I. Problem statement
Which strategy should Pyramid Door, Inc. implement, along with increased advertising for 100 dealers to achieve the sales goal of $12.5 million for the year of 2006? The four strategic options are increasing the number of non-exclusive dealers by 100, developing a formal executive franchise with 27 dealers so they would exclusively sell Pyramid Door products, reduce the number of non-exlusive dealers by 100, and the last plan was to only do a better job with current distribution policy and network.
II. Industry Analysis
A. National industry analysis:
In the residential garage door industry sales are projected to be $2.25 billion representing a 2.4% ...view middle of the document...
It would appear that most people go into a store blindly and start looking for a garage door that best suits their needs at that point. Steel garage doors were preferred to wood garage door by a 9 to 1 margin. With everything being said, it is important to be available in as many stores as possible so consumers don’t have to seek out Pyramid Door brand garage doors and they can find them just by walking around a store.
In 2005 the residential garage door industry sales were expected to reach $2.2 billion with 90% of sales being steel garage doors. Demand for replacement garage doors was driven by the continued aging of the housing stock and the conversion of homeowners from wood doors to lighter weight, easier-to-maintain steel doors. Also, product innovations such as insulated steel doors, new springing systems, and residential garage doors with improved safety features have made steel doors increasingly popular.
B. Industry analysis in Pyramid’s trade area:
Pyramid Door’s projected market share for 2005 was 2.6%. Independent dealers typically sold 3 different brands and there was a clearly dominant brand which accounted for 60% of total garage door sales, the second brand which accounted for 30% of sales, and the weakest brand which accounted for 10% of sales. Since there are 50 exclusive dealers serving 50 markets and 300 non-exclusive dealers serving 100 markets that means that there are 3 non-exclusive dealers per market.
Exclusive dealers accounted for 70% of total sales which ends up being $6,440,000 and the non-exclusive dealers’ sales were $2,760,000. This means that each exclusive dealer sold $128,800 of products on average while each non-exclusive dealers sold $9,200 of products on average.
III. Organizational Analysis
Pyramid Door currently uses 2 distribution centers which help distribute to 11 Western and Rocky Mountain states as well as North and West parts of Texas. They have 350 of 3002 dealers that service the 150 markets that they compete in. This means they only distribute to 11.7% of total available dealers.
Pyramid Door’s sales force consists of 10 technical sales representatives. 8 representatives call on each independent dealer twice a month on average which means each representative has about 38 dealers to call and about 76 calls to make each month. The 2 other representatives call on the 50 exclusive dealers which means each representative only has 25 dealers to call for a total of 50 calls on average. If each sales representative costs $80,000 a year, the total cost of representatives is $800,000 or $640,000 for independent dealers and $160,000 for exclusive dealers. Each independent sales representative has a total dealer sales contribution of about $349,600. On the other hand the exclusive sales representatives each have total dealer sales contribution of $3,220,000.
IV. Alternatives (with pros and cons)
A. Status Quo