MARKETING MANAGEMENT BUS506 Case Study Analysis: Swisher Mower and Machine Company Danel Trumić, Mirhat Kolašinac, Misala Pramenković International Burch University, Sarajevo
MARKETING PROBLEM DEFINITION
In early 1996, Wayne Swisher, president and chief executive officer (CEO) of Swisher Mower and Machine Company (SMC) received a certified letter from a major national retail merchandise chain inquiring about a private brand distribution arrangement for SMC line of riding mowers. Wayne Swisher had only recently assumed his position as president and CEO from Max Swisher, his father and company founder. Wayne Swisher was previously vice president of sales, a position he held for six years following completion of the MBA program at Southern Methodist University in Dallas, Texas. Prior to graduate school he has worked in sales and marketing position for three years at a large Fortune 500 corporation. The private brand distribution proposal was the first major decision that he faced as president and CEO. He thought the inquiry presented an opportunity worth serious consideration, since unit volume sales of the SMC riding mower had plateau in recent years. The inquiry received by SMC concerning a private brand distribution arrangement requested a sample order of 700 standard riding mower units to be delivered in January 1997. The national retail merchandise chain expected to make an annual order of approximately 8200 units. The chain wanted to purchase the mowers at a price 5 percent lower than SMC manufacturer’s list price for its standard model. The chain wanted that the mower be different from SMC Ride King, he requested different seat and a particular color and type of paint and specified that all parts be American-made or that the mower have at least display an American name as its producer. The chain did not propose any mechanical specifications for the mower. Details concerned the proposal would have to be closely studied because it represented a significant departure from SMC current distribution practices.
COMPANY OVERVIEW
Swisher Mower and Machine Company is formed in 1945 by Max Swisher. He received his first patent for a gearbox drive assembly when he was 18-years old, he develop a self propelled push mower utilizing this drive assembly. He began selling these mowers to neighbors after converting his parent’s garage into small manufacturing operation and he formed Swisher Mower and Machine Company. In 1966, unit volume for SMC riding mowers peaked at 10.000 units with sales of $2 million. In the 1990s, the unit volume remained constant with around 4,250 riding mowers per year. Compared with 1,263,000 unit sales in riding mowers and tractors industry, SMC only occupied around 0.3% market share. SMC produced limited but
differentiated products. SMC’s flagship product, the Ride King, was credited with the first zero-turning-radius riding mower. SMC also produced a trail-mower called T-44 with a cutting width of 44 inches. SMC planed to broaden SMC product line in 1996 by introducing a high-wheel string trimmer product, Trim-Max, a high-wheel, walkbehind product. With manufacturing plant in Warrensburg, Missouri, SMC owned an annual capacity of 10,000 riding mower units on a single 40-hour-per-week shift with distribution mainly in non-metropolitan areas. About 75% of sales of SMC were made in non-metropolitan areas. SMC sold 30% through wholesalers, 25% through direct-to-dealer, 40% as private-label, and the rest 5% as exports. It sold the Ride King through wholesalers, who located throughout the country, focusing on farm dealers situated in the south central and southeastern US.
INDUSTRY OVERVIEW
Riding lawn mowers are classified as lawn and garden equipment with two basic configurations, the front-engine lawn tractors and rear engine riding mowers. However there are some mid-engine riding mowers on the market, such as those produced by SMC. Front-engine lawn tractors are the most popular design followed by rear-engine and mid-engine models. Rear engined lawn tractors are perceived as stronger and more durable. Competition in riding lawn mower market was fierce with ten manufacturers comprising major competitors in 1995, while SMC only occupied around 0.3%, based on sales units. All these companies made Riding mowers under a nationally branded name and at the same time were engaged in private-label production. It was estimated that private-label mowers account for 65 to 75 percent of total industry sales. Each riding mower manufacturer priced its products at price points. The representative retail prices for national and private-label riding mowers typically ranged from $800 to $5,000. The manufacturer’s price of Ride King of SMC, $ 650, was quite comparative, compared with industry average.
