Case Study - Competency to Measure - Strategic Thinking - Mel Andrews Brook
Leading a Business in Turbulent Times
Mel Andrews Brook Academy Inc.
TIME – 120 Minutes
Bruce Willison, managing director of Mel Andrews Brook Academy Inc., reached for the telephone to call marketing director Regina Christopherson into his office. He had just been reviewing preliminary first-half sales figures with finance director Ralph Kapeller. Sales of the company's line of concept bath essence were running 72% below budget, and had declined in each of the past three months.
The company would be in a loss position by the end of the year if the present trend persisted. When Jennifer Christopherson entered the office she had a reedy explanation for the falling sales. She blamed them squarely on the 25% price crease that had been instituted in late 2016 over her heated objections. "That cost us thousands of customers that we'd just convinced to step up to Mel Andrews Brook Academy products, "she said. "I think it is essential to reduce prices, or at least come back with some widely advertised special offers."
Murphy Miller slapped his forehead with his palm.
"That would only make things worse, "he explained. We should not hope to get enough extra business to compensate for the reduced revenues from our present volume. We could reduce the contents in the bottle slightly, but that would not really amount to much of a saving. I am afraid the only answer is another price increase."
Facing up to recession and inflation
"Maybe you haven't heard, "retorted Christopherson, "but there is a recession going on. People are becoming very reluctant to buy very high-priced luxury items. But I think that if we trim our prices and step up advertising we can still recapture some of the customers we have lost, and perhaps increase our share of the market. As you know, our main competitors are feeling the pinch, too."
"Don't forget the inflation’s as bad as the recession, "Murphy Miller argued. “ Our main costs are all going up, advertising, salesmen's salaries and distribution costs. But before we go on, I would like to show you something very interesting when the actual sales figures are broken down by territory.
"Now look at the urban areas; Tri State. Sales are all up, despite increased prices. And here, look at Pennsylvania! Sales up 14% over the second quarter of 2008"
Murphy Miller went on to show that sales had declined mostly in smaller cities and towns, although some larger cities, such as Stuttgart and Hanover, showed modest reductions in turnover.
“The outlying areas were we have made the most gains in the past two years, "said Kapeller. “ They would naturally be the first to fall away. Now we are left with a hard core of loyal customers, who are relatively insensitive to a price increase. If you will pay US24 a bottle for bath oil, you will pay US 26 or US 29 for the same bottle."
He went on to propose that the company radically after its Marketing policy. It should concentrate all its efforts in major urban areas. It should further concentrate on large department stores and try to place its own staff behind the counters.
"This would enable us to cut out a number of salesmen who are now covering outlying regions. It would also save considerably on distribution costs, "said Kapeller. “ And perhaps we could even cut back on some of that expensive television advertising, too."
Rejecting financial interference
Christopherson's stunned silence was only momentary. "That is the most incredible thing I've ever heard, "she retorted. "I thought I was supposed to be the marketing expert in this company. How can you still interfere in my department after what your price increase has done to us?" Then she turned to Hetzner: "If you even considered following that sort of advice you will be condemning this company to remain small forever. We've fought hard to become a national brand, and now he wants to throw this all away, "she argued.
“Even Murphy Miller admits that we are a luxury line. And if we want to keep that image we have to promote it, and that does cost money. But if we concentrate sales in big cities, then a lot of our national magazine and advertising will be wasted going to areas where the product is not available. However, puffed on his pipe and then broke his long silence. “I know it is a difficult decision to make, "he sighed.
"But we have to something right away to try to keep the company profitable frankly, even if we could cut the cost of the product by 20% it would have very little impact on our I think the answer must lay in the concept marketing area or the way we do business. We simply don’t know how to sell concepts any longer"
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