Surfside Leisurescapes is a family-owned business that has been operating since 1983 in Newmarket, a little town located 45 kilometers north of Ontario that has a population of 75,100. The company’s current product mix involves backyard products, such as barbeques, patio furniture, pools and pool toys and accessories.

A. Key Issue:

Steve Jentzen, Surfside’s general manager, wants to change some of the company’s current marketing actions in the hot tub department because the company has failed to meet its projected sales every year. Hot tub sales represent around 25 percent of the company’s total revenue, making the hot tub division a critical one. Since Surfside has no current marketing strategy nor competitive plan, Jentzen wants make a viable one in order for the company to retain its market share and its ability to be competitive.
In 2004, more than 12 competitors have moved to Newmarket’s area, and the current climatic conditions were not helping the hot tub’s seasonal business.
The general manager previous efforts to motivate sales included incentives, performance appraisals, apprenticeships programs and a program termed “a marketing revolution”. Jentzen has thought about a number of options to make his hot tub lines more profitable. Some of his thoughts are regarding whether the company should carry both of hot tubs lines of not. He has also thought about if investing more in human resources or if changings to the floor plan of the retail store could help generate an increased sales level.
However, the biggest question regarding Surfside’s hot tub division is:: how should Jentzen spend his $75,000 advertisement budget in order to revitalize it?

B. Critical Analysis of Issues:

Hot tub Industry in Canada and its consumers
In Canada, approximately 80% of all hot tub sales come from only 8 manufacturers, and Ontario represents about 39% of all Canadian hot tub sales. In Newmarket, the average income for a resident was $39,500 in 2001.
Most hot tub buyers were professional; married couples aged 35 to 55. Couples researched heavily and often visited more than one store before making a decision, but still, normally the female makes the ultimately purchasing decision. Another characteristic about hot tub buyers is that one income level was no more likely to purchase a hot tub than any other.
Also, even though hot tubs were considered more of a luxury product, some consumers still bought them in slow economic times because they believed that hot tubs added a considerable value to one’s home.
Hot tub customers could also be grouped into 3 general categories:
- Price Sensitive: Shop for the best value at the lowest price and are more likely to be influenced by sales promotions. Often make impulse buys.
- Quality-Conscious: Likely to spend more on their purchases if they believe they are getting a good quality product. Rely on opinions of friends and family and they are motivated by health/therapeutic needs.
- Dealer/Brand Loyalty: They remain dedicated to either one brand or hot tub dealer throughout their lifetime.

Competition
Big box retailers such as Cotsco, Home Depot, Wal-Mart and Canadian Tire have affected Surfside on its hot tub sales, the same as many Canadian family businesses. These retailers offer value-priced lines of hot tubs and substitute products such as inflatable, above the ground pools.
However, Jentzen has recognized three main competitors in the hot tub division in Newmarket:
• Seaway Pools and Hot Tubs: A family owned business that offers Beachcomber hot tubs. These tubs are high quality and suited to the Canadian climate.
• Backyard Pool and Spa: Located at 6.5 kilometers from Surfside’s store, this competitor offera two hot tub lines:
- Softubs: Made from a soft, polypropylene foam and doesn’t require electrical wiring.
- Coleman Spas: Over 100 years of experience and directed towards therapeutic use.
• Sundance Spas: California based and first to obtain ISO 9001 certification. Promotes its energy-efficient designs and environmentally friendly policies.

Table A in Exhibit 1 describes each of Surfside’s competitors’ hot tubs and Surfside’s hot tubs. It compares their price range, competitive advantages and other informations.

Surfside’s Hot Tub Division.
Surfside’s hot tub division also presented the company’s mission statement: “Surfside prided itself in offering exceptional expertise and the highest quality products available amidst a comfortable, family atmosphere.”
As stated before, hot tub sales represented 25% of the company’s total revenue, and even if hot tub sales were concentrated in July and August, one full-time salesperson was in charge of the hot tub sales throughout the year.
The company carries two strong hot tub brands: Pacific and Jacuzzi. Most brand specifications are described on Table A, Exhibit 1; however, the following describes the brands as part of Surfside’s hot tub division:
- Pacific: It comes in nine different models that range from simple jet options to higher-end packages that include premium massage jets, audio systems and additional pumps. Orders take only two business days to arrive to the store and the hot tubs average a 32% contribution margin. Pacific and Surfside have an amiable relationship, and, in addition, Pacific offers an incentive plan to give a free hot tub for every dealer who ordered 24 hot tubs.
On 2004, Surfside sold 36 Pacific hot tubs, representing 39% of the company’s total hot tub unit sales. Of these 36 hot tubs, 56% ranked in the middle of the selling price range (between $6,999 and $7,499).
- Jacuzzi: Since it was an American based company. Jacuzzi’s orders takes at least two weeks to get to the store. Since Jacuzzi dealt with American currency, every time the Canadian dollar strengthens against the American dollar, Surfside sees its margins tighten a bit.
According to an agreement with Jacuzzi, Surfside has to purchase at least 40 hot tubs annually and dedicate 90% of its hot tub store to show Jacuzzi’s tubs. Being a premium product, Jacuzzi’s margin is significantly higher than Pacific’s, 42%.
Even though Jacuzzi offered a$150 in market development funds for each hot tub and offered to provide salespeople training, Surfside had found it more challenging to sell this brand.
Jacuzzi’s hot tubs represented 61% of Surfside’s total unit sales, with 56 units sold in 2004. Being a higher-end product, 75% of the sales of Jacuzzi’s hot tubs were from the most expensive tubs available, ranging from $10,995 to $13,995.

