Jones●Blair Company markets its paint and sundry items in over 50 counties in southwestern United States from its plant and headquarters in Dallas, Texas.
The Academy of Economic Studies - Bucharest
Faculty of Economic Studies in Foreign Languages
Jones • Blair Company
Case study
Coordinator Prof. Carmen Balan Students
Mitovski Andrea
Nemoianu Estera Laura
Popa Camelia
Group 135, series B
Bucharest, 2005
.Situation Analysis
?. Internal environment
Company is a privately held corporation that produces and markets architectural paint under the Jones?Blair brand name. In addition to producing a full line of architectural coatings, the company sells paint sundries (brushes, rollers, thinners, etc) under the Jones?Blair name, even though these items are not manufactured by the company. The company also operates a very large OEM coatings division, which sells its products throughout the U.S. and worldwide. Therefore, the target markets of this paint manufacturing company are: Architectural Paint Coatings & Sundries, a $80 million dollars market excluding contractor sales; and OEM Coatings.
Jones?Blair Company markets its paint and sundry items in over 50 counties in southwestern United States from its plant and headquarters in Dallas, Texas. The eleven county Dallas-Fort Worth (DFW) metropolitan area is the major business and financial center in the company's service area.
The first target market - to which we refer in this case study, the Architectural Coatings - is mature and with average annual growth 1-2%. It can be divided by area as DFW & Non-DFW, where DFW has 60% of overall sales. The market segments to which the company addresses are: the do-it-yourselfers (DIY), the professional painters, and the contractors.
DIY household buyers were believed to account for 70% of non-contractor-related volume in DFW and 90% of non-contractor related volume in other areas. Mass merchandisers control 50% of DIY market.
A company survey of retail outlets indicated that 70% of sales through their dealers in Dallas-Fort Worth area went to the professional painter, while 70% of the sales through their non-DFW outlets went to the do-it-youselfers. Moreover, the Jones?Blair Company contractor sales in the metropolitan area and in other areas are minimal.
Jones?Blair has 15% market share in these areas, excluding contractor sales (in 1997, the company architectural paint and sundries sales volume was $12 million,out of the total $80 million sales volume for the 50-county service area), and a 4% dollar sales annual growth rate.
Its products are the highest-priced in the service area, the 1997 figures showing that paint cost-of-goods sold, including freight expenses, was 60% of net sales. The products are also seen as of a high quality.
Those products are distributed in 200 independent paint stores, where 80 of them located in DFW (40% of the outlets are located in the 11-county DFW area, while the remaining outlets are situated in the other 39 counties in the service area).
In terms of promotion, the 8 sales representatives of the company are well known for providing good services and professional suggestions. Furthermore, 3% of the company budget (net sales) is spent on advertising and sales promotion efforts. 55% of these are allocated to cooperative advertising programs with retail accounts. The cooperative program, whereby Jones?Blair pays a portion of an account's media costs based on the dollar amount paint purchased from Jones?Blair , applies to newspaper advertising and seasonal cataloues distributed in a retailer's immediate trade area. The remainder of 45% of the advertising and sales promotion budget is spent on in-store displays, corporate brand advertising, outdoor signs, regional magazines, premiums, and advertising production cost, and Web site ( www.jones-blair.com).
?. External environment
In order to maintain or gain a good position on the market, a business unit has to monitor key macroenvironment forces (demographic-economic, technological, political-legal, and social-cultural) and significant microeconomic actors (customers, competitors, distributors, suppliers) that affect its ability to earn profits.
In particular, for Jones?Blair Company, the situation analysis of the external environment is presented below.
. Analysing the Macroenvironment
* Economic factors: the companies seeking growth and a higher sales base to support increasing costs are making mergers and acquisitions; the architectural coatings segment faces competition from alternative materials (aluminium and vinyl sidings, interior wall coverings, wood panelling); there is fierce competition among paint manufacturers and distributors, while most customers tend to be very price sensitive.
* Technological factors: paint companies developed higher-quality products that reduced the amount of paint necessary per application and the frequency of repainting.
* Regulatory factors: U.S. paint manufacturers are under growing pressure to reduce emissions of volatile organic compounds (VOCs) from paints and to limit consumption of solvents.
* Social-cultural factors: there is an increasing level of house redecorating, maintenance, and repair, as well as sales of existing homes, and to a lesser extent new home, commercial, and industrial construction. There is also a trend toward DIY painting by household consumers.
