INTRODUCTION

Peak Garage Door Inc. has set a goal to increase their sales for 2004. Garage
door industry is expecting a growth of 2.4% while the management of Peak is
looking to increase companys sales 26.4%. The company currently has 50
exclusive dealers and 300 non-exclusive dealers. Management has three proposals
in front of them. The first suggestion is to increase the number dealers in
their existing markets. The second recommendation is to develop an exclusive
franchise agreement with existing non-exclusive dealers.
The third
recommendation is to decrease the number of dealers and focus companys
resources on increasing support for the existing dealers. Of course there is an
option for them to leave everything as it is. My suggestion is to go with the
second recommendation due to the fact that exclusive dealers produced 70% of
companys sales and non-exclusive dealers contributed only 30%. In order for
Peak Garage Doors Inc. to reach their sales goal for 04 they will have to gain
more exclusive dealers since they contribute much more profit to the company.
THE INDUSTRY
The residential garage door industry sales for 2003 were $2 billion; 90% ($1.8
billion) of these sales were steel doors, the type of door the Peak specializes
in. Projected industry sales for 04 were $2.05 billion, representing 2.4%
increase. The industry consists
of large national manufacturers and smaller regional ones such as Peak.
There
has been a demand for steel doors from new homes, and from homes looking to
replace older wooded doors. Richard Hawly, Peaks Director of Sales and
Marketing, conducted a survey to prospective garage buyers; he also commissioned
a study to identify number of dealers that are in the same markets as Peak.
The results of the survey found that brand awareness was very low showing that
only 10% surveyed were able to provide a brand name. The survey also found that
independent dealers did not sell all brands at an equal rate. For the dealers
that sold 3 brands, the dominant brand made up 60% of the sales for that store,
2nd brand made 30%, and 3rd brand made 10%.
THE ORGANIZATION
Peak Garage Doors Inc. is a privately owned firm and has had 2003 sales of $9.2
million and net profits before taxes of 460,000. Given is a 2003 income
statement (pg.411) which states that cost of goods sold was $6.9 million. With
the sales and cost of goods sold numbers we can figure out that the contribution
margin for Peaks garage doors is $0.25 for every dollar sold.
The company has
2 distribution centers and employs 8 sales representatives for independent
dealers and 2 sales reps for the exclusive dealers, each rep with a salary of
$80,000. Below is the summary of employee
composition.
Employees Monthly Calls Stores/rep Salary ($80,000/rep)
Independent Dealer Reps 8 2 300/8= 37.5 $640,000.00
Exclusive Reps 2 50/2= 25 $160,000.00
The case states that Peaks 50 exclusive dealers make up 70% of their sales
while the 300 independent dealers provide 30%. Using the 2003s sales of $9.2
million, table below summarizes dealer makeup:
Dealer Type % Of sales $ Sales $ Per Dealer % Total sales per dealer
Independent 300 30.00% $2,760,000.00 $9,200.00 0.10%
Exclusive 50 70.00% $6,440,000.00 $128,800.00 1.40%
Quantitatively we can conclude that exclusive dealers are 14 (1.40/0.10) times
more profitable than the non-exclusive ones.
Peak Garage Door, Inc. wants to increase their sales from 9.2 million in 2003 to
12.5 million. This is an increase of $3.3 million or 26.4% over Peaks 2003
numbers. The industry is expected to grow by 2.4% and Peak wants to grow by more
than ten times the industry average. For Peak to meet this daring sales goal
there will have to be some considerable changes to their current business
approach.
PROPOSALS BY MANAGEMENT
First proposal is to increase the number of dealers in markets that are
currently served by the company. The main reasons this was proposed is due to
the fact that the large increase in sales expected by management would be
practically impossible with the

