QUESTIONS

1. How might one describe the product-market matrix for Fenix products?

According to Businessdictionary (2013a), a product-market matrix is a marketing tool that

outlines the different strategies that a company can use in order to increase its market share or
introduce a new product. Using two dimensions, 1) products and 2) markets, the matrix
splits these strategies into four distinct categories1) market penetration, 2) market
development, 3) product development, and 4) diversification.

Market Penetration- A relatively low-risk growth strategy which involves

emphasizing existing products to customers in existing markets. The two primary
objectives of a market penetration strategy are: i) to maintain or increase the market
share of current products; and ii) to increase product usage of existing customers
(University of Iowa, 2013).

Market Development- This is a medium-risk growth strategy which involves selling

existing products to customers in new markets. Moreover, this can be done through:
i) developing new geographical markets; ii) adding new distribution channels;
iii) adopting different pricing policies to attract different customers; and iv) creating
new market segments (Provenmodels, 2013).

Product Development- This is a medium-risk growth strategy which involves

introducing new products to customers in existing markets. This can also involve
modifying existing products so that they will appeal to customers who, in turn, will
spend more money on them (Provenmodels, 2013).

Diversification- This is the highest risk strategy in which new products are promoted
to new markets (Provenmodels, 2013). Different types of diversification strategies
include:
 o i) Horizontal diversification: When a company adds new products to its
existing product lines that will appeal to existing customers (Monash
University, 2011).

o ii) Vertical diversification: When a company adds new products which are
complementary to the existing product line (Monash University, 2011).

o iii) Concentric diversification: When a company promotes a new product,

closely related to one of its current products, in a new market
(Businessdictionary, 2013d).

o iv) Conglomerate diversification: When a company promotes an entirely new

product in an entirely new market (Businessdictionary, 2013c).

Below is a representation of a product-market matrix.

Figure 1: Product-Market Matrix

Source: Provenmodels, 2013.

 The following is a description of the product-market matrix for Fenix products:

Fenix del Sur, LLCs market penetration strategy consists of selling i) South
American and African artifacts and ii) Southwestern Indian jewelry and pottery
through specialty dealers, firm-sponsored showing, and a few exclusive department
stores. These items are marketed and sold to collectors in an attempt to
i) maintain or increase the companys market share of these products; or ii) to
increase product usage of existing customers.

Where a market development strategy is concerned, Fenix has the option of adding
the mass merchandise store as its distribution channel. In so doing, i) the store would
be carrying Fenix Del Sur, LLCs complete line; ii) the store would be purchasing
items at 10% below existing prices with an initial purchase of $750,000; and
iii) Fenix would have to triple its production of replicas with a possibility of selling
$4 million annually.

Fenix embarked on its product development strategy in 2001 when it expanded its
product line to include items that were replicas of authentic artifacts (i.e. African
fertility gods and masks made by craftspeople now located in Central America, South
America, Africa, and the southwestern United States). These products have been
marketed to gift buyers and individuals looking for decorative items (non-collectors).

Furthermore, over the years, Fenix has gradually expanded its product line to include
i) pre-Columbian artifacts from Peru and Venezuela, as well as ii) tribal and burial
artifacts from Africa.

Where a diversification strategy is concerned, the company utilizes horizontal

diversification. It does this when it searches for new products to add to its existing
product line due to its difficulty in acquiring South American artifacts, which is
limiting its supply

2. How would one define Fenixs business?

Fenixs business will be defined based on Abells Business Definition Model (seen in Figure
2) which asks the questions: i) which customer groups are being satisfied; ii) what is being
satisfied; and iii) how are customer needs being satisfied (i.e. technologies).

Figure 2: Abells Business Definition Model

Source: Abell, 1980.

Fenix del Sur, LLC is a limited liability company with its headquarters located in Phoenix,
Arizona and other branches located in Los Angeles, Miami, and Boston. The company
imports and distributes authentic South American and African artifacts as well as authentic
southwestern Indian jewelry and pottery (especially Hopi and Navajo).

Over the years, the company has been able to expand its product line to include i) pre-
Columbian artifacts from Peru and Venezuela as well as ii) tribal and burial artifacts from
Africa. These products have been most popular with collectors.

In 2001, due to the difficulty in obtaining authentic items, the company began to supply
replicas of authentic artifacts (i.e. African fertility gods and masks made by craftspeople).
Furthermore, these replicas have been observed to be popular with gift buyers and individuals
looking for decorative items. However, replicas only account for a small percentage of the
companys total sales.

Fenix uses a system of exclusive distribution to market its product lines through specialty
dealers, firm-sponsored showings, and a few exclusive department stores. The company
often acts as a sole supplier to its clients. This system was put into effect due to the limited
suppliers of its products.
 Lastly, Fenix has managed to establish itself as one of the more reputable dealers in
authentic southwestern jewelry and pottery through its careful verification of the authenticity
of South American and African artifacts. This is one of the factors that has led to its artifacts
gaining greater acceptance.

3. How would accepting the mass merchandisers offer affect Fenixs business definition?

If Fenix is to accept the mass merchandisers offer, it could potentially affect i) who is being
satisfied; ii) what is being satisfied; and iii) the manner in which customers needs are being
satisfied.

