ProjectsJones Blair Executive Summary
Subject: Jones Blair Corporate Marketing and Promotion PlanThis summary outlines our team’s recommendations and supporting rationale regarding how and where Jones Blair should deploy corporate marketing efforts in the coming year.
RECOMMENDATION
Team D&B recommends hiring an additional sales representative who will be dedicated to building new business outside the Dallas-Fort Worth (DFW) 11 county market. Further, the team recommends that Jones Blair consistently execute a strategy aligning with their premium brand and extraordinary customer service.CONCLUSIONS
There are two overarching reasons for this recommendation, summarized and developed below.- Break-even Analysis
- The break-even point on adding a successful sales representative to the staff who will focus on new business development is the most desirable alternative of those presented by executive leadership. In concurrence with the VP of Finance’s recommendations on realizing incremental sales increases based on expenditures within one year, the low break-even point also provides an opportunity for significant return on investment.
- See Appendices A and B for break-even analysis projections related to each alternative suggested by the executive management team.
- Alignment and Fit
- Jones Blair should deploy marketing and promotion programs that align with their brand position and core competency of outstanding service. The addition of a new sales representative dedicated to new business development would align with the company’s existing strength of excellent customer service. Many firms, from a variety of industries, dedicate specific sales representatives to account management and others to new business development, as it is commonly an effective structure for acquiring new customers.
- As a premium brand with strength in customer relationship management, Jones Blair should avoid any activities that relate to a cost leadership strategy. Competing on price would entail a significant change in the Jones Blair strategy of differentiation, which has resulted in successful and profitable operations to this point.
SITUATION & EVALUATION
External Environment- Industry. The architectural paint coatings and sundries industry is mature and projected to grow at a rate of 1-2% annually. Estimated sales in 1999 were more than $10 billion.
- Market Segments. The industry can be broadly segmented into professional painters and do-it-yourselfers. The do-it-yourself market typically selects a retail outlet as the first-order criteria and selects a brand of paint as the second-order decision. Sales and competition in the do-it-yourself market segment has increased significantly in recent years. The do-it-yourself market segment is motivated primarily on price while the professional painters segment is generally motivated by product quality in their buying decision.
- Growth of Private Brands. Approximately 50% of architectural paint coatings are sold under private brands, including Wal-Mart and Home Depot. The majority of sales in these outlets come from the do-it-yourself market segment.
- Industry Consolidation. The architectural paint coatings industry has seen a 40% reduction in the total number of companies competing since 1975 and is declining at a rate of 2-3% per year. Much of the consolidation has been from larger companies acquiring smaller firms to enhance their presence in a specific geographic segment. 60% of sales in the industry are accounted for by seven large national producers.
Internal Environment
- Jones Blair Brand. Jones Blair is a premium brand in the architectural paint coatings industry and is the highest price product among even competing premium brands. The company has executed on a strategy of differentiation as it relates to Michael Porter’s generic business strategies. Through the quality of its product and exceptional customer service, Jones Blair has attempted to position its brand as unique in the mind of the customer, directly and indirectly, and has priced the product accordingly.
- Offering. The Jones Blair offering is made up of a premium paint product (the physical entity), but a significant component to the value proposition offered by the company is the service and customer relationships that surround the product. This value proposition has led to success in the regional markets served by Jones Blair and resulted in a profitable enterprise to this point.
- Distribution. Among the distribution in 200 independent paint stores, lumberyards, and hardware outlets, forty percentages is located in the 11-country DFW area and the remaining is in non-DFW area. DFW and non-DFW accounts distribute equally the company’s sales. Besides, the DFW outlets have a decline in gallonage volume, while the non-DFW outlets have an increase. Both decline and increase contribute a stable gallonage volume. This fact tells that the potential growth ability in the non-DFW area and the changes needed in the DFW area as well as in the non-DFW area.
- Paint Sundries. Jones Blair sells paint sundries under the Jones Blair brand but these products are not manufactured by the company.
- Lack of Success with New Business Development. Jones Blair has attracted only 5 new accounts in the last five years with a sales team consisting of eight sales representatives. Jones Blair’s VP of Sales admittedly has not inspired the sales team to develop new business.
