Kaufman Shoes For Mos Case Study
Executive Summery
Jim Wells’ must determine how to promote and distribute a new product, which is a shoe made for cattle suffering from hoof disease. The target market is predominantly dairy cattle however, beef, show, research and breeding cattle were all potential users of moo shoes. Together Wells’ and his brother-in-law have $25000 they can invest into this business venture without risking their personal property. Wells’ has chosen Kaufman Footwear to work with in producing the shoes, as they are a company with an excellent reputation for quality. Kaufman has determined a production price of $19.00 per shoe. There are a few alternatives and promotional options that are considered. The three distribution alternatives considered are direct mail, local dealers, and using a mix of the both options. With the direct mail alternative, the Foundation for the Mentally Handicapped has offered to take care of all of the shipping for an additional fee of $0.67 for packaging on top of $2.00 postage fee. Shoes for Moos will not have to carry any inventory under this method because Kaufman has agreed to carry a minimum of 100 units. This method provides a one-to-one relationship with customers. The second alternative is to …show more content…
develop dealers in each area where customers are able to purchase shoes from. This allows customers the chance to visually see the product before purchase. Under this method Wells’ will have to consider hiring a sales representative to obtain shelf space in each of the dealer locations. The promotion alternatives that are considered are trade shows, magazine advertisements, and printing flyers. It is recommended that Shoes for Moos use the direct mail method to distribute moo shoes to the target market. After considering the criteria as well as alternatives the direct mail distribution method has the lowest fixed costs and provides a one-to-one relationship with customers.
Problem Statement
Shoes for Moos is a potential business enterprise between Jim Wells and his brother-in-law to distribute footwear Wells’ designed specifically to prevent hoof disease, a common disease among cattle. Hoof disease often occurred during the spring and winter, at this time the fields were wet and the disease became highly contagious. The decision Wells’ and his brother-in-law face are whether or not to go through with this venture. Jim Wells knew that there was a need for this product, but if he was unsure of the price he would need to charge to make a profit, as well as how to promote and distribute it. Together Wells and his brother-in-law had about $25000 to invest in this venture.
Internal Analysis/ Issues Jim Wells’ is the owner of Wells’ Work and Casual Wear in Elmira, Ontario. This provides Wells’ with an advantage in the following ways; he has management experience, knowledge in sales and promotion, and the option to sell his product from his store. Wells’ has gained knowledge from his current customers, local farmers, and veterinarians that there is a need for this particular product. However, Wells’ had no current experience with foot ware nor did he have any experience distributing products for cattle. He has decided to hire Kaufman Footwear produce the product as they have an excellent reputation for quality across Canada. Kaufman also had strong research and development and production capabilities. Kaufman has agreed to charge $19.00 per unit for the production process. As determined by Wells’ research, there are only two current competitors in the market, which are positioned differently than Moos. One competitor was seen a poor quality, and the other was used only for medical reasons and very expensive. This meant moo shoes had the potential for market share and a high growth rate. Wells has the flexibility to price and position his product the way in a number of different ways.
External Analysis
Customer Analysis
The potential buyers of moos shoes are owners of dairy, beef, show, research, and breeding cattle. It was expected that most sales would be made to dairy farmers. It was illegal to sell milk from cows that were infected by hoof disease. Due to the high price of antibiotics (exhitbit-1), when cattle became infected they were often slaughtered. When cattle were not treated milk production would decline by 20 to 80 percent causing farmers thousands of dollars in loses per year (exhibit-2). Shoes for Moos would prevent the disease from occurring and stop the spread for those that have been infected saving farmers huge losses in profits. Depending on the distribution method chosen, customer would either be able to purchase through dealers, or order the shoes by direct mail. The shoes would be a one-time purchase and the cattle would be able to re-wear the shoe each wet season. The consumer’s level of involvement is minimal with either distribution method. The product is standard to all cattle. There are 500 potential dealer outlets in the province of Ontario alone in which Shoes for Moos could be sold and approximately 1.1 million dairy cows across Canada.
Competitor Analysis
There are two current competitors in the market. The first competitor was a United States company who sold individual hoof shoes offered in a variety of colors via direct mail. Their product was advertised in a catalogues and the price point was $21.80 USD. There were some concerns regarding the effectiveness of this product due to the design of the shoe, and in some cases it often worsened the infection. The second competitor sold hydrotherapy boots offered in pairs that were intended for clinical use only. Their price point was approximately $400 USD and was not generally available to individual farmers. Cows who wore these boots would not be allowed to wonder the herd due to the high price of the product. Neither of these two competitors had significant market share, and their products were not widely used. In order to compete with Shoes for Moos, the first competitor would have likely have to redesign their product to make it more effective. Due to the high price of the second competitor and its clinical status they would not likely be able to react to and compete in price with Shoes for Moos. Shoes for Moos must consider a reasonable price point to sell at considering farmers will not likely buy at a high rate yet they will have to cover the costs of production they owe to Kaufman. A barrier to exit that Shoes for Moos face would be their partnership with Kaufman.
