Don Martins Company - Case Study Example

 Problems and Analysis: The company is trying, firstly, to return to its previous level of profitability before it undertook its last expansion, and secondly, to again attain its former efficiency in operations. Don Martin’s company was doing well during its early operations and subsequent expansions. After its last expansion, however, it had exhibited signs of declining profit. The personal goal of Don Martin was to sustain the business, while the corporate goal is to attain a higher level of sales and profitability. Consumer Analysis: Segment 1 Segment 2 Segment 3 Who (consumer type – income segmentation) High-income consumers Middle-income consumers Low-income consumers What (product lines) Branded (luxury name brands) Branded & non-branded Non-branded When (seasonality) Year-long Year-long Year-long Where (location) Store locale Store locale Store locale Why (purpose) Preference Preference & Necessity Necessity How (dist. method) Delivery & pick-up Delivery & pick-up Pick-up Implications: Segment 1 Segment 2 Segment 3 Product Big-ticket & branded items Some big-ticket and branded items, some unbranded items Mostly unbranded Price High-end High-end to mid-range Mid-range to lower end Place Store, online Store, online Store Promo Target marketing, online advertising Online advertising, discounts and sales Advertising, discounts and sales Competitive analysis: There are a number of competitors within the vicinity of the store. This is not surprising because the location is a favorite of comparison shoppers who come here and go from store to store on impulse buying, so in a sense it is to the advantage of Martin’s store to be located with the other stores. Martin’s has competitors in: furniture, electronic household appliances, branded big-ticket items. Martin’s advantage is the big parking lot right behind his store. This is a competitive advantage that must be explored, because parking is a problem in the area. It works to Martin’s advantage if his customers can park right next to the store, because that would make it easy to cart away and load the big-ticket items onto the customers’ vehicles. This is one major incentive for customers to choose to purchase repeatedly from Martin’s store. External Analysis Political analysis – The country is in a relative state of peace and order, and there are no disruptive political issues that would pose a risk to the business community. Economic analysis – The recent economic crisis has affected most developed economies, this economy included. Downsizing, lay-offs and closures has reduced the purchasing power of consumers in all three segments. Social analysis – Society is stable and no major issues impede the existence and progress of business in general. Technological analysis – New digital communication systems enable even small businesses to access a wider market reach at relatively less cost. Corporate Capabilities Financial capability As of writing, the firm has just begun to feel the effects of declining financial sustainability, with the incurrences of losses in its operations for the last fiscal year. This is not to say that the Martin’s business is already in dire financial condition. The business is still financially viable at present and maybe for a few more years, but the flat revenue growth and the downtrend in earnings should be arrested if the company will continue to be viable in the long term. Marketing capability Martin’s business, despite the most expansion, has not realized the additional revenues which were expected. This means that the firm has not maximized its marketing potential in order to take full advantage of the expansion. The company has resorted to costly advertising which has not brought increased sales. It should rethink this strategy and resort to promotion that directly impacts upon its customers’ needs. It is assumed that the company also has e-marketing capability, as most firms, even small ones, are equipped with online capacity. Production capability Martin’s business is fundamentally a merchandising operation – it does not produce or manufacture its own goods but it provides the services needed to bring manufactured goods to retail customers. Human resources capability The company does not exhibit to be understaffed because new personnel had been hired in line with the expansion. Actually, it may be overstaffed, although there is no clear indication of this. For this study, it is assumed that the staff is sufficient to meet the firm’s needs. Alternative Analysis In the alternative analysis, the selected target is the middle income segment. This choice is guided by the consideration that middle income consumers outnumber high-income consumers, but although they are in turn outnumbered by the lower-income consumers, the middle income consumers are capable of absorbing higher prices and usually patronize products with a higher mark-up. This implies that the marketing plan will be guided by the following considerations: Products Consumers in the middle income segment typically purchase a combination of branded and unbranded products. Scope of product preferences is wider over a range of product lines, and products are easily substitutable in some cases. Price The chosen segment can afford prices with a higher profit margin than the more generic products patronized by the low income group. There is greater price elasticity for products commonly bought by consumers in the middle-income segment, and while the high-income consumers purchase products with higher prices, the volume of purchase of these items is relatively low in comparison to the target group. Distribution The firm should maintain its retail character, upon which it has established its reputation. Resort to e-commerce, networking, and community building create new channels of distribution by which consumers get their information, transmit their order, and remit their payments online. The product is delivered to the consumers’ doorsteps, within a sufficiently manageable geographical radius. Promotion The firm may explore online marketing, inclusive of advertising over its website and an internet ordering and payment system. Building a database can assist marketing in target marketing of particular individuals with high chances of sales conversion. Cost Analysis: Variable costs corresponding to cost of sales amounts to 67.5% three years ago, 69.5% two years ago, and 64.4% last year (i.e., derived as the difference between revenues and gross profit in Exhibit 1). Fixed costs correspond to the overhead expenses, which by proportion are 32.5% three years ago, 29.6% two years ago, and 37.5% last year (Exhibit 1). From the percent income statement, for the last two years there were significant increases in Sales Wages, Advertising, Occupancy, and Accounts Receivables and Credit (which includes wages, interest, bad debts, collection less service charges earned). On the other hand, savings were realized in Balance of Selling and Delivery, and General and Administration. Of the costs, those that may be reduced would pertain to advertising and occupancy – that is, reduce conventional advertising and rely more on internet marketing which costs much less; and reduce company space and lease out the excess space to generate a regular income for the business when calculated per square foot. To free up space and reduce cash that is tied up on inventory, stocks can be reduced and ordered on a just-in-time basis with the help of a computerized inventory management system. The table above presents the previous items as percent of total sales and inventory respectively. Generally, the proportion of each product line to total sales mirrors the same proportion in ending inventory for that product in terms of total inventory, except for motorcycles which accounts for more than 10 per cent sales but comprises only about 3 per cent inventory. This demonstrates that it is possible for inventory of other product lines to be reduced and still meet the sales target. Further, there is a large inventory marked as miscellaneous which should be rationalized, as to whether they could be reduced without affecting sales. The next table above shows percent changes of sales and inventory from one year to the next. Generally, changes in inventory mirror changes in sales. Decision/Recommendation The action plan includes courses of action which may be done immediately, as follows: (1) Put up a sign that parking area is provided for at the back of the store; direct the oncoming cars with arrows pointing out where to pass to reach it. (2) Spin off the motorcycle business and the photography business. The motorcycle business may be run by the manager as a separate business as subsidiary under Martin’s company. The same may be done for the photography business. These may be segregated within the store. (3) Rearrange the store items so things related are close to each other, and customers who come in for one thing may be persuaded to buy other things. Power tools and hardware supplies should be adjacent to each other, not on opposite sides of the store. Housewares should be closer to washers/dryers, stoves and refrigerators, and possibly to stereo consoles and televisions. There are other steps which may be taken but which shall take time to plan out and develop. These would entail the setting up of computerized systems for information management, inventory management, and e-marketing and sales: (4) Reduce inventory storage and free up cash by ordering just-in-time with the help of a computerized system. (5) Lease out the freed-up space to increase revenues per unit area. (6) Set up an internet marketing system to facilitate sales and e-commerce capability – enabling customers to learn about the products, order them and pay for them online. (7) Set up a database that supports target marketing in order for the company to discontinue its conventional advertising, which is costly and fails to generate sales. Read More