2. Analysing the Microenvironment
* Customers: the target customers of Jones?Blair are the do-it-yourselfers, the professional painters, and the contractors. DIY purchasers usually view paint as paint, a covering, and try to get the best price, but there are is a significant number of people who desire service as well in the form of information about application, color matching, surface preparation, and durability. As recent Home Improvement Research Institute surveys show, DIY painters first choose a retail outlet for paint and paint sundries, then choose a paint brand. Moreover, when deciding on the store, do-it-yourselfers choose different stores 46% of the time, look for the best price 22% of the time, and only 27% remain faithful to one store, while the remainder of 8% choose a store close to their home. Home centers and mass merchandisers represent the two most frequently patronized categories of retailers shopped by DIY for paint and paint sundries. Professional painters, on the other hand, seek quality products, since their reputation is at stake. They want paint that is durable, washable, and that will cover in a single coat. They deal with stores that can mix large quantities of custom colors and expect to work with knowledgeable store employees. Specialty paint stores and lumberyards are the most patronized retail stores by professional painters for paint products and sundry items. Most contractors simply want a coating and strive for the lowest price.
* Suppliers: We refer to the manufacturers of paint sundries (brushes, rollers, thinners, etc), as Jones?Blair also sells paint sundries under Jones?Blair name, even though these are not manufactured by the company.
* Competitors: Competition is fierce both at the retail level, and at the paint manufacturing level. At the retail level, 50% of architectural coatins are sold under private, controlled, or store brands. Sears, Kmart, Sherwin-Williams, and Home Depot have multiple outlets in DFW. Competition for retail selling space in paint stores, lumberyards, and hardware stores has also increased. At the paint manufacturing level, 7 major ...
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* Suppliers: We refer to the manufacturers of paint sundries (brushes, rollers, thinners, etc), as Jones?Blair also sells paint sundries under Jones?Blair name, even though these are not manufactured by the company.
* Competitors: Competition is fierce both at the retail level, and at the paint manufacturing level. At the retail level, 50% of architectural coatins are sold under private, controlled, or store brands. Sears, Kmart, Sherwin-Williams, and Home Depot have multiple outlets in DFW. Competition for retail selling space in paint stores, lumberyards, and hardware stores has also increased. At the paint manufacturing level, 7 major producers account for 60% of sales: Sherwin-Williams, Benjamin Moore, the Glidden unit of Imperial Chemicals, PPG Industries, Valspar Corporation, Grow Group, and Pratt&Lambert. These market paint under their own brand names and for retailers under private, controlled, or store brand names. Furthermore, the major change in competitive behaviour has occurred among paint companies that sell to contractors serving the home construction industry, as they have aggressively priced their products in order to capture a higher percentage of the home construction market.
* Distributors: The distributors of Jones?Blair outside the DFW area are retailers usually carrying only the Jones?Blair product line (mostly specialty stores, lumberyards, independent hardware stores). In the DFW area, except for the 14 outlets which carry the Jones?Blair line exclussively, DFW retailers carry two or three lines, with Jones?Blair 's line being premium price. Except for the distributors, the company has as partner the advertising agency.
Jones?Blair is confronted with some problems. The following SWOT analysis and suggested alternatives might help the company to take the appropriate course of action in order to overcome the difficulties.
2.SWOT Analysis
Before choosing a strategy in solving problems, the overall evaluation of strengths, weaknesses, opportunities, and threats - the so called SWOT analysis - is necessary. It is one thing to discern attractive opportunities and another to take advantage of these opportunities. Each business needs to evaluate its internal strengths and weaknesses. Clearly, the business does not have to correct all its weaknesses, nor should it gloat about all its strengths. The question is whether the business should limit itself to those opportunities where it possesses the required strengths or whether it should consider better opportunities where it might have to acquire or develop certain strenghts.
