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Situational Analysis of Jones Blair Paint Company.

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Introduction

´╗┐Tatyana Utkina Dr. Barksdale MK 4900 September 11, 2012 Jones Blair Case Situational Analysis 1. Industry 1. The US paint industry is divided into 3 broad segments: 1. Architectural coatings 2. Original equipment manufacturing (OEM) coatings 3. Special-purpose coatings 1. Architectural coatings account for 43% of total industry dollar sales 2. OEM coatings represent 35 % of total industry dollar sales 3. Special-purpose coatings account for 22% of total industry dollar sales 4. US paint industry is a maturing industry 5. Industry sales in 2004 were estimated to be slightly over $16 billion. 6. No new competitors are entering the market, competition decreased by 40% from 1980 to 2004 7. The number of paint companies is declining at 2-3% per year 8. Estimated US sales of architectural paint coverings and sundries are $ 12 billion in 2004 9. The 7 biggest companies (Sherwin-Williams, Benjamin Moore, the Glidden unit of Imperial Chemicals, PPG Industries, Valspar Corporation, Grow Group, and Pratt & Lambert) account for 60 % of sales 10. Architectural coatings are a mature market with long term sales growth projected in the range of 1 -2% per year 11. Demand depends on: 1. House redecorating, maintenance, and repair as well as sales of existing homes and home, commercial, and industrial construction 2. ...read more.

Middle

Awareness increase of 30% among DIY 1. Cons: 1. Less focused 2. What will advertising do Jones Blair, given that about 75% of the audience is not buying paint 3. Increase advertising budget to $710 K (Appendix 2) 4. Must generate $1 mil in additional sales just to break even and cover cost of the new advertising (Appendix 3) 1. 20% price cut on all paint products to achieve parity with national paint brands 1. Pros: 1. Completive price 2. Possible market share gain 3. When price decreases by 20%, the sales go up 33% (Appendix 4) 1. Cons: 1. Jones Blair may not be able to sell enough volume to cover COGS. 2. Jones Blair does not look like premium paint in the eyes of consumers. Perception of lower quality. 1. 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 1. Pros: 1. Cover more bases by doing more contracts with retailers or professional painters 1. Cons: 1. Do sales reps focus on retail accounts or professional painter recruitment? 2. Contractor Sales in DFW are minimal/ No use for another sales rep 3. Sales reps are not aggressive and not very affective 4. Additional sales needed to hire a new rep is $171,428 (Appendix 5) ...read more.

Conclusion

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 ...read more.

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