current number of dealers. Peak currently serves 150 markets that are equivalent
in terms of population size. The second proposal would be an exclusive franchise
agreement with some existing independent owners. 27 independent dealers have
inquired to Peak about becoming exclusive dealers for their areas. This would
involve Peak providing more marketing support for these areas as well as a
franchise fee paid for by the dealer. This would require Peak to drop all other
independent dealers in these markets since they do not want them to be in the
direct competition with one another. The remaining 73 markets would not be
affected.
Either party can cancel the contract with 90 days advanced
notification. The third proposal suggests eliminating a number of the
independent dealers. It is stated in this proposal that 70% of the sales for
Peak are made through their exclusive dealers. The argument made by this
proposal is that there has not been an exclusive dealership program in place
before, and the company might not need one. The franchise program could also
make Peak less flexible to future changes.
This plan would have the number of
non-exclusive dealers in the 150 markets decreased by 100 to a total of 200
while the 50 exclusive dealers would remain as they currently are. Ultimately,
company can choose to stay as it is. However, this would
mean that their chances of reaching their sales goal are slim.
POTENTIAL RESULTS
The first proposal would be to increase the number of dealers in the existing
markets. We have seen by the numbers before that each independent dealer bring
an average of $9,200 in sales to the company. There would also need to be an
increase in the sales force. Right now, each sales rep has 37.5 stores that they
service. An increase of 100 dealers would require 3 additional reps at a total
fixed cost of $240,000. Assuming these numbers, here is the breakdown of how
this would affect the bottom line for Peak.
$ Per new independent dealer $9,200.00
New Dealers 100
Total new Sales $920,000.00
2.4% Industry Adjustment $942,080.000
INCOME STATEMENT 2004 (with 2.4% industry adjustment)
Net Sales $10,362,880.00
Cost of Goods Sold $7,772,160.00
Gross Profit $2,590,720.00
Selling, General and Admin Expense $2,080,000.00
Net Profits Before Taxes $510,720.00

Previous calculation takes into account the average sales and contribution
margin from year 2003.
Also the adjustment was made for the industry sales
growth. According to the calculations the sales goal is not achieved.
The second option takes 27 existing independent dealers and converting them to
exclusive franchises for the final 3 quarters of the year. The average exclusive
dealer
brings $96,600 in sales. Next page shows the calculations for the sales lost by
replaced non-exclusive dealers and sales by new exclusive dealers.
$ Per independent Dealer (2.4% Adj) $9,420.80
Number of new franchises 27
Total $ for 27 Independent Dealers $254,361.60
3 Quarter income loss $190,771.20
(3 quarter income loss are the sales lost by non-exclusive dealers who were
replaced)
$ Per new franchise dealer $96,600.00
New Dealers 27
Total new Sales $2,608,200.00
3/4 of year adjustment $1,956,150.00
2.4% Industry Adjustment $2,003,097.600
Minus lost independent dealer income $1,812,326.400

INCOME STATEMENT (Qtr.1 04)

Net Sales $2,355,200.00
Cost of Goods Sold $1,766,400.00
Gross Profit $588,800.00
Selling, General and Admin Expense $460,000.00
Net Profits Before Taxes $128,800.00

INCOME STATEMENT (Qtrs. 2-4 04)

Net Sales $8,877,926.40
Cost of Goods Sold $6,658,444.80
Gross Profit $2,219,481.60
Selling, General and Admin Expense $1,380,000.00
Net Profits Before Taxes $839,481.60

INCOME STATEMENT 2004

Net Sales $11,233,126.40
Cost of Goods Sold $8,424,844.80
Gross Profit $2,808,281.60
Selling, General and Admin Expense $1,840,000.00
Net Profits Before Taxes $968,281.60
All statements were adjusted for 2.4% industry growth. This option
increases sales to almost 11,233,126.40 and profits to 968,281.60.
The third suggestion is to reduce the number of dealers by 100. This would mean
that 3 employees could be let go, as the number of stores serviced would go
down. This would decrease the payroll by $240,000. The average independent
dealer would be expected to bring $9421 for 2004. The loss of 100 of these
dealers would mean a loss of $942,100 in sales to the company.
INCOME STATEMENT 2004
Net Sales $8,452,518.40
Cost of Goods Sold $6,900,000.00
Gross Profit $1,552,518.40
Selling, General and Admin Expense $1,600,000.00
Net Profits Before Taxes -$47,481.60
Choosing option 3 would lead to a loss.
Option four is to do nothing. This would mean that everything would stay the
same, and Peak could expect a 2.4% increase in sales.
INCOME STATEMENT 2004
Net Sales $9,420,800.00
Cost of Goods Sold $6,900,000.00
Gross Profit $2,520,800.00
Selling, General and Admin Expense $1,840,000.00
Net Profits Before Taxes $680,800.00

CONCLUSION
According to the calculations, it will be impossible for the company to reach
the sales goal of 12.5 million regardless of which option they choose. However
the best outcome is with the option number two which is to develop an exclusive
franchise agreement with existing non-exclusive dealers.