Jones?Blair Company
Strenghts
* product quality and service (knowledgeable sales representatives)
* good reputation
* strength of the brand name among professionals
* original player - portfolio adapted to regional needs
* exclussive presence of Jones?Blair line in non-DFW retail outlets
* capacity of guarding margins and controlling costs
* marketing of sundry items under the Jones?Blair name
Weaknesses
* image of the highest priced in the service area
* lack of awareness of the brand among DIY purchasers
* weak presence in the metropolitan areas as far as major retailers are concerned
* minimal presence on the contractor's market
* low contribution of non-DFW accounts compared to DFW accounts (more accounts, less sales)
Opportunities
* increase in the sale of sundry items
* lack of mass merchandisers in the non-DFW area
* companies with aggressive price policies that sell to contractors serving the home construction industry have not yet pursued the 400 professional painting firms in DFW and the 200 in non-DFW, nor the DIY market
Threats
* the development of alternative materials
* regulations regarding environment protection
* higher and higher price sensitivity among DIY buyers and contractors
* mass merchandisers
* companies with aggressive price policies that sell to contractors serving the home construction industry might gain access to retail outlets through low prices, free goods, promotional allowances,etc
* the paint market is mature
* the DIY behaviour of first choosing the store, and afterwards the brand
* the presence of 7 important manufacturers accounting for 60% of the total sales
* the manufacturing of higher and higher quality products
3.Dilemma
In January 1998, not long before the peak painting season's arrival, the Jones?Blair management realized that they were confronted with some problems. They had to decide where and how to deploy corporate marketing efforts among the various architectural paint coatings markets served by the company in southwestern United States. To be more specific, their dilemma was to which target segments to address (WHERE) and what marketing mix strategies to apply (HOW) in order to enhance the company position on the market.
Given the analysis of the strengths, weaknesses, opportunities, and threats, we should next identify the alternative ways of action, evaluate those alternatives, choose the most relevant alternative, and also consider the shifts that should be done in the company in order to implement that alternative in order to help Jones?Blair Company to solve their dilemma.
4. Developing alternative ways of action
?. Analysing market strategy (segments, structure, Jones?Blair position) and marketing mix strategies
According to previous analysis, we could divide target market into several segments: DFW-DIY, DFW-Professional Painters, Non-DFW-DIY, Non-DFW-Professional Painters, and Contractors. Some possible alternatives among which Jones?Blair could decide are the following:
* Focus on the Contractors Segment
As contractors are mostly interested in buying a cheap coating and Jones?Blair paint is a premium priced one, the presence of the company on this segment is insignificant. The Jones?Blair contractor sales in DFW and other areas are minimal. They would need a 40% price cut to attract contractors, in addition to some other increased costs, expertise, and difficulty of competitive bidding for large jobs. Concentrating on this segment is not profitable, too many efforts would be necessary that might not achieve the best results. The company should consider investing in other segments.
* Focus on the DFW-DIY Segment
In Dallas-Fort Worth 11-county area, do-it-yourselfers have accounted for 70% of the total DFW area. Mass merchandisers dominated 50% of this area and the main consideration of consumers is cheaper price. Moreover, DIY buyers are of low loyalty. As a recent survey of the Home Improvement Research Institute shows, 46% of the DIY consumers shop at different stores. The market share is relatively low, and only 15% of the Jones?Blair total sales come from this market since the market is price sensitive and the store is the first choice instead of the brand (according to a survey of the company on the retail outlets, only 30% of the Jones?Blair sales through DFW dealers went to do-it-yourselfers; as DFW area accounts for 50% of the dollar sales volume, it results that DFW-DIY accounts for 15% of the sales). Since Jones?Blair 's paints are sold at premium price in multiple product lines outlets (except for 14 retail outlets), the company is in a weakening position on this segment. Some paint companies that plan to sell to contractors serving in the home construction industry have aggressively priced their products in order to capture a higher percentage of the home construction market. They have not pursued the DIY market yet, but they are going to gain access to retail outlets and buy their way in through free goods, promotional allowances, or some other means in the near future.
What should the company do?
On the other hand, in the DFW area, the brand awareness of the people has direct effect on the purchase behaviour - the more they are aware, the more they buy. And, as consumers in this area mainly buy from mass merchandisers and home improvement centers, the company could enlarge the outlet channel - new contracts with some mass merchandisers such as Sears or Kmart. Once the store is chosen, the consumer selects the brand. Here comes the importance of brand awareness which can be increased through advertising (television, newspapers, catalogues, etc.), but the price still remains an important selection criterion. A price cut of at least 20% would be necessary for the Jones?Blair products just to be taken into account.
It would be very difficult for the company to fulfil all these requirements and most importantly, very high costs would be incurred. Moreover, the mass merchandisers are continually growing on this segment and a small regional producer like Jones?Blair does not stand too many chances when it comes to price, although the company has a very original portfolio of quality products adapted to regional and climatic needs. Furthermore, a price cut would be a drastic action and not necessarily a solution. It might work only for short term, just to keep gallonage volume at the same level. Since the company costs are unlikely to decline, the company should recoup gross profit dollars from an increase in volume which in the long run seems quite uncertain. DFW-DIY belongs to dog, as it has weak market share and weak market growth. The company should get out of the dog stage because it is no longer profitable due to weakening position in this area and little prospect of enhancing the position in the long run. Therefore, Jones?Blair should gradually reduce its investment (since 50% of the sales in this segment are controlled by mass merchandisers and the percentage will keep rising) and transfer its investment in other segments that have development potential.
