.. ducts. The company doesn’t include the customers in the selection of new products, and it doesn’t evaluate what needs or wants are satisfied by the products that are currently being sold. The current method of product selection involves the merchandising manager going to trade shows with Martin Woodard and selecting potential products. Five people in the company would then comprise a panel to argue for or against the product, which would determine whether or not the product would make it into the catalog. Potential Solution(s): Research must be conducted to determine if the current product selection is the most beneficial for the company.
Both potential customers and current customers should be targeted in this research. Surveys could be used to determine the types of products that customers are most interested in. Also, it may be useful to use focus groups here to determine which products will be offered, because the current system doesn’t take into account the input of the consumer, instead using the opinion of company employees and executives. 4. Problem: Financial Constraints.
If Faith Mountain Company wishes to expand, they will have to look for additional financing, especially if they expect to introduce another retail store(s) and assimilate another catalog company. Currently, their financing option is limited to $500,000 and would not be sufficient to cover the new costs that come with expansion. And although the company finally made a profit in 1991, the net margin and selling expenses/gross profit are still low compared to the industry average (See Exhibit 2). The net profit earned by Faith Mountain is also 2.6% lower than the industry average. Potential Solution(s): Expansion of the retail division will be very costly and consists of too small a percentage of Faith Mountain’s overall sales to pursue. A better avenue would be to focus on the mail order business unit, which has a greater opportunity for increased revenues and growth. 5.
Problem: Forecasting. Faith Mountain fails to account for a possible decline or stabilization in the catalog sales/mail-order industry. From the years 1987 to 1991, the net sales increased at an average of 29.5% per year. And Faith Mountain has projected net sales to increase every year from 1991 to 1995 at an average of 16%, which is still relatively high and would assume a constant growth rate in the mail-order industry. Possible Solution(s): A better forecasting strategy would be to assume growth to increase at the current market rate, which would be far more realistic than assuming that company sales will continue to increase at its current pace. 6.
Problem: Limited Advertising Reach and Use of Rented Lists. Ninety-five percent of the advertising and promotional costs go towards the catalog itself; therefore, those who do not receive the catalog have little chance of being reached by The Faith Mountain Company. Therefore, Faith Mountain must find a way to reach those customers. Two to three times as many catalogs are mailed to recipients from rented lists than house lists; however, profits are substantially higher on average for each catalog mailed to in-house lists than rented lists. Possible Solution(s): Faith Mountain should limit its use of rented lists to those used by companies offering products that fit their demographic target. The current use of rented lists doesn’t take into account the demographics of the people on the lists; therefore, it will be unlikely that the rented lists will consist of people in Faith Mountain’s relatively small target market. It is not enough to assimilate names of potential customers.
The lists must consist of potential customers who fit the description of Faith Mountain’s current customers. This will increase the chance that a customer from the rented list will buy from Faith Mountain and become part of the house-list. Also, some form of advertisement must be utilized to reach customers who don’t receive the catalogs. Magazines such as “Better Homes and Gardens” and “Country Living” should reach consumers that lie within Faith Mountain’s specific target market, and therefore should be excellent mediums to advertise in. III. Recommendations The recommendations of Team 3 for The Faith Mountain Company is to integrate a strategic marketing plan that focuses more on the mail order business unit of the company, putting high priority on market research, reaching more customers, offering more desirable products, and introducing a marketing manager.
1. Marketing Business Units: Retail and Mail Order ? The retail unit of Faith Mountain is an invaluable asset to the company and provides the company with a tangible epicenter for customers to witness the traditional values that Faith Mountain tries to convey. However, the retail unit of Faith Mountain is not substantially lucrative for the company, and Martin Woodard fails to give any rationale as to how opening additional retail outlets can benefit the company, other than mentioning the current trends that other companies are taking that route. Therefore, it is our recommendation that Faith Mountain does not open additional retail stores at this point. ? The mail order segment of Faith Mountain seems to have more potential for growth; hence, we feel this segment should be expanded.
And although the current trends suggest a substantial increase in growth for the mail order industry due to increased credit card use and shopping convenience, eventually the industry should coincide with the national rate of business growth. However, this current trend for growth leaves Faith Mountain with an opportunity to obtain a substantial market share in their industry. Advertising and Promotion ? Faith Mountain’s main form of advertising and promotion is its catalog, which is being distributed to at least one million people from rented lists each time the catalog is distributed. The costs of distributing the catalog to these recipients account for half the costs of promotion. We feel this money could be better spent on advertising, as well as obtaining smaller rented lists with similar buyer attributes, such as lists from other catalog companies such as Eddie Bauer or other similar stores oriented towards traditional/country life and values. ? They should try to capture market share by focusing on advertising in magazines that are frequently read by customers that fit the demographic of Faith Mountain customers. Magazines such as “Better Homes and Gardens”, “Women’s World”, and “Country Living” tailor to our traditional target market.
However, advertising in high-circulation magazines, such as “People” should expose a different segment of the population to the name of Faith Mountain, and could increase brand familiarity substantially. Market Research ? We recommend mailing questionnaires randomly to current customers as well as to people who have not yet purchased products from the company. Although this will be costly, the benefit of determining which elements of the marketing mix need improvement should outweigh the costs of distributing and analyzing the data. These surveys should include the customer’s demographic information, i.e. age, race, gender, family income, etc. The surveys must also try to assimilate what attributes are valued in the industry.
These attributes should include but not be limited to: variety of merchandise selection, quality of merchandise, level of customer service, timeliness of delivery, price, company reputation, etc. Then they should rate each of these attributes on a scale of 1 to 10 in increasing level of utility, weight, or importance. ? Surveys and focus groups will also be used to determine which products will be offered. 2. Personnel ? A marketing manager position will be implemented to oversee all facets of marketing.
He will assume supervision over the following areas, catalog production and distribution, merchandising, customer service, as well as research and development. This will lead to a new organizational hierarchy (See Exhibit 3). ? Also, more permanent telephone operators will be hired to account for increased sales. 3. Financing ? In order to support expansion in our mail order division, we will have to find additional capital. And, although Faith Mountain did make a profit in 1991, the company seems to be a risky investment for a bank. Therefore, we suggest financing from the Small Business Association again, which would be more likely to assist Faith Mountain again after the company has already shown its ability to grow.
However, a contingency plan would be to obtain financing from issuing more shares of common stock. IV. Conclusions The Faith Mountain Company has a definite competitive advantage in the mail order industry. This is achieved by offering high quality merchandise and providing superior customer service. By expanding their customer reach and focusing on marketing strategy implementation, the Faith Mountain Company should obtain a greater market share in their respective industry. V.
Assumptions ? The mail order industry will continue to grow for the next few years (after 1991), and will then approach the overall national growth rate. ? The readers of magazines such as “Country Living” and “Better Homes and Gardens” share similar buyer attributes/values to customers of Faith Mountain. ? Faith Mountain obtains financing from the Small Business Association. ? Postage and paper costs do not rise above expected rates. VI. Contingency Plan If revenue from catalog sales, and the mail order industry in general, does not grow as estimated, Faith Mountain will evaluate its current product line and determine which products aren’t effective. If altering product lines is ineffective the Board of Directors may divert or reduce reliance on catalog sales.
At this point Faith Mountain would emphasize increasing the number of retail stores. These stores would be located in strategic areas near market segments that exhibit attributes of the current Faith Mountain buyer. The catalog would still be issued, although production and distribution would be reduced. This would serve as a promotional tool to attract more customers to the retail stores. The assumption in this contingency plan is that people want to touch and feel the product themselves before making any purchasing decisions.