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Essay on Mark Cuban
| Date: |
05-13-02 3:00am |
| Subject: |
Business |
| Word Count: |
3199 |
| Page Count: |
12.8 |
Mark Cuban
I. Situation Analysis
1. Background
The Faith Mountain Company has experienced a great deal of success since opening in 1977. What Cheri and Martin Woodard began as a local store that sold herbs, related products, and antiques has slowly evolved into a major mail-order catalog company and retail store that develops, manufactures, and markets high-quality gifts, apparel, and home accessories. In 1991, Faith Mountain was still a relatively small company with less than 50 employees. However, sales have been steadily increasing for Faith Mountain, as they went from about $1.2 million in sales in 1987 to just over $5 million in 1991. In 1991 The Faith Mountain Company set for itself the overall goal of $25 million in annual sales by 1995, with $10 million coming from sales from the Faith Mountain catalog, $5 million from the retail division, and $10 million from the acquisition and development of another catalog company. Reaching these goals will have implications in all areas of operation, including expansion, human resources, marketing, and finance.
2. Industry Overview
The Faith Mountain Company operates in the specialty mail-order industry. According to a study by Arnold Fishman of Marketing Logistics, the total mail-order sales in the United States in 1990 topped $200 billion, with consumer mail order at $98.2 billion. Of the consumer mail order, $40.7 billion was spent on services; $44.5 billion was spent on specialty merchandisers, and $13 billion on products from general merchandisers.
Total mail order sales for 1990 reflected 10.1 percent of general merchandise sales, 3.2 percent of retail sales, 2.1 percent of consumer services, and 1.8 percent of gross national product for the year. On a per capita basis, Americans spent an average of $393 on mail-order purchases in 1990.
Specialty mail-order vendors, such as The Faith Mountain Company, have a substantially greater share (77 percent) of consumer mail-order product sales than do general merchandising mail-order vendors such as J.C. Penney (23 percent).
As credit card companies offer new inducements and incentives to customers who shop by mail, it is anticipated that shopping by mail will become more prevalent. However, third-class postage rate increases and the placement of taxes on mail-order goods in some states may have a negative affect on the mail-order industry.
3. Business Unit Analysis
The Faith Mountain Company develops, manufactures, and markets high-quality gifts, apparel, and home accessories, distributing through use of two business units, the mail-order unit, which distributes catalogs four times per year and provided the bulk of the 1991 total sales with about $4.7 million in revenue, and the retail-store unit, which had revenues of nearly $300 thousand.
Both units operated under the same premise, that they achieve competitive advantage by providing customers with superiority in merchandise, quality, and service. Faith Mountain gained superiority in merchandise by seeking exclusive marketing rights for products and by moving more towards private labeling. High standards of quality were provided to customers because Faith Mountain manufactured about 20 percent of its merchandise, which means they could customize and personalize products to an individual customer’s needs. Superior service was being achieved in the mail-order division by implementing a system designed to answer 90 percent of all customer service inquiries within the first two minutes, and service operators were authorized to do whatever it took to keep customers happy. However, pricing was also a priority to Faith Mountain, as customer service policies included guaranteed lowest prices.
The retail store featured the same product lines as those in the catalog, but not all items from the catalog were sold in the store, and about 20 percent of the store merchandise was not offered in the catalog. Also, the retail store benefits substantially from the catalog, as the store’s sales revenue and traffic increases after the release of a new catalog.
Because the Faith Mountain Company is relatively small, the Woodards were able to successfully supervise nearly all facets of both the retail division and the mail-order division without much difficulty. However, with the Woodards intending to open another retail store and increasing their customer bases with the mail order division, they may have to rely on middle management to overtake some of the duties that they had previously handled.
4. Buyer Analysis
The Faith Mountain Company had a specific target market in mind for its products. They targeted women between the ages of 30 and 50, who are homeowners and have family incomes of $40,000 - $50,000. These women have traditional family values and their time spent at home with their families dominated their nonworking hours. These values and demographics suggest a northeastern middle-class or midwestern geographic concentration.
