I. cars, the highest volume of new car registrations

I.       
Introduction

A.      Jolson automotive Hoists is a Canadian company established in
1991, who creates automotive hoists. In 1996, Jolson signed with a U.S.
wholesaler. Sales for 1991 were $172,500 and climbed to $9,708,000 in 1999,
which 60% of sales were in the U.S. and 40% were in Canada. 85% of sales were
to wheel alignment garages. The price of a lift ranges from $3,000 to $5,000.

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The industry of automotive hoists is separated into
in-ground hoists and surface hoists. In-ground hoists make up 21% of North
American sales and surface lifts make up 79% of North American sales. There are
twelve competing firms in the U.S. and four in Canada, making 16 firms in the
hoist market. Jolson Automotive is best known in the wheel alignment market,
where they developed a position of selling a quality product with good service.
Their sales team consists of four people, which sold 1,054 lifts in 1999, and
the company spent .07% of sales on advertising.

 

After conducting research, Jolson found that Germany,
compared to other European countries, obtains more cars, the highest volume of
new car registrations and population, and only has one other firm producing a
scissor lift. The U.K., France, and Italy are other countries, which holds
opportunities that Jolson could capitalize on for expansion. Establishing a
European factory could cost $1,836,000.

 

B.      Problem Statement

Mark Jolson needs to decide for a market penetration
strategy or market development strategy, as well as maintaining their percent
sales growth without compromising product quality and safety.

 

II.    
Analysis
and Evaluation

·     
Time of Implementation

·     
Profitability/Cost accounting

·     
Consistency with current
corporate strategy

·     
Acceptability with management

·     
Maximizing growth potential

·     
Maintaining product quality

 

III.  
Strategic
Alternatives (Advantages/Disadvantages)

 

Alternative A: Penetrate U.S. Market

 

Option 1: Establish a U.S. Sales Office

 

Advantages:

The U.S. market has high probability to raise sales. Jolson earns one hundred percent of the average selling price
($10,990) because there are no commissions. The
Canadian based four person sales team have proven success and account for nearly 25% of unit sales or 263 units each year.
Each additional salesperson is estimated to sell 53
units a year and has the possibility to earn $522,470 profit each year. Ultimately,
there is a large potential for sales in the U.S.
because of population size and high amount of registered cars.

 

Disadvantages:

The wholesaler may not be inclined to forgo any territory and the change
could cause friction in the relationship. The
cost to establish the sales office is not estimated.

 

Option
2: Encourage U.S. wholesaler to focus selling Jolson products

 

Advantages:

 There is a limited financial
risk and no considerable changes needed in Jolson’s marketing strategy.

Disadvantages:

Without incentives, the wholesalers may not be motivated to
prioritize the sale of Jolson products over other brand’s products, so there is
a potential financial investment to incentivize the wholesaler. Also, the Jolson
Automotive only earns 78% of the product selling price or $8,752.

 

Alternative
B: Enter European Market

 

Advantages:

The EU market holds a substantial market with no dominating hoist
manufacturer, and the ability to distribute from one facility to all EU
countries with no external fees. Exhibits 2a and 2b show the potential of units
to be sold and potential sales for each country. Total potential units sold in
the European Union is 978 with total potential sales of $8,272,000 (Exhibit
2a/2b).

Disadvantages:

Jolson Automotive will have to change to new business environment,
cultures, customs, and international law. Also, sales estimates are based upon
limited information, and there is minimal information regarding competitors,
therefore decision making may be stressful and less confident.

 

Option
1: Licensing

Advantage:

Jolson Automotive
Hoist will have limited financial risk to enter European market on a licensing agreement.
Exhibit 3 shows the substantial potential earnings for each county.

Disadvantage

Jolson Automotive Hoist will have to sell the manufacturing rights
of their products and this will hold a potential for compromise of the safety features
which Jolson built their reputation upon. Accompanying these disadvantages,
Jolson will only earn 5% of gross sales.

 

Option
2: Joint Venture

 

Advantages:

Jolson Automotive
Hoist will have limited financial risk to enter European market on a joint
venture. A joint venture will allow Jolson to partner with an established
European firm. Jolson will have contributing say in the manufacturing of lifts
and hoists. Exhibit 4 shows the potential earning for each country in the EU
market. Jolson will receive 50% of these sales.

