JONES%20BLAIR

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by JOO Hyeyoung KOMOTO Yumiko BECHADE
Bertrand
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The Paint Market The U.S. Paint Market

• It is considered to be a maturing industry.
• Industry sales in 1995 were estimated to be
  slightly over 13 billion
• Divided into three segments
• ? Architectural Coatings (43), paints,
  varnishes, and lacquers (residential, commercial,
  and institutional structures)
• ? Original Equipment Manufacturing (OEM) coatings
  (35) for durable goods (industrial
  specifications)
• ? Special Purpose Coatings (22) for special
  applications or environmental conditions

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The Paint Market The Architectural Paint Industry
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• The sales 10 billion (w/ sundries). Mature
  Market.
• Sluggish growth rate measured in dollars can be
  traced back to a slowing growth rate in volume
  (new material, quality, substitutes products)
• Increasing demand for painting accessories
  (brushes and rollers). These sales account for
  4.5 billion
• The US paint manufacturers are under growth
  pressure to reduce emissions of VOCs and
  solvents. Gov Regulations

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The Paint Market The Architectural Paint Industry
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• Architectural coating Sales
• ? Do-it-Yourselfers (50)
• Professional painters (25)
• ? The rest goes to the Gov, export, and various
  commercial uses

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50
25

• Three types of distributors
• Mass merchendisers (50)
• Special paint stores (36)
• Hardware store lumberyard (14)

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Jones Blair Company The Market

• Maturity -- increasing competition
• Mass merchandisers dominate DFW market (50),
  where JBC does not compete
• DFW market declining while non-DFW market
  growing DFW still accounts for 60 of market
• Do-it-Yourselfers 78 of dollar sales
  Professionals 22

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The 50-County SW Market
Market Segments
80 M
Paint Industry
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Decision Problem

1. To prioritize market segments to pursue (identify
   the more attractive segments)
2. To determine an effective method to increase
   sales to the preferred segment(s)

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JBCs Market
Market Segment Shares
Do-it-yourself
Professional
1.8M / 33.6 M 5.4
4.2 M / 14.4 M 29.2
6M / 48 M 12.5
DFW
1.8 M / 3.2 M 56.3
4.2 M / 28.8 M 14.6
6M / 32 M 18.8
Non-DFW
12M / 80 M 15
6M / 62.4 M 9.6
6M / 17.6 M 34
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JBCs Market
Points to Note

• Market shares vary greatly among four markets
• JBC is strong in professional market with a 34
  market share
• Weak (5.4) in DFW, most probably due to mass
  merchandisers. JB only represent 12.5 in the
  DFW area
• Relatively weak competition in rural markets.
  Wal-Mart probably not a major threat
• Dominates rural professional market with 56.3
  share

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JBCs Market
Which market to pursue ?
In this order or priority ?
1. Non-DFW Do-it-Y - high potential for growth 2.
Urban Professional - wants high quality paints 3.
Non-DFW Professional - already dominant 4. Urban
Do-it-Y - very price-sensitive
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Market Strategy
Alternatives
1. Spend additional 350,000 on corporate
advertising 2. Cut price by 20 3. Hire one
additional sales rep 4. Do Nothing (Status Quo)
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350,000 on Advertising
Required additional sales to recover 350,000
350,000 / 0.35 1,000,000
1 M represents an 8.3 increase over current
sales.
JBC will need to increase its market share by
1.6 of Do-it-Y market to recover additional
spending.
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350,000 on Advertising
Pros

• Do-it-Y account for 78 of sales so, advertising
  to them may increase sales
• JBCs awareness is lower than national and
  merchandiser brands there appears to be an
  awareness-purchase relation
• Research shows advertising affects buying process

Cons

• Consumer buying process shows Do-it-Y buyers
  choose a store first, not a brand therefore,
  cooperative ad is required, not brand advertising
• 350,000 spending will nearly double current
  expense of 360,000

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Price Cut of 20
Required additional sales to maintain current
profit of 1.14 M
Current contribution is 35. Price reduction by
20 reduces contribution margin to 15 or .15
Therefore, required sales is 28M, which is a
233 increase from current sales in one year !
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Price Cut of 20
Pros

• Will make JBC more competitive against mass
  merchandisers in DFW markets
• May increase sales to Do-it-Yourself markets

Cons

• Will lose this high quality image
• Required sales to even maintain current profits
  is too high

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Hire additional Sales Rep
Required additional sales to recover cost of
sales rep
60,000 / .35 171,428
Sales per Non-DFW Professional 1.8M/200
9,000/yr Therefore, about 20 new customers would
be needed.
Sales per Non-DFW Retailer 4.2M/120
35,000/yr Therefore, about 5 new retail accounts
would be needed.
60 of JBCs 200 stores
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Hire additional Sales Rep
Pros

• Could generate significant sales if assigned to
  the right territory
• Professional painters may appreciate the
  additional service, especially considering that
  JBC distributes through exclusive dealers

Cons

• Appears current sales force has some time to
  spare, thus indicating it may be a problem of
  time allocation, not number

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Do-Nothing
Pros

• JBC is currently profitable. Why risk changes?
• Increasing non-DFW demand may keep JBC sailing

Cons

• Short-term oriented and conservative
• JBCs growth is only financial, not volume so,
  with increasing competition, something needs to
  be done
• Need to keep up with market and competition

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Recommendations

• Actively pursue non-DFW Do-it-Y and Professional
  markets
• Secondary emphasis on DFW-Professional market
• Seek more retail accounts in non-DFW markets
• Hire one additional sales rep who is in charge of
  developing new accounts. If budget permits, hire
  two. Each can be assigned to Professional and
  Do-it-Y markets respectively
• Engage in cooperative advertising with current
  advertising budget
• Maintain prices

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Calculation
It is required additional sales to maintain
current profit of 1.14 M The point is that
current contribution is 35 and a Price Reduction
by 20 reduces contribution margin to 15 or
0.15. Therefore, required sales is 12M (current
sales) .35 4.2 M (gross margin) To
maintain the current gross margin, we need
(12M x).15 4.2M x
16M So the required sales is 12M 16 M
28M 233 increase