Marketing Plan for Magic Carpet Inc - Case Study Example

Page Marketing plan for “ Magic Carpet Inc “ – a leading carpet cleaning company in the of California Current Situation and Trends Thecarpet cleaning industry as such is large and varied in its size. It is an industry, owned and operated by large corporate houses and by small proprietary units. The US carpet cleaning industry has close to 40,000 units and generates revenue of $4104million. The major players in this business account for only 22% of this share.(IBIS world Sep 20 2007) Moreover this service industry comes under the larger umbrella janitorial services where a company offers a whole range of cleaning services like Upholstery cleaning, Duct cleaning ,Tile and Grout cleaning, Curtain cleaning etc. The smaller units of the carpet cleaning industry dominate the residential market and the larger ones the commercial market. The industry is also highly localized and a small unit in a county can dominate the residential market in its area even for two generations. Nevertheless, the cleaning industry is expected to grow at an annual rate of 5.5% through 2009. The projected market share for Carpet and upholstery-cleaning services for the year 2014 stands at 25%,(Byers Perry,sbdc, Pg. 1 March 2007) next to house cleaner services at 66% of the total residential cleaning market share potential. The state of California holds the first place for housing the most number of janitorial services company a number of 5096 also tops with the highest sales at $120,436,492,000. (Byers Perry, sbdc, Pg. 3 March 2007) Page - 2 About Magic Carpet Cleaning Company : Michael established Magic Carpet Cleaning, Inc. in 1993.  Michael had spent ten years of his career as a customer service professional and was keen on starting his own business, which predominantly dealt with a large customer base.   After researching various business opportunities, he decided to establish a carpet cleaning business in the state of California. Magic Carpet Cleaning, Inc. soon grew with multiple offices providing services in the cities of Los Angeles, San Diego, Ventura, Orange County, Riverside and San Bernardino. Magic Carpet derives its strength from the high focus on service level that surpassed the expectations of every client, earning the company an outstanding reputation.  Because of the quality of work and customer service, Magic Carpet Cleaning, Inc.’s customers have requested that additional services be provided.  Over the years, Magic Carpet Cleaning, Inc.’s list of services has grown and now includes  Premium Carpet Cleaning; Upholstery Cleaning; Fabric and Fiber Protection; Specialty & Oriental Rug Cleaning; Urine Damage Treatment; and Water Damage and Restoration. Mike moved into a well-managed corporate entity within four years of launch with key process owners who were driving acquisition, operations, quality, training and finances. He also had a marketing team that strategizes the company’s growth plans well ahead of time. The marketing team worked on growing both the market share and the mind share of the organization year on year with clear well defined steps taken to enable this growth The company is currently holds the fourth place in terms of its market share in the state of California. The company has 30 franchisees in the cities of Los Angeles, San Diego, Ventura, Orange County, Riverside and San Bernardino. The company is looking at increasing the number of its franchisees to enable them to reach deeper pockets in the city where competition from localized companies exist. The following table gives us an insight about competition and the market potential in its area of operation: Page - 3 Market Analysis: Magic carpet had hired an external marketing consultant to provide them a comprehensive market analysis in their target markets so that they can work out the right strategy to meet their financial goals for FY08. The study revealed the potential of the markets where Magic Carpet had its presence Market Analysis Magic Carpet Cleaning   Geography Business Residential Total Los Angeles 527 664568 665095 San Diego 347 156170 156517 Orange County 107 15527 15634 Riverside 196 45627 45823 San Bernardino 143 36455 36598 Total     919667 Source: California State housing and Business, City-data.com The study arrived at the above numbers based on various parameters like affordability of the customer, accessibility of its franchisee to the geography, customer satisfaction, brand loyalty to competition and competition coming from the janitorial services industry. To estimate the market size further, the study done, brought out the correlation between the target segment and