An Analysis of Toro Corporation’s S’No Risk Program

Risk analysis from the point of view of Toro: Toro bears relatively minimal risk on this S’No risk program the year they ran it, as the most they are going to pay-out to the insurance company in 1983 is around $680K, while in-turn profiting $106K. (Bell, 2004). The year they ran the promotion, a confluence of elements came into play: the insurance company erroneously quoted them 2.1% of the retail value of the snowthrowers covered; the snowfall was significantly higher than the year before, but because of this premium cap by the insurance company, it did not lose its shorts on its liabilities. Additionally, they did not have to pay vendors the 10 percent discount they normally did in the fall. That was an increase of 8% in profit for Toro, plus the vendors and consumers were delighted.

Risk analysis from the point of view of the insurance companies: American Home Assurance carried the most risk. According to the case study, they agreed to meet all claims from the program for only 2.1 percent of the retail value of the snowthrowers covered (Bell, 2004). The total number of rebates that year of the promotion was 19 percent. While Toro, hedged its losses, American Home ate 17 percent of the cost of rebates. If Toro were to continue the program it would increase the premium to 8% of the total sales, which amounted to an average of the last four years of actual payouts by Toro (Bell, 2004). American Home would try to recoup their losses, but Toro would have to shoulder some of the risk it was heavy snowfall year. This is where uncertainty and comes into play—snowfall is an event you can’t predict nor control.

Risk analysis from the point of view of consumer. The consumer has a perception of no-risk through the promotion. In fact, he is even able to maximize this perception by upgrading and buying a