Case Study: CooperVision Path to Growth

On a warm Sunday afternoon in June 1967, Davin Lynch first conceived of an idea that was later to emerge as a chain of shops retailing ophthalmic products. Reading a financial profile of an ophthalmic retailer in the UK, while relaxing in his back garden, Davin concluded that he could do a better job than the management of this company seemed to have done. He decided to investigate the possibility of entering the ophthalmic retailing business in America.

CooperVision's first shop opened in South Anne Street in Dublin in Detroit in September 1998 October 1977 and the business grew quickly to a chain of 25 stores throughout the USA by 1981. However, having managed to break the mound in terms of the way ophthalmic products areretailed in USA, the company faced stiff competition from a number of foreign competitors concerns targeting the USA market. The key issue facing Cooper Vision in January 1981 seemed to be how they could build on past marketing successes to ensure continued growth in aperiod of increasingly tough competition.

The structure of the industry:

The ophthalmic products industry can be defined as the manufacture and distribution of products designed to correct defects in vision

The first stage of spectacle manufacture was the production of glass blanks of suitable quality for grinding into lenses. These lenses were subsequently ground to standard specifications of size, strength and curvature. Lenses were then sent to glazing houses, sometimes known as manufacturing opticians, who performed two tasks.

First, they assembled spectacles to orders from optometrists and were involved in cutting, edging and fitting appropriate lenses to frames chosen by customers. Second, glazing houses provided special finishes such as tinting, anti-scratch surfaces, anti-reflective surfaces, etc. In order to fulfill this function, glazing houses needed to carry large stocks of lenses. The last link in the chain of supply of spectacles to the consumer was in the hands of three groups. Optometrists, previously known as ophthalmic opticians, were the most popular. They provided three services, namely the testing of eyesight, the issuing of prescriptions and the dispensing of corrective solutions.

Ophthalmic medical practitioners or ophthalmologists tested eyesight and prescribed but did not dispense. Dispensing opticians could dispense only to prescriptions written by a member of the other two groups.

The structure of the ophthalmic products industry:

A regulated industry Davin quickly realized that this would be an exceedingly difficult business to enter. First, there was the challenge posed by the existing competitors in the industry. There were about 75,075 optometrists operating throughout USA. These were generally small, family-owned, operations that were traditional and conservative in their approach to the business. They were not retailers in the general sense, as most required appointments and consultation tended to take place in private, in a manner similar to the general medical profession. Products were generally not displayed.

During the consultation, spectacle frames were taken from drawers and consumers were invited to choose from a small selection, typically three or four. Industry regulations favoured optometrists as spectacles or contact lenses could be purchased only with a prescription, which they, in the main, provided. In addition, the Opticians Regulating Council placed further regulations on marketing activity in the industry. Only a limited number of spectacle frames could be put on display and optometrists could not include prices in their advertising. Thus, industry regulations effectively barred anyone who was not a qualified optometrist from the business.

In addition, employing an optometrist was likely to prove extremely difficult, due to their limited supply and the likelihood that anyone working for a new competitor would face censure from professional colleagues and the Association. However, there was one loophole in the Opticians Act 1956 which Davin was able to exploit. The Act allowed for a general medical practitioner to test eyesight and to prescribe corrective products. A further critical breakthrough came when a contact in the UK informed Davin of the availability of a product called an automatic retract meter, which could mechanically test eyesight. Thus, combining this new machine with the services of a medical practitioner would alleviate the need to hire an optometrist. This would be the means through which Cooper Vision would break into the industry.

Start up and growth:

Committing personal savings of $500,000andbankborrowingof $1Million to the business, Davin bought the lease to an outlet in East Motor Street, in the centre of Detroit. This store opened for business in October 1977. Start-up costs were kept to a minimum with promotion efforts restricted to printed flyers distributed to bus commuters and publicity in local newspapers and television stations. Davin felt that he would have difficulty sourcing supplies of frames and lenses in the USA as companies supplying optometrists may not be able to supply him. His search for suppliers took him to Canada and eventually to the UK where he attended the industry's premier trade fair, in 1977. Having to source supplies abroad proved to be a blessing in disguise as the company was able to offer a range of fashionable frames unlike anything previously available in the USA.

The company expanded rapidly over the next four years. Davin succeeded in hiring an optometrist who replaced the company doctor. In order to cover the cost of this new member of staff and to tap some potential that he felt existed in Detroit, Davin opened a second store in the city of Windsor, also in the state of Michigan in February 19855, which is now the company headquarters. In addition, the company decided that they should do their own glazing and set up a laboratory in Detroit, at a cost of $10,000. Thus, Cooper Vision had now consolidated all their operations in-house, giving them greater control. Two further shores were opened in 1987 and the expansion continued across the USA. This expansion in new stores allowed Cooper Vision to spread its cost base and reduced the company's dependence on the Michigan market, which Davin felt would be the first market targeted by foreign competitors.