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Dennis Vourderis 11/27/12

Palladium Garage doors Case Study
Problem Definition:
Palladium Door, Inc. wants to increase 2003 sales by 36% in 2004. There is
concern whether the current distribution strategy used by Palladium would be
adequate to achieve the goal. Although Palladium's growth has been steady over
the past 10 years the market share was only at 2.6%.
The firm's senior
executives were firmly believed they justified this lofty sales goal because
they had to attain a larger sales volume to preserve its buying position with
suppliers. Palladium, during its growth, has exceeded the industry growth. There
are three new plans on how to reach the goal. There are four different
viewpoints on the marketing decision.
Statements of Alternatives:
The first viewpoint is Increasing the number of dealers in the markets currently
served by the company
The second is developing a formal exclusive franchise program, since 27
opportunities of such were able last year.
The third viewpoint called for a general reduction in the number of dealerships
without granting any formal exclusive franchises.
The fourth and final viewpoint is
to not change anything and focus on improving the current distribution policy
and network.
Analysis of Alternatives:
Increasing the number of dealers in the markets currently served by the company
The executives believed it would be necessary to add another 100 dealers in
order to meet the increase in sales of at least 2.4%, according to industry
trends. However, Hawly believed that adding another 100 dealers over the next
year would be challenging and furthermore would affect the sales force for the
serviced nonexclusive deals already in place, which would inevitably have a need
to increase that sales force. It seemed that this alternative would provide a
potential gain in the long run, but would incur immediate increase in costs. The
cost of adding a sales rep was $80,000 per year. Adding this sales rep would of
cut last year's net profit by about 18%.
The second viewpoint was to develop a franchise program, which was presented the
previous year in which 27 non-exclusive dealers would represent a different
market and each of these markets would potentially have a high potential and be
a contender for the new advertising and promotion market.

When taken into consideration, the executives believed that this alternative
allowed for the 27 dealers and their markets to be protected or secured, in
terms of costs, by the advertising and promotion program. They did realize that
some of the remaining markets would be affected by the increase in advertising
due to high-potential markets, even though most of the remaining markets that
were served by exclusive dealers would be unaffected. With the companies policy
Palladium would be able to terminate a contract with their dealers with 90 days
advance notice. Because of this they would be able to implement this during the
usually slow first quarter of the upcoming year.
The third alternative basically required a reduction in the number of
dealerships of independent dealers.
Although they did not come up with a
concrete number the belief was that the number of dealers would decrease from
350-250. The companys sales had 70% of total sales to only 50% of the
dealerships. Executives believed that committing to an exclusive franchise
program would limit its future flexibility. The last idea of this would be
adding to the quality of sales force with
the possibility that will lead to higher sales volume. Although there could be
sense to be made out of this plan, cutting the dealerships by that much of a
percent will not be able positively affect the total sales
The final viewpoint was to keep the status quo, in a sense. Several executives
did not want to change either the distribution strategy or the dealers, but
rather look internally on how to do
a better job with the current distribution
channel.
Recommendations:
It would seem very favorable for Palladium to implement alternative 2 of
developing the franchise program. The addition of 27 exclusive dealers would
definitely increase sales and out of the 3 alternatives, it provides the least
increase in cost and/or the largest increase in sales. So in order for Hawly to
meet his goal of $12.5 million With the exclusive dealers in place they can
improve the brand image also. By adding the 20% budget they can increase the
very low awareness of prospective garage door buyers(10%). By having exclusive
dealers, Palladium will be on the forefront in certain markets and aggressively
start to build up sales to reach the goal of 12.5 million.

