Competition:
- Competition has increased:
- For retail selling space in paint stores, lumberyards, and hardware outlets has increased and accelerated
- Among paint companies that sell to contractors
- At the paint manufacturing
- Companies are aggressively pricing products
-
Competitors have yet to reach:
- Around 400 professional painting firms in DFW
- Around 200 professional painting firms outside DFW area
- Retail outlets
- Competition may buy their way into free goods and promotional allowances
- Fueled merger and acquisitions caused by:
- Slow sales growth
- Ongoing Research and Development
- Recent compliance with government regulations
Promotion:
- 8 sales representatives making $60,000 a year plus 1% commission.
- 3% of net sales to advertising and promotional efforts
Industry:
U.S. Paint Industry : Over $16 billion in 2004
- Mature Industry
-
Sales expected to grow with inflation through 2005
Current number of paint companies in the United States: 600
- Presently declining at 2 – 3% per year
- 40% fewer companies than in 1980 - 840 competitors
Divided into three segments:
- Architectural Coatings:
- 43 % of industry sales - $16,000,000 * .43 = $6,880,000
- Original Equipment Coatings (OEM):
- 35% of industry sales - $16,000,000 * .35 = $5,600,000
- Special-Purpose Coatings:
- 22% of industry sales - $16,000,000 * .22 = $3,520,000
U.S. Architectural Paint Coatings and Sundries : $12 billion – plus in 2004
- Mature industry
- Long-term sales expected to grow 1 – 2% per year
- Product Demand:
- Demand reflects redecorating, maintenance and repair for existing homes
- Demand is determined by:
- Competition by alternative materials / substitutes
- Higher quality products that reduce amount of paint / frequency of painting.
- VOC regulations / EPA
- Requires 25% reduction in VOC content (1990)
- Requires 35% (2000)
- Requires 45% (2003)
Architectural Paint Coating and Sundries (50-county service area):
Sales distribution by areas and usage of paint: $80 million
(Excluding contractor sales)
-
DFW (60%): $80,000,000 * .60 = $48,000,000
- Professional (30%) : $48,000,000 * .30 = $14,400,000
- DIY (70%) : $48,000,000 * .70 = $33,600,000
-
Non-DFW: (40%): $80,000,000 * .40 = $32,000,000
- Professional (10%) : $32,000,000 * .10 = $3,200,000
- DIY (90%) : $32,000,000 * .90 = $28,800,000
- DYI business over all: $$62.4 nillion
- Prof. business overall:
Architectural Coatings Sales Distribution:
-
50% of architectural coatings are sold under Mass Merchandisers:
-
$12 billion * .50 = $6,000,000,000
- Private, controlled, or store brands
- Major Marketers: Sears, Walmart, K-Mart
- 1,000 of these outlets operate in the 50-county service-area, and DFW houses 450 of them
- Control 50% of the DIY paint market
- Price seems to be the attraction point
- Major players / producers of paint in U.S.
- Sherwin Williams, Benjamin Moore, Glidden, Imperial Chemicals, PPG Industries, Valspar, Grow Group, and Pratt & Lambert.
- Account for 60% of sales in architectural sales segment = $7,200,000,000
-
36% of architectural coatings are sold in in paint stores = $4,320,000,000
- Typical paint stores have annual sales of $400,000
-
14% of architectural coatings are sold in lumberyards = $1,680,000,000
- A typical lumberyard or hardware store gets 10% of it’s volume from paint ($65,000)
Buyer Behavior of Architectural Coatings Segment:
- Sales by type of painters:
-
50% dollar sales accounted by DIY painters :
- $12 billion* .50 = $6 billion
-
25% dollar sales accounted by professional painters:
- $12 billion * .25 = $3 billion
-
Remaining 25% accounted for by government, export, and contractor sales:
- $12 billion * .25 = $3 billion
- Sales by types of paints:
-
60% sales for interior paints:
- $12 billion * .60 = $7,200,000,000
-
38% sales for exterior paints:
- $12 billion * .38 = $4,560,000,000
-
Remaining 22% sales for lacquers other applications:
- $12 billion * .22 = $2,640,000,000
- Average Paint purchase: $74.00
- Average sundry purchase: $12.00
Alternative Decisions:
Jones-Blair Contribution: 12,000,000 – 7,800,000 / 12,000,000 = .35
Current Revenue: $12,000,000 * .35 = $4,200,000
- Increase advertising dollars by $350,000 and use it for T.V. advertising
- Direct effects to DFW area
- Should increase awareness to 30% and cover 15 counties
- Low added costs ($350,000)
- Break-even:
-
$350,000 / .35 = $1,000,000 BE
- Increased awareness
- Less focused
- Have an overall 20% price cut for all products (customers are price sensitive)
- Their price will be more competitive
- They will not have the highest price for similar products
- They can gain market share in DIY sectors
- The Break-even: Use remaining 80%
- (.80) 12,000,000 – 7,800,000 / (.80) 12,000,000 = 0.1875
- $12,000,000 * .35 = $4,200,000
- $4,200,000 = X (.0.1875) = $22,400,000
-
$22,400,000 - $12,000,000 = $10,400,000 BE (increase in sales)
- 10,400,000 / 12,000,000 = 86% increase in sales
- Consumers may think the product is of lower quality
- .80 - .65 = .15 / .80 = .1875
- Add one more sales representative to the sales force to Non-DFW area
- Sales force increase will be in large market
- Potential to gain more sales
- Break-even:
-
$60,000 / .35 = $171,428.57 BE
- $60,000 cost to add another representative
- Risky
- How effective would one more rep. be?
- Continue to watch and monitor margins and costs for all products
- Keeping everything the same
- Not risky, but does not solve the problem
- Will there be results?
- The President’s suggestions: Use Advertising dollars for print media, such as newspapers and catalogs, instead of T.V. and focus on the rural area. Use a 40% price cut for products.
- More focused advertising
- Loss of sales
- Print media is not as effective with new technology
- Break-even: Use remaining 60%
- (.60) $12,000,000 - $7,800,000 / (.60) $12,000,000 = 1.564
- $12,000,000 * .35 = $4,200,000
- $4,200,000 = X (.1564) = $26,854,219.95
-
$26,854,219.95 – 12,000,000 = $14,280,000 BE
Recommendation:
Add another sales associate for an extra $60,000 in cost.
The Breakeven is only $171,471.57.
Focus on the areas outside of the DFW area because Jones – Blair Market Share is 45%. They can possibly gain more Market Share for the industry, maintain business, watch margins, and manage costs. This is the least risky alternative and still produces results.