Marketing strategy:

With this research and other information collected from visits to retailers in Canada, the UK and France, Davin had developed a sense of how he wanted to position the business. He dismissed the idea of the discount retailer, popular in the UK. He felt that American consumers were not ready to make the big switch from the traditional mode of obtaining ophthalmic products through optometrists to literally buying them off the shelf in a retail store.

Furthermore, getting costs down to a level necessary to operate as a discounter required economies of scale which, given his limited resources, he would not be in a position to achieve for a substantial period of time. For similar reasons, he rejected what he saw in the United Kingdom as a trend towards super-optical outlets (that is, very large retailers, competing on the basis of offering the widest possible range of products).

Thus, he wanted to position Cooper Vision, as he describes it, as the Walmart of ophthalmic retailing, providing a range of quality products at affordable prices, backed by service that was second to none.

Three characteristics, which set Cooper Vision apart from the traditional optometrist, were price, product range and the speed with which the consumer could get a pair of spectacles. Cooper Vision were able to offer substantially lower prices than their competitors at the outset. In 1989, the company was offering ready-made reading glasses complete with case for $12.99. These were sold to people with a recent valid prescription, with the idea of being a cheap second pair of reading glasses. A new set of spectacles, made to order, was available for as little as $29.99, substantially cheaper than the prices charged by the traditional optometrist.

Publicity in 1990 described Cooper Vision as having few 'safe frames' in fashion terms. The company tried to convince the American consumers to be more adventurous when choosing spectacles. Colour was a distinctive feature of their frames with reds, blues, yellows and tortoise available. The company was so committed to its line of French designer frames that anyone who bought an avant-garde style and changed his or her mind, up to a year later, could get a new replacement frame free of charge.

Initially, the company aimed to supply a new pair of spectacles within 24 hours. With an in-house glazing laboratory, this timeframe was significantly reduced and the company's promotion stressed that consumers could come to town in the morning or afternoon, have their eyes tested, choose from a variety of fashionable frames and within the hour wear their new glasses home. This was a significant advance on traditional practice, where the consumer often had to wait for up to two weeks for a new pair of spectacles.

Product range:

The company carried a complete range of ophthalmic products. These included lenses, spectacle frames, sunglasses, ready readers, contact lenses, contact lens solutions and accessories like magnifying glasses, clip-on sunglasses, etc. The percentage of sales accounted for by each product category is shown in Table C29.1. At any one time the company had between 400 and 500 spectacle frames in stock. It catered for all market segments with ranges including children, college, family, economy and the exclusive/trendsetter range.

Customer service:

Davin Davis was a strong advocate of customer service and the company pioneered many service initiatives in the ophthalmic retailing industry. Shop opening hours were longer than normal from 9a.m. to 6p.m., Monday to Saturday, including lunchtime. Customers were invited to browse through the shop and were offered a cup of tea or coffee, while waiting for a sight test. For purchasers of contact lenses, the company included in the package a lesson in how to fit and use the lenses. Cooper Vision offered a guarantee on their products for up to one year, so even if customers broke their spectacles, they promised to replace them. Ten to twelve days after a person purchased spectacles or lenses, Cooper Vision followed up the sale with a phone call to make sure the customer was completely satisfied. The company initiated a policy of giving people who visited a shop but did not buy from the company, a pre-paid postcard on which the recipient identified the reasons for not buying from Cooper Vision. Training of sales personnel was rigorous and ongoing and the company evaluated its salespeople on their performance in terms of customer service on a three-month basis.

Davin Davis felt that one recent event in the company's history typified its attitude to customer service. Since its foundation, the company had a policy of helping out customers with problems, and shop personnel were empowered to do what they felt was necessary in a given situation. One customer on her way to a store had her purse stolen at a nearby shopping area. She did not discover the theft until she reached Cooper Vision and was in some distress. However, she was given the sight test she needed, free of charge. Furthermore, shop personnel contacted the police on her behalf and provided her with cash from the till to get a cab home. She subsequently contacted a highly popular national radio show to tell of her experiences and described her treatment at Cooper Vision as 'restoring her faith in human nature'. The company subsequently had several phone calls complimenting it on its actions and received huge publicity for its action.

Promotion:

Despite a limited budget the company used a combination of advertising, publicity and sales promotions to increase awareness of its products. Cooper Vision spent about 4 percent of annual sales on advertising, though in its opening year, this figure was closer to 12 percent.

Advertising was largely carried in the print media, including regional newspapers and trade magazines. The company generally developed its advertising on an as-needed basis. Staff was usually consulted during the message development process and their ideas on what might not work were considered. The company's advertising has revolved around the themes of variety, value, and top-class service.

Challenges and opportunities:

Cooper Vision has been resilient, surviving and growing from a very small base. However, as the company considered its marketing strategy for 1993 and succeeding years, a number of major challenges and opportunities had to be assessed.

The American market for ophthalmic products: Very limited information was available on the American market. Sales of ophthalmic products tended to be very seasonal, highest in January, May, and September and lowest in March, June, and December. Spectacles were considered to be the dominant product with sales estimated to be about 5 million units per year. Contact lenses gained in importance during the late 1980s but sales in 1989 were still a mere 5.5 million units, worth $1.5 billion. Thus, just over 5 percent of all those requiring optical assistance in American chose contact lenses compared with, for example, 15 percent in the UK. A higher percentage of women than men chose contact lenses.