The average Faith Mountain Company order is $75, with the peak seasons being from September to late December, especially the Christmas season, and January to February.
Possibly because of their current success, there has been little effort by The Faith Mountain Company to explore other markets or reposition its current target market. However, if Faith Mountain hopes to achieve its sales target for 1995, they may consider changing or broadening their target market.
5. Competitor Analysis
In 1991, the Woodards estimated approximately 50 catalog companies sold gifts, apparel, or home accessories. However, the Woodards had targeted four significant competitors who shared the same basic niche as The Faith Mountain Company.
In 1991, Potpourri controlled the highest market share in the industry with annual sales in the $50 million range, and an average order size of $60. The Woodards believe that Potpourri’s quality of merchandise and customer service is inferior to The Faith Mountain Company.
Charles Keath had sales of $35 million, which is also a significant market share in the industry. Charles Keath is well respected for its excellent merchandising, however, the Woodards believe that The Faith Mountain Company catalog is of higher quality, as is Faith Mountain’s customer service.
W.M. Green, only seven years old in 1991, reported revenues of $4.5 million in 1991, with an average order size of about $110. W.M. Green does not sell apparel, and the Woodards believe that Faith Mountain’s broad product line and experience gives it an advantage over W.M. Green.
Sturbridge Yankee has about $8 million in annual sales and the Woodards predict that the retail stores will be the future focus of Sturbridge Yankee. This focus on the retail division, along with a narrow product line should inhibit growth.
6. Marketing Program
The Faith Mountain Company’s overall marketing strategy is to provide superior merchandise, quality, and service to its customers. Pricing is also an important part of the mix, as customer service policies include guaranteed lowest prices.
Advertising and promotion of The Faith Mountain Company was done mainly through the distribution of the catalog. As of 1991, Martin Woodard worked with a professional service firm (Forgit & White) contracted to design and produce the catalog, including layout, photography, and printing. Also, Faith Mountain operated an in-house advertising named Telesis. However, little is done to promote Faith Mountain products to potential customers who do not receive the catalog.
The Faith Mountain Company has not pursued a true positioning strategy. They targeted a specific market according to demographics such as age, income, and family values. They have done little to consider what choice criteria or dimensions customers use to evaluate product offerings, and consequently have not examined the weight of these criteria. Also, the mix of product, price, placement, and promotion has not been seriously examined.
Incorporating the marketing mix and a positioning strategy would be duties of a marketing manager, a position that The Faith Mountain Company did not have in 1991. However, with the expected growth and revenue that Faith Mountain plans to accumulate, they have considered implementing a marketing manager as part of their personnel.
II. Problem Identification and Potential Solutions
1. Problem: Market Research. Although The Faith Mountain Company has a target market in mind, currently targeting women between the ages of 30 and 50 who have traditional values. There has been little research done to determine why this is their target market, or if this segment is their most profitable customer base for maximizing sales.
Potential Solution(s): Find an effective medium to survey both customers and potential customers. These surveys should include the customer’s demographic information, i.e. age, race, gender, family income, etc. The surveys must also try to assimilate what attributes are valued in the industry. These attributes should include but not be limited to: variety of merchandise selection, quality of merchandise, level of customer service, timeliness of delivery, price, company reputation, etc. Then they should rate each of these attributes on a scale of 1 to 10 in increasing level of utility, weight, or importance. This should give The Faith Mountain Company feedback as to whether or not their current target market should be broadened, or repositioned.
2. Problem: Personnel. Currently, the company employs less than 50 people. Nearly all of the hiring is done by Cheri Woodard. If the company wishes to expand its customer database, as well as open another retail outlet, it must consider hiring more employees to handle increased sales and customer service demands. Another glaring problem facing Faith Mountain is the absence of a marketing executive/manager.