A condition of the offer is for Fenix to triple its replica production; which would then force
the company to compete more in the replica market. As a result of this, the company would
then have to redefine itself as a supplier of replicas for non-collectors (including gift buyers
and individuals looking for decorative items) primarily through the mass merchandising
store.

4. What is Fenixs distinctive competency?

According to Biemans et al. (2004), a competence is the integrated performance-oriented

capability of a person or an organization to reach specific achievements. The concept of
distinctive competence was first introduced in 1957 by an organizational psychologist named
Philip Selznick (Starkey et al., 2004).

A firms distinctive competency refers to the the set of activities or capabilities that it is able
to perform better than its competitors, thereby giving it an advantage over those same
competitors. Moreover, distinctive competencies are competencies that are very difficult for
others in the market to imitate, therefore serving as a source of enduring advantage and
eventually leading to long-term success (Eden & Ackerman, 1998).

The reason that these competencies are regarded as distinctive is due to their i) uniqueness
or lack of substitutability, ii) uncommonness among competitors or collaborators,
iii) difficulty in imitating, iv) value in terms of exploiting opportunities or warding off
threats, and v) the resulting provision of competitive or collaborative advantage (Barney,
 1991). One real world example of a distinctive competency is Toyota Motor Corporations
distinctive competency in lean manufacturing (Create Advantage, 2013).

Where Fenix del Sur, LLC is concerned, its distinctive competency is the fact that it has over
the years developed a national reputation as one of the most respected sources of authentic
South American and African artifacts and southwestern Indian jewelry and pottery. The
company has successfully done this through its careful verification of the authenticity of
these items in addition to a series of judicious decisions. Furthermore, the aforementioned
competency has become a distinctive competency primarily due to i) the difficulty in
acquiring authentic South American artifacts, ii) governments not allowing exportation of
certain artifacts because of their national significance, and iii) the competition for authentic
artifacts increasing tenfold. This has made it very difficult for competitors to emulate the
success of Fenix.

5. What is the apparent relationship between Fenix and its distributors and how might
the contract affect it?

According to Leigh (2013), building and maintaining healthy relationships is a crucial part of
operating any successful business. This includes relationships with i) customers,
ii) employees, iii) suppliers, and iv) distributors.

Distribution (or place), one of the four elements of the marketing mix (product, price, place,
promotion), is the process of making goods and services available to end users / customers
directly or indirectly (through the use of intermediaries) (Investopedia, 2013). Moreover,
distributors are entities that i) purchase products or product lines from companies (such as
Fenix), ii) warehouse them, and iii) resell them to retailers or sell them directly to end users /
customers (Businessdictionary, 2013b). The use of distributors by an organization differs
from the traditional distribution model (as seen in Figure 2) which has three levels1) the
producer (manufacturer), 2) the wholesaler, and 3) the retailer.

Distributors, unlike wholesalers, act as service personnel for a company and charge fees for
their services; as opposed to earning revenue through discounted prices. Furthermore, they
have a wider scope of operation than wholesalerswhich includes retailers, wholesalers, and
other prospective clientele in the market. The Single Layer Distribution Model practiced by
Fenix can be seen in Figure 3.

Figure 3: Traditional Distribution Model

Source: Holland, 2013.

Figure 4: Single Layer Distribution Model

Source: Chaturvedi, 2012.

An organizations relationship with its distributors is very important because without them,
the organizations products / services would never be able to make it to the end users /
customers; therefore resulting in no profitability. Furthermore, without profit, a business
would not be able to thrive or sustain itself (Leigh, 2013).
Fenix del Sur, LLCs relationship with its distributors is an exclusive one. The Institute of
Competition Law (2013) defines exclusive distribution as that in which a company grants
another company exclusive rights on its product or services.

From the suppliers point of view, the purpose of this relationship is normally to provide the
distributor with incentives to promote its goods and services; as well as to provide better
service to its customers. It also gives suppliers greater control over the way in which their
products / services are merchandised (Institute of Competition Law, 2013).

Distributors, on the other hand, can benefit from this system because it reduces competition
in the sense that products can only be obtained from the holder of exclusive distribution
rights (Youjoomla, 2008).

As stated in the case study, Fenix del Sur, LLCs exclusive distribution system involves the
marketing of its product lines through i) specialty dealers (including selected interior
designers and decorators), ii) firm-sponsored showings, and iii) a few exclusive department
stores; with Fenix often being the sole supplier to its clients. This is mostly due to there
being limited suppliers of its products, which are very difficult to acquire.

In the case study, it was reported that Fenix del Sur, LLC was approached by a mass
merchandise store regarding the prospect of carrying its complete product line. The tentative
contract called for a purchase of items at 10% below existing prices with an initial purchase
of $750,000. Moreover, the contract indicated that Fenix would have to triple its production
of replicas.

Concerning how this contract could potentially affect its relationship with its distributors,
first off, it is most likely that accepting the contract would lead to destructive channel
conflicts.

