Barro Stickney WAC is a manufacturer's representative firm facing two growth opportunities that present dilemmas. It can hire an additional salesperson for its largest principal R.D. Ocean, which accounts for 32% of revenue but risks not finding the right person. Alternatively, it can take over a territory in Virginia for principal Franklin Key, offering $800,000 in annual sales but requiring a new branch office and specialized approach. The core problem is whether growth through expanding territory, sales force or principals is possible. The recommendation is to take the Franklin Key territory due to established sales, opportunity for growth through new military accounts, and lower market investment needs compared to risks of the R.D. Ocean opportunity.
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case study of borro stickney. it is a very usefull and valid case study for students.
Barro Stickney WAC is a manufacturer's representative firm facing two growth opportunities that present dilemmas. It can hire an additional salesperson for its largest principal R.D. Ocean, which accounts for 32% of revenue but risks not finding the right person. Alternatively, it can take over a territory in Virginia for principal Franklin Key, offering $800,000 in annual sales but requiring a new branch office and specialized approach. The core problem is whether growth through expanding territory, sales force or principals is possible. The recommendation is to take the Franklin Key territory due to established sales, opportunity for growth through new military accounts, and lower market investment needs compared to risks of the R.D. Ocean opportunity.
Barro Stickney WAC is a manufacturer's representative firm facing two growth opportunities that present dilemmas. It can hire an additional salesperson for its largest principal R.D. Ocean, which accounts for 32% of revenue but risks not finding the right person. Alternatively, it can take over a territory in Virginia for principal Franklin Key, offering $800,000 in annual sales but requiring a new branch office and specialized approach. The core problem is whether growth through expanding territory, sales force or principals is possible. The recommendation is to take the Franklin Key territory due to established sales, opportunity for growth through new military accounts, and lower market investment needs compared to risks of the R.D. Ocean opportunity.
Introduction John Barro and Bill Stickney had established their small manufacturer's representative agency, Barro Stickney, Inc 10 years before. John was energetic and gregarious. Even after producing $1.75 million in sales past year John still made efforts to improve sales. Bill Stickney was thoughtful and he knew how to get things done and how could they be better. R D Ocean was BSI's largest principal and it accounted for 32 percent of BSI's revenues. Franklin Key electronics was BSI initial principal and had remained a consistent contributor of approximately 15 percent of BSI's revenues.
Franklin's representative Mark Heil passed away in a plane crash and BSI could not risk its sales of over $800000 and were desperate to replace Heil before any customers found other sources. Franklin offered the territory to BSI and was anxiously waiting for the decision. BSI was not familiar with the territory but was aware of the sizable orders and specialized sales approach. Profile JOHN BARRO BILL STICKNEY J.TODD SMITH Interests Golf ,Community organizations Gourmet cooking Boy scout troop
Social Work (Fund raising) Position Partners in rep agency Partners in rep agency Additional Sales personnel Experience $1.75 million sales in the last year. Administrative work of the agency Resource Allocation and territory assignments $1.5 million sales in the last year. Worked for a nationally known cooperation Experience dealing with large customers. Sales over $2 million in the last year.
Personality Energetic Gregarious Meeting new people New challenges
Thorough and thoughtful
Enthusiastic
Barro Stickney WAC
Lahore School of Economics 4
Qualitative statements: With four people and sales of $5.5 million, Barro Stickney Inc had become a successful and profitable manufacturer's representative firm. BSI enjoyed reputation for outstanding sales results and friendly thorough service to both customers and principals. It was mainly through Johns efforts that many of BSI's eight principals had signed on with BSI. Even after producing $1.75 million in sales John still made efforts to increase sales Bill Stickney liked to think of himself as someone a person could count on. He was thoughtful and thorough. Much of the administrative work of the agency such as resource allocation and territory assignments was handled by Bill. Mark Heil Franklin's representative from Virginia, perished when his private plane crashed, leaving Franklin key without representation in its DC/Virginia territory. Franklin did not want to jeopardize its sales of over $800,000 and wanted to replace Heil before its customers found other sources. Franklin offered the territory to BSI and was anxious to hear the decision within one week. BSI was not familiar with the territory but it did understand that there were many military accounts. If BSI's time were evenly divided among its eight principals each would receive 12.5 percent of the agency's time. Swanson's products are being replaced by the competition's computerized electronic equipment, a product category the firm has ignored. As a result, the company is losing its once prominent market position. According to a seminar at the last ERA meeting, the maximum safe proportion of a reps firm's commissions from a single principal should be 25 to 30 percent. The revenue for investment for the manufacturer's representative firm comes from one or more of several sources. These sources include reduced forthcoming commission income, retained previous income and borrowed money from a financial institution
Barro Stickney WAC
Lahore School of Economics 5
