Marketing Case Analysis

  

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Marketing 601
Dr. Vernon
I.
Factual Summary:
? Palladium Door has ten sales representatives.
Eight representatives are
responsible for the 300 independent (non exclusive) dealers and two sales
representatives are responsible for the 50 exclusive dealers. Therefore, on average
each of the eight sales representatives’ service about 38 independent dealers and
the other two sales representatives’ service about 25 exclusive dealers.
?
Palladium Door Inc. has 300 independent dealers servicing around 100 markets,
and 50 exclusive dealers servicing 50 markets. Exclusive dealers account for 70
percent of sales and independent dealers account for 30 percent of total sales.
With total sales of $9.2 million in 2003, independent dealers account for $2.76
million and exclusive dealers account for $6.44 million.
? According to the 2003 sales figure for Palladium Door Inc., exclusive dealers
averaged $128,800 in sales ($6.44 million/50 dealers).
On the other hand,
independent dealers averaged $9,200 in sales ($2.76 million/300 dealers).
? The total market in 2003 was made up of 3002 independent dealers with total net
sales of $348.5 million. This means the average Sales per dealer is $116,089.27.
Therefore, Palladium Door’s average net sales for exclusive dealers are greater
than the market average sales per dealer.
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II.
Case Problem/Opportunity:
? Palladium Door Inc. needs to develop a suitable distribution strategy that will
enable the company to achieve the $12.5 million sales goal for 2004.
Explanation:
As a manufacturer of steel garage doors and related parts in an 11 state (150
markets) area Palladium Door Inc. currently operates, distributes, and sells in the
following ways:
1) Service Residential and Commercial Customers
2) Distribute through 300 non-exclusive and 50 exclusive dealers
3) Each market has roughly a population of $250,000
4) 10 technical sales representatives
Palladium Door Inc. has set a goal to increase its sales for 2004. Sales are
expected to grow at 2.4 percent in 2004 while the management of Palladium
Door is looking to increase company’s sales by 36 percent from $9.2 million to
$12.5 million. This objective will help the company preserve its buying position
with suppliers, particularly with respect to raw materials for Palladium’s garage
doors. The residential garage door awareness was very low according to the
survey done by Palladium. Therefore, Palladium cannot build up a marketing
strategy that would be based on brand recognition due to the insufficient
awareness about its products in the market but it should focus on the distribution
strategy implemented at present. The main issue is whether or not to change the
distribution strategy and composition of dealers in order to reach the 2004 sales
goal.
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III. Alternative Solutions:
Alternative 1:
The first suggestion is to increase the number of dealers by 100 in the markets
currently served by Palladium Door Inc.
The additional dealers should be
independent (non exclusive) dealers. Also, the additional dealers must be located
in markets not served by exclusive dealers. Increasing the number of dealers will
make it easier to attain the sales goal specified in the corporate plan. The more
dealers available in a market the more customers they can reach. An increase in
dealers will help spread more of Palladium Door Inc. products. If customers
receive good Palladium Door products from the dealers the reliability of the
installer will increase and this will help increase sales in the future.
This
distribution strategy will be more effective for the long-run.
However, this solution comes with a few problems. Increasing the number of
dealers to 100 in one year will not be easy and will require an additional sales
force to service the new independent dealers. Increasing the sales force will result
in an increase in costs. The direct cost of adding a sales representative is $80,000
per year.
Since there are eight sales representatives for independent (non
exclusive) dealers, then each sales representative is responsible for 38 dealers.
Therefore, when adding 100 new dealers it requires hiring approximately three
more sales representatives (100/38 = 2.6 or 3). The direct cost of those three
representatives will be $240,000 (3*80,000). An increase in direct costs will
prevent Palladium Door Inc. from achieving the desired sales goal of $12.5 million
in 2004.
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Alternative 2:
The second solution would be to develop a formal exclusive franchise program.
The program will initially be targeted to 27 non-exclusive independent dealers.
