Jones Blair Case Discussion

1. Which segment(s) should Jones Blair pursue? Why?

- Size of each segment

Total market size: 80MM (p5) Urban size: 60% (p5) Household size: DFW 70%, non-DFW 90% (p5)

DIY Professional

Urban (DFW)

80MM * 60% * 70% = 33.6MM

80MM * 60% * 30% = 14.4MM

Rural (non-DFW)

80MM * 40% * 90% = 28.8MM

80MM * 40% * 10% = 3.2MM

- Competition: Intense competition in DFW area. Mass merchandisers control 50% of DIY's market in DFW area with their own private brands.

- Future growth: DFW area showed little growth. Non-DFW area grew rapidly - Accessibility: Mass merchandisers have control in DFW, Jones Blair holding on to their channels in Non-DFW

- Consumer needs:

• DFW/DIY: Price sensitive due to heave low price emphasis by mass merchandisers. Large number of paint outlets and multiple brands allows for opportunity for comparative shopping.

• Non-DFW/DIY: Fewer opportunities for comparative shopping. No mass merchandisers. Less price-sensitive.

• Professional in both DFW and non-DFW: Care about quality and service, less concerned about price.

- Jones Blair’s current market share in each segment

Total sales volume: 12MM (p6) Urban size: 50% (p6 Exhibit 4) Household size: DFW 30%, non-DFW 70% (p10)

Household Professional

Urban (DFW)

12MM * 50% * 30% = 1.8MM 1.8MM / 33.6MM = 5.4%

12MM * 50% * 70% = 4.2MM 4.2MM / 14.4MM = 29.2%

Rural (non-DFW)

12MM * 50% * 70% = 4.2MM

4.2MM / 28.8MM = 14.6%

12MM * 50% * 30% = 1.8MM 1.8MM / 3.2MM = 56.3%

- Jones Blair's capabilities/weakness JB offers good service: Maintain close relationships with clients. Helpful professional, and knowledgeable sales representatives

JB is a premium-priced paint. It loses competition in urban outlets that carry multiple brands

2. Among the four different plans proposed, what strategy should Jones Blair adopt? Contribution Margin = Unit Contribution/Price (conceptually it's the percentage of contribution for a certain amount of sales) Jones Blair's contribution margin: 35% (p.9) BE Sales = BE Volume * Price = Fixed Cost/Unit Contribution * Price = Fixed Cost / (Price* Contribution Margin)* Price = Fixed Cost / Contribution Margin

• Increase advertising budget to DIY by $350,000 (VP of Advertising) BE Sales = $350,000 / 0.35 = $1MM, BE market share: $1MM / $6MM = 16.7% (or $1/$1.8=55.6% in DIY-DFW)

• Cut price by 20% (VP of Operations) Current Price Reduction Sales $100 $80 VC $65 $65 Contribution $35 $15 Contri. Margin35% $15/$80 = 18.75% (which means need to almost double the sales) BE sales here means the sales needed to achieve the same profit: Jones Blair's current profit: 12MM x 0.35 = 4,200,000 BESales = 4,200,000 / .1875 = 22,400,000

• Add a sales rep to target professionals in Non-DFW area (VP of Sales)

BE Sales = Cost of One Rep/Contribution Margin = $60,000/.35 = $171,428 Total number of accounts in Non-DFW area: 200 total x 60% = 120 accounts One account sales in Rural area (for household & professional) = $6MM /120accounts = $50,000/account BE accounts = $171,428 / $50,000 = 4 new accounts

• Do nothing (VP of Finance) - Profitability is more illusionary than real. Dollars growth due to price increase. Paint gallonage remained stable. No real growth. (p6. 2nd para) - Failure to act in the short-term might have LONG-TERM negative results - May lose any potential competitive advantage