Case 12: Rocky Mountain House Co-op
June 4, 2009
Critical Issue / Challenge Identification
o In Petroleum division, its cardlock system is out-of-date and has no capability to sell marked gasoline with the old system, should the company invest in new facilities?
o The competitor-UFA is going to launch an outlet in this area, should the company consider going into the fertilizer and ag chemical business to fulfill customers’ needs?
o RMHC has approximately $1 million of funding; is the budget sufficient for expanding the business?
o RMHC does not have a proper marketing and advertising program to promote their business; what strategy should the company apply?
Current Marketing Strategies
o Petroleum products are non-impulse products.
o RMHC products are under strictly quality control.
o RMHC carries wide range of retail business and provide one-stop shopping for customers • Home Centre: building materials, hardware, animal health products, livestock feed, livestock equipment, and twine • Shopping Centre: food, hardware, clothing and a cafeteria • Petroleum Division: bulk fuels, propane, oil/lubes, card lock and gas bar o The petroleum is in a growing stage of product life cycle o Products are sold using the cardlock system; by inserting a card into a metering device, which then pumps the amount, that client wants into user’s tank. The system will automatically collect the buyer’s name and amount of purchase for future billing.
o The company has received patronage dividends of $683,000 from Federated Co-ops Limited in Saskatoon and RMHC has distributed $614,000 in patronage dividends to local owners. o Petroleum products are price elastic.
o RMHC sets the price at the average market price. Two other companies provide slightly lower pricing strategies in the same area. o Payment terms: in the cardlock system, customers receive a payment at the end of each month on how much they have purchased from RMHC. o Total Gross Margins for Petroleum Products:
| |Fuels |Propane |Oil/Lubes |Gas Bar |Total | |Gross Margin |$187,000 |$7,000 |$20,000 |$42,000 |$256,000 |
o Gross margin for each market:
| |Farm |Commercial |Consumer | |Current margin |$0.049/L |$0.034/L |$0.063/L |
o The retail outlet is located in Rocky Mountain House, Alberta, on Highway and this location provides great visibility in the community.
o The company use indirect distribution. Since RHMC uses Federated Co-op as their main source of supply for all the products they sold. The distribution channel is through the three retail outlets around the trading area.
o RHMC spends approximately less than $6,000 per year on advertising petroleum products on local newspapers targeting farm and commercial users.
o The company also has strong public relation with their customers.
• The petroleum manager, Milt maintains contact with most customers at least four times a year.
• Milt contact with the large customers more often.
• For some very large customers, Milt contacts them on a weekly basis.
o RHMC also has a cardlock system at the main petroleum outlets offering 24 hour access and lower price as an attraction for more customers.
RMHC has three different kinds of retail businesses: Home Centre, Shopping Centre, and Petroleum. Segmentations for these retail businesses are different regarding different needs for each. Home Centre mainly target at farmers who are...
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