Quelch &Beckham (2009) in the Manchester case study provides some discussionson acquisitions and marketing strategies during the process ofacquisition. The household furniture industry in America is acomparatively established cyclical industry with a monopolisticcompetition. Due to cheap imports from Mexico and Asia, the markethas many competitors. In addition, the industry is closely tied tothe American economy. For example, the $36.4 and $10.69 billionindustry for home and office furniture annual growth stood at 4% and5.3% respectively. The housing boom of the 2000s forced most firms inthe industry to center on advanced and elegant products for clientswho needed attention and innovation. In fact, most customers are moreconcerned with the designs, comfort, style, and quality of theproducts. Surprisingly, the consumers are not loyal to any product,since about 60% of them have the partiality to switch products atwill. One can categorize the industry in 3 classes i.e. metal andother (18%), upholstered (34%), and wood (48%).%) thus,differentiated products. On the other hand, quality and pricessegment the industry. Consumers play a significant role in market andenquire about products, prices, and the qualities of products priorto buying from different stores. In this regards, no firm can layclaim to a specific group of consumers or pride itself in having aloyal following.
The purchase ofPLFD enabled Manchester to gain enhanced access to domestic deliverychannels that PLFD had enjoyed prior to the acquisition (Quelch &Beckham, 2009). In addition, the CEO of PLFD had displayed excellentdesign skills concerning textures, colors, and shapes thus, combinedwith Manchester’s industrial awareness, manufacturing robustness,and ergonomic inventions, the company realized significant benefits.In fact, about 80% of customers were conscious of PLFD. However, theacquisition had several risks to Manchester, for example, Manchesterwas primarily an office firm i.e. it targeted home media, officefurniture, and recliners whereas PLFD targeted bedroom, sofas,dining, media, home office, and tables thus, the company faced thechallenge of continuing to target two different markets (Quelch &Beckham, 2009). Furthermore, the two firms had different styles i.e.bold and fashionable styles for PLFD and conservative and purposefuldesigns for Manchester.
The acquisitionraises some marketing challenges for Manchester. In this regards, thetwo companies offer different styles and target different customersi.e. they target customers in the upper and middle price points butstyles and types differentiate the target. In addition, thetransition process from Paul Logan name to Manchester will cultivatechallenges for the firm. As such, the problem rises in trying tosatisfy both targets of consumers especially PLFD customers.
On the otherhand, it would be supportive for the company to keep the Paul Loganname for sometimes to cultivate an effective transition procedure forthe brand. Keeping the brand name will help the company in securingthe market share previously commanded by PLFD thus, help the companyremain competitive. In addition, PLFD is a traffic designer indistributors and stores hence, Manchester needs to secure thesefacilities and then build connections with the facilities. As such,the company should pick few products and transition themprogressively to Manchester’s name. Because of the different targetcustomers, the company can decide to develop a new stylish name forthe PLFD products to reach different targets.
The companieshave different marketing budgets i.e. while Manchester put much ofits budget in pull initiatives, for example, national advertising,PLFD apportioned much of its budget to push initiatives in the usageof procurement allowances for trade and volume allowances. In itsbudget, Manchester plans to lessen PLFD’s push allocations by about3.8% to $38 million and increase their pull allocations to $45.6million by 9.7%.
Manchestershould reassess this marketing allocation since the company has hadchallenges in fortifying distribution for its merchandises. On theother hand, the acquisition has placed Manchester in a progressiveposition in securing more distribution facilities, but then, thecompany does not have to disregard the domestic outlets by refusingto offer purchase and volume allowances. The push initiatives havehelped PLFD in cultivating strong connections with customers frompredominant wholesalers, fittings chains, and departmental stores.
The twocompanies allocate more money in pull strategies than in pushprograms. However, for the last years, PLFD has allocated more moneyin push programs than Manchester. In 2003, both firms spent almostthe same portion of sales on pull approaches, but during 2004 period,Manchester expanded its marketing budget than PLFD i.e. 4% incrementfor marketing, mostly for pull allocations and 1.5% for PLFD. Theorganization plans on cutting the PLFD purchase rebates completely,which will result to huge cuts in push expenditures, but nationaladvertising will see an increment to 6.8% from 3.3% (106% increase),which will encompass almost a third of marketing expenses for theyear. Co-op marketing would rise to 6.4% from 5.1% (25% up), Consumerpromotions from 1.9% to 3.0% (58% increase). The PLFD marketinggrowth will remain the same while the Manchester expenditures willgrow at an exponential proportion surpassing 25% for 2005.
It would bewrong for anyone to support Adams’ budget allocations. In fact,Adams should not make any noteworthy alterations to the push programsinitiated by PLFD. Rather, Adams should try to balance between thetwo programs by adding more allocations to both budgets. In times ofacquisition, it is not advisable for a company to cut back on itsmarketing allocations. As such, Adams should use both programsthrough the entire transition period.
Majority ofsales come from furniture stores and warehouse thus, the companycannot afford to lose them. As such, the company needs a slightincrease in national advertising for the PLFD allocations. Instead of106% increment, the company should have a 21% increase (saving $28million) i.e. $40 million. Co-op advertising should be at the rangeof 20% increase rather than 25%, which would save $3 million anddecrease the amount for in-store to save $2 million. The company canput the $33 million in dynamic purchase rebates programs. On theother hand, the expenses for Manchester for the present period aredefensible since the firm requires more brand acknowledgement.
In 2004, themarketing expenses for PLFD amounted to $189, which amounted to 18.9%of sales. This means that the sales for the year amounted to $1000(i.e. 189 * 100% / 18.9%). Since the company realized sales of $1000with an allocation of $189 for marketing expenses, it required tosale goods worth $1,111.10 to break even. For Manchester, theexpenses for 2004 totaled $42.6, which equaled 16.4% of the sales,meaning that the sales for the company amounted to $259.80 (i.e. 42.6* 100 / 16.4%). With an allocation of 42.6, the company realizedsales of $259.80 thus, it required sales of $537.90 to break even(i.e. $88.2 * $259.8 / $42.6) thus, the company needed sales of$1,649 to break even.
Maintaining thepush programs in 2005 for PLFD means that marketing expenses willincrease for the period of 2005 to 248 instead of 210. As such, thecompany would require sales of $1.312.20 for PLFD company to breakeven (i.e. $248 * $1000 / $189). In total, the company would have tosell $1,850.10 to break even.
It is imperativethat Manchester utilizes both pull and push approaches through theacquirement. PLFD’s closest opponent wants to enhance marketingand price cutbacks. The competitors also want to use aggressivepolicy to exploit the hesitation linked to the amalgamation. As such,Manchester needs to cultivate a program that enables the combinationof both programs efficiently. In fact, the company does not need toturn off its distribution outlets since it is highly imperative tofloat products in the market and advertise highly.
Quelch, J., & Beckham, H. (2009). Manchester Products: A BrandTransition Challenge. Harvard Business School, 4043(2),1-11.