Case analysis

Case Write-up Pyramid Door MKT-412B Kanhai Parekh 4-1-2015

Pyramid Door, Inc. is a privately owned organization that has set itself up to be a regional manufacturer of both residential and commercial garage doors, as well as a supplier for all the related cables, rollers and tracks for its products. The company manufactures insulated and non-insulated steel lightweight garage doors, and has the capacity to be a small regional manufacturer to occupy 2.6% of the total market share of the garage door industry. Its designated target market seems to be households and commercial enterprises who are renovating their properties and replacing older wooden garage doors with these lightweight steel ones. Pyramid Door manufactures its garage door units and distributes them from either of its two storage and distribution centers that delivers each garage unit to its dealers, which all cater to 11 states around the Rocky Mountains, as well as north and west Texas. Pyramid Door, Inc. has 10 years of experience in the company, long enough to create long lasting relationships with the 350 dealers that carry its product, who also deliver, install and service garage door units from their respective individual locations.

Pyramid Door, Inc. made a net profit of $460,000 in 2005, with net sales at $9.2 million. Its primary objectives for 2006 were to increase its net sales by 36% to $12.5 million, to increase brand awareness and market share to 3.63% in 2006. The key to reaching this goal was to develop brand equity and to reorganize and revitalize its distribution strategy, and by doing so, Pyramid door can effectively increase its net sales. However, Pyramid must do so without sacrificing buyer requirements and the quality of goods and services.

The buyer requirements provide a good opportunity for Pyramid to accomplish its goal of developing a good and well-known name within the garage door industry. Survey results from 2005 indicate that a strong majority of consumers are indifferent to what brand they purchase their garage doors from, and cannot recall manufacturer’s names. However, primary buyer requirements were the price, quality, and installation services that complimented a purchase. Increasing Yellow Pages and newspaper advertising of Pyramid Door, Inc.’s products and associated dealers would increase brand equity, as they are the most frequented or expected marketing platforms.

The current distribution model of Pyramid Door, Inc. consists of 300 independent dealers overseen by 8 sales representatives and 50 exclusive dealers overseen by 2 sales representatives. It tends to focus on exclusive dealers, who represent 70% of their sales, with 30% represented by the independent dealers. Consider that SGA costs remain the same, and the only incremental cost is additional sales representatives. To reach the target of $12.5 million in sales, we must make projections based on scenarios in relation to the current income statement. This means, we will have to assume that COGS is 75% of Net Sales, and Gross Profit is 25%. Also, we know the current average sale for each independent dealer is $9200, and $128000 for exclusive dealers. From this we can derive the average gross profit for independent and exclusive dealers, which is $2300, and $32200 respectively. Using this information we can further go on to project the financial data for the 3 following options; 1) to add 100 independent dealers, 2) to franchise 27 independent dealers, 3) to reduce 100 independent dealers.

Looking at option 1, adding 100 independent dealers increases the number of sales reps required to 13, and hence decreasing the overall gross profit, but this seems to be a safe strategy for the long run, as it falls short with net sales only amounting to $10.12 million. Option 3 shifts the focus towards exclusive dealers by reducing the number of independent dealers by 100. Although this reduces the number of sales representatives required, increasing gross profits, it has a very negative impact on sales, as they fall short at $8.28 million

Shifting the focus towards exclusive dealers even further, option 2, franchising 27 of the existing independent dealers, appears to be the most lucrative, as its net sales amount to $12.43 million, just about reaching the net sales goal.. Also, there are no costs for hiring extra sales reps, and there is a possibility to earn franchise fees from the new exclusive dealers. These new exclusive dealers will truly benefit Pyramid Door, Inc. as they will be more effective in increasing the brand equity, and better informing its potential customers of products and services.

In conclusion, Pyramid Door, Inc. should go with option 2, as it seems like the most effective and efficient strategy to accomplish its sales goal and to increase its market share within a year.

Appendix: Working Microsoft Excel tables, including formula.