Situational Analysis of Jones Blair Paint Company.

• Paint companies are under a lot of pressure to reduce emissions and volatile organic compounds (VOCs)
• EPS adopted a plan to reduce VOC content by 25% in 1996, 35% by 2000, and 45% by 2003

2. Company

• Architectural paint and allied products sales volume in 2004 was $12 million and net profit before taxes was $1,140,000
• Distributes to 200 independent paint stores, lumber yards, and hardware outlets out of 1000 in the area, with 40% of retailers in non-DFW
• 40% of outlets are in the Dallas Fort-Worth Area (DFW) and 60% are in Texas, Oklahoma, New Mexico, and Louisiana.
• $80 mil sold over all, 60% of that came from DFW
• Has 8 sales reps, with salary pay of $60K and 1% commission on sales
• 1000 paint outlets operate in the 50-county service area and DFW houses 450 of them.
• Typical lumber yard or hardware store gets 10% of its volume ($65,00) from paint
• Typical paint store  has annual sales of $400, 000 with 3 brands
• Mass merchandisers control 50 % of do-it-yourselfer paint market in the DFW area.
• Jones Blair spends 3% of net sales on advertising and sales promotion effort
• Jones Blair is strong in professional DFW market segment with a 35% market share. (Appendix 1)
• Market share for Jones Blair do-it-yourself (DIY) DWF segment is 6.4%, which is very low (Appendix 1)

3. Trends

• Market is growing very slowly 1-2%
• It is a mature market
• Technological innovations make it possible to cut the price and produce higher quality products

Problem Statement

How does Jones Blair need to deploy corporate marketing efforts among the various architectural paint coatings markets served by the company in the southwestern United States.

Alternative Evaluation

1. $350K increase in TV advertising to achieve the awareness level

• Pros:

• Television coverage in 15 counties, which constitutes more exposure
• Awareness increase of 30% among DIY  

• Cons:

• Less focused
• What will advertising do Jones Blair, given that about 75% of the audience is not buying paint
• Increase advertising budget to $710 K (Appendix 2)
• Must generate $1 mil in additional sales just to break even and cover cost of the new advertising (Appendix 3)

2. 20% price cut on all paint products to achieve parity with national paint brands

• Pros:

• Completive price
• Possible market share gain
• When price decreases by 20%, the sales go up 33% (Appendix 4)

• Cons:

• Jones Blair may not be able to sell enough volume to cover COGS.
• Jones Blair does not look like premium paint in the eyes of consumers. Perception of lower quality.

3. Add one additional sales rep whose sole responsibility is to develop new retail account leads and presentations and cal professional painters to solicit their business through Jones Blair’s dealers

• Pros:

• Cover more bases by doing more contracts with retailers or professional painters

• Cons:

• Do sales reps focus on retail accounts or professional painter recruitment?
• Contractor Sales in DFW are minimal/ No use for another sales rep
• Sales reps are not aggressive and not very affective
• Additional sales needed to hire a new rep is $171,428 (Appendix 5)
• Training and recruiting costs
• The new sales rep will have to get at least 5  to break-even (Appendix 5)

4. Status Quo: continue being profitable by guarding margins and controlling costs

• Pros:

• Sales growth of 1-2% per year
• Little risk

• Cons:

• May lead to declining sales because consumers may move to cheaper brands
• Does not solve the problem

5. Use $350K in incremental advertising for newspaper and catalogue for non-DFW areas or 40% price-cut to attract contractors

• Pros:

• More focused advertising
• Price cut will attract contractors
• Professional Painters and DIY may view Jones Blair to have lower quality

• Cons:

• Increased cost of competitive bidding

Recommendation

Option B: 20% price cut on all paint products to achieve parity with national paint brands because:

• Generates 33% more sales
• Completive price
• High quality but lower price – great deal for the professional painters who like premium brands.
• Captures mostly DIY market because the prices are cheaper, beneficial because Jones Blair has the lowest market share in this category.

Appendices

1.

Total market:

Jones Blair Market

Jones Blair Market Share

2.

Current advertising expenditures = Net sales * Advertising budget of 3% of net sales

Current advertising expenditures = $12 mil * 03 = $360 K

New advertising expenditures = $350 K + $360 K = $710 K 

3.

Additional advertising / Contribution = Additional break-even volume

$350,000 / .35 = $1 mil in additional sales

4.

Current contribution = 35%

Price reduction = 20%

Reduction in contribution margin = 35% - 20% = 15%

Gross margin = Current Sales * Current contribution

Gross margin = $12mil * 0.35= $4.2 mil

To maintain the current gross margin, we need:

($12 mil+ x) *.15 = $4.2 mil

 x = $16 mil

$16 mil - $12 mil = $4 mil  

$4 mil / $12 mil = .33

If Jones Blair drops the price by 20% the sales will increase 33%.

5.

The required additional sales to recover cost of sales rep = Annual wages / Contribution

$ 60,000 / 0.35  =  $ 171,429

$ generated by each store to remain profitable = $ amount needed to stay profitable / retailers located outside of DFW

$4.2 mil / 120 = $35 K 

# of accounts to break-even = The required additional sales to recover cost of a sales representative / $ generated by each store to remain profitable

$171,429 / $35 K = 5