Problem Definition: Palladium Door, Inc. wants to increase 2003 sales by 36% in 2004. There is concern whether the current distribution strategy used by Palladium would be adequate to achieve the goal. Although Palladium’s growth has been steady over the past 10 years the market share was only at 2. 6%. The firm’s senior executives were firmly believed they justified this lofty sales goal because they had to attain a larger sales volume to preserve its buying position with suppliers. Palladium, during its growth, has exceeded the industry growth. There are three new plans on how to reach the goal.
There are four different viewpoints on the marketing decision. Statements of Alternatives: The first viewpoint is Increasing the number of dealers in the markets currently served by the company The second is developing a formal exclusive franchise program, since 27 opportunities of such were able last year. The third viewpoint called for a general reduction in the number of dealerships without granting any formal exclusive franchises. The fourth and final viewpoint is to not change anything and focus on improving the current distribution policy and network. Analysis of Alternatives:
Increasing the number of dealers in the markets currently served by the company The executives believed it would be necessary to add another 100 dealers in order to meet the increase in sales of at least 2. 4%, according to industry trends. However, Hawly believed that adding another 100 dealers over the next year would be challenging and furthermore would affect the sales force for the serviced nonexclusive deals already in place, which would inevitably have a need to increase that sales force. It seemed that this alternative would provide a potential gain in the long run, but would incur immediate increase in costs.
The cost of adding a sales rep was $80,000 per year. Adding this sales rep would of cut last year’s net profit by about 18%. The second viewpoint was to develop a franchise program, which was presented the previous year in which 27 non-exclusive dealers would represent a different market and each of these markets would potentially have a high potential and be a contender for the new advertising and promotion market. When taken into consideration, the executives believed that this alternative allowed for the 27 dealers and their markets to be protected or secured, in terms of costs, by the advertising and promotion program.
They did realize that some of the remaining markets would be affected by the increase in advertising due to high-potential markets, even though most of the remaining markets that were served by exclusive dealers would be unaffected. With the companies policy Palladium would be able to terminate a contract with their dealers with 90 days advance notice. Because of this they would be able to implement this during the usually slow first quarter of the upcoming year.
The third alternative basically required a reduction in the number of dealerships of independent dealers. Although they did not come up with a concrete number the belief was that the number of dealers would decrease from 350-250. The company’s sales had 70% of total sales to only 50% of the dealerships. Executives believed that committing to an exclusive franchise program would limit its future flexibility. The last idea of this would be adding to the quality of sales force with the possibility that will lead to higher sales volume.
Although there could be sense to be made out of this plan, cutting the dealerships by that much of a percent will not be able positively affect the total sales The final viewpoint was to keep the status quo, in a sense. Several executives did not want to change either the distribution strategy or the dealers, but rather look internally on how to do a better job with the current distribution channel. Recommendations: It would seem very favorable for Palladium to implement alternative 2 of developing the franchise program. The addition of 27 exclusive dealers would efinitely increase sales and out of the 3 alternatives, it provides the least increase in cost and/or the largest increase in sales. So in order for Hawly to meet his goal of $12. 5 million With the exclusive dealers in place they can improve the brand image also. By adding the 20% budget they can increase the very low awareness of prospective garage door buyers(10%). By having exclusive dealers, Palladium will be on the forefront in certain markets and aggressively start to build up sales to reach the goal of 12. 5 million.