Market/Industry Analysis
As research has shown, the number of dairy farms has decreased across Canada over the past 2 decades at a rate of about 45%. With that being said, there has also been a decline in market share leaving less room for small, un-established companies. However, according to The Atlas of Canada approximately 75% of farms are located in Ontario and Quebec. This is a considerable opportunity for Shoes for Moos being an Ontario based company and their competition is positioned in the United States. The demand for this product is influenced by the cold/wet seasons, therefore within the Canadian market there is a recurring demand every year. If distribution channels were to extend across Canada, the product would be beneficial due to the climate. There are 500 potential dealer outlets where moo shoes can be sold in the province of Ontario alone. Given that the number of farms is significantly declining, the key to success in this market gain market share and keep competition from entering.
Criteria
There are two major distribution methods to be considered. The first was to sell the shoes by direct mail. This allowed Wells’ to maintain a one-to-one relationship with customers and he would have full control of the product and his advertising. This method was fairly cheap which he averaged to cost about to cost about $2.00 for postage. For an additional cost the whole shipping process could be handled by the Foundation for the Mentally Handicapped for with added variable packaging costs of about $0.67. The second alternative would be to establish dealers in each area. This alternative was would allow the product to get more geographic exposure, however dealers would require a minimum of 40 per cent markup on each shoe. Shoes for Moos cannot afford to sell individual shoes to dealers at a 40 per cent discount. Wells would need to ensure that he could sell to dealers in bulk or consider enforcing a minimum order amount. Kaufman decided they would produce the shoes at a price of $19.00 for each shoe. Wells’ determined that it would be impossible to sell the shoes for less than $39.00 yet he doubted anyone would pay more than $79.00 per shoe. The final price must be determined based on the distribution and promotion method chosen.
Alternatives
Distribution Channels
1) Establish dealers in each area. Pros: - Could secure a mailing list at $0.10 per name. - Customers can check quality before purchase. - Sell in larger quantities to cover margins. - Set a minimum order quantity. Cons: * Need to hire someone to call dealers to obtain shelf space. * Minimum 40% margin on sales. * F.O.B allows Wells’ to absorb the freight.
2) Distribute Shoes for Moos by direct mail only.
Pros:
* Provides full control over the product and its advertising. * Maintains a one-to-one relationship with customers. * Sales price could be offered at a lower rate that dealers. * Shoes for Moos would not absorb any shipping costs to customers. * Higher return (exhibit-4) * Low inventory. * Larger geographical exposure.
Cons:
* Customers would not be able to judge quality. * Return policy would include added shipping costs. * One-year money-back guarantee.
3) Distribute using a mix of local dealers and direct mail.
Pros:
* More exposure to product. * Higher profitability, more channels of distribution. * Larger geographic exposure.
Cons:
* Sales price of direct mail would increase to match dealer’s mark-up. * Dealers would have to match one-year money back guarantee. * Sales person to attract shelf space.
Promotion
1) Advertise at trade shows. Pros: * High exposure to veterinarians. * Allows a customer to ask questions about product. * Provides customers physical contact with product.
Cons:
* Cost of travel. * Must attend a number of shows to reach target exposure.
2) Advertise in Magazines Pros: * Magazines are specific to Dairy Farmers. * Magazines have long life and repeated ad exposure. * Could limit advertising to peak seasons.
Cons:
* Limited flexibility in terms of format. * High production costs.
3) Advertise in Flyers. Pros: * Large geographic exposure. * Balance of flyers could be distributed at trade shows. * Pass-along value. Cons: * Easily discarded. * Inability to ask questions about product.
Recommendation
After carefully analysis of the criteria, it is determined that distribution through direct mail using the Foundation for the Mentally Handicapped, and promotion through trade shows is the most economical alternative.
Considering the 40 per cent mark up dealer charge, and the approximate 100K salary of a sales person required to obtain shelf presence, fixed costs are much higher using the local dealers. Other costs that may be incurred using dealers are inventory costs, and shipping costs. If Wells was not to hire a sales person, and work with dealers on his own, time would be taken away from his retail store eventually adding costs. With the added costs of obtaining shelf space and the 40 per cent mark up, this method is not economical (exhibit-3)
.
