Sumayya Final Janmar Case Analysis - Fundamentals Of Marketing PDF

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MKT Case analysis...

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Janmar Coatings, Inc. 1.

Decision Statement: What is the decision that Janmar must make? Janmar Coatings, Inc. is currently facing a problem of how and where to deploy their corporate marketing efforts among the architectural paint coatings market served by the company. The senior management is having difficulty in deciding on an agreement on whether to expand their business in non-Dallas Fort Worth (DFW) areas, or add more to their budget for advertising which will cost them additional $350,000 of advertising expense, hire additional sales representatives whose salary would be $60,000 plus commission, or drop their sales price by 20% to attract customers and boost their sales. In response to this problem, we will look at the SWOT analysis of the company, and investigate each of the senior managers’ proposals by looking at their pros and cons which will help us in generating a course of action.

2.

Internal Environmental Analysis (bullet points are acceptable):

2a.

What are the strengths of Janmar? 

Their sales representatives have good reputation in the market and are trusted by the customers.



They have various distribution networks ranging from independent stores, to lumberyards, and hardware outlets.



Due to their high price their product is associated with high quality and status in the minds of consumers. Their product is popular among professional painters who seek quality products over price. Janmar has 34.1% (Exhibit 2) of the total market sales for professional painters in both urban and rural areas.

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

They have readily available technology and paint formulations which meets the regional climatic needs that have made them successfully compete with their competitors.



The company has a large OEM division which not only sells nationally, but has a global presence too.

2b. What are the weaknesses of the Janmar?



Their brand isn’t well recognized in the DFW outlets, who are then carrying multiple lines that has caused a decline in their gallonage volume. Their total market sales percentage for urban areas is 12.50% (Exhibit 2) which is much lower compared to their rural sales of 18.75% (Exhibit 2).



Their high-priced paint can drive away price sensitive customers, especially the DIYers, and retailers would then hesitate to carry their brand.



They have high cost of goods sold and other expenses which amounts to $684,000 (Exhibit 3).



There is disagreement among their senior management that wastes time and energy, and delays decision making.



The company distributes its products in 200 stores but it only has eight sales representatives responsible for Janmar products in their retail outlets.

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

They have account penetration of only 16% in non-DFW areas where half of their sales come from and they just cover 18.75% (Exhibit 2) of the total 32m (Exhibit 2) non-DFW market.

3.

External Environmental Analysis (bullet points are acceptable):

3a.

What are the opportunities facing Janmar?



They can build on their recognised sales force and build customer relationships to boost their sales.



Unable to keep up with R&D commitments, their competitors are declining at the rate of 2 to 3 percent per year.



They can increase their presence by adding distribution channels outside the DFW area as it contributes only 18.75% (Exhibit 2) of their total market sales but they contribute towards 50% of their sales.



Janmar Coatings, Inc. only has a market share of 9.62% (Exhibit 2) in the DIY market. They can add a new product line for do-it-yourself painters to take advantage of the rising trend of do-it-yourself household consumers.

3b.

What are the threats facing Janmar?



They face competition from substitutes such as aluminum and vinyl siding, interior wall coverings, and wood paneling.

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

Their competitors in the market have developed advanced paint formulations and so the company needs to keep itself up to date with the increasing technological/formula advancements in the market place.



There are increasing government regulations they need to observe.



They are facing increasing research and development costs which necessary in order to comply with government regulations.



They face strong competitors in the market including Sherwin-Williams, Benjamin Moore, PPG industries, Pratt & Lambert and so on. There producers are known for leading the architectural coatings segment.

4.

Evaluation of Alternatives (bullet points are acceptable)

4a.

Evaluate Alternative #1: Do nothing

Pros: 

Doing nothing is the cheapest option to implement.



The DIY market segment is expanding, so they can expect their sales and profits to increase with time.



Increase in the demand in the rural areas can also improve their sales and profits with time.

Cons:



If the company does nothing, then it’s not adapting itself to its changes in its environment that is, not doing something to take advantage of the increasing DIYers which will make it less competitive than other companies in the marketplace.

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

The company needs to gain strategic advantage over the competitors when it comes to positioning their product in the minds of DIY consumers. If they do nothing, then the growing DIY consumers won’t have enough brand awareness and knowledge for their product which will result in reduction of profits over time.

