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Manchester Products; A brand transition challenge Case Solution
The household furniture market of United States is three times larger than office furniture market of the country. This market is highly dynamic since new designs and trends greatly change the preferences of consumers for particular types of furniture. The case narrates that consumers in this market attach high degree of importance to hues and appearances of furniture in comparison to ergonomics (even though, later is also a criteria is consumer decision making). Household furniture market of US can be described as a rather fragmented industry with small suppliers catering to their respective niches. Owing to the inefficiencies associated with s such a fragmented form of industry, there is a natural tendency towards consolidations in the sector, where by smaller sized suppliers are coming together through mergers or acquisitions to gain economics of scale.
Following questions are answered in this case study solution:
How would you characterize the household furniture industry?
What are the benefits and risks associated with the acquisition of PLFD?
What are the marketing problems raised by the brand transition?
Which of the three brand transition options outlined in the case (or, a fourth one that you develop) should Adams recommend?
Compare the marketing budget for MH and PLFD (Exhibits 5 and 6). What differences do you observe in the allocations of push vs. pull expenditures?
Do you agree with Adam"s budget estimates and allocations?
Calculate 2005 sales needed to break even to make up for the incremental marketing spend in 2005 vs. 2004. What sales are needed to break even if 2004 PLFD push expense allocations are maintained in 2005?
What recommendations would you make to Manchester management for 2005 promotions and advertising plan?
Manchester Products A brand transition challenge Case Analysis
As a result of the above mentioned consolidation, the industry does contain a few large suppliers existing with several large suppliers in the industry. The competition in the industry is intensifying owing to low-cost imports of household furniture from some Asian countries and Mexico. Most important among Asian exporters is China. The degree of intensifying competition in the US household furniture market can be gauged from the fact that imports from China has increased by more than 150% between the year 2001 to 2005. In addition, the household furniture market is considerably dependent on the economic situation of the country. The major determinants of consumer demand in this market are innovation in design and style of the product.
2. There are various benefits and risks associated with acquisition of PLFD by Manchester Products. The first benefit of the acquisition is synergies in the operations of the combined firm because the sales structure, production systems and designing teams would be operating at higher level of efficiencies. The average cost of production and distribution would be lower for both office and home furniture categories produced by the company. This is because overhead costs will be divided over larger production giving the combined firm a cost advantage in comparison to its competitors in the market.
The second benefit of the acquisition for Manchester Products is gaining an entry into a lucrative segment of household furniture and to be able to leverage the brand equity created by the firm in office furniture category. Household furniture market is three times larger than office furniture market, and this initiative will provide Manchester Products opportunity to grow its revenue base several folds. This acquisition is particularly beneficial for Manchester Products because consumers are already aware than the brand Manchester Products stands for leadership in office furniture and they would be willing to purchase household furniture from the company after learning that a highly known brand PLFD is now part of Manchester Products.
Perhaps the most important benefit of the acquisition for Manchester Products of PLFD is diversification of its product base and reduction of risk associated with its business. The office furniture market is significantly risky because its demand is dependent on the level of economic activity taking place in the region. On the other hand, household furniture industry is dependent on the business cycle but not as much as its counterpart. In addition, household furniture market is also much more responsive to fashionable trends, which given the company considerable control over the demand of its products. Therefore, the acquisition will provide much needed stability to Manchester Products’ business.
There are some inevitable risks, as well, which are associated with this acquisition deal. Foremost and more prominent among those risks is the response of existing customers of PLFD towards the acquisition deal. Consumer behavior is closely linked with the level of trust commanded by a brand. When Paul Logan brand will be acquired by another company, it is foreseeable that a percentage of the customers would be averse towards the change in their brand and will churn to other competing brands. Secondary risks to the acquisition deal comprises of cultural disharmony between the staff of Manchester Products and PLFD since the way of business of the two organizations is entirely different despite both operating in the furniture industry. The management of Manchester Products may not be ready to take charge of a consumer brand and the high costs of advertising may be difficult to be allocated effectively by Manchester Products. The control and management human resource may be difficult because the designing staff at PLFD is accustomed to working in a less controlling environment in comparison to Manchester Products. Eventually, the brand equity of Paul Logan may be lost when the brand name is combined with Manchester Products.
3. The marketing problems faced by Manchester Products relates to phasing out Paul Logan brand name within a time span of three years. The brand name Paul Logan is the reason consumer prefers furniture of this company over other competitors, and the problem for Manchester Products is that it can only keep this brand name with it for only a brief time period. The company is facing the challenge of transferring Paul Logan customers of household furniture to Manchester Products’ brand before the time runs out.
If Manchester Products removes Paul Logan brand name prematurely, then the loyal customers of the brand will shift to other competitors. If the brand name is Paul Logan is maintained for a longer than needed time period then that Manchester Products’ brand name in household furniture category will not be established. Determination of the optimum time period for phasing out the brand names from one to another is the marketing problem faced by Manchester Products.
4. All three brand transition options stated in the case contain inherent shortcomings. The first one eliminates brand equity of Paul Logan from the very beginning; the second one does not provide the mechanism for establishing brand equity of Manchester Products, while the third one relates to only a few products categories and lacks a comprehensive approach towards the problem. The resolution of the branding problem is a gradual transition from Paul Logan brand name to Manchester Products brand name.
During the first phase – comprising of approximately one-and-a-half year following acquisition – the brand should be named ‘Paul Logan by Manchester Products’. This will communicate to the customers that two trusted brands, Paul Logan and Manchester Products, are behind the products. During the following one-and-a-half year of operations, the brand name Manchester Home should be created with the endorsement of original Paul Logan. The product should be marketed under ‘Manchester Home – Paul Logan’. It is after the third year of acquisition that the brand ‘Manchester Home’ will be adopted for all household furniture marketed by the company.
5. The comparison of the marketing budgets for PLFD and Manchester shows that the former relies more on push marketing strategy than Manchester Products. The marketing budget allocation for Manchester towards pull marketing strategy – especially advertising and consumer rebates – is significantly higher than PLFD.
6. Adam’s budget allocation makes business sense because pull marketing strategy creates brand equity in the consumer markets rather than push strategy. During the first three years following the acquisition, brand equity is the foremost priority of the business because of the time constraint of three years for keeping Paul Logan brand. Therefore, Adam is justified in focusing on pull strategy rather than push strategy for the new brand.
7. Adam has proposed allocation of 21% allocation of total marketing budget for home furniture segment and 26% percent allocation of total marketing budget for office furniture segment to be made in 2005. When these figures are applied to the income summary of the two organizations, the break even sales for the year 2005 are $1,432 million for home furniture segment and $288 million for office furniture segment.
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