Potential Solution(s): If Faith Mountain wishes to expand Cheri Woodard may have to relinquish some of her hiring responsibilities to the specific departments. Also, to account for an increase in projected sales, more customer service/sales associates will have to be hired for both the retail and mail order business units. And maybe the most important personnel addition needs to come in the form of a marketing manager.
3. Problem: Product Selection. The company has not utilized potential research tools such as surveys to determine which products their customers want or why customers value those products. The company doesn’t include the customers in the selection of new products, and it doesn’t evaluate what needs or wants are satisfied by the products that are currently being sold. The current method of product selection involves the merchandising manager going to trade shows with Martin Woodard and selecting potential products. Five people in the company would then comprise a panel to argue for or against the product, which would determine whether or not the product would make it into the catalog.
Potential Solution(s): Research must be conducted to determine if the current product selection is the most beneficial for the company. Both potential customers and current customers should be targeted in this research. Surveys could be used to determine the types of products that customers are most interested in. Also, it may be useful to use focus groups here to determine which products will be offered, because the current system doesn’t take into account the input of the consumer, instead using the opinion of company employees and executives.
4. Problem: Financial Constraints. If Faith Mountain Company wishes to expand, they will have to look for additional financing, especially if they expect to introduce another retail store(s) and assimilate another catalog company. Currently, their financing option is limited to $500,000 and would not be sufficient to cover the new costs that come with expansion. And although the company finally made a profit in 1991, the net margin and selling expenses/gross profit are still low compared to the industry average (See Exhibit 2). The net profit earned by Faith Mountain is also 2.6% lower than the industry average.
Potential Solution(s): Expansion of the retail division will be very costly and consists of too small a percentage of Faith Mountain’s overall sales to pursue. A better avenue would be to focus on the mail order business unit, which has a greater opportunity for increased revenues and growth.
5. Problem: Forecasting. Faith Mountain fails to account for a possible decline or stabilization in the catalog sales/mail-order industry. From the years 1987 to 1991, the net sales increased at an average of 29.5% per year. And Faith Mountain has projected net sales to increase every year from 1991 to 1995 at an average of 16%, which is still relatively high and would assume a constant growth rate in the mail-order industry.
Possible Solution(s): A better forecasting strategy would be to assume growth to increase at the current market rate, which would be far more realistic than assuming that company sales will continue to increase at its current pace.
6. Problem: Limited Advertising Reach and Use of Rented Lists. Ninety-five percent of the advertising and promotional costs go towards the catalog itself; therefore, those who do not receive the catalog have little chance of being reached by The Faith Mountain Company. Therefore, Faith Mountain must find a way to reach those customers. Two to three times as many catalogs are mailed to recipients from rented lists than house lists; however, profits are substantially higher on average for each catalog mailed to in-house lists than rented lists.
Possible Solution(s): Faith Mountain should limit its use of rented lists to those used by companies offering products that fit their demographic target. The current use of rented lists doesn’t take into account the demographics of the people on the lists; therefore, it will be unlikely that the rented lists will consist of people in Faith Mountain’s relatively small target market. It is not enough to assimilate names of potential customers. The lists must consist of potential customers who fit the description of Faith Mountain’s current customers. This will increase the chance that a customer from the rented list will buy from Faith Mountain and become part of the house-list. Also, some form of advertisement must be utilized to reach customers who don’t receive the catalogs. Magazines such as “Better Homes and Gardens” and “Country Living” should reach consumers that lie within Faith Mountain’s specific target market, and therefore should be excellent mediums to advertise in.
III. Recommendations
The recommendations of Team 3 for The Faith Mountain Company is to integrate a strategic marketing plan that focuses more on the mail order business unit of the company, putting high priority on market research, reaching more customers, offering more desirable products, and introducing a marketing manager.
1. Marketing
Business Units: Retail and Mail Order
The retail unit of Faith Mountain is an invaluable asset to the company and provides the company with a tangible epicenter for customers to witness the traditional values that Faith Mountain tries to convey. However, the retail unit of Faith Mountain is not substantially lucrative for the company, and Martin Woodard fails to give any rationale as to how opening additional retail outlets can benefit the company, other than mentioning the current trends that other companies are taking that route. Therefore, it is our recommendation that Faith Mountain does not open additional retail stores at this point.