 They have high costs of expenses, and company’s sales demand wouldn’t be increasing anytime soon, and their product price is reaching its threshold. If they do nothing and wait for sales to increase, then they would be unable to cover their increasing costs in long term.

4b.

Evaluate Alternative #2: Increase Advertising

Pros: 

Advertising will increase brand awareness for Janmar’s products in the urban DIY market as they have only 5.36% (Exhibit 2) of market share in this market and they can increase sales through advertising.



The company can use pull-strategy through advertisements where they can promote their brand image and awareness, which can then lead customers to ask retailers for their products, and as a result more and more retailers would then carry their product.



Their product is in the mature stage of its product life cycle. Using advertisements could help them stress on the differences between their brand and their competitors’ brands and the value their product offers.



Through advertisement they can not only capture DFW DIY market but they can also capture non-DFW DIY market.

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Cons: 

To cover the increased advertising expense, the company would have to increase sales by $1,000,000 (Exhibit 4).



Their advertisement efforts are only focused on television marketing.



Even if they try to increase sales through advertisement efforts, their focus is on household consumers in urban areas and this target market usually tries to get the best price. So even with their advertisement efforts, if the consumers find their price too high then they would be reluctant to buy it, and intermediaries will hesitate to carry their product.

4c.

Evaluate Alternative #3: Drop Prices

Pros: 

DIY shoppers is a growing market segment which tries to get the best price. After the product’s durability, they look for a product with ‘acceptable price’ when going through the paint purchase decision making process. So, by decreasing the price, they can lure DIYers away from the competitors.



They have seen a decline in gallonage volume in DFW area as their product is high priced in the industry and so, intermediaries are carrying competing product lines to cater all consumers. Dropping their price will allow them to create demand for their product which can allow them to negotiate with the distributors to push their product to the consumers.

Cons:

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

Their contribution margin is only 35% and if they decrease their prices then it will be difficult for them for cover their yearly high cost of goods sold and other expenses.



If they lower the price, then the positioning of their product, that is, their brand image associated with high quality and reputation would be compromised.



If they do lower the price, to maintain their current contribution margin they would have to make sales worth $22,400,000m (Exhibit 6) and this required sales target to maintain current profits is too high.

4d.

Evaluate Alternative #4: Add a Sales Representative

Pros: 

They have been experiencing increased sales in rural DIY segment. An additional sales representative can create new leads and accounts in that area.



Janmar paints are popular among professional painters as they associate high price with reputation and are not price sensitive. A sales representative can create sales relationships with professional painters in the rural areas and foster brand loyalty.



A significant number of DIY consumers desire someone to give them information about the product specification, its application, and so on. As DIY consumers are usually less informed about a product, they usually buy a product they are well informed about. A sales representative can inform the customer more about Janmar’s product, the value and benefits it offers which can increase their sales volume.



Sales representatives can hand out flyers, brochures, and spread word of mouth about the product in their respective service area which won’t cost a lot and with adequate 7

information about their product it will be easier for the customers to make the purchasing decision.



Their sales representatives can be trained to handle resistant buyers by telling them the advantages of using their products, they can stress on brand differences, and can encourage sales.



While advertisement provides short term incentives of increasing sales, having a sales representative will provide them long term benefits as they can build trust and brand loyalty with customers.

Cons:

5.



The sales representative’s focus would only be on a specific segment.



There is no guarantee if they would be able to penetrate the non-DFW market.



There is a chance that one sales representative may not be enough and they may need to hire more.



Their eight sales representatives were able to create only five accounts in the past five years.



Extra sales required to cover a sales representative’s salary expense would be $171,428 (Exhibit 5).