- Competencies. Jones Blair’s competencies are made up of manufacturing premium quality paint and developing strong customer relationships, particularly with small specialty paint stores that are the primary source for professional painters.
- Competitive Advantage. Jones Blair’s Competitive Advantage is its existing customer relationships, built on its customer relationship management competency. The firm’s relationship with retailers distinguishes the brand and allows them to be more profitable than competitors by building the value of the brand with those who consult end-users on paint products. Further, these existing relationships would be difficult for competitors to emulate on a broad scale without significant time and investment. The quality of Jones Blair paint cannot be considered a competitive advantage as there is no indication that it is produced through unique processes and no indication of patented technologies or methods related to its production.
SUMMARY & CONCLUSIONS
- For the reasons previously stated, Team D&B recommends that Jones Blair hire an additional sales representative to focus on new business development outside the DFW market in Jones Blair’s service area and continue to guard its margins, manage total costs, and increase sales.
- While the existing sales representatives have been unsuccessful in developing new business, Team D&B believes a sales team structure that eliminates new business development from the responsibilities of existing sales representatives and the addition of a team member whose focus and primary responsibility is new business development will render the greatest impact on Jones Blair’s new account figures this year.
- Team D&B recognizes the possibility of adding a new sales representative to the Jones Blair sales team who is unsuccessful at garnering new accounts based on the sales team’s performance to this point. This is an accepted risk and risk avoidance will require effective management by the VP of Sales.
- Taking into account industry trends, specifically related to consolidation and competition, the Jones Blair executive leadership team should reassess its strategic plan for the company and strongly consider opportunities related to mergers and acquisitions.
Other Alternatives
- Consumer Advertising – This alternative would align best with a cost leadership strategy and would be most effective at targeting the do-it-yourself market segment. The recommendation of increasing awareness by 30% through $350,000 of advertising, which nearly doubles the current advertising and sales promotion budget, does aligns with neither Jones Blair’s strategy nor strengths.
- Price Reduction (20%) - This alternative also aligns best with a cost leadership strategy. Jones Blair does not compete on price, but rather on service and quality, and we would not recommend a change in strategy that fails to capitalize on the firm’s strengths.
- Guard Margins and Control Costs – Jones Blair must take action to grow the company and this alternative does not call for sufficient action in support of these objectives.
APPENDIX A – BREAK-EVEN ANALYSIS
VP of Advertising VP of Operations VP of Sales
Proposed Alternative
$350,000 Advertising & Promotion Expenditure
20% Price Reduction
Additional Sales Representative
Cost
$350,000
N/A
$60,000
Contribution Margin .35 .35 .35
New Contribution Margin N/A .1875 N/A
Current Revenue
$4,200,000 $4,200,000 $4,200,000
Increased Sales to Maintain Current Revenue with New Price
N/A $22,400,000 N/A
Break-Even Dollars in Sales** $1,000,000 $10,400,000
$171,428.57
* See Appendix B for calculations.
Appendix B - CALCULATIONS
$350,000 Advertising & Promotion Expenditure Alternative
Cost/Contribution Margin = 350,000/0.35 = $1,000,000.00
Additional Sales Representative Alternative
Cost/Contribution Margin = $60,000/0.35 = $171,428.57
* Assume contribution margin accounts for sales commission
20% Price Reduction Alternative
Contribution Margin = Sales – TVC/Sales
Contribution MarginCurrent Price = 12,000,000 – 7,800,000/12,000,000 = 0.35
Contribution MarginNew Price =
[(0.80)12,000,000]-7,800,000/[(0.80)12,000,000] = 0.1875
$4,200,000 = 12,000,000Current Price (0.35)
$4,200,000 = Salesnew price (0.1875)
Salesnew price = $22,400,000
Break-even in dollars = $22,400,000-$12,000,000 = $10,400,000
Jones Blair- EXECUTIVE SUMMARY
Date: April 11, 2007
Submitted by: Yu-Chieh Chen, Scott Stewart, Yu-Fen Su, Justin Wolf