Using the direct mail method, it is in Well’s best interest to advertise in a way where customers can determine product quality, as well as ask any question they might have. The magazine advertisement and flyers simple do not provide this option. These two methods would only be efficient if consumers were able to purchase from dealers and did not require a hands on experience before purchasing.
Action Plan
Pricing Strategy
It is recommended that a price of $59.00 per shoe would be appropriate. This allows a price margin of $40.00, and is averaged from Wells’ highest and lowest price point estimates. This would allow a profit of $37.00 per shoe (exhibit-5). Shoes for Moos would need to sell 890 units to break even.
Distribution and Sales
Direct mail orders will be shipped across Canada, with the option of shipment into the states. Costs will include $2.00 for postage, and $0.67 for variable packaging costs by using the Foundation for the Mentally Handicapped. By using the foundation Shoes for Moos will not have to handle any of the shipping process nor will not need to carry any inventory. Kaufman has agreed to carry a minimum inventory of 100 units at a time.
Advertising and Promotion
By means of direct mail distribution using the Foundation shipment method, Shoes for Moos fixed costs are significantly lower than any other alternative. Due to this factor it is recommended that Wells’ use a $25K personal investment for advertisement at trade shows throughout Ontario and Quebec. This allows customers physical contact with the product, and gives them the ability to ask questions. If he were to attend the five major trade shows within this geographic region he will have covered 62.9 per cent of the trade shows across Canada (exhibit-5). These two provinces hold the highest number of dairy farmers.
Contingency Plan
If the direct mail method is not successful and not enough people are being exposed to the product, Wells will have lost his $25000 investment. Due to the fact that Shoes for Moos will not be holding any inventory, rather Kaufman carrying the costs, a pull system will have saved the company any significant losses from fixed costs such as production and inventory. From this method of distribution the shoes are only produced when ordered (with enough on hand at Kaufman facility just in case) rather than having the item sitting on shelves at the dealer locations. If failure occurs it will be because of either two reasons; there was not enough demand for the product, or the product had not reached its target market. If there was no demand for the product, Wells and his brother-in-law have only lost their investment. On the other hand, if the product had not reached its target market, Wells can begin using local dealers. It is recommended at this point that he make the appointments himself to slowly determine how the product does on the shelves before considering a sales person. If this is successful, a sales person should be hired to reach more dealers while still maintaining the direct mail method.
Jim Wells’ must determine how to promote and distribute a new product, which is a shoe made for cattle suffering from hoof disease. The target market is predominantly dairy cattle however, beef, show, research and breeding cattle were all potential users of moo shoes. Together Wells’ and his brother-in-law have $25000 they can invest into this business venture without risking their personal property. Wells’ has chosen Kaufman Footwear to work with in producing the shoes, as they are a company with an excellent reputation for quality. Kaufman has determined a production price of $19.00 per shoe. There are a few alternatives and promotional options that are considered. The three distribution alternatives considered are direct mail, local dealers, and using a mix of the both options. With the direct mail alternative, the Foundation for the Mentally Handicapped has offered to take care of all of the shipping for an additional fee of $0.67 for packaging on top of $2.00 postage fee. Shoes for Moos will not have to carry any inventory under this method because Kaufman has agreed to carry a minimum of 100 units. This method provides a one-to-one relationship with customers. The second alternative is to …show more content…
develop dealers in each area where customers are able to purchase shoes from. This allows customers the chance to visually see the product before purchase. Under this method Wells’ will have to consider hiring a sales representative to obtain shelf space in each of the dealer locations. The promotion alternatives that are considered are trade shows, magazine advertisements, and printing flyers. It is recommended that Shoes for Moos use the direct mail method to distribute moo shoes to the target market. After considering the criteria as well as alternatives the direct mail distribution method has the lowest fixed costs and provides a one-to-one relationship with customers.
Problem Statement
Shoes for Moos is a potential business enterprise between Jim Wells and his brother-in-law to distribute footwear Wells’ designed specifically to prevent hoof disease, a common disease among cattle. Hoof disease often occurred during the spring and winter, at this time the fields were wet and the disease became highly contagious. The decision Wells’ and his brother-in-law face are whether or not to go through with this venture. Jim Wells knew that there was a need for this product, but if he was unsure of the price he would need to charge to make a profit, as well as how to promote and distribute it. Together Wells and his brother-in-law had about $25000 to invest in this venture.
