low cost. Until the early 1980s, almost all film processing was accomplished by large labs. At that time, the minilab was introduced. Minilabs were small, stand-alone film-processing machines that, when placed in a photofinishing store or a large discount store, offered the consumer one-hour photofinishing. The on-site minilabs eliminated the delays associated with mailing film to and from the wholesale labs, but had two drawbacks: prices were higher and customers perceived them as producing lower-quality photos. See Exhibit 2 for a perceptual map of the various photofinishing outlets. Minilab retail revenues had been growing steadily in recent years, while wholesale lab revenue had been stagnant.
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Keywords: marketing programs, marketing strategy, promotion
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