Robert Mallard

5/04/2011

Palladium Door, Inc.

Palladium Door, Inc is a privately owned regional manufacturer of commercial and residential garage doors whose projected total sales for 2003 would reach $9.2 million and achieve net income of $460,000. Palladium produces insolated and non insulated garage doors, and supplies various parts for its products. Palladium attributes the majority of its sales volume to homeowners replacing their original garage doors with Palladium doors during remodeling and commercial garage door replacements. Palladium distributes its merchandise through 300 independent dealers(who sell other brands of doors as well as Palladium products) and 50 exclusive dealers(who sell only Palladium products) who all sell, install, and service doors. The non exclusive dealers sell Palladium, Overhead Door, and Chamberlain merchandise. These dealers operate in 150 markets in 11 western and Rocky Mountain states as well as parts of Texas while the exclusive dealers only operate in 50 markets. The exclusive dealers are seen as the most consistent sales people. Palladium operates out of 2 distribution centers located near most dealers and this close proximity between dealers and the distribution centers allows for quick delivery of merchandise.

Industry
In 2003 the residential garage door market was expected to post sales of $2 billion with steel garage doors accounting for 90% of the sales. As houses in the United States have aged homeowners have switched from wooden garage doors to steel doors which are easier to maintain, lighter in weight, safer, and more innovative. Remodeling and replacement garage doors represent a majority of industry sales with sales for 2004 expected to reach $2.05 billion. In the US garage door market there are dozens of manufacturers on the national, regional, and local levels. Clopay Corporation, the largest manufacturer in the US, has sales which surpass the $400 million mark. Clopay sells its products through 2,000 independent dealers and retailers including; Home Depot, Menards, and Lowes.

Survey
In a survey conducted with 3,000 potential garage door buyers in 25 cities only 10% of those surveyed could name a brand of garage doors and they stated that price,

quality, reliability of the installer, and aesthetic appeal of the door are what matters the most to them when choosing a door to purchase. When it comes to attaining information on purchasing a new garage door, friends and family are the most popular source of information. 30% of prospective door buyers expected to receive at least two bids on a residential garage door instillation and 15% of buyers would install their own doors. Analysis also showed that 3,002 independent dealers made $316.8 million in sales of steel garage doors and $31.7 million in sales of replacement doors. Dealers that sell three different brands of garage doors tend to make 60% of their sales with the dominant brand, 30% of sales with the second brand, and 10% of sales with the third brand. These figures show that Palladium sales only comprise 2.6% of the market.

Distribution Strategy Issue

In 2003 Palladium executives set a sales goal of $12.5 million for 2004 which was an increase of 36% over the estimated 2003 year-end sales. However some executives believe the current distribution network must be reassessed and possibly redesigned if such lofty goals were to be met. In the past ten years Palladium sales exceeded the growth rate of the industry and added an additional 50 dealers to its sales force. The new goal is driven by supply considerations and the belief that Palladium needs to attain higher sales volume to preserve its relationship with its suppliers. Executives have also resolved to spend more funds on promotion and advertising and have increased the budget by 20%. Palladium will use these additional funds to market their products and services in the 100 highest-potential markets(50 markets are served by exclusive agents) currently served by Palladium. The other markets will continue to receive the same funding for marketing as

in 2003. There is also the idea that to reach the proposed sales goal there must be an increase in the number of dealers. If Palladium follows the industry trend of of 2.4% growth they would need 100 more dealers to reach their 2004 sales goal. If dealers were to be added they would be nonexclusive dealers and serve 100 new markets. The only downside that adding dealers has is that each new dealer would represent a $80,000 per year cost and that such an expansion would be more profitable in the long run rather than short run. Another option posed by 27 nonexclusive dealers is a formal exclusive franchise program in which these dealers who work in high potential markets would start to sell Palladium doors exclusively for a franchise fee. In exchange for the dealers stocking, installing, and servicing Palladium products exclusively Palladium would drop the current dealers in their markets. This plan could be implemented in the first quarter of 2004. This plan would give advertising priority to the new franchise markets, the 50 other exclusive dealer markets, and 23 other high potential markets. The final proposed plan would cut the number of nonexclusive dealers. Analysis shows that the 50 exclusive dealers account for 70% of Palladiums sales. Executives believe that if more time was given to fewer dealers than sales and effort would increase. This plan would decrease the number of dealers from 350 to 250 in the current markets served by Palladium.