C. Identification of Potential Options:

Jentzen needs to decide in what to invest his $75,000 dollars in order to revitalize the hot tub division. Jentzen needs to understand Surfside’s target market and choose the best-suited options to spread his advertising efforts so it can reach as many people as possible.
Surfside’s hot divisions offer products that are part of the high-end market, however, a few prices in the Pacific brand can be included in the middle of the spectrum.
Jentzen needs to create a marketing plan choosing from the following options:

1- Product that is being offered:
Surfrise offers two lines of products that are considered to be luxury goods. That being said, it is also true that consumers who purchase at Surfside have a wide range from where to choose their products. They could either choose from a relatively value product to a high-end, most recognized product.
Regarding the product mix, the company could opt for one of these three options:
• Carry only Pacific brand hot tubs: According to Exhibit 2, Pacific hot tubs represent 27% of Surfiside’s revenues and 20% of its profits. This may seem a little contribution to Surfside’s sales, but taking into consideration that this 27% of total sales is made with only 10% of the display space, it means that this brand is overall more profitable per retail floor space.
• Carry only Jacuzzi Brand hot tubs: This brand is meant for a higher end market and it is 33% more profitable than Pacific, with an average profit margin of 55% (See Exhibit 2). Total sales for Jacuzzi hot tubs represent 73% of Surfside’s sales revenues and 80% of its benefits.
• Continue carrying both brands: These two brands represent a balance in Surfside consumer’s offers, targeting both high-end and lower-end markets.

2- Price:
According to the case, Pacific hot tubs are sold at an average margin of 32% and Jacuzzi ones at a margin of 42%. However, Exhibit 2 shows that the actual average margin for Pacific hot tubs is 37%, and 55% for Jacuzzi hot tubs.
Also according to the case, one income level was no more likely to purchase a hot tub than any other and hot tubs kept selling despite slow economic trends. This means that the hot tub demand is somewhat inelastic. However, even if the demand doesn’t vary much, Surfside needs to please the three consumers categories: price sensitive, quality-conscious and dealer/brand loyal.
Surfside could re-arrange its product profit margins to appeal all different consumers and retain customers that go from store to store looking for hot tubs.

3- Placement/Distribution
The case mentioned that one of the dealer’s agreements to carry the Jacuzzi brand was to dedicate 90% of its hot tub retail floor space to the Jacuzzi brand. This only leaves room of 10% of the retail floor space for the Pacific brand. Surfside could take any of the three following measures regarding its floor space distribution:
Keep it 90%-10%: Honor their agreement with Jacuzzi and keep their retail floor space as it is right now.
Change it to 100%: If the company decides to eliminate one product line, then they could dedicate 100% of its floor space to the remaining brand.
Try to figure out a way to make it 80% -20%: Surfside could re- negotiate its agreement with Jacuzzi and change its retail floor space to 80% for Jacuzzi and 20% for Pacific. As stated before, Pacific generates more profit per retail floor space percentage, so it might be a good idea to double its retail space to try to boost sales.

4. Promotion:
Jentzen wants to increase sales in the hot tub division. He needs to find a way to get the message to consumers and make them aware of Surfside’s existence. The company needs to address the three consumer’s type with different messages that are valuable for each category. Surfside needs to create advertising material that appeals married couples between 35 to 55 years old.
Jentzen has $75,000 (25% if his $250,000 advertising budget) to invigorate the hot tub division. Here are his options:

- Radio: 30-second spots with the local AM 680 that costs $160 for a single transmission.
- Era Banner: with a circulation of 67,000, it was Newmarket’s most read paper. Jentzen needed to find out what size should be most appropriate and what should the ad entail. The price for small medium and large ads were $400, $600 and $800 respectively.
- Food and Home Magazine: circulated around 42,000 Newmarket homes and businesses. A half page ad in the magazine would cost $800 and a full-page ad would cost $1,100.
- Direct Mail: Either postcards, door hangers or information pamphlets, it would cost $0.30 for printing, $0.35 in postage, and $0.04 for delivery.
- Newmarket Home Show: A show expected to attract 8,000 patrons. It would cost $1,000 in display materials and $2,500 in participation cost. In addition, the event is advertised on the local FM radio station Foxy 88.5.
- Incentives: Jentzen wanted to implement creative promotional events and offers to generate interest in hot tubs, such as a “no tax event” and a promotional accessory package.
Promotions’ effectiveness need to be measured by how many people it reaches of the 75,100 inhabitants of Newmarket and how many sales it generates within its target segment.