Disadvantages:

Jolson
Automotive will have to divide manufacturing process with the partner company. This
disadvantage holds a potential for compromise of the safety features which Jolson
built their reputation upon. Jolson Automotive only receives 50% of sales due
to joint venture agreement.

 

Option
3: Direct Investment

Advantages:

In the direct investment option, Jolson Automotive Hoists can continue
being in control of manufacturing processes. This option has an achievable
break even, roughly at 116.7 units sold (Exhibit 5). Jolson would earn 100% of
sales which are listed in Exhibit 2a/2b.

Disadvantages:

This option will need a greater financial investment, which always
has a greater risk. Exhibit 6 shows the cost for Jolson Automotive to establish
a manufacturing facility in Germany, which is $1,530,00. Direct Investment will
cause Jolson to have to adjust to a new business environment and law, which can
be timely, tiresome, troubling, and costly.

 

Alternative
C: Status Quo

Advantages:

Maintaining
status quo does not need a change in the Jolson Automotive Hoist marketing
strategy and it has limited financial risk due to no need for an additional
investment. Also, there is a likely organic increase in sales due to increases
in demand in scissor style hoists (Exhibit 8a/8b).

Disadvantages:

Although there is an increase in demand for scissor hoists,
maintaining status quo has no active pursuant to increase sales.

 

IV.  
Analysis and
Evaluation of Alternatives

 

Mark Jolson’s problem is whether to enter the EU market or pursue
sales in the U.S. market. The North American market is dominated by two
companies who obtain 60% of sales, AHV and Berne Manufacturing. Although
Jolson, merely obtains a 2.15% market share, demand has been increasing for a
safer type of hoists he specializes in, scissor hoists. Therefore, Jolson has
to determine to pursue the North American markets, or seek potential in the
European Market.

 

Jolson should establish a sales office in the U.S.,
as he and his marketing manager feel that it has unrealized potential. This is
a profitable decision because in the U.S. market, each additional salesperson
can be estimated to sell an added 53 units a year (Exhibit 7a). Additional salesperson has the potential earn a profit of
$522,470 each year (Exhibit 7b). The New
York sales office only needs a team of 16 to match the profit potential in the
EU market ($8,272,000 EU profit). The EU market will need 19 salespeople to hit
projected sales (Exhibit 2a/2b). According to the population (264
million) and amount of registered vehicles (146 million), the market in the
U.S. can support well over 16 salespeople, allowing for a higher profitability
in the U.S. market rather than the EU market. Encouraging the wholesaler to
prioritize the sale of Jolson hoists is not aggressive enough of a strategy to
alignment with the company’s marketing strategies. Although the risks are
minimal, this idea’s growth trend is slow and not substantial enough. Also the
wholesaler may need a monetary incentive to sell more Jolson lifts. This would
not be worth the investment because Jolson only receives 78% of the product
selling price or $8,752, when a sales team allows 100% of selling price.

 

Entering the European market is another good idea to solve the problem.
There is a large potential market and no dominant competition, as well as potential
total sales of $8,272,000 (Exhibit 2a/2b). Licensing has limited financial risk
to enter European market, as Exhibit 3 shows the potential earnings. But Jolson
Automotive will have to sell their manufacturing rights of their products. This
then arises the potential for compromise of safety features and tarnish
Jolson’s reputation. A licensing agreement only gives Jolson 5% of gross sales.
A joint-venture also has limited financial risk and also a slightly safer
decision as Jolson will work with an established European company. Jolson
Automotive will also receive 50% of sales, compared to 5% with a licensing
agreement, and have high potential earning as shown in Exhibit 4. But Jolson
will have to share the manufacturing procedure which may compromise product
quality and disrupt the Jolson reputation. Also, Jolson only receives 50% of
sales which is significantly less than profits from a U.S. sales office. With
the direct investment option, Jolson can remain in complete control of
manufacturing while receiving 100% of sales. Also, break-even is accomplished
with an easily obtained 116.7 units sold (Exhibit 5) and Jolson still has the
potential sales of $8,272,000 in the European market. But this option takes a
large financial investment. For example, the cost to establish a manufacturing
facility in Germany is $1,530,000 (Exhibit 6). This large investment is also
accompanied by a vast array of uncertainties in an unfamiliar market
environment with little information on the competition.

