As a privately owned regional manufacturer of residential and commercial steel garage doors, Pyramid Doors has managed to grow a distribution network in the Western and Southwestern United States of 350 distributors broken up into 300 non-exclusive dealers and 50 exclusive dealers. This strategy has allowed Pyramid Door to capture a market share of 2.6% with total sales in 2005 of $9.2 million. While executives agree that a growth in sales of 36% to $12.5 million is necessary to achieve critical mass to preserve its buying position with suppliers, opinions are split on the correct method to achieve this goal. An increase in the marketing budget of 20% over 2005’s budget has already been approved, but four alternative scenarios about how to handle the distributor base have been brought up by various executives.
While some executives favored dramatically increasing the overall number of dealers, others suggested the opposite, cutting the overall number of non-exclusive, poorer performing dealers. Still other executives suggested a more targeted approach, leaning on more exclusive dealers at the expense of fewer non-exclusive dealers, while a final group suggested maintaining the status quo of dealers and letting the new marketing strategy carry them to the required number of sales. To determine the best strategy moving forward, we have put together a proposal outlining the pros and cons of each strategy, backed up with qualitative and quantitative data to back up our conclusions.
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Alternative 1: Increase number of independent dealers in markets currently served by the company by 100 Pros:
Increases effective market coverage allowing customers to find Pyramid Doors at more dealers. Diversifies the distribution network so that the company is less dependent on exclusive dealers. Sets Pyramid Door up for future distribution expansion.
Will significantly increase sales.
Allow for market specific advertising to benefit more locations
Adding 100 distributors will be very difficult in one year, given it has taken 10 years to add the most recent 50 distributors. Has the potential to cause channel conflict with current distributors by increasing the number of dealers they have to directly compete with within their markets. Distinct possibility of product cannibalization by saturating the market. Even with the increase in Net Sales, this plan would require an increase in Sales Representatives, decreasing our profit margin. Increased transportation costs to distribute to more low-volume locations.