* Focus on the DFW and Non-DFW-Professional Painters Segments
Some paint companies that plan to sell to contractors serving the home construction industry and mass merchandisers could not pursue the 400 professional painting firms in DFW and the 200 professional painters outside the DFW area.
DFW Segment According to a survey of the company, 70% of the Jones?Blair sales through DFW dealers went to the professional painters. This is where Jones?Blair has a good market share and brand name. The company provides better quality paints, sundries, good customer services, and knowledgeable sales representatives, characteristics which attracted most professional painters. In this segment, quality and services are more important than price. As consumers are not price sensitive, Jones?Blair should continue to offer portfolios of high quality products and services in order to maintain the good reputation of the company. Jones?Blair will need to keep expanding its business in this segment because it is where profits come from and there is still some space to grow in this area. There seems to be a niche in this segment and therefore, the company should develop it through some new outlets - specialty stores. Both promotion (advertising mostly in newspapers, specialty magazines, catalogues) and hiring some more sales representatives could be helpful to increase market share and enhance Jones?Blair position on the segment.
Non-DFW Segment Only 15% of the company's total sales come from this area (30% of the Non-DFW area). This is an area with some growth potential, because mass merchandisers - except for Wal-Mart - have not yet penetrated the market. On the non-DFW market, Jones?Blair has most of its outlets, but the sales are not as high as expected. The account penetration in the area is only 16%. The company should improve communication with consumers - the professional painters. Promotion is a key factor here, and some advertisements in newspapers, specialty magazines and catalogues might be necessary. Moreover, Jones?Blair should employ at least one extra sales representative at $60,000 per year whose sole responsibility is to develop new retail accounts leads and presentations, and also call on professional painters to solicit their business through the company's dealers. All in all, the company's sales representatives, although knowledgeable, should be more aggressive and more efficient.
We consider that if Jones?Blair decides to focus on the professional paint market, the efforts and costs will not be too high, because it already has a good market share, good reputation of quality and service, and enough knowledge at this field. The next step will be to try to expand the market share, because competition is not too fierce at these level. Because this policy will not reduce the price or the quality, Jones?Blair will be working on the financial consideration and will not increase a lot of expenditures. On the contrary, the investment in promotion and new accounts will bring benefits in the long run.
* Focus on the Non-DFW-DIY Segment
Half of the Jones?Blair Company sales and most of its dealers (60%) already exist in the non-DFW area. The industry sales figures have also shown that there has been a higher growth in non-DFW area compared to that in the DFW segment. Another favourable factor for the company is that mass merchandisers do not have a strong presence except for Wal-Mart. However, the potential threat at this area will still come from mass merchandisers and the orientation of low price.
Since the Non-DFW-DIY segment has many growth opportunities and 70% of the company's sales volume in the Non-DFW segment came from DIY painters, the strategy that will help the company to be more competitive in the Non-DFW segment is to hire some extra sales representatives at $60,000 per year for more effective connection with DIY consumers. Furthermore, new sales representatives, as well as existing sales forces should struggle to add more accounts, most likely Jones?Blair 's products exclusively, because retail penetration of the company in the Non-DFW area is only 16%. DIY painters first choose the store and afterwards the brand, which means that retail penetration of the company will contribute to increasing its sales volume. Jones?Blair should enlarge its outlet channel - new contracts with new outlet stores or its own accounts - to increase the availability of the products throughout the market. Moreover, it is extremely important to increase brand awareness among DIY consumers, because even if the company makes its products widely available, low brand awareness cannot result in sales growth. One option could be to focus on advertisements and campaigns in newspapers, specialty magazines, catalogues that focus on DIY painters that think much of quality service, which can also appeal to professional painters, and thus use the $350,000 of incremental advertising. The company should enhance its image as of producing high quality paint and delivering quality services, and also maintain the sundry items line, as there has been foreseen increasing demand for paint sundries due to a trend toward do-it-yourself painting by household consumers.
* Change the pricing policy
Jones?Blair products are at the moment the highest priced on the market. Facts show that even when they introduce a price-off special on their paint, their price is still noticeable higher than a mass merchandiser's everyday price. The consumers tend to be very price sensitive, especially the do-it-yourselfers. Thus, the higher prices practiced by Jones?Blair keep at distance many potential customers and even determine some of the current ones to switch to other brands, more competitively priced.
