The case opens with an 8:15 AM meeting among several key people at the Danbury, Illinois plant of the Floor Care Products Group of Atlas Industries Worldwide. The group consisted of the following persons: • • • •
Dave Matters: Chief Design Engineer (CDE) Jack Davis: General Manager, Danbury Plant (GM) Molly Hudson: Product Manager, Clean Queen Floor Care Products (PM) Bart Simpson: National Sales Manager, Floor Care Products (NSM)
Thanks for coming down today, Pete, Molly... Let me introduce you to Dave Matters, our new Chief Design Engineer. He's joined us from Hoover where he has had 14 years experience in product design and 5 years as product manager. I've asked Bart to give us a quick history of the Floor Care Group. Dave will spend the next few days pouring over old reports, but Bart can bring you up to speed for our immediate problems. As you all know, our annual marketing plan is due next month. The corporate targets are higher than ever and we're going to have to do some fancy footwork to keep with the program. You all know what I think of this "annual exercise", but Corporate seems to be getting more and more insistent upon having our participation in this.
Thanks, Jack. [Pete switched on the overhead projector and placed a transparency on the glass.] As you can see, we haven't been growing in units shipped during the past few years. The total numbers are a bit deceiving, however. They mask the fact that our upright line has maintained a respectable 5% per year increase in units (in a market that's only been growing about 3%). But that increase has been more than offset by our loss of position in canisters. The problem is even more serious because our gross margin on canisters is larger than uprights, so we have been unable to meet profitability targets.
Background: Clean-Queen Vacs
• • • • • •
1948 - First Clean-Queen canister vac's introduced on the west coast 1951 - National roll-out for canisters complete to all 48 states 1962 - 1,000,000th Clean-Queen Canister shipped 1969 - Clean-Queen Upright cleaner introduced in western region; national roll-out by 1971 1970s and 1980s - Average 6% annual growth in units shipped; 5% growth in revenues and contribution 1990s - growth in units shipped stalled; zero overall growth (canisters losing ground; uprights gaining; net zero
Jack (GM) We all have our theories about what's wrong. I think... [Bart interrupted before Jack could finish]
The problem is really very simple. It's price. Our units average $10 to $25 more than comparable Hoovers, Eurekas and Kenmores. We're hearing the same thing from our wholesaler distributors and chain purchasing agents. Our sales reps have been trying to sell our units to retailers based on features, but the retailers say all the customer cares about is price. And, ours is higher. They don't think our units have the "sales floor appeal" to command a higher price. So, the retailers are selling them at a smaller mark-up just to move them. Re-orders get harder and harder to obtain. We need a full line of canisters at lower price points. I really don't care if it's the same machine or a totally new design. The customer is talking and the words I hear are all the same: PRICE. Our's has to be lower if we ever expect to get back on the "plus-side" at corporate.
Jack (GM) Dave, as you might have guessed, Bart and I have been through this before. I tend to disagree with Bart's assessment. First of all, we've never shipped junk like some of our competitors have. I won't name names to protect the innocent. Our engineers estimate that their motors have 10% less peak power and 30% shorter mean expected operating life. We're committed to building a quality product and have made money at it before. I just can't see us compromising on quality at a time like this; every week some news magazine or radio talk show criticizes American companies...