I. Executive Summary Carrington Furniture is now considering on sale responsibility of the merger between Carrington Furniture, Inc. and Lea-Meadows, Inc. The major concerns facing the two companies are and how to handle the sales responsibilities due to the difference of sale distribution and finding the best way to minimize a cost which not make a negative effect to the market share. Meanwhile, two companies have been well-processing as separate companies, the combining of two companies seem to be more complex. By the same time, Bates recommended to increase the call times to industry norm.
Of these many alternatives we chose to adopt a sale force distribution system and add additional sale person. Even using sale forces distribution system have both fixed and variable cost that would not be worth to used in the small amount of sale company, but for the big amount of sale company, it will be lower cost than using sale agents in the long run. And we plan to add sale persons to reduce the pressure, responsibility and tasks of existing sale force and cover the expanding of the market and product line. By adding two more sale representatives will cost company to training them and also have to pay them. This amount will be valued to pay if we consider that we could save well-performing in Carrington's current market which has 7% higher gross margin than Lea-Meadows. II.
Problem Definition and Statement of Alternatives The meager between Carrington Furniture and Lea-Meadows has made them face a problem, using a sales agent. Each company was using a different strategy and both were good at their strategy and had experience with it. They still need to have an effective sales effort and be profitable after the merger and continue the relation with current and prospective dealers. Decision to be made In order to have an effective sales effort and be profitable after the meager between Carrington and Lea-Meadows, we recommend alternative 3: Carrington should use more sales representatives for Lea-Meadow to sell furniture. Objective To minimize total selling cost. Success Measure The success of alternative sales method is measured by the sales in dollar the company can generate.
Alternative 1. Maintain current sales force and sales agents. 2. Utilize only sale force. 3.
Utilize sales force with the addition more sale representatives. Constraints 1. Maintain appropriate responsibilities of sale forces. 2.
Maintain market share or minimize the impact on Lea-Meadows sales. 3. Concerning about the relationship with the agent. 4.
Maintain Carrington sales and profitability. 5. Adding new salespeople would require restructuring of the sales territory. 6.
Buyer conflicts due to relation with agent versus brand loyalty. 7. Terminating Martin Moorman's current position. III. Analysis of Alternatives. Alternative 1: Carrington continues using sales agents for Lea-Meadows to sell furniture.
Advantages: 1. Carrington still maintains the market share of Lea-Meadows; its brand name, image and buyer would not have to split their loyalties. -Sales agents have a good and long relationship with the customer. -Sales agents can contact with specialty store and customer that Carrington's sales force can not reach. -Sales agents can provide a better after sales service to please their customer.
The growth rate of Lea-Meadows Company is 7% that we can predict the net sale in the future (Appendix 6) and the industry growth rate is 4% (Appendix 4) so if we can maintain market share, we can get the higher net sale. 2. Having only variable cost (commission) on each selling unit. 3. Keeping the valuable and well-experience Martin Moorman who has a good contact with agents. 4.
Agents can sell Lea-Meadows product together with other complementary product. Disadvantages: 1. Carrington can not reduce the selling cost, if they still use Lea-Meadows agents (economic of scale). 2. Carrington's sales force might overlap with Lea-Meadows agent customer account. 3.
Can not control the performance of sales agents. Alternative 2: Carrington use current sales representatives for Lea-meadow to sell furniture. Advantages: 1. If we use only sales force, Carrington can reduce the selling cost. The sales force's commission rate will be used instead of sales agent rate which is higher. 2.
Carrington's sales force can eliminate overlap among customer account. 3. Carrington can control over sales force directly Disadvantages: 1. Adding too much task to Carrington's sales force would lead to lower productivity (we should consider on Carrington's product line which is 5% higher gross margins). 2. Carrington has to spend time and money for training sales force to be able to selling Lea-Meadows product.
3. Fixed salary and small commission create less motivation to sales force. Alternative 3: Carrington use more sales representatives for Lea-Meadow to sell furniture. Advantages: 1.
Totally control over the sales force and giving appropriate amount of tasks to the sales force, so they can perform efficiency. 2. Adding sale repetitive will make selling Lea-Meadows product line not result any effect on Carrington sale. 3. Sale representative will have more product to sale so can get more commission.
4. If we use only sales force, Carrington can reduce the selling cost. The sales force's commission rate will be used instead of sales agent rate which is higher. 4. Carrington's sales force can eliminate overlap among customer account.
Carrington can control over sales force directly. Disadvantages: 1. Adding some fixed costs to net sales of Carrington product. 2. Carrington has to spend time and money for training sales force to be able to selling Lea-Meadows product. 5.
Fixed salary and small commission create less motivation to sales force. 6. Sales agents will turn to adopt the competitor's products. Quantitative analysis Among 3 alternatives, we recommend adopting only sale force which we need 15% more in average call time (3 hours) so we need to add more 27 minutes. In short, we need to use 3 hours and a half to sell both line of product.
