Palladium Door, Inc. aims to boost their sales by 36% in 2004 but is worried that their current distribution strategy may not be sufficient. Despite consistent growth over the past decade, Palladium holds a meager market share of 2.6%. Senior executives feel it is necessary to increase sales volume to maintain their standing with suppliers. Palladium has outperformed industry growth during its expansion phase. To tackle this challenge, three new plans have been proposed to achieve the sales target.
There are four perspectives regarding the marketing decision. These viewpoints are as follows:
1. Increase the number of dealers in the current markets of the company.
2. Establish a formal exclusive franchise program, as there were 27 opportunities for this last year.
3. Reduce the number of dealerships without granting any formal exclusive franchises.
4. Maintain the current distribution policy and network while focusing on improvement.
An analysis of these alternatives will now be presented.
The company’s executives determined that in order to achieve the expected 2.4% sales growth, they would have to add 100 more dealers and expand their current market coverage. However, Hawly expressed concern about the challenges of this task and how it could affect the sales force responsible for existing nonexclusive deals. This would require an increase in that specific sales force, which could bring long-term advantages but also immediate cost increases.
The cost of hiring a sales representative was $80,000 per year, resulting in an approximate 18% decrease in net profit for last year. Instead of continuing with this method, an alternative solution was suggested: the introduction of a franchise program that had been implemented the previous year. This program aimed to select 27 non-exclusive dealers who would focus on different markets with high potential for new advertising and promotion prospects. The executives saw this as a way to protect these 27 dealers and their respective markets by ensuring that their expenses would be covered through the advertising and promotion program.
Despite the fact that most of the remaining markets served by exclusive dealers would be unaffected, they acknowledged that some markets would be influenced by increased advertising in high-potential markets. Palladium’s policy allowed them to terminate contracts with dealers by providing a 90-day advance notice. As a result, they planned to implement this strategy in the typically slow first quarter of the upcoming year.
The third option suggested a decrease in the number of independent dealership by around 100, from 350 to 250. While no specific number was determined, it was believed that this reduction would result in 70% of the company’s total sales being generated by only 50% of the dealerships. The executives were concerned that committing to an exclusive franchise program would restrict the company’s future flexibility. Another proposal involved improving the quality of the sales force, which could potentially lead to increased sales volume.
Despite the potential sense in this plan, reducing the number of dealerships by such a significant percentage will not have a positive impact on overall sales. The final consensus was to maintain the current distribution strategy and dealerships, but instead focus internally on improving the current distribution channel. The recommendation is to implement alternative 2, which involves developing the franchise program. This would result in the addition of 27 exclusive dealers and definitely lead to an increase in sales. Out of the three alternatives, this option has the least cost increase and/or the largest sales increase. By implementing this plan, Hawly can achieve his goal of $12.5 million. The presence of exclusive dealerships will also enhance the brand image. Allocating 20% of the budget towards increasing awareness among prospective garage door buyers (currently at 10%) will further drive sales. With exclusive dealerships, Palladium can establish a strong presence in specific markets and aggressively work towards reaching the $12.5 million goal.
