CPE 702
Marketing
International
marketing case study
JOO Hyeyoung
KOMOTO Yumiko
BÉCHADE Bertrand
JONES BLAIR COMPANY Case Study
Page 2
SUMMARY
How might the architectural paint industry be characterized? ___________________ 4
1)
a)
The US paint industry _________________________________________________ 4
b)
Architectural paint industry ___________________________________________ 4
2)
How might the JB market area be characterized? _____________________________ 5
3)
How can this market be segmented? ________________________________________ 6
4)
Which market to pursue? _________________________________________________ 7
a)
Non-DFW Household, a high potential for growth _________________________ 7
b)
Urban professional, wants high quality paints ____________________________ 7
c)
Non-DFW Professional, already dominant ________________________________ 8
d)
Urban Household, very price- sensitive___________________________________ 8
5)
What competitive position does Jones Blair have in its market? __________________ 8
6)
What strategy should JB adopt to reach the segment sought? ____________________ 8
7)
a)
Spend additional $350,000 on corporate advertising ________________________ 8
Pros __________________________________________________________________ 9
Cons __________________________________________________________________ 9
b)
Cut price by 20%_____________________________________________________ 9
Pros __________________________________________________________________ 9
Cons __________________________________________________________________ 9
c)
Hire one additional sales representative _________________________________ 10
Pros _________________________________________________________________ 10
Cons _________________________________________________________________ 10
d)
Do Nothing (Status Quo)______________________________________________ 11
Pros _________________________________________________________________ 11
Cons _________________________________________________________________ 11
Recommendations _____________________________________________________ 11
SLIDES __________________________________________________________________ 13
JONES BLAIR COMPANY Case Study
Page 3
1) How might the architectural paint
industry be characterized?
a) The US paint industry
The US paint industry is considered to be a maturing industry. Industry sales in 1995
were estimated to be slightly over $13 billion.
The US paint market is divided into three segments: architectural coatings (43%),
original equipment manufacturing (OEM) coatings (35%)and special purpose
coatings (22%).
The architectural coatings are general purpose paints, varnishes, and
lacquers used on residential, commercial, and institutional structures. They
are sold through wholesalers and retailers.
OEM coatings are formulated to industrial buyer specifications and they
are used for durable goods such as automobiles, transportation equipment,
building products industrial machinery and equipment etc.
Special purpose coatings are formulated for special applications or
environmental conditions (extreme temperatures, exposure to chemicals).
They are used for automotive and machinery refinishing, industrial
construction such as factories, railroads, utilities, bridges marine application,
highway and traffic machines and roof paints.
b) Architectural paint industry
In 1995, the U.S. sales for architectural paint coating accounts for about $5.5 billion
(without sundries). The architectural coatings are mature market. A slow growth rate
is the main characteristic of a mature market.
The sluggish growth rate measured in dollars can be traced back to a slowing growth
rate in volume. This is because of a growing of materials that don’t require paint or
require little paint such as plastic and aluminum. These are substitute products that
can increase consumers’ sensibility to changes in price.
This is also because of the increasing quality of paints. Less paint is needed for each
application and the time between applications is longer. Lastly, industrial clients have
developed more efficient and effective ways of applying paint. Again, less paint is
needed and the time between applications can be extended.
The demand for painting accessories such as brushes and rollers is predicted to
increase. The sales of sundries account for about $4.5 billion, which is significant.
This is due to the popularity of do-it-yourself projects.
In addition, the trend is towards fewer companies sharing the market. This is the
result of companies closing down and smaller companies being taken over. Many
small companies, however, have been able to survive because technology is readily
available and because of the necessity to adapt paints mixtures to different regional
climates.
JONES BLAIR COMPANY Case Study
Page 4
Major producers of paint for the architectural coatings segment include SherwinWilliams, Benjamin Moore, PPG Industries etc. These producers account for
upwards of 60% of sales in the architectural coatings segment. Sherwin-Williams is
the largest paint producer: the Coca-Cola of the paint industry.