D. Decision

Product: To provide customers with a wider range of options that fulfill the needs of every consumer type, Surfside should offer both brands. This will increase the possible purchases because the store will offer a grater variety than offering just one brand.
Since Surfside sold 36 units of Pacific brand hot tubs last year, they could take advantage of Pacific’s buy 24, get 25-promotion incentive. In addition, by keeping both brands, the company could benefit from Jacuzzi’s offer to provide routine training to salespeople and $150 market development fund for each hot tub sold.

Price: Surfside could decide to lower its price by 5% on its Pacific brand to target price sensitive consumers and decrease by 10% the price of the three cheapest Jacuzzi products. The three cheapest Jacuzzi products have an average of almost 57% profit margin, 15% more than the whole brand average stated in the case.
The rest of the Jacuzzi’s higher-end products can stay with the same profit margin to appeal the quality-conscious consumers and maybe some of the dealer/brand loyalty ones that are not price sensitive.

Placement/Distribution: I believe that Surfside would benefit a lot from re-stating the terms of the Jacuzzi agreement about the retail floor space try to make it 80% for Jacuzzi and 20% for Pacific. As stated before, Exhibit 2 describes how the Pacific brand is more profitable by retail floor space than the Jacuzzi brand. In addition, since Pacific’s most expensive product is the same price as one of Jacuzzi’s cheapest, the distribution of the store needs to be re-arranged to please more price-sensitive consumers.

Promotion: Table C in Exhibit 3 describes the distribution and allocation of the $75,000 of the advertising budget of the hot tub division.
The following describes why the budget was split that way.
- Radio: I would not include radio advertising in the budget. The first reason is that radio usage in general has decreased a lot, let alone AM radio. Secondly, to make an impact in a consumer, a radio announcement will have to run at least 4 times a day for a month, making it $19,200 ($160 x 4 x 30) just for one month of advertising. Thirdly, Surfside will have no control over the time these ads will be aired, making it a little difficult for the message to reach its target market.
- Era Banner: A medium-sized ad twice a month in the local newspaper could generate some consumer awareness. Even if consumers wouldn’t necessarily be influenced by the ad to make such a large purchase, at least it serves as informational and to create awareness. This investment would consist of $14,400 ($600 x 24) for a year round advertising campaign, running twice a month.
To catch consumer’s attention, the company should design two different ads, one featuring discounts and promotions to attract price-sensitive consumers and another explaining hot tubs features and benefits for quality-conscious consumers.
- Food and Home Magazine: A monthly, full-page color advertising that runs once a month for a year would cost the company $13,200 ($1,100 x 12). For the name of the magazine it could be implied that this magazine is mostly read by middle aged, married women, which is half of Surfside’s target market. Considering that, according to the case research, females make the ultimate purchasing decision, the ad on this magazine is a safe way to attract consumer’s awareness.
- Direct Mail: In my opinion, this is an important part of the plan to create consumer awareness and to inform consumers about promotional activities and discounts. Each direct mail in the form of a postcard will cost $0.79 cents. In order to keep consumers informed of different promotions, postcards should be sent three times a year. A total of 35,000 postcards should be mailed within a year, with a cost of $27,650 ($0.79 x 35,000). Around 11,600 should be mailed each time, making them reach around 30% of Newmarket’s total population (seeing that most posts are sent to married couples and families).
- Newmarket Home Show: The easiest way to reach consumers is by offering exactly what they’re looking for. If a customer goes to a trade show you know that you have at least their attention and interest, because most of the time they want to be there. The home show is a very desirable option because not only it is the least expensive of all the options, but it also offers extra promotion by advertising on local radio. The total cost for this option is $3,500.
- Incentives: A total of $16,250 was located for customer incentives. These budget should include incentives and promotions for the three customer types:
A gift of a bathroom basket should be given to any purchase of a second time customer. These gift basket cost $45, and if 40% of Surfside’s customers are second-time owners, $1,800 should be allocated for this purpose.
For quality-conscious consumers that also buy the tubs for their therapeutic use, a book of Water therapy should be given with the purchase of any hot tub that serves this purpose. Each book costs $25, so a cost of $2,000 was allocated for giving books as a gift.
Sales can also be incentivized for price-sensitive consumers if a low season promotion of 5% is given. Running from the beginning of November until the end of March, this promotion should attract consumers to buy during the lowest season. Supposing that 12 tubs are sold while the promotion lasts, and taking Surfside’s average selling price for a hot tub, a budget of $5,000 should be allocated for this promotion.
Lastly, with the $7,450 still available, promotional events can be done. This could include raffles for weekends on a spa for a couple and seasonal events demonstrating the benefits of the hot tub therapy.
The incentives should be announced on the Era Banner ads, the Food and Home Magazine and the mailed postcards.