Best Brand Lighting, Inc.
Best Brand Lighting Inc. (BBL) manufactures lighting fixtures. The two major markets for BBL products are major retailers, including Home Depot, Wal-Mart, and Kmart, and specialty lighting stores. The former sell primarily to homeowners, and the latter primarily to electrical contractors.
Although its standard sizes and models typically are sold to the large retailers, BBL sells its products with more specialized features and sizes only to the specialty stores. Thus, the design and manufacturing costs of the products going to the specialty stores are slightly higher. The products in both markets have similar sales life cycles of about two years.
Because of the difference in consumers, BBL has a larger marketing cost for the products sold to the large retailers-advertising in major media to attract homeowners. In contrast, the marketing for the spe- cialty shops consists mainly of catalogs and advertisements in trade publications resulting in a lower overall marketing cost. The sales policies also differ somewhat for the two markets. Sales to specialty stores are priced higher but include significant discounts and attractive return policies. In contrast, sales to the major retailers have restrictive return policies and offer little, if any, discount.
BBL management is interested in an in-depth analysis of the profitability of its two markets. As a first step, it has asked for the average costs and other data for all BBL products:
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Major Retailers
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Specialty Stores
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Design costs
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$ 0.80
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$ 1.10
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Manufacturing costs
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5.20
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5.90
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Marketing costs
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0.95
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0.10
|
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Returns
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0.05
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0.95
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Discounts
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0.10
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0.95
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Average price
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10.55
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12.50
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Total market ($000) in BBL's sales region
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188,000
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32,000
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Current unit sales ($000)
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9,200
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8,000
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Required: Using the methods discussed in this chapter, analyze BBL's two market segments. What questions would you want to ask management and which fact-finding studies would be appropriate to support this analysis?