MT631
LECTURE # 10
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Morgantown Furniture Cases A & B

Define Morgantown's products
  1. Based on physical & other "objective" measures;
      "medium-to-high priced," high-quality wood bedroom, living room & dining room furniture.
  2. Based on distibutional considerations:
      up-scale very "selective" furniture items
  3. Based on consumption behavior:
      Heterogeneous shopping goods
  4. Based on risk and other psychological factors:
      high risk (performance, social and financial risks) and due to the conspicious nature of the products probably a high involement type good
  5. Based on economics:
      durable, household goods

What is the nature of the industry in which Morgantown competes?
    The household wood furniture market is reasonably large ($10 billion in 1993) and currently, stable with an expected annual growth of 2.7-3 % for the next couple of years. Production within this market is extremely fragmented with 1000 manufacturers, none of which holds more than 5% share. This fragmentation is probably due to the nature of the product, the ease of entry into the market and the historic evolution of numerous local and/or regional producers. The channel structure is based on a relatively large number (110000) rather diverse retail units. Additionally the industry is cyclic in demand as purchases are linked to new housing starts, consumer confidence and general economic conditions. Nationally, consumers spend approximately 1% of disposable income on furniture of all types.
What is Morgantown's relative position within that industry?
    With $75000000 in annual sales, Morgantown is small relative to the whole (.75 of 1% market share) but such be considered of reasonable intermediate size. (.0075 share isn't bad when the biggest players aren' t over .05 share; or alternately stated, $75 million in sales is quite respectable in an industry where the average sales is $10 billion/1000 = $10 million.)

    Within this market, Morgan town pursues a selective distribution strategy (using only 1000 top-end department stores or independent furniture stores) and is unique in the level of service that it provides via its own sales force.

How would you describe the expected target market for Morgantown's products?
    Given the position Morgantown has taken within the market, you might reasonably expect the segment that is most attracted to their products to be economically up-scale, socially active and probably in or beyond the full-nest stage of the family life cycle.

What is the most probable decision process used by consumers of this type of product?
    Given our development of the information above, it seems fairly certain that potential customers would become involved in some form of extended decision making (as opposed to some truncated or routinized form of decision making). We can expect then that consumers will engage in active information search, formal conparisons of competing products on salient attributes and will resolve the choice in a joint fashion with one or more significant others.

    In structuring a complete response to this question we spent some time reviewing the assumed decision model (Problem Definition - Information Search - Evaluation of Alternatives - Purchase - Postpurchase Evaluation) and discuss briefly how the external factors and influences were represented in this case. These "other" considerations included:

    1. Personal influences
    2. Psychological influences
    3. Social influences
    4. Macro marketing efforts, and
    5. Other demand stimulating efforts
What are the most likely attributes that Morgantown's target market would feel were important in reaching a purchase decision?
How do you think that they (the attributes) might be ranked by this segment?
    We jointly developed a list of potential attributes for the assumed target audience. Actual labels varied somewhat but it seemed to be the consensus that aspects of style, design, quality, workmanship and compatibility with decor were at the top of the list and brand was at the bottom. Some disagreement arose regarding price but it seemed that the majority felt that given the involvement and risk that this segment would probably be less sensitive to price and would be willing "...to put what ever they could affort into assumed quality.

    The notion of the store's image or reputation didn't arise initially. Given some of the survey results it seemed that the particular store was of low importance to customers. The following statistics from the BH&G survey seemed to paint a different picture however:

    1. 63% indicated they needed help "putting it all together"
    2. 60% used furnture specialty stores or galleries
    3. 56% ranked Store Displays as either the 1st or 2nd Most Important influence in their choice of furniture
    4. 85% scored Highly Dependable Store as very important in their purchase decision
    It was noted that the most telling information regarding the importance of the store in furniture choice is revealed whenever a purchaser of a new piece of furniture shows it to a friend or neighbor the most often response is "Where did you get it?" The bottom line on this issue is the realization that within this market, brand awareness is very low, the purchase decision is complex, and it is the assistence gained within the store that most oftens determines purchase.

Given your definition of the product category, your expected segment and the assumed decision process described above, what role does information and information acquisition play in purchase behavior?
  1. Demand is stimulated during the problem recognition stage due to...
    • change in the family life cycle
    • change in financial status
    • a need for replacement
    • a need for change (novelty)

    Most often information acquisition is unintentional at this point and is effective only in tweaking the need for change. The primary vehicles here are life-style presentations in general readership magizines and even through popular TV series. These media make customers aware of what "is in" and by contrast the inappropriateness (in reference to changes in life cycle or financial status) of the customer's exisiting furiture.

  2. During the information search stage two main informational needs arise:
    • What is available? This need is met primarily by consumer advertising in shelter magazines and other media focused on the target
    • Where is it available? This need is met by store advertising, most notably, co-op ads.

    Obviously customers are seeking information here. The primary role of that information is to facilitate the discovery of readily available solutions to their needs. This is the simple who, where, why and when elements that are prevalent in basic journalism.

