1. Procter & Gamble has become so concerned about the proliferation of private-label products that it has taken the extraordinary step of suing one of its own channel members that sells private labels as well as large volumes of P&G products. The firm in question, F&M Distributors Inc., operates over 100 drug stores. P&G claims that F&M’s private-label merchandise is designed and packaged to look almost identical to famous brand P&G products, such as Pantene Pro-V, Head & Shoulders, Secret, Sure and Noxema. P&G not only wants F&M to discontinue the sale of such copycat, private-label products, but seeks damages as well. P&G had initiated similar suits before against private-label imitators, but the targets of those lawsuits had been manufacturers of private-label merchandise rather than distributors of P&G products. Industry observers think P&G is taking quite a risk in suing its own channel members because they are unlikely to be enthusiastic sellers of P&G products after being sued by P&G.
What seems to be going on here in terms of private versus national brand competition and the role of independent distributors? Do you believe P&G is acting wisely in suing one of its own channel members? Explain why or why not.
2. A sales representative from a wholesaler of sporting goods called on a sporting goods retailer in the middle of the summer. The salesman was particularly fond of the new line of exercise equipment from a major manufacturer his company was now carrying. He went through his presentation of showing pictures, leaflets and catalogs for about 20 minutes. Finally, the store owner held up his hand as if to say “wait a minute” and said, “What’s the bottom line? How much can I make on this stuff? Normally we get 50 percent off list price on these products and I see from your catalog that most of your merchandise offers that. But the market around here is very competitive. Stores discount this stuff like crazy. I need 35 percent gross margin to pay my expenses and make a profit. How can I be sure this merchandise will measure up?” What would be your response to the store owner? Present an argument that would address his concerns on gross margins
3. Retail carpet dealers are in an industry that is deluged with manufacturers’ push promotions on an almost daily basis, making it difficult for any particular carpet manufacturer to attract retailers’ attention with promotional programs. So when Mohawk Industries, one of the largest U.S. carpet manufacturers, launched a sales incentive pro- gram to push its DuPont Stainmaster carpets, it focused directly on the retailers’ salespeople. To initially attract their attention, Mohawk de- veloped a customized rock CD labeled Mohawk Rocks and a poster that explained the details of the program. The actual awards for meeting specified levels of sales of the Stainmaster carpets were in the form of merchandise and free travel—typical perks for such programs. But the response to this incentive campaign was unusu- ally high. Mohawk believes that the CD and poster provided a special touch that helped to make this essentially standard manufacturer sales incentive promotional campaign stand out from the crowd. Many salespeople, after glancing at the poster, could not resist giving a listen to the CD, and once they did, Mohawk’s promotion made it onto their “radar screens.”
4. Discuss the challenge of making sales con- tests and incentives aimed at channel members interesting and attractive enough to achieve a high level of participation. Farouk Systems Inc. is a manufacturer of high quality, hand-held hair care products such as hair dryers, hair irons and professional quality shampoos and hair colorings. The company has annual sales volume in excess of $1 billion and sells its products in over 100 countries. But what is unusual about this company is that in spite of its vast and diversified customer base spanning much of the globe, all of Farouk Systems manufacturing is done in the U.S. at a large fac- tory in Houston, Texas. The company had done some manufacturing in China but decided to discontinue this overseas manufacturing to con- solidate all manufacturing in Houston. Farouk Systems believes that not only will product quality be enhanced by not outsourcing produc- tion, but inventory costs will be substantially less than if products were produced in multiple overseas locations.Do you agree with Farouk Systems’s strat- egy? Can you make a case for confining produc- tion to just one home plant even though products must be supplied to customers in over one hun- dred countries around the world?
5. Midas Inc., best known for its automobile muffler repair business, provides its products and ser- vices through hundreds of franchised dealers throughout the U.S. Although Midas offers other auto services, such as brake replacement and suspension system repair, mufflers still account for the majority of the firm’s sales. Perhaps the most important reason for this is Midas’s famous lifetime warranty on its mufflers. Consumers who have their muffler replaced at a Midas dealer are entitled to a free replacement if anything goes wrong or even if the muffler wears out for as long as the customer owns the car. Midas has tradi- tionally relied on the honor system where the dealer’s word alone was sufficient to get credit from Midas for muffler replacements under the warranty. But Midas wants to change this system to a more stringent one requiring dealers to return the replaced mufflers to verify that they are indeed defective or worn out. The dealers are up in arms about the new policy because they think it will limit their flexibility in dealing with their customers and thereby undermine goodwill.
What do you think might have triggered Midas’s new policy? Do you think the new policy will affect dealer behavior? If so, how?
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