The Toro Company S’No Risk Program
Gilbert Mitchell
Management Decision Models
8/5/2015

This paper gives a comprehensive analysis of Toro’s S’No Risk program. To start the analysis, Toro’s risks will be analyzed; that is, the risk analysis will start from the point of view of Toro. It is correct to say that according to this case study, the company Toro did not bear huge risks; it bore minimal risks on this program in the year of the implementation of the program. The main reason for this is because in the year 1983, the company was giving out an estimated amount of six hundred and righty thousand United States Dollars to the insurance company. On the other hand, The Company Toro got profits of around one hundred and six thousand dollars. In the year the company organized this promotion, certain things happened such as; there was a mistake whereby the insurance company gave Toro a quotation of two point one percent of the covered snow thrower’s retail value. Additionally, the snowfall happened to be even more compared to the other previous years and Toro Company was exempted from giving a payment of 10 percent as discount (for awarding the vendors in the period of fall). With all these factors considered, Toro is the one that benefited and therefore, its profits grew upwards by an estimated eight percent. In addition, all this occurrences favored both the consumers and the vendors who at the end of it all became happy.
According to the insurance company’s point of view analysis, it is true to state that the American Home Assurance was the most affected in terms of high risks. Considering this case study, American Home Assurance agreed to cover the claims brought by the program which for two point one percent of the retail value of the snow thrower. The total number of rebates in that year was around nineteen percent. The company Toro put a lot of efforts in trying to reduce its losses and therefore, the American Home Assurance incurred seventeen percent in costs of rebates. Just in case Toro Company was set on going on with this program, it was predicted that the premiums would increase to about 8 percent of the total sales which were a sum of the average actual payouts of Toro for the past 4 years. The American Home Assurance would be expected to start recovering the losses that it had incurred. Toro would also be expected to bear some of the risk in the case whereby the year experienced heavy snowfalls. In such a case, this can be said to be the true definition of uncertainty as the event of snowfall is neither controllable nor predictable (Bell, 1994).
In this promotion, the consumer has an advantage in terms of risk as they are not faced by any risks. The consumers have an advantage through the promotion as they can maximize on their no risk status through upgrading and getting a larger model. Had the risk program not been there, there would be a lot of dissatisfaction among the consumers because of these two cases; in case they bought a snow thrower and after spending on it, there be no snow, or in case they failed to buy the snow thrower and snowing took place (Shimp, 2010). Therefore, the consumers are protected by the program and to them, it is favorable and this is the case due to the risk shifting that takes place among the other parties involved in the program.
Question 1 The main reason for increasing the rates of the insurance by the American Assurance Company was; as a strategy of spreading the risk such that the parties involved in the program can get a fair share of the risk. Having experienced several snowfalls ad using the previous statistics and occurrences of snowfall seasons, the American Assurance Company was able to make sensible future predictions on the estimated standard purchases level of snow throwers. For instance, they had just experienced in that current year an increase in the amount payable to consumers by nineteen percent, there was need to consider this increase when computing the premiums for the next period. This meant that they also had to keep in mind that the premiums had already reached eight percent of the total sales (Bell, 1994).
In a case whereby the risk program was also running for the past years, the previous three years can be used to aid in the calculation of the premium for the current year; that is by calculating the average amount considering the three years. That would have resulted to a figure of about four point three percent instead of the figure quoted earlier of two point one percent.
I would estimate an insurance rate that can be considered as fair by utilizing the same technique used in coming up with payouts for the consumers. This is because of the unpredictability of weather; which makes the use techniques used in actuarial science ineffective in this case.
Question 2 According to the consumer’s perspective, it is correct to say that the payback structure resembles a win- win structure especially for the people that purchased their snow throwers in the regions of snow. The payback structure is said to have originated in the Snow Belt whereby snowfalls are experienced and whereby there are weather stations that provide information on the status of these snow falls (Bell, 1994). In this structure’s sliding scale, there was a hundred percent refund ratio which occurred in the regions whereby snowfalls were said to be minimal, that is, below twenty percent and this was reduced fifty percent of the average snowfall so that the refund ration would be reduced to fifty percent.
For attractiveness and betterment of the program, the best thing to do would be to reduce the average snowfall expected if the snowfalls fall to ten percent for a refund of a hundred percent to a 50 percent. In such a case, the premiums payable to the American Assurance Company would be of similar value and this is because there is no precedent for the impending payouts of snowfalls. Due to the increase in incentives, the chance of selling more snow throwers is bound to increase (Shimp, 2010).
This program has some influence over consumer’s decision to purchase. First of all, the main determinant for the consumer would be uncertainty together with the snow fall that will be experienced in that same year. Secondly, the consumer will consider the immediate benefit of purchasing the snow throwers, not considering the benefits of the coming years, but only considering the benefits that one will get in the current period.

Question 3
The decision traps that are likely to be faced include; * There is the decision trap whereby the consumer considers only what is in his/her mind and makes decision based on that. For instance, consumers may underestimate or overestimate current year’s snowfall based on the occurrences of the previous year * The consumer may also experience the pseudo-certainty impact whereby he/she accepts the risk based on how the snow falls.

This program impacts on the consumer ‘regret” in that; the consumers get lured in to purchasing this product snow throwers by looking at the benefits that they will obtain from the product as opposed to looking at the their ability to purchase it. This therefore means that the same consumers will always focus on getting their money back through refunds from the company in the event that there will be no snowfall. The customers therefore can be said to be confused priority-wise (Bell, 1994). The main point in this is that; if what attracted the customer to purchasing that particular product does not happen, and then the customer is likely to regret purchasing it as they would have spent the same money on purchasing something that is of priority/importance.
Question 4
From Toro’s perspective, the desired goal would be to make profits by increasing the sales of the snow throwers. It can also be said that in the perspective of Toro, it survived the anomaly that occurred in the year 1983 and therefore, it was able to continue with its program. The company should therefore do thorough geographical research in order to stay alert of any emerging issues even in terms of risks.

Question 5
In terms of success, the company can be considered to have been a success. The consumers benefited from this program through purchasing the snow throwers at risk levels that can be said to have been low and this is because of the application of the sliding scale. For the company Toro, the program was a success as its demand for snow throwers got high and this meant a boost in the sales. Another benefit that was enjoyed by Toro Company was that it got extra profits when the insurance company mistakenly gave it a two point one percent rate for premiums. However, on the insurance company’s perspective, the program was a failure as during the year the program came to place, the premiums were very low.

Question 6
This program had more disadvantages than advantages and therefore, I would have not run the same program again if I was Dick Pollick. Due to this program, the premiums for the insurance company should increase considerably by 4 times the amount they were in the previous year, which is not a good thing.

References
Bell, D. E. (1994). The Toro company s’no risk program. Harvard Business School. Case No. 9-185-017.
Shimp, T. A. (2010). Advertising, promotion, and other aspects of integrated marketing communications. Mason, Ohio: South-Western Cengage Learning.