To remain the average call time per year of sale representative (1500 hours), we need to add more 2 sale persons (Appendix 2). Utilizing both of sale force and sale agents will certainly produce $250, 000 cost (Appendix 2) while, alternative 3 will cost company only $165, 000 (Appendix 2) so we can save cost $85, 000. Even company has to pay fixed salary and also commission to sale representatives but in long run when sale has grown bigger, it will cost less than using sale agents. In contract, choosing the 2 nd alternative will cost only $25, 000 (Appendix 2) but we might push too much responsibility on our 10 representatives. Too many tasks and responsibility might cause reducing of well-performance on Carrington's market which has higher gross margin (5%).
Cost of each alternatives are presenting which one is the lowest cost but the lowest cost is not always the best solution. IV. Plan Development. Recommendation Considering the analysis, we recommend for Lea-Meadows, Inc. and Carrington Furniture, Inc to adopt sales force system to the L-M product line instead of using sales agents. Also, adding two sale representatives for maintaining 3 hours call for each account, 5 times a year.
With this solution, company will take care of L-M's customer accounts and still focusing on the Carrington's product line which has 5% more in gross margins. Losing the market share because of shifting from agents and turning them to adopt our competitor's products cannot avoid. We only can use the best strategy to minimize that effect. Considering cost factor, the solution show that in the higher volume of company sale, the lower cost for using sale force will be presented. (Figure 9, Appendix 2) Losing of market share when the agents turn to the competitors will be argued with the fact that customers are not rely on brand, retailer or manufacturer's reputation. (Appendix 9) We recommend the company not to suddenly merge, but spend some time collecting information about L-M existing market, learn and analyze sale agent's customers.
First of all, we start by adding 2 sale forces and assign them to study sale agents market while others 10 representatives that have seen some market for upholstered product will try to push the L-M product through their customers. Later on, when we are ready to adopt only sale force, we " ll minimize losing of market share. According to Bates's recommendation, we should increase number of call from 5 to industry norm at 7 calls per account per year to perform in the industry standard and keep our customers in touch and avoid of losing them to the competitors. In this case, Company want to maintain the 1, 500 hrs call time of sale person so company need to reduce the average call time from 3 hours to 2. 14 hours (Appendix 7, 8).
In the other hand if the average call time didn't change, Company need to hire more sale representative (Appendix 1). Increasing to the same level of industry norm will cost company to hire more sale representative when merger with the L-M. Either increasing sale calls or not, sale force distribution still be the better solution than sell agents (Appendix 2) Company should take an advantage of this merging try to apply economic of scale theory to company's supplier lines and inventory. There are many materials instrument used in the production of two produce lines. By ordering those materials together, will increasing our bargaining power. As also in inventory system, company could apply in the same way.
For Martin Moorman, we might give him a chance to use his 25 years experience to work in other marketing positions. Product Strategy Company should use the advantage of this merging try to combine the uniqueness of each company, adding the new innovation to the product lines. We can gain some market share of both company by invent attractive product that respond to the diversify need of customer. We, also, may reduce some expense by correlate after sale service of each company.
We can sell two product lines together as a complimentary good. For example, Company can match the wood coffee table from Carrington with the upholstered sofa from the L-M and sell it as a set or package. Price Strategy Carrington is a manufacture of medium to high price product. So after L-M merge with Carrington, L-M should use its reputation, technology and standard to develop the product image to higher position. Place Strategy Carrington sale forces know about existing customer that trend to buy L-M product so we can open the new market for L-M product. Promotional Strategy Two product lines can be advertise together so we can save some expense.
Appendix 9 Summarization of customer's buying furniture survey From the customer survey found that people most likely to use 5-6 factors to consider the product. These factors are structure, design, quality, comfort, material and durability. The customers also like to have the matching decoration style for their living room and dinning room. The customers don't care much about the price factor, brand and reputation of the manufacturer. Criterion 1 2 3 4 5 no answer Guarantee or warranty 11. 40% 11.
10% 26. 30% 16. 90% 5. 30% 29. 00%Brand name 9. 1 6.
5 14. 3 25. 6 11. 6 32.
9 Comfort 34. 7 27. 8 14. 5 8.
5 4. 7 9. 8 Decorator suggestion 4 2. 4 2.
7 8. 2 44. 8 37. 9 Material used 14. 9 24. 1 14.
9 13. 4 6. 2 26. 5 Delivery time 0.
7 0. 5 1. 3 2. 9 55. 2 39.
4 Size 7. 6 10. 7 13. 6 30. 9 4 33. 2 Styling and design 33.
4 17. 8 21. 8 13. 6 2.
2 11. 2 Construction 34. 3 23. 6 13. 1 11.
4 2. 9 14. 7 Fabric 4 25. 6 24. 9 14 4. 5 27 Durability 3.
7 19. 4 13. 6 6. 9 4. 9 18. 2 Finish on wooden parts 5.
8 14. 7 16. 7 10. 7 16. 7 35.
4 Price 19. 4 21. 8 16 10. 9 15. 4 16. 5 Manufacturer's reputation 4.
2 9. 1 15. 4 22. 9 14. 3 34. 1 Retailer's reputation 2.
2 4. 7 10. 5 21. 2 26. 5 34. 9.