Recommendation: Which alternative do you recommend accepting? Justify your recommendation. I would accept hiring an additional sales representative over other alternatives. Customer service is one of their strengths and they should build on this strength to 8

increase sales. It’s true that there is no guarantee in whether the sales representatives would be able to bring in sales for the company or not, but there is no guarantee whether the company would be able to make profits by price reduction, and advertising efforts either. Advertising efforts can cover both non-DFW and DFW market segments, where sales representatives only focus on a specific segment. However, sales representatives can spread word of mouth, do in-store product presentations, hand out brochures and flyers for the product, give in-store presentations and demonstrations in store which wouldn’t cost a lot. On the other hand, price reduction can increase demand by attracting DIY customers in both rural and urban areas who look for the best price. Price reduction could par them with competitors, but since their contribution margin is low, and they have been controlling costs to make profits, it would be unwise to drop prices as it will make it difficult for them to make profits over the long term. Nevertheless, this may take their sales away from professional painters who are not price sensitive and associate product price with reputation. Furthermore, if they lower their prices they will not only loose their ‘high quality’ image but also the advantage of charging higher prices which helps them in covering their costs. On the other hand, advertising can bring in sales without reducing the product price, but it has high initial costs. To cover advertising expense of $350,000, the company will be breaking-even at $1,000,000 (Exhibit 4). This is a large and risky expense. If they hire an extra sales representative, they would have to make additional sales worth $171,428 (Exhibit 5) to cover this expense. Moreover, this expense is less risky and a cheaper option to implement than advertising. Unlike advertising, it doesn’t require the company to pay upfront amount and the results will be noticeable soon compared to the other options. Doing nothing could help the company in short term where they could see their profits increasing due to the increasing demand in the industry from DIYers. However, it will negatively effect the company in long-term as this industry is in its mature stage where companies stress on their differences, and encourage brand switching. So, in my opinion, the best option is to hire a sales representative. A sales representative can generate long-term sales for the company, it 9

will take some of the work-load off from the eight sales representatives managing 200 stores, and a new sales representative can focus on the rural DIY market segment. Janmar has the advantage of charging high prices because it differentiates itself in the market by offering high quality products along with admirable customer service. So, they should hire a sales rep who can create new accounts, build relationships with the customers and can forge brand loyalty in them by exceeding their expectations and by building trust.

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Exhibits Exhibit 1 Title: Matrix for entire Janmar Market and Janmar. a) Janmar Market Urban

Households

Professionals

Rural

14.4m

Total Household Sales 48m

28.8m

3.2m

Total Professional Sales 32m

Total Urban Sales 62.4m

Total Rural Sales 17.6m

Total Area Sales 80m

33.6m

b) Matrix for Janmar Urban

Households

Professionals

Rural

4.2m

Total Household Sales for Janmar 6m

4.2m

1.8m

Total Professional Sales for Janmar 6m

Total Urban Sales for Janmar 6m

Total Rural Sales For Janmar 6m

Total Janmar Sales 12m

1.8m

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Exhibit 2 Title: Janmar’s market sales percentage out of the total market sales Urban

Households

Professionals

Rural

4.2m/28.8m = 14.58%

Total Household Sales %age for Janmar 6m/62.4m = 9.62%

4.2m/14.4m =29.17%

1.8m/3.2m = 56.25%

Total Professional Sales %age for Janmar 6m/17.6m = 34.1%

Total Urban Sales for Janmar 6m/48m = 12.5%

Total Rural Sales For Janmar 6m/32m =18.75%

Total Janmar Sales %age 12m/80m = 15%

1.8m/33.6m = 5.36%

Exhibit 3 Title: Cost of goods sold expense Total net sales of Janmar = 1,140,000 COGS= 1,140,000 x 60% = $684,000

Exhibit 4 Title: How much should sales increase to cover advertising expense and break even? Contribution margin = 0.35 Additional advertising expense = $ 350,000 To break even = 350,000/0.35 = $1,000,000 Exhibit 5 12

Title: When will Janmar break-even if they hire a sales rep? Salary of sales rep= $60,000 Contribution margin = 0.35 Breaking even at = $60,000/0.35 = $171,428.57

Exhibit 6 Title: How do we maintain current contribution if Janmar reduces its price by 20%? Total market sales= $12,000,000m Current contribution margin= 0.35 New contribution after 20% price drop = 0.35-0.20 = 0.15 Current price is say $1 and VC is $0.65 which gives us CM of $0.35 per unit If we reduce price by 20% then price would be $0.80 and with VC $0.65, CM per unit will be $0.15 So, with reduced price our contribution margin will become $0.80/$0.15 = 0.1875 Current contribution= $12,000,000m x 0.35 = $4,200,000m To maintain their sales contribution, they would have to make sales worth = $4,200,000/0.1875 = $22,400,000m

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