The US paint manufactures are under growth pressure to reduce emissions of
volatile organic compounds (VOCs) from pints and to limit the consumption of
solvents. Compliance with Environmental Protection Agency (EPA) regulations has
further eroded historically low profit margins in the paint industry.
Slow sales growth the necessity for ongoing research and development and recent
compliance with governmental regulations have fuelled merger and acquisition
activity in the U.S. paint industry since 1990.
There are three types of distributors:
mass merchandisers and home improvement centers (50%),
hardware store and lumberyards (14%)
and special paint stores (36%).
50% of architectural coatings dollar sales are accounted for by do-it yourself painters.
Professional painter purchases account for 25% of dollar sales. The rest goes to the
government, exportation, and various commercial uses. Promotion should be
directed with this in mind
Do-it-yourselfers first chose a retail outlet then chose a paint brand. They try to get
the best price and also need some information about application, color matching,
surface preparation and durability.
Professional painters seek out quality product (durable washable etc)
2) How might the JB market area
be characterized?
Jones Blair sells paint products in over 50 countries in the four southern states in the
US: Texas, Oklahoma, New Mexico, and Louisiana. 11 countries in Dallas-Fort Worth
(DFW) area is their most important market.
Competition in this market has increased with the coming of department stores like
Sears, K-Mart, and Wal-Mart, as well as Sherwin-Williams paint stores. Competition
has also increased in paint stores, lumberyard and hardware stores.
Competition at the paint manufacturing level has increased as well. Paint companies
that sell to contractors serving the home construction industry have aggressively
priced their products to capture a higher percentage of the home construction
market. Mass merchandisers control 50% of the do-it-yourselfer paint market in the
DFW metropolitan area.
The estimated dollar volume of architectural paint and allied products sold in Jones
Blair’s 50 countries service area in 1995 was $80 millions. Do-it-yourselfers market
account for 78% o dollar sales and professionals market account for 22%. DFW was
estimated to account for 60% of market. Although non-DFW market has been
JONES BLAIR COMPANY Case Study
Page 5
growing, DFW market has slightly decreased. Do-it-yourself household buyers
account for 70% in DFW and 90% in other areas.
$ 80 M
Paint Industry
DFW
60%
$ 48 M
Non-DFW
40%
Do-it-Y
70%
Professional
30%
$ 33.6 M
(42%)
$ 14.4 M
(18%)
Do-it-Y
90%
$ 28.8 M
(36%)
$ 32 M
Professional
10%
$ 3.2 M
(4%)
3) How can this market be
segmented?
Segmentation describes the division of a population into more or less homogenous
segments based on their acceptance and buying patterns of products or services.
This JB market can be broken down into the following market segments and subsegments.
This market can be divided into two geographic areas: DFW (urban) and non-DFW
(rural). And each segment can be divided into two sub-segments: household (do-ityourselfers) and professional.
To calculate market segments in % and in value, we know that
JB sales volume in 1955 was $12 million;
JB sales are distributed evenly between DFW and non-DFW accounts;
Moreover Mr. Barrett indicates that in the survey of retail outlets 70% of sales
through JB’s DFW dealers went to the professional painter while 70% of JB’s
sales through non-DFW outlets went to Do-it-yourselfers.
Thus here are the results of the calculation of the market segments in % and in
value.
JONES BLAIR COMPANY Case Study
Page 6
Household
Professional
DFW
$ 1.8 M / 33.6M
= 5.4 %
$ 4.2 M / 14.4 M
=29.2 %
$ 6 M / 48 M
= 12.5 %
Non-DFW
$ 4.2 M / 28.8 M
=14.6 %
$ 1.8 M / 3.2M
= 56.3 %
$ 6 M / 32M
= 18.8 %
$ 6 M / 62.4 M
= 9.6 %
$ 6 M / 17.6 M
= 34 %
$ 12 M / 80 M
= 15 %
Market share varies greatly among four markets.