Internal Analysis/ Issues Jim Wells’ is the owner of Wells’ Work and Casual Wear in Elmira, Ontario. This provides Wells’ with an advantage in the following ways; he has management experience, knowledge in sales and promotion, and the option to sell his product from his store. Wells’ has gained knowledge from his current customers, local farmers, and veterinarians that there is a need for this particular product. However, Wells’ had no current experience with foot ware nor did he have any experience distributing products for cattle. He has decided to hire Kaufman Footwear produce the product as they have an excellent reputation for quality across Canada. Kaufman also had strong research and development and production capabilities. Kaufman has agreed to charge $19.00 per unit for the production process. As determined by Wells’ research, there are only two current competitors in the market, which are positioned differently than Moos. One competitor was seen a poor quality, and the other was used only for medical reasons and very expensive. This meant moo shoes had the potential for market share and a high growth rate. Wells has the flexibility to price and position his product the way in a number of different ways.
External Analysis
Customer Analysis
The potential buyers of moos shoes are owners of dairy, beef, show, research, and breeding cattle. It was expected that most sales would be made to dairy farmers. It was illegal to sell milk from cows that were infected by hoof disease. Due to the high price of antibiotics (exhitbit-1), when cattle became infected they were often slaughtered. When cattle were not treated milk production would decline by 20 to 80 percent causing farmers thousands of dollars in loses per year (exhibit-2). Shoes for Moos would prevent the disease from occurring and stop the spread for those that have been infected saving farmers huge losses in profits. Depending on the distribution method chosen, customer would either be able to purchase through dealers, or order the shoes by direct mail. The shoes would be a one-time purchase and the cattle would be able to re-wear the shoe each wet season. The consumer’s level of involvement is minimal with either distribution method. The product is standard to all cattle. There are 500 potential dealer outlets in the province of Ontario alone in which Shoes for Moos could be sold and approximately 1.1 million dairy cows across Canada.
Competitor Analysis
There are two current competitors in the market. The first competitor was a United States company who sold individual hoof shoes offered in a variety of colors via direct mail. Their product was advertised in a catalogues and the price point was $21.80 USD. There were some concerns regarding the effectiveness of this product due to the design of the shoe, and in some cases it often worsened the infection. The second competitor sold hydrotherapy boots offered in pairs that were intended for clinical use only. Their price point was approximately $400 USD and was not generally available to individual farmers. Cows who wore these boots would not be allowed to wonder the herd due to the high price of the product. Neither of these two competitors had significant market share, and their products were not widely used. In order to compete with Shoes for Moos, the first competitor would have likely have to redesign their product to make it more effective. Due to the high price of the second competitor and its clinical status they would not likely be able to react to and compete in price with Shoes for Moos. Shoes for Moos must consider a reasonable price point to sell at considering farmers will not likely buy at a high rate yet they will have to cover the costs of production they owe to Kaufman. A barrier to exit that Shoes for Moos face would be their partnership with Kaufman.
Market/Industry Analysis
As research has shown, the number of dairy farms has decreased across Canada over the past 2 decades at a rate of about 45%. With that being said, there has also been a decline in market share leaving less room for small, un-established companies. However, according to The Atlas of Canada approximately 75% of farms are located in Ontario and Quebec. This is a considerable opportunity for Shoes for Moos being an Ontario based company and their competition is positioned in the United States. The demand for this product is influenced by the cold/wet seasons, therefore within the Canadian market there is a recurring demand every year. If distribution channels were to extend across Canada, the product would be beneficial due to the climate. There are 500 potential dealer outlets where moo shoes can be sold in the province of Ontario alone. Given that the number of farms is significantly declining, the key to success in this market gain market share and keep competition from entering.
Criteria
There are two major distribution methods to be considered. The first was to sell the shoes by direct mail. This allowed Wells’ to maintain a one-to-one relationship with customers and he would have full control of the product and his advertising. This method was fairly cheap which he averaged to cost about to cost about $2.00 for postage. For an additional cost the whole shipping process could be handled by the Foundation for the Mentally Handicapped for with added variable packaging costs of about $0.67. The second alternative would be to establish dealers in each area. This alternative was would allow the product to get more geographic exposure, however dealers would require a minimum of 40 per cent markup on each shoe. Shoes for Moos cannot afford to sell individual shoes to dealers at a 40 per cent discount. Wells would need to ensure that he could sell to dealers in bulk or consider enforcing a minimum order amount. Kaufman decided they would produce the shoes at a price of $19.00 for each shoe. Wells’ determined that it would be impossible to sell the shoes for less than $39.00 yet he doubted anyone would pay more than $79.00 per shoe. The final price must be determined based on the distribution and promotion method chosen.