 

Although there is great potential, there is a high amount of
unknown information, which may allow large and costly problems to arise and diminish
profit margins, as well as creating an extremely difficult process to tangibly
establish their firm in the market. Many new hires will be needed and new
organizational communication process will need to be established. Deciphering
cultural and language barriers with employees and also customers will also be
an issue.

 

Maintaining status quo for Jolson Automotive is a very safe option which
requires little to no changes. There is no additional risk or changes in
marketing strategy. With the increase in demand for scissor style hoists, a
sales increase will also follow. Although this option is safe it also holds the
least amount of growth because there is no active increase in sales. The demand
for scissor style hoists will eventually level as other firms fill the demand.

 

V.     
Recommendation
and Implementation

 

A.      
Recommendation:
Establish a Sales office in New York to increase U.S. sales

 

Reasoning:

·     
Jolson trusts that there is a large potential
for U.S. sales growth because the U.S. has 264 million people and 146 million
registered vehicles. Jolson should exhaust their current market before
expanding.

·     
Jolson Automotive can fund a new sales office,
considering that Jolson is debating on a direct investment option in Europe. Since,
a sales office will use less funds, Jolson Hoist establish a sales office in New
York.

·     
The demand for safer hoists is growing in the
U.S. so Jolson should capitalize off this demand because their reputation is
based upon a quality and safe product. Statistics show that in 1998-1999,
scissor hoists sales substantially increased compared to other style hoists
(Exhibit 8a/8b). The demand for this hoists will continue to grow as word of
its superiority spreads.

·     
Establishing a sales office limits risk. Jolson
can oversee its production and quality control. The European markets have too
many unknown variables, and foreign culture, policies, and laws to adapt to,
whilst sharing revenues with other firm.

·     
The sales team will take the place of the
current wholesaler who does not sell enough Jolson hoists. The whole sales team
will out sell one wholesaler who does not solely focus on Jolson hoists.

·     
The new sales office will provide one-hundred
percent of sales versus the 78% of sales received from the wholesaler.  

 

B.      
Implementation

A
first step to implement the recommendation for managers to develop a proven sales
strategy based upon the Jolson Hoists marketing and product mix. Next is to
begin hiring for the sales force. This should be accomplished (2 months).
Therefore, recruiters and hiring managers need to be sourcing new employees, decide
the sales persons’ territories, hire an office administrator or secretary, as
well as establish a sales manager for the office. Simultaneously, an office
space needs to be sourced (2 months). The office space can be funded with the capital
which was to be used for direct investment in Germany, so the next step is to
communicate with accounting to obtain the funds. Next, the office space needs
to be adequately furnished so business can be conducted. Managers will then
need to find leads for the sales team to pursue to get them off the ground. Managers
also need to determine if and who is going to be a traveling sales person or if
sales will be conducted solely from the office. If traveling sales team, then
company cars need to be purchased. Advertising and marketing plans are implemented
and analyzed (6 months – 1 year). From year 1 to 3 the new sales team’s
progress and growth needs to be analytically measured to insure company growth
is exceedingly greater than if it were to have expanded in the EU.

 

C.     
Exhibits

 

Exhibit 1

Hoist unit
sales growth and decline

 

1997

1998

1999

Sales

48,234

50,187

49,272

Sales Percent
Change

 

4.05%

-1.8%

 

 

Exhibit 2a:
Population to Sales Ratio

The U.S. population
to sales ratio is used and applied to calculate the potential sales in the EU.
The formula is sales divided by population and is as follows:

$5,824,800 /
264 million (population) = $.022 per person

 

The table below
shows the sales potential for the European countries by applying the U.S. population
ratio:

European
Region

Estimated
Sales (USD)

Estimated
Unit Sales

Germany

$1,806,200
($.022 x 82.1
million)

213
($.0000026 x
82.1 million)

France

$1,298,000
($.022 x 59
million)

153
($.0000026 x
59 million)