Cutting the price is a major decision and may have significant consequences which should be carefully analysed. On a short term period, cutting the price may determine an increase in sales volume. A more reasonable price could determine some customers (the DIY) to at least consider Jones?Blair brand as an option. However, the company must be very careful how it makes public this price cut, how it will implement it and what reactions some customers may have. Professional painters, who are already Jones?Blair 's loyal customers in a quite relevant proportion, may interpret this price change as a result of lower cost of producing due to fewer investments and improvements and therefore may correlate it with a lower quality of the products.
Moreover, the company should also consider the effect the price change might have on their profits, especially on the long-run. A price cut will surely diminish the company's margins and, if not followed by a relevant increase in sales volume, the company's profits. There is no doubt that the company operates in a highly competitive environment, the paint industry, where investments are permanently necessary to face the big national brands, to conform to environmental protection regulations or the developments in the paint manufacturing sector. In order to stay in business, the company must spend more and more money for investments, that is increasing costs. This is why the decision to cut prices when costs become constantly higher seems to be quite risky.
What is most important is that the company's objective is to be perceived as a premium brand, providing quality products and services. Thus, it should spend the money in means of convincing people that the high prices they practice are reasonable and justifiable.
There is still another aspect the company should consider: the competitors' reactions. This measure may very easily be followed by other competing businesses, which already have significant lower prices, and in this situation Jones?Blair 's decision to reduce the prices would have no effectiveness.
* Become the 8th important player on the market
If the company decided to acquire other small paint businesses, it could become the 8th important player in the paint industry, operating at a national scale.
The company succeeded so far to gain and maintain a good position in its service region, with a portfolio adapted to local needs. By providing high quality products and services, Jones?Blair brand has obtained good reputation among professional painters. On the other hand, buying new business units requires a major investment, involving a huge amount of money, as well as major changes in the company's structure and organization. These changes consist not only in adapting the entire production process to the national needs and requirements, but also the modification of the sales strategy based on the market change.
However tempting the idea of operating at national scale might be, it is highly unlikely that the company has all the resources, especially financial ones, necessary for acquiring other businesses and changing then its entire portfolio. Therefore, we would suggest to focus on what it has already achieved and, using the available resources, to try to expand based on current achievements.
?. Evaluating the alternatives
It is very important, before choosing among alternatives, to take into account several criteria in order to make the best decision.
First of all, Jones?Blair should consider the financial pay-off of each alternative. This criterion will judge whether the profitability outweighs the costs and whether the alternative brings the company the benefits it originally expected.
Secondly, the company should consider whether it has the resources for the alternative and whether it is ready for implementation.
Another crucial criterion when determining a new strategy is the potential reaction from the competitors. Because we cannot speak of a monopoly market, every step the company takes will certainly cause the reaction of its competitors. The considerations will be whether the competitor has the same actionor an even more violent way to react like drastic price cut.
Moreover, market image is also an important criterion to be considered. Building a strong market image is a difficult, time consuming and very expensive process. The company has already acquired a good reputation and market image, especially on the professional painters market and it is important to preserve that image. It would be a pitty to apply some strategies which would have an opposite effect and thus, thousands of dollars would be spent in the most unefficient way.
Furhtermore, Jones?Blair should take into accout the impact on the existing business the chosen alternative might have, whether the sales could be improved and the profits or losses they might bring to the company. Both drastic change and doing nothing could be risky and managers will need to carefully evaluate the situation and the alternatives before acting.
5.Conclusions
The American paint market is a mature market with an annual growth rate of 1-2% and with fierce competition. The DFW-DIY segment is no longer profitable and has no prospects of growing, therefore, Jones?Blair should get out of this dog stage and weak position and concentrate its efforts on the other segments.
Jones?Blair should catch up with the trend in each market segment, invest in the DFW-Professional and Non-DFW-DIY and develop and keep profit in the Non-DFW-Professional Painters segment. It is important for the company to build a powerful image associated with a high product and service quality, even if they might slowly cut down the prices. The company should concentrate on creating brand awareness among both professional and do-it-yourself painters and on offering them portfolios of products adapted to regional needs, as well as on enlarging the distribution channel in order to make the products more available on the market and increase market coverage.
We believe that choosing these alternatives will bring Jones?Blair both short and long term benefits by enhancing its position on the market and in front of the consumers. These will have to learn that quality and service are more important than price.
Reference
. Philip Kotler, Marketing Management, 11th edition, Prentice Hall
2. E-book sources
Jones•Blair Company Case Study
(c)2005 by Mitovski, Nemoianu & Popa