Alternatives
Distribution Channels
1) Establish dealers in each area. Pros: - Could secure a mailing list at $0.10 per name. - Customers can check quality before purchase. - Sell in larger quantities to cover margins. - Set a minimum order quantity. Cons: * Need to hire someone to call dealers to obtain shelf space. * Minimum 40% margin on sales. * F.O.B allows Wells’ to absorb the freight.
2) Distribute Shoes for Moos by direct mail only.
Pros:
* Provides full control over the product and its advertising. * Maintains a one-to-one relationship with customers. * Sales price could be offered at a lower rate that dealers. * Shoes for Moos would not absorb any shipping costs to customers. * Higher return (exhibit-4) * Low inventory. * Larger geographical exposure.
Cons:
* Customers would not be able to judge quality. * Return policy would include added shipping costs. * One-year money-back guarantee.
3) Distribute using a mix of local dealers and direct mail.
Pros:
* More exposure to product. * Higher profitability, more channels of distribution. * Larger geographic exposure.
Cons:
* Sales price of direct mail would increase to match dealer’s mark-up. * Dealers would have to match one-year money back guarantee. * Sales person to attract shelf space.
Promotion
1) Advertise at trade shows. Pros: * High exposure to veterinarians. * Allows a customer to ask questions about product. * Provides customers physical contact with product.
Cons:
* Cost of travel. * Must attend a number of shows to reach target exposure.
2) Advertise in Magazines Pros: * Magazines are specific to Dairy Farmers. * Magazines have long life and repeated ad exposure. * Could limit advertising to peak seasons.
Cons:
* Limited flexibility in terms of format. * High production costs.
3) Advertise in Flyers. Pros: * Large geographic exposure. * Balance of flyers could be distributed at trade shows. * Pass-along value. Cons: * Easily discarded. * Inability to ask questions about product.
Recommendation
After carefully analysis of the criteria, it is determined that distribution through direct mail using the Foundation for the Mentally Handicapped, and promotion through trade shows is the most economical alternative.
Considering the 40 per cent mark up dealer charge, and the approximate 100K salary of a sales person required to obtain shelf presence, fixed costs are much higher using the local dealers. Other costs that may be incurred using dealers are inventory costs, and shipping costs. If Wells was not to hire a sales person, and work with dealers on his own, time would be taken away from his retail store eventually adding costs. With the added costs of obtaining shelf space and the 40 per cent mark up, this method is not economical (exhibit-3)
.
Using the direct mail method, it is in Well’s best interest to advertise in a way where customers can determine product quality, as well as ask any question they might have. The magazine advertisement and flyers simple do not provide this option. These two methods would only be efficient if consumers were able to purchase from dealers and did not require a hands on experience before purchasing.
Action Plan
Pricing Strategy
It is recommended that a price of $59.00 per shoe would be appropriate. This allows a price margin of $40.00, and is averaged from Wells’ highest and lowest price point estimates. This would allow a profit of $37.00 per shoe (exhibit-5). Shoes for Moos would need to sell 890 units to break even.
Distribution and Sales
Direct mail orders will be shipped across Canada, with the option of shipment into the states. Costs will include $2.00 for postage, and $0.67 for variable packaging costs by using the Foundation for the Mentally Handicapped. By using the foundation Shoes for Moos will not have to handle any of the shipping process nor will not need to carry any inventory. Kaufman has agreed to carry a minimum inventory of 100 units at a time.
Advertising and Promotion
By means of direct mail distribution using the Foundation shipment method, Shoes for Moos fixed costs are significantly lower than any other alternative. Due to this factor it is recommended that Wells’ use a $25K personal investment for advertisement at trade shows throughout Ontario and Quebec. This allows customers physical contact with the product, and gives them the ability to ask questions. If he were to attend the five major trade shows within this geographic region he will have covered 62.9 per cent of the trade shows across Canada (exhibit-5). These two provinces hold the highest number of dairy farmers.
Contingency Plan
If the direct mail method is not successful and not enough people are being exposed to the product, Wells will have lost his $25000 investment. Due to the fact that Shoes for Moos will not be holding any inventory, rather Kaufman carrying the costs, a pull system will have saved the company any significant losses from fixed costs such as production and inventory. From this method of distribution the shoes are only produced when ordered (with enough on hand at Kaufman facility just in case) rather than having the item sitting on shelves at the dealer locations. If failure occurs it will be because of either two reasons; there was not enough demand for the product, or the product had not reached its target market. If there was no demand for the product, Wells and his brother-in-law have only lost their investment. On the other hand, if the product had not reached its target market, Wells can begin using local dealers. It is recommended at this point that he make the appointments himself to slowly determine how the product does on the shelves before considering a sales person. If this is successful, a sales person should be hired to reach more dealers while still maintaining the direct mail method.