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The Jones Blair Company is a small paint (coatings) producer in the southwestern United States. The company plant and headquarters are located in Dallas, Texas; and it does most of its business within this 11 county Dallas-Fort-Worth region, and also Oklahoma, New Mexico and Louisiana. Currently the company sells top quality architectural paint and accessories to various markets. The company also sells OEM materials to domestic and international customers. Jones Blair is currently looking for solutions for marketing their architectural coatings and sundries.
Jones Blair mainly deals with customers looking for a high end product. They strive to produce top quality coatings by continually researching and developing new solutions. This has led the Jones Blair product to be the highest priced product on the market. Jones Blair caters to mainly do-it-yourself customers (50% of sales) and professional painters (25% of sales) looking for great point of purchase service, ease of application, and durability.
The Jones Blair Company has increased sales on an annual basis, but the sales volume has stayed the same. This is due to the high cost of research and development in their products. The company is in fear of facing a plateau in price and being able stay competitive in the industry. Jones Blair needs to determine where and how the company will market its architectural products in the southern US.
Currently, the company employs eight sales reps to manage the inventory and customer expectation at the companies 200 cooperative retail outlets. The company spends roughly 3% of net sales ($12,000,000*.03= $360,000). Of this 55% is spent on cooperative advertising ($360,000*.55= $198,000). This is spent on newspaper advertising and seasonal catalogs distributed by retailer. The rest of the advertising budget is spent on in-store displays, corporate brand advertising, a website, outlet signs, regional magazines, premiums, and advertising production costs. This case analysis will determine where and how the company should market its architectural products.
Jones Blair has developed four alternatives to relieve the companies marketing problem.
a) Spend additional $350,000 on corporate advertising;
b) Cut price by 20%;
c) Hire one additional sales rep.;
d) Do Nothing (Status Quo).
a) Spend additional $350,000 on corporate advertising
This money will be used to increase awareness. Most of it will be spent on television ads targeted mainly in the Dallas Fort Worth (DFW) area at the do-it-yourself market. Brand image is important to consumers and television ads are a great way to get the name out.
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b) Cut price by 20%
Compared to other leading national brands, Jones Blair is priced relatively high. This is based on the extremely high quality and performance of the products. By cutting price, Jones Blair will be able to stay competitive in price with other the other products on the market.
c) Hire an additional sales rep
Hiring an additional sales rep will allow Jones Blair to focus on new markets. These markets should be outside of the DFW area and allow for new cities and states to recognize Jones Blair.
d) Do Nothing (Status Quo)
Since Jones Blair has continually seen profits each year, they should maintain their current marketing objectives and do nothing. Jones Blair has done an excellent job of this in the past by watching the margins and controlling costs. By doing nothing, the company will not need to spend any additional money.
a) Spend additional $350,000 on corporate advertising.
The marketing department proposes a television campaign targeted at the DFW do-it-yourself market. This will cost an additional $350,000, but will significantly increase the awareness of Jones Blair products. Research has proven that brand awareness is a major factor in purchasing decisions. If Jones Blair does agree to use this method the company will need to make at least $1,000,000 to break even and cover the cost of this new promotion ($350,000/.35= $1,000,000). Most of the DFW consumers are do-it-yourselfers, so a television ad will be beneficial in this market.
Consumers will become aware of Jones Blair.
Do-it-yourselfer's account for 70% of volume in the DFW area.
Advertising is proven to increase awareness, and awareness is a critical factor in consumer purchasing decisions.
Almost doubling current advertising costs ($360,000+$350,000).
Strategy requires a large budget and has little guarantee of results because about 75% of the viewing audience does not buy paint.
Consumer buying process shows household buyers choose a store first, not a brand; therefore, cooperative ad is required, not brand advertising.
b) Cut price by 20%
In 1997 architectural product sales volume was $12,000,000. Jones Blair has a current net profit of $1.14 million, and to stay profitable it must maintain this amount.
If Jones Blair reduced its price by 20% the contribution margin will drop to 15%.
($12,000,000 + x)*.15 = $4,200,000
($1,800,000 + .15x) =$4,200,000
-$1,800,000 - $1,800,000
.15x/.15 = $2,400,000/.15 = $16,000,000
If the company drops the price by 20% the company will see a 33% increase in sales. (16,000,000-12,000,000=4,000,000 12,000,000/4,000,000= .33)
The company will sell more products, because it will be able to compete with its competitors in price.
May not be able to sell enough in volume to cover cost of goods sold.
If priced more competitively with other companies, may not be looked at as superior quality.
c) Hire an additional sales rep
Sales outside of our home territory DFW are crucial for maintaining competition in the market. A sales rep would cost the company $60,000 a year. So the company would need ($60,000/.35) about $171,428.58 of additional profits to cover this. 120 retailers are located outside of DFW. If we look at our current dollar amount needed to stay profitable $4,200,000 and divide that by stores $4,200,000/120= $35,000
So $171,428.58/$35,000 = about 5. So the company would require a new sales rep to acquire at least 5 new accounts a year to breakeven.
New clients may bring more opportunity to the table through word of mouth.
Does not cost the company a significant amount of money to do.
Does not promise new clients.
Is not concentrating on most profitable market, DFW.
d) Do nothing (Status Quo)
Jones Blair will not change any of their marketing strategies.
Does not cost the company any extra money to maintain current objectives.
Jones Blair is currently making money, why change?
Jones Blair will not always be profitable in the future; the cost of research and development will only increase.
Needs to stay competitive in the market.
Not looking into long term vision of the company.
Jones Blair needs to look into the future and envision the company competing with competitors. Its best bet is to focus on the consumers in its main home market, DFW. If they can gain awareness of the home market, sooner or later word will spread through out all of their markets and business will boom. Making a $1,000,000 minimum income look like pocket change. Right now Jones Blair can afford this and still have a $400,000 profit.