CONSUMER ANALYSIS
National retail merchandise chains - 24% OPE/Farm Equipment & supply stores - 22% Lawn/Garden Stores – 19 % Discount department stores - 13% Home centers – 10% Hardware stores – 2 % Others – 10%
COMPETITION POSITIONING
Ten manufacturers comprised the major competitors in the riding lawn mower market in 1995: American Yard Products, Ariens, Honda, John Deere, Kubota, MTD Inc, Murray of Ohio, Snapper, Toro, and Garden Way/Troy-Bilt. Ariens, Honda, John Deere, Kubota, MTD Inc, Murray of Ohio, Snapper, Toro, and Garden Way/Troy-Bilt sell their products through lawn and garden stores and specialty retailers. MTD, Murray and American Yard Products also sell to national mass-merchandise stores. All of these companies manufacture riding mowers under a nationally branded name and engage in private label production. Several companies produce a combination of nationally branded riding mowers and private labels for mass merchandisers (e.g., Sears, Wal-Mart, Kmart), home centers (e.g., Lowes, Home Depot), and hardware chains (e.g., True Value Hardware).
SWOT ANALYSIS
POSITIVE STRENGTHS
NEGATIVE WEAKNESSES
INTERNAL FACTORS
Distinct products High quality, simple design, easy to use and maintain , no significant claim Interchangeable parts Competitive price Personal relationship with dealer, distributors and end-customers One new product on the way (Trim Max)
Limited range of products Perception on rear and mid engine –not as strong and durable as front engine One man makes all the decision Small business mentality Insufficient attention for promotion and advertising campaign No national distribution network
OPPORTUNITIES
THREATS
Limited market coverage (south central, southeastern). Potential expansion to the west New target market include consumer housing, in addition to farms Private labels business may be growing Possibility for automation by technology development in long term (production streamline, cost reduction)
EXTERNAL FACTORS
Many big competitors like Honda, John Deere, American Yard Production etc with stronger financial resources and economic size of capacity Cyclical industry After next year, industry may be down
ALTERNATIVES AVAILABLE
Enter distribution Arrangement with Retail Merchandise Chain: It could be to SMC’s advantage to enter the arrangement because it would provide them the chance to reach consumers they currently do not. It could also allow SMC to take advantage of unused manufacturing capacity, and, however, force them to run overtime. The contract would only lock SMC in for 2 years, so they would be free after the short trail period. SMC would also have the opportunity to introduce the T-44 if they took the proposal. On an opposing side, this alternative would create a large additional liability for SMC because of the contract terms that state they will assume liability for personal injury that may occur from use or maintenance on the mowers. The contract would also decrease gross profit because the arrangement states the mowers will bought at 5 percent less than the current selling price. There will also be some cannibalization. The only other potential threat the contract possess would be creating a dependency for SMC on the retail merchandise chain. If SMC begins producing for this retail chain, then two thirds of their unit sales per year will be in the hands on the retail chain. This means the retail chain will have a very large amount of control of the contract negotiations between them.
Continue Current Operations: By continuing current operations as they are, SMC could avoid the added costs and put the funds toward other expansion possibilities. However, if SMC rejects this proposal, then they will be missing out on what makes up approximately 70 percent of industry sales. They will also be handing the proposal directly to one of their competitors, which could very likely mean the loss of market share to a competitor. If the industry continues with the trend to private-labels, then SMC may miss their only or greatest opportunity to expand.
SOLUTION
SMC should sign the proposal with the retail merchandise chain. This proposal holds too many opportunities for SMC to let it pass or fall into the hands of another competitor. The results of accepting the proposal look far better than the alternative. There would be a gross profit gained from the proposal. The proposal will allow for more opportunities to expand with time. Now is the time for SMC to take its share of the private-label segment and increase its brand presence in the metropolitan areas. Plus, as retail merchandise chains grow in popularity with consumers, SMC will have its product there for the increasing number of buyers. 