the frequency of services being utilized. Environment Normal Contaminated Outside Dusty Extremely Cold Weather Climates High Humidity Biogenic Health care centers / Day Care 2 – 3 weeks 1 week 2 weeks 1 week Nursing Homes / hospitals Alternate months 1 month 1 month 1 week Residence:         2 – 4 persons, no kids / nonsmoking 6-12 months 3months 4-6 months 4-6 months 2-4 persons, w/ smoking / kids 4 months 2 months 3 months 4 months young children w/ pets 3-6 months 1 month 2 months 2 months Office Building:         ground floor 3-6 months 1-4 months 2-6 months 2-6 months Other floors 6-12 months 2-6 months 3-9 months 3-9 months Cafeteria / canteen 1 month 1 week 2 weeks 2 weeks Retail / banks / show rooms / kiosks / parlors 3-6 months 1 month 2 months 2 months Based on the above studies the total market size of approximately 60 million USD. The company currently shares a 3.33% of the total market share if the company is able to tap the above-mentioned potential it will reach a 9% on the total share 3. Performance Review;   2005 2006 2007 Sales       direct :Individuals $805,374 $885,026 $972,556 franchisee : individuals $910,309 $1,137,886 $1,422,358 Total Sales $3,238,675 $3,609,362 $4,047,466 Direct Cost of Sales 2005 2006 $2,007 direct :Individuals $241,612 $309,759 $249,570.64 direct : commercial $456,898 $555,257 $727,123 franchisee : individuals $273,093 $398,260 $625,838 total cost of sales $971,602 $1,263,277 $1,602,531.64 . Source : Template of ‘Soapy rides car wash’ www.bplans.com Page – 5 The following are the observations based on the past three-year’s sales performance of Magic Carpets: There has been steady growth in the sales revenue generated The cost of sales has increased from 30% to 44% over the three years and this definitely affects the bottom line heavily. Magic Carpet has been allowing the franchisee to handle the residential areas while they have completely retained the commercial cleaning with the parent company. Commercial market near stagnation over last three years. The company clearly sees a need to increase its sales volume. The absence of a solid, aggressive and achievable sales and marketing strategy will attract attention from competition to seize its market share. Given the current market potential, the company’s Sales head has a key role to play in the year 2008 in terms of forecasting sales and innovating marketing techniques. 4. Key Issues Doing a SWOT on the last three years performance the following were the key features the Carpet Baggers Marketing team had arrived at. Based on the SWOT they were to make their 08 plans: Strengths Quality of services rendered- good customer testimonies and word of mouth Well trained employees – certified by accredited bodies like IICRC. Among the top ten local players in the state of California Weaknesses Always worked on a self-sustaining model. Never ventured out in the debt market for loans for expanding business ‘One vertical’ dependency. Have not diversified into other elements of Janitorial services besides carpet and upholstery cleaning. Dependency on word-of-mouth for business expansion. Never looked at any major branding exercise. Page - 6 Never been able to break into big-sized segments like large corporate houses / hospitals etc Cost of servicing marginally higher due to the labor density Opportunities Partnering with Large Janitorial Services Majors Increasing the services portfolio Enhancing the franchise network at new markets within / outside the state. Cashing in on the good customer feedback Reducing the fixed costs through automation Creating new POS (Point of sale) Threats Customers moving to larger janitorial services companies offering TOTAL SOLUTIONS. Attrition of trained man power by large players Some of the segments moving to ‘self help’ models; communities having local janitorial set up – loss of large base of customers Increasing sales of domestic vacuum cleaners, as one segment does not believe the services of a professional carpet cleaning company is required. Page - 7 5.Objectives : The below table specifies the company’s Sales, Market share and profit percentages. Source: Format from business plans handbook Carpet Chem. Corporation The company is aiming for a aggressive 20% growth on the yearly profit. It seeks to make up for all the stagnation in the industry over the last two years .Below is the Marketing strategy in order to achieve the same. 6. Marketing Strategy: Magic Carpet has the following milestones for ’08: 1. To increase their sales to USD6,000,000 ( nearly 50% growth in sales) 2. To increase their market share to 5 % ( 1.67% over FY07) 3. To bring down cost of sales to less than 40% ( 4% less