Italy

$1,247,400
($.022 x 56.7
million)

147
($.0000026 x
56.7 million)

United
Kingdom

$1,300,200
($.022 x 59.1
million)

154
($.0000026 x
59.1 million)

Spain

$862,400
($.022 x 39.2
million)

102
($.0000026 x
39.2 million)

Total EU

$8,272,000
($.022 x 376
million)

978
($.0000026 x
376 million)

 

 

Exhibit
2b: Units Sold to Sales Ratio

The
U.S. units sold to sales ratio is used and applied to calculate the potential
sales in the EU. The formula is units sold divided by population and is as
follows:

632
units / 264 million (population) = $.0000026 per person

 

The
table below shows the sales potential for the European countries by applying
the U.S. population ratio:

European
Region

Estimated
Sales (USD)

Estimated
Unit Sales

Germany

$1,768,000
($.040
x 44.2 million registered vehicles)

190
($.0000043
x 44.2 million population)

France

$1,316,000
($.040
x 32.9 million registered vehicles)

141
($.0000043
x 32.9 million population)

Italy

$1,436,000
($,040
x 35.9 million registered vehicles)

154
($.0000043
x 35.9 million population

United
Kingdom

$1,100,000
($.040
x 27.5 million registered vehicles)

118
($.0000043
x 27.5 million population)

Spain

$724,000
($.040
x 18.1 million registered vehicles)

78
($.0000043 x 18.1 million population)

 

Exhibit
3

Potential
sales gained through a licensing agreement.

European
Region

Jolson
Sales

Germany

$88,400
to $90,310
(.05
x $1,768,000 / .05 x $1,806,200)

France

$64,900
to $65,800
(.05
x $1,298,000 / .05 x $1,316,000)

Italy

$62,370
to $71,800
(.05
x $1,247,400 / .05 x $1,436,000)

United
Kingdom

$55,000
to $65,010
(.05
x $1,100,000 / .05 x $1,300,200)

Spain

$36,200
to $43,120
(.05
x $724,000 / .05 x 862,400)

 

Exhibit
4

Potential
sales gained through a joint-venture.

European
Region

Jolson Sales

Germany

$884,000 to $903,100
(.50 x $1,768,000 / .50 x $1,806,200)

France

$649,000 to $658,000
(.50 x $1,298,000 / .50 x $1,316,000)

Italy

$623,700 to $718,000
(.50 x $1,247,400 / .50 x $1,436,000)

United
Kingdom

$550,000 to $650,100
(.50 x $1,100,000 / .50 x $1,300,200)

Spain

$362,000
to $431,200
(.50
x $724,000 / .50 x $862,400)

 

Exhibit
5

Approximate
Break-Even (FC/P)

$200,000
+ $1,000,000 + $80,000 / $10,990 = 116.47 units

 

Exhibit
6

Capital
Investment

Dollar
Cost

Capital
Equipment

$250,000

Incremental
Costs

$200,000

Carrying
Cost

$1,000,000

Annual
Building Rent

$80,000

Total

$1,530,000

 

Exhibit 7a

Units sold per
salesperson:

Percent of
sales by sales team / number of salespeople = percent of unit sales per sales
person

25% / 5
salespeople = 5% unit sales per salesperson

There were
1,054 total units sold.

5% x 1,054
units = 52.7

Therefore, a
salesperson sells approximately 53 units per year.

 

Exhibit 7b

Profit per
salesperson

Price x units
sold per sales person less salesperson salary = profit per salesperson

Calculation

 

$10,990

Price

x 53 units

Units sold
per salesperson

= $582,470

Total in
sales

–      
$60,000

Salary
($240,000 / 4=60,000)

= $522,470

Profit per
salesperson

 

Exhibit
8a

Table
shows decline in demand of In-Ground hoist.

In-Ground
Hoist

1997

1998

1999

Sales

10,697

12,397

10,593

Sales
Percent Change

 

15.89%

-14.55%

 

Exhibit
8b

Table
shows increase in demand for scissor type hoists.

Surface
Hoist

1997

1998

1999

Sales

2,170

2,258

2,316

Sales
Percent Change

 

4.06%

2.6%%