Recently, Carrington Furniture has acquired an upholstery company, Lea Meadows, Inc. With the merger, the company faces a problem: what sales technique to utilize for the future of Lea Meadows. The company is faced with the choice of the current sales agents or implementing a dedicated sales force similar to the one in place at Carrington. With the current constraints, the company needs to decide which way to sell Lea Meadow's upholstery products in a way to ensure that the company will continue to demonstrate a 7% growth, without affecting the current sales of either company.
Carrington Furniture can either impose no changes within Lea Meadows, allowing the company to continue to utilize sales agents or they can change the company's sales techniques. If they choose to change the sales techniques, they can either absorb the upholstery company's accounts and use the current sales force or hire a new sales force to operate only within Lea Meadows.
We have chosen to replace the sales agents of Lea Meadows with a new sales force similar to Carrington Furniture This will allow us cut sales costs, while focusing on pushing the product independently of the case goods. While this may increase competition from the sales agents, it enhances the control and brand image of the company ("Carrington Furniture") for future growth.
Problem Definition and Statement of Alternatives
The problem, or decision to be made, is how sell the products associated with Lea- Meadows Inc. More specifically, how can we minimize selling costs, either through a dedicated sales force or sales agents, in order to maintain a 7% growth rate of Lea- Meadows, Inc. subject to the constraints that it (1) does not damage sales of Carrington Furniture, Inc. and (2) does not damage the sales of Lea-Meadows.
The decision objective is to implement a plan for sales representatives for Lea-Meadows Inc. that minimizes selling costs for Carrington Furniture, Inc.
The question that must be asked in order to measure the success of the objective is, "what strategy must Carrington Furniture implement to achieve the objective?" In order to answer this question, the company must ascertain the use of Sales Agents or a dedicated sales force in order to reduce the total amount of revenue paid for sales and maintaining a 7% expected growth rate
The constraints include creating a sales strategy that does not damage the sales of Carrington Furniture, Inc, while creating a sales strategy that does not damage the sales of Lea- Meadows, Inc. Other constraints include conflicts with the buyer due to relation with agent versus brand loyalty and terminating Mr. Moorman.
Alternative Courses of Action
There are some factors that affect which alternative is chosen. These include the number of competitors in the furniture market, the number of competitors in the upholstery market, a change in the consumer spending habits concerning upholstery goods, a change in consumer habits of case goods, and a negative or positive turn in the economy.
Analysis of Alternatives
An analysis of the alternatives available to Steve Bates at Carrington Furniture will determine avenue the company should take in regards to selling the products of Lea-Meadows, Inc. The current alternatives are: (1) Leave Lea-Meadows' current sales department alone, (2) Give the Lea-Meadows Account to Carrington Furniture sales force, (3) Hire a new sales force to sell the Lea-Meadow products.
Alternative #1: Leave Lea-Meadows' current sales department alone.
The first alternative centers around leaving Lea Meadows alone and in its current state. This means the company will continue to utilize sales agents to push its' products in the market. The advantages of the use of sales agents for Lea Meadows include lower costs for the company. There are no fixed costs and no base salaries associated with sales agents and all sales are variable. With sales agents, the company also has the ability to utilize trained sales representatives without having to implement a training program, and the ability to generate a constant 7% growth rate each year. Additionally, If Lea-Meadows utilizes sales agents in lieu or forming a dedicated sales force, they will not have to compete with the agents. Sales agents have a already have a relationship with the customer. In addition, the company would keep Mr. Moorman, which has substantial contacts within the upholstery industry. Once acquired by Carrington Furniture, however, sales agents are more costly than a dedicated sales force. The company had net sales in the amount of $5 million in 2002. Based on cost vs. volume comparison any sales in excess of 1.55 million should utilize a sales force. At this point, the company may be losing profit potential if they continue to utilize sales agents. In addition, the company has no control over the allocation of time or the implemented strategy used by the sales agents for the products of Lea Meadows. In order to ease the transition of both companies, certain strategies may be needed to ensure the future success of Carrington and Lea Meadows. Under this alternative, which is the current situation, the total sales cost is $6,950,000, which represents 9% of total sales .
Alternative #2: Give Lea- Meadows' sales account to Carrington Sales Force
Under alternative 2, the dedicated sales force for Carrington Furniture will take on the accounts currently operated by the sales agents of Lea Meadows. To ascertain the optimal amount of additional hires to the Carrington sales force needed, we have used the number of sales people (NS) equation . Based on the amount of time currently spent by sales agents on Lea Meadows products, 15%, we would need 2.5, or 3 additional sales representatives in order to take on the amount currently allotted for sales of the company's products. Advantages to this alternative include the fact that the Carrington Sales force already knows many of the buyers of upholstered furniture. This gives them the unique ability to sell to both markets. Additionally, the increased number of sales representatives will decrease the limited burden associated with Carrington taking on the new line. Other advantages include more control over sales, more efficiently, and overall continuity of the sales representatives. Nevertheless, increasing the amount of time the Carrington sales force devotes on the upholstery line combined with sales representatives representing both lines could potentially affect the current sales of Carrington Furniture. For example, upholstery and/or case good buyers may not be able to separate the buying process of the two company's products, which may create an "all or nothing" approach. This could negatively impact sales of one or both companies. Under this alternative, the total sales cost is $5,785,000, which represents 7% of total sales .
Alternative # 3: Hire new sales force for Lea- Meadows
The third alternative focuses around hiring a dedicated sales force to replace the current sales agents for Lea Meadows. Based on the NC equation we used in alternative 2, alternative 3 focuses on hiring 3 additional sales representatives that will be utilized for the sole purposes of selling the Lea Meadows upholstery products. These 3 hires will act as the sales force for Lea Meadows and will receive the same salary and commission as the sales force for Carrington Furniture. Under this scenario, the entire sales force (13 people) will receive a commission based on the combined sum of Lea Meadow and Carrington Furniture net sales. The advantages of this scenario include the independence of the sales cycle for each market, as well as eliminating the "all for one" problem. Additionally, sales representative will be able to focus solely on the market they are selling in, which allows for greater interpersonal relationship building and ability to push one specific product type. Nevertheless, this strategy forces the company to compete with sales agents who have previously represented the company in the same market. This could potentially increase the resistance of retailers to adopt the product unless relationships are built. Under this alternative, the total sales cost is $5,900,000, which represents 7% of total sales and a salary cost savings of approximately $1 million .
After an analysis of the states of nature, possibilities, and expected costs of each alternative, we have chosen to hire a dedicated sales force to push the products manufactured by Lea Meadows in lieu of sales agents.
Carrington has some small restructuring associated with Lea Meadows furniture. We used the equation on pg 277 to decide how many extra representatives on the sales force would need to handle the additional sales times:
NS=NC x FC x LC
Based on the above equation, the Carrington sales force would need to add three more people to handle the extra burden of the Lea Meadows department. However, rather than the sales representatives selling both lines, the three additions to the sales force will only handle the Lea meadows upholstered furniture accounts. These people will be hired at the same salary + commission plan as the sales force representatives that deal with the original Carrington products.
Since the new hires will only be responsible for the Meadows accounts, they can focus their time on learning the "fabric jargon" and pushing the many combinations the Meadows upholstered line offers.
The new sales force will utilize the existing contacts of Carrington to penetrate the market once dominated by the sales agents. The Meadows line will also benefit from the synergistic effects of being associated with the established and well-respected Carrington sales force.
Finally, Carrington can combine advertising efforts that show Carrington furniture with the newly acquired Meadows upholstered line. This increases visibility of the new line and shows the compatibility of both Carrington lines.