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Identifying the problem:

* Palladium Door, Inc wants to increase its sales goal to $12.5 million for
2004 which represent a 36% increases in sales over projected 2003 year-end

sales.
* During the planning process, a number of fellow executives had voiced
concern over whether distribution approach used by Palladium Door was
appropriate for the expended sales goal. Richard Hawley is the director of sales
and marketing felt that their concerns had merit and should be given careful
consideration. Though he had considerable latitude in devising the distribution
strategy, the final choice would have o be consistent with achieving the 2004
sales goal. His approach and action plan had to be prepared in a relatively
short time to permit implementation in January 2004.
* The company projected year-end company sales were $9.2 million in 2003 with
a net income $460,000.
* The company distributes its garage doors through 300 independent dealers
that typically offer three different garage door manufacturer brands and 50
exclusive dealers that stock and sell only Palladium doors (exclusive dealers
service competing brands of garage doors in their market area.)
* A distribution facility operates at the company manufacturing plant. The
company employs 10 technical sales representatives. 8 representatives call on
independent (non exclusive) dealers twice a month on average. Two
representatives call on the 50 exclusive dealers.
Pros and cons for different viewpoint had been voiced by Hawlys fellow
executives:
* 1st viewpoint
It is to increase the number of dealers in the markets currently served by the
company to achieve the sales goal, that to increase sales by 2.4 percent so it
would be necessary to add at least another 100 nonexclusive dealers.
Pros:
* Adding another 100 dealers in present markets over the next years would be
not easy and would require increasing in sales force that serviced the non
exclusive dealers.
* Increasing number of dealers means increasing in sales and more expanding
in market.
* Raise awareness about product in customers minds.
Cons:
* This plan had more merit in the long run of three to four years and they
need this plan to be applied on this current year as increasing in its sales
goal.
* Their idea had merit as a long term distribution policy.
* The direct cost of adding a sales representative was $80,000 per year.
* 2nd
viewpoint
Its about development of a formal exclusive franchise program, since 27
nonexclusive dealers had posted such a possibility in the last year. Each of
these dealers represented a different market, and each of these markets was
considered to have a high potential and be a candidate for the new advertising
and promotion program.
Pros:
* The company would drop present dealers in their markets and not add new
dealers.
* The program could be implemented during the traditionally slow quarter of
the upcoming year. (quick implementation)
* The franchise program in these 27 markets could be
served by the advertising and promotion program.
* The other 50 markets served by exclusive dealers wouldnt be affected, since
the advertising and promotion program was already budgeted for these dealers.
* The remaining 73 markets would also be unaffected except for increased
advertising in 23 high potential markets.

Cons:
* Dropping nonexclusive and focusing more on exclusive dealers, as they
produced 70% of company sales.
* Losing a part of market.

* 3rd
viewpoint
Its about reducing the number of dealerships without granting any formal
exclusive franchises.
Pros:
* 70% of company sales are produced by exclusive dealers without any
franchises program.
* Committing to any franchises program could limit the company flexibility in
the future.
* Improvement in sales force effort and possibly increase sales might result
if more time is given to fewer dealers.
* 50 exclusive dealers would benefit from the additional marketing spending.
Cons:
* I dont see any cons as exclusive that are highly profitable to company is
still the same
* But losing benefit from franchise program.
* 4th
viewpoint
Voiced by several executives was not to change either the distribution strategy
or the dealers. Rather, they believe that the company should do a better job
with the current distribution policy and network.

Pros:
* By additional investment in advertising and promotions, the company may
focus on awareness campaigns about their brand, products and
their competitive advantages over competitors.
Cons:
* Not having a large number of nonexclusive dealers, not expanding like what
franchises program will do.
I recommend the second viewpoint, as through their advertising and promotions
the company will capture a high publicity for its products. Unaffecting the
existing exclusive dealers as they are the most important to company as they
produce 70% from company sales goal. Also will sell and create new markets and
sell products effectively. A franchise provides an established product or
service which may already enjoy widespread brand-name recognition. This gives
the franchisee the benefits of a pre-sold customer base which would ordinal take
years to establish. The company would drop present dealers in their markets and
not add new dealers. Furthermore, these executives noted, the companys current
contractual arrangements with it independent dealers allowed for cancellation by
either party, without cause, with 90 days advance notification. Thus, the
program could be implemented during the traditionally slow first quarter of the
upcoming year. If adopted, company executives believed the franchise program in
these 27 markets could be served by the advertising and promotion program. The
other 50 markets served by exclusive dealers would be unaffected. Since the
advertising and promotions program was already budgeted for these dealers. The
remaining 73 markets would also be unaffected, except for increased advertising
in 23 high potential markets.