The mail order segment of Faith Mountain seems to have more potential for growth; hence, we feel this segment should be expanded. And although the current trends suggest a substantial increase in growth for the mail order industry due to increased credit card use and shopping convenience, eventually the industry should coincide with the national rate of business growth. However, this current trend for growth leaves Faith Mountain with an opportunity to obtain a substantial market share in their industry.
Advertising and Promotion
Faith Mountain’s main form of advertising and promotion is its catalog, which is being distributed to at least one million people from rented lists each time the catalog is distributed. The costs of distributing the catalog to these recipients account for half the costs of promotion. We feel this money could be better spent on advertising, as well as obtaining smaller rented lists with similar buyer attributes, such as lists from other catalog companies such as Eddie Bauer or other similar stores oriented towards traditional/country life and values.
They should try to capture market share by focusing on advertising in magazines that are frequently read by customers that fit the demographic of Faith Mountain customers. Magazines such as “Better Homes and Gardens”, “Women’s World”, and “Country Living” tailor to our traditional target market. However, advertising in high-circulation magazines, such as “People” should expose a different segment of the population to the name of Faith Mountain, and could increase brand familiarity substantially.
Market Research
We recommend mailing questionnaires randomly to current customers as well as to people who have not yet purchased products from the company. Although this will be costly, the benefit of determining which elements of the marketing mix need improvement should outweigh the costs of distributing and analyzing the data. These surveys should include the customer’s demographic information, i.e. age, race, gender, family income, etc. The surveys must also try to assimilate what attributes are valued in the industry. These attributes should include but not be limited to: variety of merchandise selection, quality of merchandise, level of customer service, timeliness of delivery, price, company reputation, etc. Then they should rate each of these attributes on a scale of 1 to 10 in increasing level of utility, weight, or importance.
Surveys and focus groups will also be used to determine which products will be offered.
2. Personnel
A marketing manager position will be implemented to oversee all facets of marketing. He will assume supervision over the following areas, catalog production and distribution, merchandising, customer service, as well as research and development. This will lead to a new organizational hierarchy (See Exhibit 3).
Also, more permanent telephone operators will be hired to account for increased sales.
3. Financing
In order to support expansion in our mail order division, we will have to find additional capital. And, although Faith Mountain did make a profit in 1991, the company seems to be a risky investment for a bank. Therefore, we suggest financing from the Small Business Association again, which would be more likely to assist Faith Mountain again after the company has already shown its ability to grow. However, a contingency plan would be to obtain financing from issuing more shares of common stock.
IV. Conclusions
The Faith Mountain Company has a definite competitive advantage in the mail order industry. This is achieved by offering high quality merchandise and providing superior customer service. By expanding their customer reach and focusing on marketing strategy implementation, the Faith Mountain Company should obtain a greater market share in their respective industry.
V. Assumptions
The mail order industry will continue to grow for the next few years (after 1991), and will then approach the overall national growth rate.
The readers of magazines such as “Country Living” and “Better Homes and Gardens” share similar buyer attributes/values to customers of Faith Mountain.
Faith Mountain obtains financing from the Small Business Association.
Postage and paper costs do not rise above expected rates.
VI. Contingency Plan
If revenue from catalog sales, and the mail order industry in general, does not grow as estimated, Faith Mountain will evaluate its current product line and determine which products aren’t effective. If altering product lines is ineffective the Board of Directors may divert or reduce reliance on catalog sales. At this point Faith Mountain would emphasize increasing the number of retail stores. These stores would be located in strategic areas near market segments that exhibit attributes of the current Faith Mountain buyer. The catalog would still be issued, although production and distribution would be reduced. This would serve as a promotional tool to attract more customers to the retail stores.
The assumption in this contingency plan is that people want to touch and feel the product themselves before making any purchasing decisions.
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