Swisher Mowers Case

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Swisher Mower and Machine Company
Evaluating a Private Brand Distribution Opportunity

Define the Problem
Should Swisher Mower and Machine Company accept the private-brand distribution proposal made by a major national retail merchandise chain? If so, under what agreement conditions? List the Alternatives

1. Accept the private-brand distribution proposal 
2. Employ a more aggressive advertising and sales effort to enter new markets recruit new dealers and assist current dealers 3. Initiate an expanded line of “trailmowers”
Evaluate the Environment
* Lawn and garden equipment is primarily for the consumer market * At manufacturer’s prices, the lawn and garden equipment industry produced sales of $5 billion in 1995, 74% for finished goods, 25% for engines and 1% for components * Riding unit sale volume is cyclical 

* Riding lawn mower industry is highly seasonal: 1/3 of sales occur in March, April and May * Private label mowers account for 65-75 percent of total industry sales * National retail merchandise chains account for the largest percentage of sales of outdoor power equipment * 90% of total industry sales occur at national retail merchandise chains, outdoor power equipment/ farm equipment and supply stores, lawn and garden stores, discount department stores, home centers, and hardware stores SWOT Analysis

Qualitative Analysis
1. Accept private branding proposal
Pros
* Minimal marketing expenses (e.g., advertising, promotion, selling) incurred by the manufacturer since these expenses are incurred by the intermediary (e.g., retailer or wholesaler) * Provides access to distribution channels and/or consumers not presently carrying the manufacturer's brand * The opportunity to triple SMC riding mower unit volume from 4,100 units annually to 12,300 units since the annual order could be 8,200 units. * Ability to operate at full capacity; overtime affordable. * Further access to metropolitan urban markets without incurring marketing costs, e.g., advertising and promotion. (Only 25% of SMC sales are in metropolitan areas.) * Access to a national retail merchandise chain since SMC does not presently sell through this channel. * Duration of the contract (2-years with subsequent negotiation) allows for a trial period for both parties. * Opportunity to increase complimentary sales of the Trailmower and increased derived demand for replacement parts. (Gross margins on these items are considerably larger than the riding mower itself) * Gives them opportunity to enter other private labels Cons

* Net sales income drops more than half
* Overtime to produce additional unit volume
* Possible loss of some dealers in metropolitan areas and cannibalization of SMC riding mower sales * Increased inventory requirements
* Increased interest payment due to short-term loans for receivables * Potential to become “captive” supplier to the large retail merchandise chain since 2/3 of volume sold to that customer * Higher volume means higher liability

* Prevents brand expansion by not allowing us to advertise our private label brand

1. Do not accept the proposal
Pros
* Greater control of distribution
* Expansion into International Markets
* Complete control over marketing
* Attract new dealers and business partners
Cons
* Must hire new sales force in order to expand into new markets or to gain new dealers * Extensive market research at a high cost for expansion internationally * Will take longer to reach production to the level that private label will give you * Competitor may take the deal and produce lucrative results

Quantitative Analysis

We have created a few options in our renegotiation of our proposed private label deal. Option 1 states that we reduce COGS by 5%, and option 2 reduces the payment date from 45 days to 30 days. With these changes alone we can see that the original...
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