There was limited published information on the value of the American market. The Household Budget Survey of 1987 did not assess the levels of expenditure on ophthalmic products in USA. However, figures were available for optician's fees, which normally represent between 15 and 20 percent of the income of optometrists. In 1987 the average expenditure per household per week on optician's fees was $0.10

Market trends :

A number of trends in the business internationally were also worthy of note. Spectacles had become fashionable and were no longer objects which people disliked wearing. Many consumers, particularly in France and Germany, owned several pairs of spectacles, which were colour coordinated with different outfits. In 1992, figures showed that American consumers, on average, still owned only one pair of spectacles per person compared with three or four in some European countries. A further illustration of this fashion trend was that people with perfect eyesight were wearing spectacles, typically with clear lenses. Creating an image can be done as easily with spectacles as any other fashion item and magazines have described a number of looks, from the 'Saturday night relaxed' look to the 'rock star' look and the 'casual look'. As a result, the market was expected to grow for two reasons: customers would want to own more than one set of spectacles, and, as fashion colours change, consumers would discard old frames. It was generally agreed that the replacement and/or multiple purchases of optical aids was one of the few areas of potential growth in the industry in the developed world.

The price of ophthalmic products continued to be driven down. SpectaCue, a US retailer of ready-made reading glasses based in New York, sourced products in China, which it retailed for $1.99 a pair. The ultimate expression of spectacles as a convenience product was the launch of a spectacle vending machine by SpectaCue in 2000. The machine allows the customer to select one of five ranges of frames and then choose which of nine different corrective strengths is most appropriate, before inserting money into the machine and pressing the button. Samples of the design are affixed to the side of the machine in order to allow customers to try on the spectacles with mirrors available.

SpectaCue believed that the machines would become popular in airports, supermarkets, libraries, and other outlets, where people may suddenly realize that they need a spare pair of spectacles. The rise of multiple optical chains and more recently of super-opticals was another important trend in the industry. Throughout North America and parts of Latin America, optical chains tended to be regional rather than national or international and were generally privately-owned companies with about 20 outlets. However, in the UK the super-optical had become a nationwide phenomenon with some 2400 scattered throughout the country. A super-optical store is a large ophthalmic practice where a customer can undergo a sight test, select a frame, and can watch the lenses being glazed and surfaced at the in-shop laboratory; the customer receives new spectacles usually within one hour of the sight test result. Super-opticals traded on the basis of convenience, comfort, speed, efficiency, and quality and were becoming very successful throughout the Americas.

The competition:

Two strong international competitors recently emerged to challenge the growing strength of CooperVision. SeeClear, a large player in the US market, operated on a franchise basis with nearly 4000 retail outlets in total. In 1989, they opened a pilot shop in the glamorous city of San Francisco and over the next three years opened shops in Cork, Limerick, Galway and Belfast. SeeClear offered the consumer a choice of 2000 frames and claimed to be able to provide 90 percent of spectacle orders within an hour.

In 1992 the UK super-optical, Vision Express, opened outlets in Chicago. In January 1993, they began running a 'buy one pair of spectacles, get one free' promotion using a 30-second television advertising campaign on Cable. They offered consumers a choice of 3000 frames and claimed to be able to provide 95 percent of its spectacle orders within one hour. These companies were a particular threat to Cooper Vision, as they could match most of the innovations, which Cooper Vision had brought to the US market and were armed with substantially larger promotion budgets. By late 1992, one optical supplier estimated that, between them, these two competitors had swallowed up 40 percent of the US market.

The traditional optometrist treated these new competitors, including Cooper Vision, with disdain and relied on the legal process to try to stymie their growth in the market. In 1991, the Opticians Commission issued a summons against SeeClear for including prices in their advertising and for offering special deals. SeeClear countered by making a submission to the Director of Consumer Affairs suggesting that the board's regulations restricted trading and threatened to take the matter to the US Supreme Court, if necessary. The board dropped its action against SeeClear pending a decision from the Director of Consumer Affairs, who subsequently agreed that its regulations restricted trading. It did have some success against a number of discount retailers in the USA.

In 1990, it took an action against three retailers in Dublin for selling ready-made reading glasses without first registering as medical practitioners or registered opticians. The board was granted a restraining order in this case. However, in 1992 the Association of Optometrists thought it necessary to engage in promotion and coordinated double-page advertising features in both the New York Times and the Washington Post. These features provided information on the services offered by optometrists and warned consumers to beware of attractive advertising of special offers, free tests and cheap lenses and frames. Optometrists throughout the country supported the feature by placing small adverts, which identified the name and address of the practice. Faced with the challenges presented by these new competitors, Davin Lynch sat in his office pondering the opportunities available to his company while keenly aware of its limited resources.

QUESTION

Identify and discuss FIVE key issues facing Cooper Vision