  3. The evaluation stage will generally be dominated by visits to stores for direct comparisons between competitive product offering on salient attributes. The initial screening is generally done by the partner that initiated the process. The final phase typically involves at least one store visit by all of the joint decision makers,

    Here is where the battle for "share of mind" is most contested. It is within the store where the comparative information on products is expected and most sought by the comsumers,

  4. The decision (to purchase, not to purchase at all or not to purchase with the information at hand and restart search) is made during the purchase phase. For the product category here it is assumed that...
    • one partner, generally the one initiating the process is influenced by the aestethics of style, color, compatibility with home decor, and
    • the other partner is influenced by economy, workmanship, the more objective features.
  5. Reassurance is required during the postpurchase stage.

    This is the often overlooked stage for information exchange. The risk associated with the purchase will evoke some degree of cognitive dissonance. The potential for repeat business is linked to purchase satisfaction. The role of information here is more than to relieve the post purchase anxiety, it is to facilitate the decision process at the next iteration.

What is the purpose of promotion in each of its component parts (advertising, both consumer and trade, sales promotion and personal selling) in the marketing of this product?
    Consumer advertising needs to establish the style parameters within the minds of consumers (especially for those who might be expected to initiate the process) and develop an initial "share-of-mind" (although it is doubtful that many intermediate to small manufacturers will be sucessful in establishing the brand recognitions necessary for mind-share). Trade advertising establishes direct linkages between a physical piece of furniture and the manufactures. The use if take-along brochures and other POP (point of purchase) materials gives a means of recalling and identifying a product (especially when the initial searching partner takes the preliminary selection back to the significant other(s)). Personal selling by the retail floor salespeople is to provide walk-in customers with the unique selling features of the various products that are offered by their store. The manufacturer's salespeople provide and train the store personnel in how to answer the customers' questions with a comparitive slant toward their products.
What are their hierarchcal importance?
  1. Personal selling
  2. Trade advertising
  3. Sales promotion
  4. Consumer advertising
With reference to personal selling, who "owns" the customer franchise? This assumes that there is agreement as to who is the customer and who is the "owner".
    For the company sales force - the company "owns" the franchise.
    For the Sales Reps - the Rep "owns" the franchise. At this point a comparison with beauticians was given.

What is the strategic implications that are apparent in this analysis?
    Morgantown needs to develop a heavy "Push" as opposed to "Pull" promotional strategy.

Given all of the foregoing, what objectives would you think are appropriate for Morgantown? What is the rank order of these objectives?
  1. Moving existing retail outlets to carrying Morgantown's full line is the most important goal. This is consistent wih a Penetration strategic focus.
  2. Maintaining the level of retail support is also Very important. This implies that Morgantown must improve call frequencies and/or length of calls.
  3. Morgantown must facilitate customer choice of their brand by providing customers with the information that they need at the proper time in the consumer decision process. Note that for this effort to be effective, Morgantown must have its products in the store and the store personnel must know how to present properly those products. That is why this objective is subordinate to numbers 1 and 2 above.
  4. Lastly Morgantown can opt to compete for mind-share by attempting to improve its brand image/awareness.

How might your communication objectives be translated into a reasonable budget for 1994?
    Given the existing "percent-of-expected-sales" allocation principal, Morgantown can expect to increase its promotional budget by only $112,500. That won't cover the addition of one new salesperson ($70000 + $50000 sales management costs). The "reasonable" approach is to budget according to the objectives. Thus at this point one would want to shift allocations away from consumer spending toward personal selling. It seems that the question of allocating $200000 extra to consumer advertising, rather than add additional salespeople, isn't even an issue. Morgantown needs to shift whatever funds that it can into greater alignment with the objectives cited above.

With regard to the Lea-Meadows line, what is the basic problem? What are the Pros and Cons with simply absorbing the line into the Morgantown line?
What are the specific sales management issues with the action described above?
How would this action effect the current selling effort for Morgantown's sales force?

What are the costs and benefits of adding company sales people versus using sales agents (for the Lea-Meadows line)?
What is the BEP between agents and company salespeole?

What are your recommendations regarding the structure of the personal selling function for Morgantown after the merger with Lea-Meadows?

The listings above are to provide structural assistance to your study. They are not attended to be inclusive of every item/topic that was presented in the lecture period.

Additional Study Questions and Drill Exercises
The priority objective for Morgantown is to achieve greater product line coverage from its retailers (have their retail outlets adopt a higher portion of their full line of wood furniture). Suppose that management becomes convinced that it should abandon its "percent-of-sales" method of budgeting in favor of an objective or "tasks" method of budgeting its promotional expenditures. Given the priority objective above, what informational needs would be required to develop a rational promotional budget?

The percent-of-sales method reflects an "earn-it-before-you-spend-it" logic. Suppose that logic were extended to the merger with Lea-Meadows in the following manner. Management reasons that they could take the money "already earned" in commissions currently paid to manufacturers reps and convert these to funds that could be used to hire additional company salespeople. (We are assuming that they elect to absorb the Lea-Meadows line into the Morgantown line.) Besides the commission savings, management identifies additional saving in the sales management costs that are eliminated by abolishing the Lea-Meadows line. Assume that these "earned" monies are sufficient enough to hire five new salespersons. Forgetting for the moment the problems associated with the held franchise, what is the expected impact on the sales management issues?