The 27 dealers must be prepared to sell of competing lines and switch to
exclusively sell Palladium Doors in the markets they are operating in for a
specified franchise fee. In return for the dealers, Palladium Door Inc. would drop
present dealers operating in the same market of the chosen 27 dealers. In addition,
no new dealers will be added to the markets where the 27 chosen dealers for the
franchise program are servicing in. When this program is implemented, Palladium
Door Inc. would end up having 77 exclusive markets and 73 non-exclusive
markets. Both the original 50 exclusive dealers and the new 27 dealers chosen for
the franchise program will receive additional investments in advertising and
promotion dollars to reach the sales goal. Since exclusive dealers account for most
of the company’s sales, the increased advertising budget will help raise consumer’s
awareness for Palladium’s doors, and this will drive up sales.
This solution also has some disadvantages. If Palladium Door Inc. commits to an
exclusive franchise program then the company will limit its flexibility in adding
new dealers in the future. In addition, this program will be implemented in the
first quarter and since Palladium’s contractual arrangements with independent
dealers allowed for cancellation without cause some dealer’s operations will be
disrupted as they would be dropped out of Palladium’s list of dealers.
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Alternative 3:
The third solution suggested would be to reduce the number of independent (non
exclusive) dealers from 300 to 200 dealers. This would mean that the 50 exclusive
dealers would be retained and only 200 non exclusive dealers would operate in the
remaining 100 markets. From those 200 independent dealers, 50 would receive a
higher advertising budget to aid the dealers in achieving the desired sales goal.
Since independent dealers accounted for only 30 percent of Palladium’s sales
reducing their number seems reasonable. The majority of the sales come from
exclusive dealers; therefore the focus should be more on exclusive dealers. Since
exclusive dealers managed to make 70 percent of the sales without an exclusive
franchise program, there is no need to grant any exclusive franchise program
which will limit Palladium’s flexibility.
With this solution, there will be an
improvement in sales force effort along with increased sales as more time and
effort will be given to fewer dealers. Reducing the number of dealerships would
even lead to a higher sales representative to dealer ratio. As a result, it would
improve the quality of customer service.
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IV. Selected Solution:
The second solution seems to be the most feasible as it will generate a close figure
to the $12.5 million sales goal is the second.
The first suggested solution of increasing the number of dealers does not seem
reasonable. In the past 10 years, Palladium Door Inc. was only able to add 50
dealers. If it took the company 10 years to add 50 dealers it would be unrealistic to
add 100 dealers in just one year.
Sales for Exclusive dealers in 2004
$128,800 x 77 = $9,917,600
Sales for Independent dealers in 2004
$9,200 x 273 = $2,511,600
Total dealer sales
$9,917,600 + $2,511,600 = $12,429,200
This sales figure does not take into account the effects of the increased advertising
budget as it is not known what percentage of the budget each exclusive dealer
would get. This means that the sales figure in the table above can go up even more
to reach the desired goal.
The third alternative would not generate a close figure to the desired sales goal for
2004. Even though independent dealers make up only 30 percent of Palladium
Door Inc. sales, reducing the number of dealers seems unreasonable for a company
that aims is to generate higher sales.
Sales for Exclusive dealers in 2004
$128,800 x 50 = $6,440,000
Sales for Independent dealers in 2004
$9,200 x 200 = $1,840,000
Total dealer sales
$6,440,000 + $1,840,000 = $8 280 000
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V.
Conclusion:
For Palladium Door Inc. to achieve the ambitious sales goal, it must invest more in
advertising and promotions. The consumer awareness for garage doors brand
names is very low. Investing more in advertising will help increase consumer’s
awareness for Palladium doors and this might lead to higher sales. The residential
garage door survey states that 15 percent of buyers would install their own
residential garage door when a replacement was needed. Palladium Door Inc. can
provide free installation services as a type of promotion.
Palladium Door Inc. must study the 27 non exclusive dealers carefully before
granting them an exclusive franchise program.
Primarily the company must
determine the reliability of those 27 dealers and whether they operate in a high
potential market. The implementation of the exclusive franchise program must
take place promptly to avoid disrupting dealers’ operations. If the program takes
too much time to be implemented the chances of reaching the desired 2004 sales
goal might decrease.
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