According to the calculation, JB is strong in professional market with a 34% market
share. There is a weak in the DFW area for the household segment with 5.4% and
that is most probably due to mass merchandisers. Another weakness is that JB only
represent 12.5% in the DFW area compared to non DFW area (18. 8%).
There is a relatively weak competition in rural markets. However Walmart, an
effective competitor in non-metropolitan areas, is probably not a major threat in nonDFW.
JB dominates in rural professional market with 56.3% share.
4) Which market to pursue?
We will pursue these following markets in this order in priority.
a) Non-DFW Household, a high potential for growth
Large volume distribution is not present in this segment due to its low population
density. Moreover, it appears as though the number of brand names per store is
lower than in urban areas. Price is a less important factor, whereas the "client-seller"
relation becomes a key element.
b) Urban professional, wants high quality paints
Here the key element is the quality and no longer the price. Indeed, professional
painters work for households as well as for companies in charge of real estate
management and maintenance.
Professional painters are looking for quality products as their reputation is linked to
their work. They are looking for long-lasting, washable paint which can be applied in
one single coat. The quality is often linked to a higher price. Professionals can accept
to pay more for this higher quality.
This segment is made up of professional painters worried about their market image.
Producers that are able to convince consumers, and especially professional painters,
that they have to highest quality product will likely be successful.
JONES BLAIR COMPANY Case Study
Page 7
c) Non-DFW Professional, already dominant
Please see above: question 3) and the calculation of market shares in percentage
and value.
d) Urban Household, very price- sensitive
This sub-segment is particularly difficult for producers. On one hand, there is a welldeveloped network of distributors. On the other hand, hardware and paint stores
have higher prices than large distributors. As paint has come to be seen more and
more as a commodity, price is the most important element in creating a competitive
advantage for this segment.
5) What competitive position does
Jones Blair have in its market?
Jones Blair holds the high-end trade market catering mostly to do-it-yourself
customers that want good service (information about how to apply the paint and how
to prepare the surface). They also cater to professional painters that want high
quality paints (requiring only one coat, washable, long life). In addition, they have a
line of painting accessories which are growing in demand among do-it-yourself
clients. Lastly, the company has a division that produces industrial paints and sells
them over the entire American market.
6) What strategy should JB adopt
to reach the segment sought?
There are four alternatives
a) Spend additional $350,000 on corporate advertising;
b) Cut price by 20%;
c) Hire one additional sales rep.;
d) Do Nothing (Status Quo).
a) Spend additional $350,000 on corporate
advertising
The publicity department proposes a television campaign (promotion) directed mainly
at strengthening brand name notoriety in the DFW do-it-yourself market. This
campaign would cost 350,000 dollars in order to increase their market share
significantly. With the aim of recovering this cost, it must be required 1 million dollar
additional sales.
$ 350,000 / .35 = $ 1,000,000
$1 M represents an 8.3% increase over current sales. JBC will need to increase its
market share to recover additional spending.
JONES BLAIR COMPANY Case Study
Page 8
Pros
+ Households account for 78% of sales; so, advertising to them may increase
sales;
+ JBC’s awareness is lower than national and merchandiser brands; it appears
to be an awareness-purchase relation;
+ Research shows advertising affects buying process.
Cons
- Consumer buying process shows household 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= $710,000
in total expenses (The company spends approximately 3% of net sales on ads
and promotional effort);
Financially, this strategy implies a large budget with little guaranty of results
because about 75% of the viewing audience does not buy paint;
avoid a large television campaign is because paint is less image sensitive than
other products.
We feel that for Jones Blair, quality and service can be more economically and
efficiently communicated through in-store promotion.
b) Cut price by 20%
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 .15.
Therefore, required sales is :
12M (current sales) * 0.35= 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 $ 28M.
This required sales is a 233% increase from current sales in one year!