SWOT Analysis for Palladium Doors, Inc.

Strengths
Palladium is a relative financial success with 2003 revenues reaching $9,200,000 and profit reaching $460,00. 350 dealers comprised of 300 independent dealers and 50 exclusive dealers. Palladium dealers operate in 150 markets with populations of 250,000 or less. Palladium operates 2 distribution centers Palladiums 50 exclusive dealers account for 70% of Palladiums sales.

Weaknesses
Many consumers do not know the Palladium Door brand. Palladium is much smaller than it largest competitors and it does not have a national reach. Palladiums 300 independent contractors account for only 30% of Palladiums total sales.

Opportunities
There are many markets that Palladium has yet to enter. Palladium could use franchise dealers to replace independent dealers. Palladium could increase its marketing budget to reach new consumers. Cutting the amount of nonexclusive dealers could help to cut costs and allow exclusive dealers to achieve more sales.

Threats
With a weak economy consumers may see a new garage door as not necessary.

Palladiums Current Distribution Network and Performance

I would characterize Palladiums current distribution network and performance as very good but with room for improvement. In 2003 Palladium had sales of $9,200,000 and profit of $460,000. Currently Palladium is not making a huge profit but it is a profit nonetheless and that is certainly something Palladium Executives should be happy about. If Palladium executives aim to increase sales by 26% and reach a total sales goal of $12.5 million something must be changed.

At this time Palladium has 300 independent dealers and 50 exclusive dealers active in 150 markets across western states, rocky mountain states, and parts of Texas. Within a close proximity to these 150 markets are 2 distribution centers allowing dealers quick acces to Palladium merchandise. Palladium also has a distribution center located at its manufacturing plant.

Overall I would describe Palladium as a very successful regional manufacturer and dealer of garage doors and parts. Palladium continues to achieve relatively large profits and has very ambitious executives. There is a lot of room to grow its reach and distribution capabilities. Palladium Door, Inc. is a solid company.

Pros and Cons of Distribution Initiatives and Promotion Plan

Advertising and Promotion Increase

Palladium executives have agreed that the promotion and advertising budget must be increased by 20% for 2004. This marketing increase would be used in Palladiums 100 highest potential markets. 50 of the markets are served by executive dealers and 50 are served by independent dealers. Promotional support will be cooperative advertising allowances for Yellow Pages advertising. I really see no cons in increasing the marketing budget. Palladium needs to reach more consumers and increasing the budget seems like a good way to increase consumer awareness. From what I can gather the only possible con to increasing the budget is that whatever money Palladium spends on marketing can not be invested into distribution.

Some executives feel that an increase in dealers could help to reach sales goals for 2004. Executives feel that with the number of existing dealers it will be difficult to meet 2004s high sales goals. Specifically executives would like to add 100 nonexclusive dealers to markets not currently served by exclusive dealers. This plans negatives include issues such as the difficulties in recruiting the 100 dealers and the fact that this plan is more effective in the long run then the short term. Adding 100 new dealers would also cost $800,000 but this cost could be outweighed by a return in the long run.

Another suggestion is the establishment of an exclusive franchise program. In 2002, 27 independent dealers who each represented different high potential markets proposed this option. These dealers would sell Palladium merchandise exclusively for a franchise fee. Palladium would drop other dealers in these markets. The positives of this plan far outweigh the negatives as the 50 other exclusive dealer would not be

effected, 23 other high potential markets would receive additional marketing, and the plan could be implemented in 90 days. This program would also reduce the amount of underperforming independent dealers.

The third option would reduce the total number of nonexclusive dealers. This would have many positives as the 50 exclusive dealers made 70% of Palladiums sales. Palladium would also save money by no longer having to pay dealers who under perform. This reduction could however limit the amount of consumer Palladium reaches and put more pressure on dealers to perform.

There is a fourth and final option that calls for no change. This is positive in that Palladium is doing well with their current strategy but negative in that it is impossible to reach their new sales goal with no change.

Have a good summer.