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Marketing Management - Swisher Mower and Machine Company.

Extracts from this document...

Introduction

MBA5009 Marketing Management Group Report Of Case 5 Swisher Mower and Machine Company Submitted by Zeng Min, Bernice Ellen Novidia Adisoebrata Tan Xiao Ling, Linda Liu Bei, Pat Paul Lim Suparto Quach Thi Thu Hien Huang Yue Hong, Sarah NUS Business School National University of Singapore Wayne Swisher, President and Chief Executive Office of Swisher Mower and Machine Company (SMC), was weighing the proposal of a private branding arrangement for SMC's line of riding mowers. He thought the inquiry presented an opportunity but details should be studied more closely. Situation Analysis: Company Background: Established in 1945 by Max Swisher, SMC grew steadily with unit volume for SMC riding mowers peaking at 10,000 units with sales of $2 million in 1966. In the 1990s, the unit volume remained constant with around 4,250 riding mowers per year. Compared with 1,263,000 unit sales in riding mowers and tractors industry, SMC only occupied around 0.3% market share. Max Swisher, the current CEO, thought maintaining a small company image had also been an important aspect of his business philosophy, which led to the good personal relationships with dealers and customers alike. SMC produced limited but differentiated products. SMC's flagship product, the Ride King, was credited with the first zero-turning-radius riding mower. SMC also produced a trail-mower called T-44 with a cutting width of 44 inches. Kits, the self-propelled push mower, accounted for 8.2% of SMC's total sales, though it did not provide a material contribution to the company's gross profits. The replacement parts for mowers posed a good business for SMC, accounting for 20% of the total sales. The following table showed the detailed comparison of the percentage in total sales and total gross profits across different modes of mower together with replacement parts. 1995 data Ride King T-44 Kits Replacement Modes of Mower Riding Mower Trail-mower Push mower / % of total Sales 63.60% 8.20% 8.20% 20% % of Gross Profits 57.80% 13.20% 0 29% SMC planed to broaden SMC product line in 1996 by introducing a high-wheel string trimmer product, Trim-Max, a high-wheel, walk-behind product. ...read more.

Middle

$416,195 $4,878,250 $4,878,250 Impact on AR (45 days /360) $52,024 $609,781 $609,781 Cost to finance additional AR (@ 9.5%) $4,942 $57,929 $57,929 Cost to finance additional Inventory Additional average inventory (assume nil for sample order) 0 2,100 2,100 Average unit cost [=((6100*(650-42.25)+2100*(650-33.85))/8200] $0 $582 $582 Average inventory cost $0 $1,222,008 $1,222,008 Cost to finance additional Inventory (@ 9.5%) $0 $116,091 $116,091 * Sensitivity Analysis: In order to gauge the risks associated with the terms and conditions of the proposal, SMC tried to analyze the sensitivity of the sales and profits to the changes of terms and conditions in payment terms, inventory costs, interest rates and cannibalization volume. To illustrate the point clearer, the breakeven point of each terms and condition is calculated with other situation held constant. Sensitivity No Additional Profit Payment terms -65% 114 days Extra holding inventory -131% 3,700 units Interest rate -196% 14.3% Cannibalization volume -22% 1,690 units Because all these conditions above are unlikely to happen, SMC can be rather confident that the proposal is quite favorable in making profits. Evaluation of the proposal Just like a coin has two sides, the proposal also has pros and cons. SMC can benefit from the private label proposal from six aspects. * SMC can enjoy the increase in sales and profits after accepting the proposal. The details can be seen in the following table: 1995 1996 Increase* 1997 Increase* 1998 Increase* Sales 2,730,000 3,145,604 15.22% 7,598,500 178.33% 7,598,500 178.33% Net Profits 430,200 446,240 3.73% 518,780 20.59% 518,780 20.59% * % increase versus those in 1995 If SMC accepted the proposal, its sales could rocket up almost 178% in 1997, compared to sales in 1995. It profits could be increased by 21% in 1997, compared to those in 1995. The proposal posed a good opportunity to SMC to increase sales and profits. * SMC could also benefit from stable demands for its products in the next two years. ...read more.

Conclusion

As we have explored previously, SMC has around 60% of idle capacity which comprised a potential opportunity costs. In addition, analyzing from economics' angle, we find that total fixed costs of SMC' s products remain unchanged with the utilization of idle capacity. The additional revenue arising from the sales of private label may possibly increase profits in SMC. B Profitability In 1996, sales can increase by 15.2% and net profits would boost by 3.74% after accepting the proposal. In the next two years, the sales and net profits will be rocketed to 178.3% and 20.59%, respectively, comparing with those in 1995. * Indirect benefits on regarding the production of private label as a stepping stone to promoting SMC's own brand A Accumulation of profits to finance future development The increased profit aroused from the contract could be accumulated as retained earning to finance the company's future expansion. This is especially true, when SMC is of such a small scale (market share is less than one percent). It would be quite difficult to fully expand after sales and profits had plateaued for more than a decade. At this stage, private label production could provide SMC with necessary profits, which could finance future development. B Accumulation of operational experience The firm can get much precious experience on operating business on a larger scale and in full capacity. The experience includes management, marketing, operation and technology experience. All of these experiences should be considered as a preparation for great leap in the future. One afternoon in early 1996, Wayne Swisher, satisfied with his analysis about the current and future development of SMC, was confident that SMC could both benefit from the private label proposal, the birds at hand, and stay in track with the long-term development of SMC's own brand. The funds, raised by utilization of excess capacity and the production of private label, and the experiences learned from production in full capacity, could assist SWC to step further to fully develop its own brands in the long run. Case 4 Swisher Mower Group 4 1/19 ...read more.

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This is a thorough and well researched analysis of a specific business situation. The writers fully explore the issues. I would like to see them come up with a conclusion rather than reiterating what the company decide to do. They could also offer more critical analysis of the company as they seem rather accepting of information given to them.

Marked by teacher Dennis Salter 01/05/2013

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