Croft Industries

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Croft Industries

• Geng Cui
• Dept. of Marketing and Intnl BusinessLingnan
  University
• February, 2005

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I. Problem Definition

• When Croft Industries, the price leader in
  asphalt shingles, raised its price from 18/sf to
  20/sf, the competitors did not follow, causing
  Croft's market share to decline by 20.
• In light of increasing competition, Croft
  Industries needs to determine its pricing
  strategy in the next year, to ensure its
  competitive viability and market leadership.

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A Typical Residential House in North America
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Asphalt Shingles

• Asphalt shingles are currently the most popular
  type of residential roof material for a variety
  of reasons. They are relatively inexpensive,
  starting at around 0.80 per square foot
  installed and go up from there. Things that
  determine cost are geographical location, slope
  of the roof, height of the building, ease of
  access to the premises, complexity of the
  project, the particular type of shingle and
  numerous other factors. Asphalt shingles are very
  simple to install enabling many homeowners to do
  the work themselves. They come in a variety of
  colors and styles, are fairly durable (some have
  been tested and have achieved a class IV hail
  rating - the highest available!), and can be
  easily repaired and maintained.

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WHAT ARE THEY?

• Asphalt shingles come in two basic types glass
  fiber (a.k.a. fiber glass) and organic. Organic
  shingles consist of an organic felt material
  which is generally paper saturated with asphalt
  to make it waterproof. A top coating of adhesive
  asphalt is then applied and the ceramic granules
  are then embedded. Organic shingles contain
  around 40 more asphalt per square (100 sq. ft.)
  than their glass fiber counterpart which makes
  them weigh more and gives them excellent
  durability and blow-off resistance.

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II. Scenario Analysis

• Firm Background and Strengths
• Regarded as having the highest quality in the
  market
• All major distributors in the region carry the
  company's product.
• No large competitors in the market
• All firms are local operators
• Thus, cost of freight is low
• Market leader with 60 market share in 1989, and
  40 in 1990

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• Market Environment
• Mature market and mature product
• Slow economy, low housing startup
• Consumers tightening up belt
• Discretionary re-roofing
• Market sales volume decline 6 in 1989 and 17 in
  1990
• Economic future uncertain
• Market may be depressed for a few more years

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• Competitive Situation
• Oligopoly situation a few competitors selling
  the same product with some differentiation
• Croft's share 60, and five competitors wit lower
  shares
• Croft has been the price leader and market leader
• Demand relationship
• Typical prices up, demand/sales do down
• Some degree of elasticity
• Dealers and installers control retail price

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The Price Cut Move -- Causes

• Why competitors have not followed Croft in
  raising the prices and leading to Crofts market
  share to shrink?
• Fear price increase will depress the market
  further
• Fear of Croft's expansion
• Challenger A wants to be the price leader
• Chance to gain sales and market share
• Installers use parity pricing
• Charge the same price for all shingles and keep
  the difference
• Discretionary for reroofing that can be
  postponed
• 20600 1000 sf 12,000 20,000/roof
• Lower consumer awareness and knowledge

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• Financial Analysis
• Only the lowest cost can be the price leader
  without lowering profit in the long run.
• Financial conditions of Croft and its five
  competitors in 1990
• Croft is the most profitable and yet not the most
  efficient
• Competitors would be better off if they raised
  their prices as well
• Lowering their prices have not helped them since
  installers marked prices in parity with Croft.

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Financial Analysis for Croft and Competitors
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Alternative Solutions and Implications

• 1) Further price reduction -- 18.00
• pros recoup market share, higher volumes, drive
  unprofitable competitors out of the market
• cons loss in profit
• Would installers pass along the savings to
  customers? No.
• 2) Keep the exiting price -- no change -- 20.00
• pros keep the same profit level
• cons lose the role of price leader, further
  erosion of market share
• 3) Revert back and raise price -- 22.00
• pros higher profit
• cons lose more market share and price leadership

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Decision (Tree) Analysis
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Recommendation and Justifications

• Keep 20 for the time being
• keep the healthy margin and profit
• more capital for expansion and other projects
• quality reputation will not be compromised
• competition is weak and further retaliation
  unlikely
• installers would not pass along savings
• Risks
• declining sales and market share
• lose the market leadership position

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III. Marketing Plan and Programs

• Objectives
• Increase the market share
• Regain the market share lost and the market
  leader position
• Improving brand awareness and perception
• Improving dealer and installer relationship
• Possible product innovation and differentiation

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Marketing Strategies

• Pull strategy
• advertising directly to consumers
• Improving Croft brand awareness and perception
• emphasis on value and long-term quality
• Push strategy
• Develop a dealer and installer incentives program
• Dealers should have the incentive to recommend
  Croft because of its lower prices.
• Limited quantity discount up to 5 (less than a
  dollar)
• free delivery

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Marketing Programs I.

• Advertising to consumers (pull strategy)
• Awareness Interest Decision (AID)
• Objective education to improve awareness about
  the quality advantages of Croft shingles
• Content emphasize the value of Croft products,
  such as features
• Rebate Coupon for choosing Croft
• Time table
• spring summer housing start
• Spring fall reroofing
• Media plan
• local newspaper, weekend 1/4 page with coupon
• local TV reminder ads

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Marketing Programs II.

• Dealer and installer marketing
• Solidify quality perception
• Promote dealer and installer loyalty
• Channel management
• Apply relationship marketing
• Based on volume
• Based on installed roofs
• Create database to update accounts
• Devise a dealer/installer incentives program

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Implementation I.

• Consumer Advertising
• Time table
• spring summer housing start
• Spring fall reroofting
• Media plan
• local newspaper, weekend 1/4 page with coupon,
  two weeks before high season
• Emphasizing features and benefits
• Followup with reminder ads in peak season

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Implementation II.

• Create database to update accounts
• Sales Analysis
• Based on volume
• Based on installed roofs
• Apply relationship marketing
• Create different levels of dealers/installers
• Silver, Gold and Plantinum
• Promote Croft as the Preferred Supplier Win/Win
• Devise a dealer/installer incentives program
• Cumulative discount
• Recognitions
• Promotion brochures to dealers/installers
• Certificates to dealers and installers
• Emphasize the quality and benefits of Croft
  products
• Specify the incentives based on volume and
  customers
• Specify the next level of achievements and
  incentives

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Evaluation and Control.

• Measure consumer awareness and perception
• Week-after Ad and brand recall
• Monitor dealer/installer status
• Monitor sales and market share quarterly
• Revise pricing or promotion if necessary

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Budget

• For the newspaper ads
• Assuming 1000/week
• For 4 weeks per season 34100012,000
• Monitor dealer/installer status
• Printing and mailing cost minimum
• Existing marketing staff will handle the
  implementation
• Monitor sales and market share quarterly
• Revise promotion if necessary

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Forecast

• Improved awareness and perception of Croft
• Greater dealers/installer participation and more
  profitable relationships
• Should regain the market share and leadership by
  year end.

Thank you!