A channel conflict is a situation in which channel partners have to compete against one
another or the vendors internal sales department (Rouse, 2007). Some of the ways in which
taking on the contract could provoke a channel conflict are through i) overproduction- Fenix
having to triple its production of replicas for the mass merchandising store when they account
for only a small portion of total Fenix sales; and ii) misaligned price/discount structures
that create an unlevel playing field because it promotes an economic advantage for one
channel over another- the purchase of items below existing prices by the mass
merchandising store (Cullotta, 2012).

According to Cullotta (2012), although a channel conflict cannot be eliminated, it must be

managed in order for it not to become destructive. The reason for this is because once it
becomes destructive, it can result in huge losses for a company as distributors try to undercut
each other. Moreover, it can also lower the morale of distributors within the channel, thereby
forcing the company to consider other distributors. All of the aforementioned factors would
ultimately have a negative impact on consumers purchasing behaviors (Rouse, 2007).

Secondly, Fenix accepting the contract could most likely result in the company having a
stronger position in the replica market. This situation would ultimately weaken the
relationship between the company and its existing distributorswhich mostly carry the
companys authentic products. Furthermore, if the problem persists, and the replica market
proves to be more profitable than the market for authentic goods, Fenix could then decide to
abandon its relationship with its existing distributors and focus instead on merchandising
stores.

Figure 5: Fenixs Potential Channel Conflict

Source: Adapted from IF Consulting, 2012.

REFERENCES
Abell, D.F. (1980). Defining the business: The starting point of strategic planning.
Englewood Cliffs, N.J.: Prentice Hall.

Barney, J. (1991), Firm resources and sustained competitive advantage. Journal of

Management, Vol. 17, No. 1, pp. 99-120.

Biemans, H. J. A., Nieuwenhuis, A. F. M., Poell, R. F., Mulder, M., and Wesselink, R. (2004).
Competence-based VET in the Netherlands: Backgrounds and pitfalls. Journal of
Vocational Education and Training, Vol. 56, No. 4, pp. 523 538.

Businessdictionary (2013a). Product-market growth matrix. Retrieved 22 March 2013, from

http://www.businessdictionary.com/definition/product-market-growth-matrix.html

Businessdictionary. (2013b). Distributor. Retrieved 22 March 2013, from

http://www.businessdictionary.com/definition/distributor.html

Businessdictionary. (2013c). Conglomerate diversification. Retrieved 22 March 2013, from

http://www.businessdictionary.com/definition/conglomerate-diversification.html

Businessdictionary. (2013d). Concentric diversification. Retrieved 22 March 2013, from

http://www.businessdictionary.com/definition/concentric-diversification.html

Chaturvedi, R. (2012). Industrial distribution model: Single or multi layer? Retrieved 22

March 2013, from http://www.expandinindia.net/blog/single-and-multi-layer-industrial-
distribution-model/

Create Advantage. (2013). Distinctive competency. Retrieved 22 March 2013, from

http://www.createadvantage.com/glossary/distinctive-competency

Cullotta, C. (2012). How to tell when channel conflict is destructive. White Paper by Frank
Lynn & Associates, Inc.

Eden, C. and Ackermann, F. (1998) Makinh Strategy: The Journey of strategic management.
London: Sage Publications.

Holland, T. (2013). How to create a distribution strategy that banks. Retrieved 22 March
2013, from http://www.thepoised.com/distribution-strategy/
IF Consulting. (2012). Marketing channel issues. Retrieved 22 March 2012, from
http://www.i-f.com/view28.htm

Investopedia. (2013). Distribution. Retrieved 22 March 2013, from

http://www.investopedia.com/terms/d/distribution.asp

Leigh, J. (2013). How to build a relationship with your distributor. Reterieved 22 March
2013, from http://smallbusiness.chron.com/build-relationship-distributor-24245.html

Monash University. (2011). Horizontal diversification. Retrieved 23 March 2013, from

http://www.buseco.monash.edu.au/mkt/dictionary/result.php?term=h*

Provenmodels. (2013). Product market matrix. Retrieved 22 March 2013, from

http://www.provenmodels.com/67

Rouse, M. (2007). Channel conflict. Retrieved 22 March 2013, from

http://searchitchannel.techtarget.com/definition/channel-conflict

Snavely, K. (2013). Distinctive competence. Retrieved 22 March 2013, from

http://www.enotes.com/distinctive-competence-reference/distinctive-competence

Starkey, K., Tempest, S. and McKinlay, A. (2004). How organizations learn: Managing the
search for knowledge, 2nd Edition. London: Thomson Learning.

Tutors on Net. (2011). Distribution. Retrieved 22 March 2013, from

http://www.tutorsonnet.com/marketing_homework_help/distribution/functions_of_distr
ibution_channel_assignment_help_tutoring.htm

University of Northern Iowa. (2013). Growth strategy #1: Market penetration. Retrieved 22
March 2013, from http://info.sms.uni.edu/blog/bid/118650/Growth-Strategy-1-Market-
Penetration

Youjoomla. (2008). Exclusive distribution. Retrieved 23 March 2013, from

http://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/1857-
exclusive-distribution.html