Quantitative statements: With 4 people and sales of 5.5 million BSI had become a successful and profitable manufacturers representative firm. Bill contributed $1.5 million to total company sales. John Barro contributed $1.75 million in sales this year and was still making efforts to contribute more efficiently. R.D. Ocean was BSIs largest principal and accounted for 32% of BSIs revenues. Franklin Key Electronics was BSIs initial principal and had remained a consistent contributor of approximately 15% of BSIs revenues. According to a seminar at the ERA meeting the maximum safe proportion of a rep firms commission from a single principal should be 25 to 30 percent. If BSIs time were evenly divided among its 8 principals each would receive 12.5 percent of the agencys time. The net income for the year Dec 31 1998 was $238333 which is 7.9% of revenue. The revenue for BSI principal is as follows: Butler 3%, Dickens 10%, Horizon 10%, Swanson 14 %, Moore 11% and Knox. R.D. Ocean had high market saturation and 32% share of BSI's portfolio. Franklin Key high estimated market saturation and 15% of share of BSI's portfolio. Problems BSI is facing a dilemma of which alternative to choose. Firstly, BSI has to decide whether or not to hire an additional sales person for R.D Ocean. The problem is that it is not easy to find the right person for the right job and investment concerns are also evident. The second alternative for Barro Stickney Inc. is the takeover of the territory in Virginia on the request of Franklin Key. Barro Stickney WAC
Lahore School of Economics 6
Furthermore, BSI was not familiar with the territory however it did realize that the company can increase the number of principals by accounting for military accounts. This meant that there was a potential for sizable orders, although a different and specialized sales approach would be required to cater to the needs of the clients in that area. The problem with this is that the repute of the company will be at stake, hence it will be risky endeavor for the company and the military accounts had their own approach of making purchase decisions. Due to the distance and the size of the territory, serious consideration was needed as to whether a branch office would be necessary which meant that there would be less interaction with a greater independence from the main BSI office. Furthermore none of the current BSI members wanted to move there however there might be a possibility of hiring someone who was familiar with the territory. But with this, there was a risk that any successful sales person might leave and start his or her own rep firm. Cost Analysis R.D Ocean: R.D. Ocean accounts for 32% revenues for BSI and is highly demanding however it is less difficult to sell due to small marketing investment requirement. Revenue is $96,756 and the commission rate is 5% and the cost of new hire = Avg. Salary + support costs + safe 30% bonus That is, $20,000 + $66,000 + (0.3*96,756) = $115,026 Franklin Key: Franklin Key accounts for 15% revenues for the company however it has moderate demand and is easier to sell relatively. Franklin Key (Virginia) has total Sales of $800,000 and the profit on commission is $800,000*5% = $40,000. However, the Cost of new branch: Compensation ($40,000*0.2 + $20,000) = $28,000 Barro Stickney WAC
Lahore School of Economics 7
Support Cost = $66,000 Incremental Exp = $24,000 Total Cost = $118,000/year Fixed cost/annum = salary + transport + insurance + incremental expense = $20,000 + $22,000 + $16,000 + $24,000 = $82,000 Core Problem The issue at hand for BSI is to answer the following question: Is growth possible if BSI expands its territory, sales force or number of its principals as requested by Franklin Key & R.D. Ocean?
Solution & Recommendations There are two Key Accounts demands on the table, lets look at each one by one: Franklin Key: Positive aspects: 1. The market is already developed and Sales stand at $800,000. The commissions generating from this client will become TWICE once BSI enters this territiory. 2. Low market investment required for this product category. 3. Opportunity for growth is there. As new principals from military accounts can be added. In the coming years, revenues from Swanson are expected to go down, hence, new avenues for growth have to be tapped now. Negative Aspects: 1. New Territory risk increases. 2. Office needs to be purchased. We dont recommend giving a sales rep the responsibility to single handedly handle this territory because theres a great risk of him opening up his own sales office (Barro Stickneys owners did the same thing too when they started their business!) 3. Low capacity to serve new principals. Any new client can lead to drop in customer service. 4. Additional opportunity is mainly for military accounts for which B.S.O doesnt have experience.
R.D.O Positives: Barro Stickney WAC
Lahore School of Economics 8
1. This account gives 32% of revenue. Hence, too much dependency on this account and by simply adding one sales rep. the account will remain happy and satisfied. Negatives: 1. Theres a high cost associated with hiring a new sales rep and this territory is already saturated for R.D.O. hence, the returns against the costs are not expected to be too great.
What We Recommend: Theres no question that both the options should be declined and BSI does nothing. It needs future growth opportunities because one of its existing account Swanson which accounts for 14% of revenues is expected to face some hard times in the future hence, commissions will go down. The only real opportunity is in the form of F.K.Es request to cover Virginia. Its a relatively safe way for the agency to expand and increase its size. Also, by expanding this new territory it will reduce its reliance on R.D.Os billings.
On the other hand, R.D.Os demand is purely customer centered and the only interest BSI has in serving it is to keep the client happy; theres no real opportunity to be tapped.
We recommend that BSI enters the Virginia territory for Franklin Key and develop its human resources to cater to military accounts and generate more revenue channels in that territory. As for R.D.O, BSIs team needs to reason with the client and tell him how investing further in a saturated market is not in his interest. If the team is successful the matter will be resolved, if however, the client exists, BSI should make the hiring because a happy client is a happy business.
Presented By: 1. Aman Shekar 2. Yogesh Shah 3. Karan Shah 4. Chandrakanth P 5. Ankit Barai 6. Prabhanshu Soni 7. Vaibhav Shah 8. Rachit Khurana 9. Sai Teja 10. Sherly Correa