Analysis of Toro's Snorisk Program - Assignment Example

?The S’No Risk Program Contents Contents 2 Answers 3 References 9 Bibliography 10 Answers In June 1984, the director of marketing for consumer products, Dick Pollick reacted to the analysis made by Programs Manager Susan Erdahl. According to the given case, Susan analyzed that American Home Assurance Company was looking to a hike in premium from current 2.1% of annual sales revenue to 8% of sales for the consequent year. The analysis report also included research on other insurance companies and revealed that the rates of Lloyd’s (London) also ranged between 6% and 10%. From the given case it can be said that the primary reason for the insurance companies to raise rates was sudden surge in demand for Toro and their interest in buying larger models so as to take advantage of deal. The increasing interest among the customers to buy Toro provided dealers the opportunity to clear inventory and regained confidence. Also S’ no risk promotion had basic cost of sales of 2.1% of sales which is normally 10% and hence the rates were raised (Bell, 1994, pp.1-2). The fair estimate of insurance rates will depend on the following factors namely, customer confidence, demand, insurance rates of other companies, cost of sales and profit margin of the company. On the basis of information given in the case, the impact of probable insurance rate on the profitability may be analyzed as follows, Items Single Stage Power Shovel Two-Stage Power Shovel   Min Max Min Max   Price ($) Retail Price 270 440 640 1500 Units Sold 100000 100000 20000 20000 Total Revenues 27000000 44000000 12800000 30000000 Basic Cost of Sales/Premium @ 2.1% 567000 924000 268800 630000 Profit 26433000 43076000 12531200 29370000 Premium @6% 1620000 2640000 768000 1800000 Profit @ 6% 25380000 41360000 12032000 28200000 Premium @8% 2160000 3520000 1024000 2400000 Profit @ 8% 24840000 40480000 11776000 27600000 premium @ 10% 2700000 4400000 1280000 3000000 Profit @ 10% 24300000 39600000 11520000 27000000 From the above table it can be said that when the rates are increased profitability will decrease and vice-versa. 2. The S’No risk program by Toro is shown below From the consumer’s viewpoint, the above structure exhibits an alluring percentage of refund which is entirely dependent on the amount of snowfall in the region. The structure states that when the snowfall would be more, the consumers would have the option to buy any variant of the shovel and when the snowfall would be comparatively lesser than other years then the consumers would be entitled to a refund. However the refund option would be valid till the figure reaches 50% average snowfall. Beyond 50% snowfall the customers won’t get the money-back benefit. Therefore we can conclude that both the plans would be in favor of the consumer. However a situation might arise when in a particular year, a customer purchases a self-propelled two-stage machine by paying a price of $1500 and on the same year the average snowfall in the region reaches 80%, then he will not be entitled to any refund. In this case the customers might think that he has made a wrong decision by spending $1500 for the shovel when he had the option to buy the one priced at $ 640. The chart discussed previously exhibits that the consumers prefer to spend the minimum and derive the maximum benefit from a product or service. Therefore it can be concluded that the rate which is most preferred by the customers is 6%. But 6% would not be preferred by the insurance firm as it would not bring them adequate revenue. Therefore Toro must choose a middle path to satisfy both the groups and it should go for the 8% rate. 3. The common decision trap in this case is the snowfall. For Toro, the sales volume would entirely depend on the amount of snowfall. For the Insurance firm, the snowfall would decide how much premium they are going to earn and for the consumers the snowfall would guide their decision of spending money towards the shovel. For all the three groups, thus the deciding factor is snowfall which itself is an uncertain and uncontrollable factor. To make these groups towards making a sound decision we are demonstrating the decision matrix below- For Toro Criterion Weight 6% 8% 10% Making maximum profit 3 2 * (3)= 6 3* (3) =9 1* (3)= 3 Improving the customer loyalty 1 2* (1)= 2 3* (1)=3 1* (1)=1 Limiting the advertising cost 2 2* (2)=4 3* (2)=6 1* (2)=2 (web2.concordia.ca, n.d.) For Insurance Firm- Criterion Weight 6% 8% 10% Making maximum profit 3 1* (3)= 3 2 * (3)= 6 3* (3) =9 Improving their service 1 1* (1)=1 2* (1)= 2 3* (1)=3 Diversification 2 1* (2)=2 2* (2)=4 3* (2)=6 For Consumers- Criterion Weight 6% 8% 10% Deriving maximum benefit 3 3* (3) =9 2 * (3)= 6 1* (3)= 3 Getting brand loyal 1 3* (1)=3 2* (1)= 2 1* (1)=1 Paying cheaper price 2 3* (2)=6 2* (2)=4 1* (2)=2 Score? 3= Most preferred, 2= moderately preferred, 1= Most avoided A decision matrix helps the related stakeholders to arrive at the most feasible decision (crowinfodesign, 2009). In this case the decision matrix states the most preferred and most avoided criteria and on that basis the suitable rates has been marked (in bold). The program helped the consumers to derive the maximum benefit from Toro. If the snowfall reaches a maximum level then the shovels will be used to remove those and if the snowfall is lesser then they would get a refund. In either way their regret is dealt with efficiency. 4. Based on the perspective of Toro, in order to achieve the desired objective it is advisable that the rates should be lowered so that continuing the promotion remains viable business. However, from the perspective of insurance companies higher rates are always better as they will earn higher by increasing rates. But the primary objective is to keep the product intriguing to the customers so that sales do not plummet. A balanced approach should be adopted that considers the demand of insurance companies and at the same time do not hurt Toro’s profitability. 5. Although initially the distributors resisted new promotion that replaces 10% discount program, but soon after the promotion was launched customers showed lot of interest towards and dealers were also able to sold out large models which were previously lying idle in inventory. Hence, in short it may be said that the program was successful (Bell, 1994, pp.2-3). 6. The program was highly successful and has been able to draw attention of the customers for Toro’s products. But despite its success it cannot be said with certainty that the same enthusiasm would be continued over the coming years. For instance, the customers might be biased towards previous records and when they come to know about the fact that few people actually opted for the deal in previous they may lose interest. Also, the weather stations forecasted possibility of stronger snow in coming fall. In such case, Toro’s products would eventually experience stronger sales irrespective of such kind of promotion. Hence, repeating the program may not be such a good idea in terms profitability, which would be affected when adversely when promotion is repeated due to high prevailing rates (Bell, 1994, pp.2-3). References Bell, D. E. (1994). The Toro Company S’ no Risk Program. [Pdf]. Available at: http://www.homeworkmarket.com/sites/default/files/toro.pdf. [Accessed on September 20, 2013]. web2.concordia.ca, (n.d.) DECISION MATRIX/SELECTION MATRIX. [Pdf] Available at: http://web2.concordia.ca/Quality/tools/10decision.pdf [Accessed on September 20, 2013]. crowinfodesign, (2009) Make The Perfect Decision Every Time. [Pdf] Available at: http://www.crowinfodesign.com/ebooks/decisionmatrix.pdf [Accessed on September 20, 2013]. Bibliography True Value, (2013). Toro S’ No Risk Guarantee: If It Doesn’t Snow, Toro Gives Homeowners Their Money Back. [Pdf]. Available at: http://www.truevalue.com/assets/images/cms/pdf/ToroSnoRisk.pdf. [Accessed on September 20, 2013]. Read More