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CASE ANALYSIS: U.S. PIONEER ELECTRONICS CORP.

Statement of the Problem

Just at the time when Pioneer America has achieved a high level of customer awareness for its products, the company faces an overall erosion of dealer support for Pioneer products. If this problem grows worse, it will place the company’s distribution network in limbo and inevitably result in sharp drops in sales volumes. To combat this problem, U.S. Pioneer must develop both a short-term strategy for coping with dealer-retaliation (as evidenced by the Audio Warehouse’s and other actions), and a long-term strategy for building an effective distribution network.

Analysis

Approximately 3,600 retailers carry Pioneer products under a franchise agreement with U.S. Pioneer. The majority of these retailers fall into the category of hi-fi specialty stores, which provide their customers with professional sales assistance and after-sales support. As of 1977, specialty hi-fi stores accounted for 75% of all U.S. Pioneer dollar sales. Although U.S. Pioneer provides marketing support to its franchised retailers through both its sales representative offices and its nationally-based advertising campaign (the company allocates 5% of sales to local ads featuring its products), the hi-fi specialty retailers have come to believe that the company has “abandoned” them and through its pricing policies made it difficult for them to make an adequate profit on Pioneer products. The root of the problem can be traced to a 1975 FTC consent decree and the concomitant shift in pricing policies from fair-trade to free-market. This shift sparked a price war which, while it helped boost Pioneer’s net sales overall, it also severely eroded margins for the retailers. Dealers such as the Ohio-based Audio Warehouse have identified two distinct forces which encourage them not to sell Pioneer products: 1)

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