Bridgewater Castings, Inc.
This haevily disguised case is set in the “nature “woodstoves business in 1986. It is not based on The Vermont Castings Company. The issue is product line strategy based on product line profitability.
In early 1986. Tim Morrissey was reviewing the disappointing 1985 results of oprations for his company ( see Exhibit 1). The business had been founded in 1938 by Tim’s grandfather as a modermization of an older iron forge company which Tim’s great- great –grandfather had built up over the years since 1902. The company entered the cast iron wood stove business when that market boomed in the early –1970s.By 1977 wood heating stoves was its only product line. The business oprated out of lesed factory and office space in Bridgewater. Vermount which was owned by a family trust. Business had been vary good through 1980,with a strong market:for “envionmentally sensitive” heat sources in the New England region which the Company served. Stove sales in 1983 were $9 million for 30,000 units. By 1985, however, the woods stive was a “declining ” product with more than thirty competitors, a well known manufacturing technology ,a shrinking market , heavy price pressure, and intense rivalry. By the mid- 1980s. There was a growing sense that wood stoves were an enironmental problem (air pollution ), more than an environmental solution. Possible EPA legislation was a concern for the industry. Faced with declining profitability, declining unit sales and substaintial excess manufacturing capacity: Bridgewater had introduced a new product line in 1984 –a combination wood stove and baking oven. This product reqired a minor modification of a wood stove, adding a brick-lined baking compartment with a hinged door and a heat gauge. It was trageted at persons who might consider brick oven baking with wood to be an attractive extension of heating with wood. The idea was not original with Bridgewater, but there were no major competitors at the time.The oven added only $10 per unit to material and labour costs and Morrissey priced tge “wood oven” at $50 more than the heating stove alone ( $350 vs $300). The product thus generated a $40 higher contribution margin per unit which encouraged Morrissey to try ti devlop a market for it. Bridgewater destributed its heating stoves through a network of appliance and furnace delers in the Northeast who knew the product well and respected its quality and dependability. For wood stoves. the company did some dealer and customer advertising and promotion (6% of sales).but its major marketing effort was the dealer sales force---12 field sales representatives divided into two regions. They all traveled extensively, working to maintain dealer relationships and to build end – user awareness and goodwill, as well as writing sales orders. When wood ovens were added. Morrissey did not expect heavy dealer penetration immediately so he expanded the sales area substaintially. Whereas stoves were sold essentiailly only in Northern New York.and the six New England states. He negotiated sales outlats for ovens over the entire Northeast Quadrant,from Maine to Chicago. St .Louis and Richmond ,Virginia. By 1985.he had added six oven fild sales reps,an oven sales manager and alos established relationships with a great many independent sales agents across the Easten U.S Establishing the wood oven market also turned out to require much heavier investments in advertising , dealer promotion. Dealer disconts and sales increntives. But with steady hard work the business was being established. Bridgewater sold 10,000 ovens in 1984 and 20,000 in 1985 of which 5,000 were sold in the core area.The 1985 figure was fully 80 % the number of wood stoves sold.Competition was still minimal. Which Morrissey attributed to the uniquensess of the concept and the strong early lead Bridgewater had established with dealers by its concerted marketing program. Bridgewater was selling only a few...
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