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Section B – TWO questions ONLY to be attempted
For 11 years, Marco was a senior salesman at AQT, a company specialising in IT certification courses. During that time, AQT became the most successful and dominant training provider in the market.
Marco has now left AQT and established his own training company, iTTrain, aimed at the same IT certification market as his former employers. He wishes to offer premium quality courses in a high quality environment with high quality teaching. He has selected a number of self-employed lecturers and he has agreed a daily lecturing fee of $450 per day with them. He has also selected the prestigious CityCentre training centre as his course venue. It has a number of training rooms which hold up to nine delegates. Each training room costs $250 per day to hire. There is also a $10 per day per delegate charge for lunch and other refreshments. Although not a lecturer, Marco is an IT expert and he has already produced the relevant documentation for the courses iTTrain will run. He sees this as a sunk cost and is not concerned about recovering it. However, printing costs mean that there is also a $20 cost for the course manual which is given to every course delegate.
Marco has scheduled 40 courses next year, as he is limited by the availability of lecturers. Each course will have a maximum of nine delegates (determined by the room size) and a minimum of three delegates. Each course is three days long.
iTTrain has been set up with $70,000 of Marco’s own money. He currently estimates that fixed annual costs will be $65,000 (which includes his own salary) and he would like the company to return a modest profit in its first year of operation as it establishes itself in the market.
Marco is currently considering the price he wishes to charge for his courses. AQT charges $900 per delegate for a three-day course, but he knows that it discounts this by up to 10% and a similar discount is also offered to training brokers or intermediaries who advertise AQT courses on their own websites. Some of these intermediaries have already been in touch with Marco to ask if he would be prepared to offer them similar discounts in return for iTTrain courses being advertised on their websites. There are also a number of cheaper training providers who offer the same courses for as little as $550 per delegate. However, these tend to focus on self-financing candidates for whom price is an issue. These courses are often given in poor quality training premises by poorly motivated lecturers. Marco is not really interested in this market. He wants to target the corporate business market, where quality is as important as price and the course fee is paid by the delegate’s employer. He is currently considering a price of $750 per delegate.
During his employment at AQT, Marco collected statistics about courses and delegates. Figure 1 shows the data he collected showing the attendance pattern over 1,000 courses.
Figure 1: Analysis of attendance at 1,000 AQT courses
Required:
(a) Suggest a pricing strategy for iTTrain, including an evaluation of the initial price of $750 per delegate suggested by Marco. Your strategy should include both financial and non-financial considerations. (16 marks)
(b) Physical evidence, people and process are three important elements of the marketing mix for services.
Analyse the contribution each of these three elements could make to the success of iTTrain’s entry into the IT certification market. (9 marks)
Introduction
The following is an interview with Mick Kazinski, a senior marketing executive with Bridge Co, a Deeland-based construction company. It concerns their purchase of Custcare, a Customer Relationship Management (CRM) software package written by the Custcare Corporation, a software company based in Solland, a country some 4,000 km away from Deeland. The interview was originally published in the Management Experiences magazine.
Interviewer: Thanks for talking to us today Mick. Can you tell us how Bridge Co came to choose the Custcare software package？
Mick: Well, we didn’t choose it really. Teri Porter had just joined the company as sales and marketing director. She had recently implemented the Custcare package at her previous company and she was very enthusiastic about it. When she found out that we did not have a CRM package at Bridge Co, she suggested that we should also buy the Custcare package as she felt that our requirements were very similar to those of her previous company. We told her that any purchase would have to go through our capex (capital expenditure) system as the package cost over $20,000. Here at Bridge Co, all capex applications have to be accompanied by a formal business case and an Invitation to Tender (ITT) has to be sent out to at least three potential suppliers. However, Teri is a very clever lady. She managed to do a deal with Custcare and they agreed to supply the package at a cost of $19,995, just under the capex threshold. Teri had to cut a few things out. For example, we declined the training courses (Teri said the package was an easy one to use and she would show us how to use it) and also we opted for the lowest level of support, something we later came to regret. Overall, we were happy. We knew that Custcare was a popular and successful CRM package.
Interviewer: So, did you have a demonstration of the software before you bought it？
Mick: Oh yes, and everyone was very impressed. It seemed to do all the things we would ever want it to do and, in fact, it gave us some ideas about possibilities that we would never have thought of. Also, by then, it was clear that our internal IT department could not provide us with a bespoke solution. Teri had spoken to them informally and she was told that they could not even look at our requirements for 18 months. In contrast, we could be up and running with the Custcare package within three months. Also, IT quoted an internal transfer cost of $18,000 for just defining our requirements. This was almost as much as we were paying for the whole software solution!
Interviewer: When did things begin to go wrong？
Mick: Well, the implementation was not straightforward. We needed to migrate some data from our current established systems and we had no-one who could do it. We tried to recruit some local technical experts, but Custcare pointed out that we had signed their standard contract which only permitted Custcare consultants to work on such tasks. We had not realised this, as nobody had read the contract carefully. In the end, we had to give in and it cost us $10,000 in fees to migrate the data from some of our internal systems to the new package. Teri managed to get the money out of the operational budget, but we weren’t happy.
We then tried to share data between the Custcare software and our existing order processing system. We thought this would be easy, but apparently the file formats are incompatible. Thus we have to enter customer information into two systems and we are unable to exploit the customer order analysis facility of the Custcare CRM.
Finally, although we were happy with the functionality and reliability of the Custcare software, it works very slowly. This is really very disappointing. Some reports and queries have to be aborted because the software appears to have hung. The software worked very quickly in the demonstration, but it is painfully slow now that it is installed on our IT platform.
Interviewer: What is the current situation？
Mick: Well, we are all a bit deflated and disappointed in the package. The software seems reasonable enough, but its poor performance and our inability to interface it to the order processing system have reduced users’ confidence in the system. Because users have not been adequately trained, we have had to phone Custcare’s support desk more than we should. However, as I said before, we took the cheapest option. This is for a help line to be available from 8.00 hrs to 17.00 hrs Solland time. As you know, Solland is in a completely different time zone and so we have had to stay behind at work and contact them in the late evening. Again, nobody had closely read the terms of the contract. We have taken legal advice, but we have also found that, for dispute resolution, the contract uses the commercial contract laws of Solland. Nobody in Bridge Co knows what these are! Our solicitor said that we should have asked for this specification to be changed when the contract was drawn up. I just wish we had chosen a product produced by a company here in Deeland. It would have made it much easier to resolve issues and disputes.
Interviewer: What does Teri think？
Mick: Not a lot! She has left us to rejoin her old company in a more senior position. The board did ask her to justify her purchase of the Custcare CRM package, but I don’t think she ever did. I am not sure that she could!
Required:
(a) Suggest a process for evaluating, selecting and implementing a software package solution and explain how this process would have prevented the problems experienced at Bridge Co in the Custcare CRM application. (15 marks)
(b) The CEO of Bridge Co now questions whether buying a software package was the wrong approach to meeting the CRM requirements at Bridge Co. He wonders whether they should have commissioned a bespoke software system instead.
Explain, with reference to the CRM project at Bridge Co, the advantages of adopting a software package approach to fulfilling business system requirements compared with a bespoke software solution. (10 marks)
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