than FY 07) 4. To operate at a 20% profit margin Promotion Strategy : Branding: Branding strategy had a three-channel approach Page - 8 To work towards brand reinforcement on existing customers. Undergo a transformation of the brand on prospective customers segment to primarily create brand identity and brand recall. The community they belonged to be taken care of by a set of well-defined CSR (Corporate Social Responsibility) initiatives that will give the necessary visibility for the brand. Besides branding, there are four definite promotional plans that will be launched in the course of the year to enhance business: 1. The first plan is the ‘member get member’ program. Unlike the conventional referral programs that give one time goodies for referring other customers, this program is based on rewarding the referrer each time the referee utilizes the services. This structure builds a loyalty component that the referrer continues to enjoy as long as he and the referred customer utilize the services of Magic Carpets. This way the program helps retain both the referring customer and the referred customer in its customer base. 2.Encouraging the top ten franchisees to further expand their network within the set geographic limit – the sub franchisee model will help foster further growth of the performing franchisee thereby extending growth in the already established markets 3. To provide strong selling point to the entire sales organization direct and partnered, a market wide promotional activity. The campaign titled ‘Abracadabra!’ reinforces on the quality of service offered by Magic Carpet and throws a challenge to customers saying ‘show us a spec of dust and we will give u back your money!’ This is a service guarantee campaign that will definitely help break into new unexplored segments. 4. Tying up with leading carpet selling establishments in the areas being serviced by Magic Carpet. Offering these establishments one free cleaning for their customers at a highly subsidized cost, Magic Carpet will get a share of the new business happening in the market directly into their customer base. Since only the basic cleaning is bundled, there is a scope to up sell other services to these customers and hence build the base. The advantage with this campaign will be the branding exercise Magic Carpet stands to get while the carpet sellers promote their product with ‘Free service by Magic Carpet’ in all their ads and campaigns. Page - 9 Pricing Strategy : While the market prices were as varied as $140 to $60 for carpet cleaning, it is important to go to the market place with a Value for Money offering so that people perceive high value for that. The pricing strategy is to keep the base price as competitive as possible to be aggressive enough to attract business, the value bundles that Magic Carpet plans to bring out will ensure that the value for money perception is woven around its product offerings. Place Strategy: Growth comes definitely by increasing the presence across a larger geography – and so it becomes important for Magic Carpet to expand its franchisee operations in other towns in California. The target is to double the franchisee module in twelve months time. It becomes critical to keep going at a pace of one new franchisee every week. Product Strategy: While magic carpet continues to focus on its core competency of cleaning carpets, it will come out with attractive product bundles that will help get wallet share from the market. These value bundles will help in increasing revenue share as well as retaining the customer, as they will work as Unique Selling Propositions on which Magic Carpet can cash upon. It might take a while for the competition to catch up with them on these new value bundles. References: Byers Perry, (Pg 1, 2, 3&4), March 2007, Commercial and Residential Cleaning services Industry Overview, National Information Clearing house, Retrieved on July11, 2008 www.sbdcnet.org Carpet Cleaning Services Sep 20, 2007, US Industry Report, IBIS World, Retrieved on July 9 2008, www.ibisworld.com The US Carpet cleaning industry, Industry Overview, July 2006, Market Data Enterprises Retrieved on July 10, 2008, www.marketresearch.com Business Plans Handbook, Volume 3, 1996, Chem Corporation, Carpet cleaning services, Retrieved on July 12, 2008, www.findarticles.com Marketing Plan sample, Soapy rides Car cleaning, Palo Alto Software, Retrieved on July 9, 2008. www.bplans.com California state housing statistics, March 2007,Advameg Inc, Retrieved on July 10, 2008 www.city-data.com Kotler Philip, (Pg 115,116 Chap 4, Part 2) Contents of the Marketing plan, Eleventh Edition, Prentice Hall Marketing. Read More