Janmar Coatings Case Alternatives

Janmar Coatings, Inc.

June 21, 2017

Crystal Kim

MW 1:50 PM

Alternatives

Alternative 1—Maintain the status quo (don’t do anything).

• Pros:

1. Maintaining a contribution margin of 35% in the market.
2. No additional expenses incurred (i.e. advertising, salaries, R&D)

• Cons:

1. Not acclimating to current changes and trends in the market.
2. R&D expenses accrue due to U.S. paint manufacturers under growing pressure by the government to reduce emissions of volatile organic compounds from paint compounds and to limit the consumption of solvents.
3. Becoming susceptible to merging and acquisition by larger companies due to competitiveness of market.
4. Maintaining position as highest priced paint in DFW area—people who are price sensitive are more likely to purchase cheaper option.

Alternative 2—Increase advertising budget by $350,000, creating awareness by 5% in DFW do-it-yourself market.

• Pros:

1. Growth in brand recognition and awareness in market.
2. Reaching an additional 15 counties outside of DFW market, who have experienced growth rate of 29% between 2000 and 2004.
3. Do-it-yourself household buyers account for over 50% of architectural coatings sales inside DFW area.
4. $192,500 of advertising budget allocated to cooperative advertising programs creates potential to grow brand loyalty.

• Cons:

1. What if the goal of a 5% increase in brand awareness is not feasible?
2. Spending $350,000 on television advertisements nearly doubles the advertising expense.
3. Approximately 75% of exposed audience does not purchase paint in a given year.
4. Industry sales in the DFW area have decreased by 5.7% between 2000 and 2004.
5. The campaign requires $1 million in sales in order to breakeven.

Alternative 3—Reduce price by 20% in order to achieve parity with national paint brands.

• Pros:

1. Increases demand for Janmar’s products amongst price sensitive consumers.
2. Becomes more competitive against mass merchandiser’s everyday prices.

• Cons:

1. Decrease in contribution margin.
2. Must meet breakeven sales of $22.4 million in order to maintain current margins.
3. Company costs are unlikely to decrease in response to cut in price.
4. Lower quality perception amongst consumers.
5. May lose customer loyalty from those who rely on quality products.
6. Demand for paint unlikely to increase in the next year.

Alternative 4—Hire additional sales representative to target non-DFW areas.

• Pros:

1. Low initiation cost of $60,000 per year, excluding commission.
2. Lowest breakeven cost of $171,428 in order to maintain contribution.
3. Industry sales in non-DFW market have increased by 29% between 2000 and 2004.
4. Additional sales initiates growth in market.

• Cons:

1. Increase in costs, commission, and other expenses.
2. 40% price cut required in order to compete with other companies to attract contractors in market.
3. No guarantee of increased market penetration.