Pros
+ Will make JBC more competitive against mass merchandisers in DFW
markets;
+ May increase sales to Do-it-Yourself markets
Cons
- Dealer resentment as it will affect their margins;
- Required sales to even “maintain” current profits is too high.
JONES BLAIR COMPANY Case Study
Page 9
It is necessary to cut the prices by 20% in order to be competitive with other national
brands. This strategy would be good if Jones Blair hadn't spent the last few years
carving out a high priced position.
Lowering prices is therefore a regression strategy. They would be throwing away the
effort that they have made in order to build an image of a quality paint producer that
offers extra services. Even though this option may increase profits through increased
sales, it may be not the best long-term strategy.
Jones Blair's business is high quality paints with high quality service. This
differentiation allows them to charge higher prices. Customers that buy this paint are
obviously less price sensitive than other paint consumers. This is seen in the fact that
Jones Blair has increased their prices in order to cover increasing costs.
Lowering the price would only make the customer question the quality. If they cut
their prices, they will lose this high quality image, as well as the advantage of being
able to charge higher prices.
c) Hire one additional sales representative
The required additional sales to recover cost of sales rep is:
$ 60,000 / 0.35 = $ 171,428
Considering that Sales per Non-DFW Professional is: $1.8M/200 = $9,000/yr.
Therefore, about 20 new customers would be needed.
Considering that Sales per Non-DFW Retailer: $4.2M/1201 = $35,000/yr
Therefore, about 5 new retail accounts would be needed.
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
Not consistent with the market that is most attractive
A representative would cost the company 60,000 dollars a year.
This option is particularly interesting when you consider that sales and the number of
points of sale in rural areas is increasing and that the total number of stores is
decreasing. This makes getting and conserving distribution channels an essential
part of business. The financial investment is much smaller than the necessary
investment in publicity, and with a greater chance of profitable results.
1
60 % of JB’s 200 stores.
JONES BLAIR COMPANY Case Study
Page 10
d) Do Nothing (Status Quo)
Pros
+ JBC is currently profitable. Why risk changes?
+ Increasing non-DFW demand may keep JBC sailing
Cons
- Short-term oriented and conservative
- JBC’s growth is only financial, not volume; so, with increasing competition,
-
something needs to be done
Need to keep up with market and competition
7) Recommendations
Actively pursue non-DFW Household and Professional markets
Secondary emphasis on DFW-Professional market
Seek more retail accounts in non-DFW markets. Jones Blair should
concentrate on increasing the number of distributors of its products in rural
areas. The Dallas-Fort Worth market may be saturated and place importance
on quality and service, but the rural market is still in expansion and in need of
a producer to fill the quality-service niche. Any producer that wants to secure
this niche needs to be present. Being present means selling paints in a large
percentage of stores. Jones Blair is currently lacking in this area, and should
be able to improve its position by hiring a new representative.
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 Household markets respectively.
Engage in cooperative advertising with current advertising budget.
Four facts have led us to a preference for in-store promotion. First, the
audience reached by expensive television campaigns is made up essentially of
people who don't by paint. More precisely, 75% of the viewing audience falls
into this category. Secondly, the majority of consumers decide which brand
they will buy before entering the store. Thirdly, the majority of advertising is
based on price competition. Lastly, other forms of publicity, such as mailers
and newspaper ads, are often overlooked or find their way directly to the trash.
In order to counteract these advertising inconveniences, we feel that in-store
promotion should be tested and further developed if resultants are positive. Instore promotion is more economical than an expensive television campaign.
And most importantly, it counteracts the brand decision that many customers
JONES BLAIR COMPANY Case Study
Page 11
have supposedly already made before entering the store. Also, in-store
advertising can be more easily based on quality and service.
Maintain prices. See 6.b)
JONES BLAIR COMPANY Case Study
Page 12
SLIDES
JONES BLAIR COMPANY Case Study
Page 13