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 company’s 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 company’s 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 company’s 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, Peak’s 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 Peak’s 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 CallsStores/repSalary ($80,000/rep)
Independent Dealer Reps82300/8= 37.5$640,000.00
Exclusive Reps2 50/2= 25$160,000.00
The case states that Peak’s 50 exclusive dealers make up 70% of their sales while the 300 independent dealers provide 30%. Using the 2003’s sales of $9.2 million, table below summarizes dealer makeup: Dealer Type % Of sales$ Sales$ Per Dealer% Total sales per dealer Independent30030.00%$2,760,000.00$9,200.000.10%
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 Peak’s 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...