# Clique Pens Harvard Case Solution & Analysis

Calculations of Consumer Oriented MDF and Retail Oriented MDF

The calculations shown in the “Financial” shows the gross profit if consumer oriented and retail oriented MDF are employed. The assumptions stated in the case are taken. As far as the consumer oriented MDF are considered, the sales are expected to be reduced by 9% while the gross profit would rise to 38% from 36%. The resultant figure for the gross profit figure is 65 million,thus it shows that consumers will respond positively if they are provided benefits whenever they purchase the product.

The Calculations also show the gross profit if the retail oriented MDF is employed. The sales are assumed to increase by 5% and the gross profit would increase by 3.5% in value. Taking these assumptions, the gross profit is expected to rise to 69 million in 2014 from 67 million in 2013. Moreover, the gross profit would decrease to 35% as stated about the reduction in the gross profit percentage.

Overall, this shows that the consumer oriented MDF can be more useful for the clique division.

Calculation of the gross profit based on the Staple test

As per staple test, the volume of sales is expected to rise by 7% from 198 million units to 212 million units from 2013 to 2014. The volume has increase because the price has fallen by 10% from \$0.94/unit to \$0.846/unit. Due to the 10% discounts given to retailers, the gross profit margin has also fallen from 51% to it 45%. The cost of the unit is \$0.46/unit. The resultant sales figure after the reduction in price by 10% and the increase in Quantity sold by 7% is 180 million. The sales value has decreased from 2013 because the product has inelastic demand.Lastly, the resultant gross profit margin is 81 million which is 45% of the resultant sales is.

Retailers need vs Consumer needs

The retailers are main contributor to the sales of pens and pencils as they provide them the shelf space required for these products to be sold,as it has become the norm in the industry, the power of retailers have risen. As consumers find everything under one roof, they will also like to buy pens and pencils from these stores. Moreover, there is no other distribution channels for US Home to sell their pens and pencils to mass market including school children, households and businesses, they should keep retailers happy in order to gain greater market share.

As far as the competitors are concerned, they are themselves selling their products through the channel of these retail stores. The pens and pencils of one company cannot be differentiated from other pens and pencils, therefore there is no need to waste money of consumer advertising as they do not see any difference between pens and pencils of different companies.The test at staple stores proved that the target of rising sales value would not be achieved if consumers are given discount.

The consumer promotions would increase gross profit to 38% which has been falling continuously. If retailers’ discounts are reduced, then it would negatively affect the retailers and they would not show the products on places where it would be more visible to people as compared to competitors. The brand image was affected adversely as the consumer oriented advertising was reduced to make retailers happy. This may reduce the long term sales of Clique division. Therefore, the advertising that focuses on consumers and attract them towards their branded pencils and pens may increase their sales and the gross profit margin.Great brands like Schlitz beer has lost their appeal to customers as they stopped focusing customers in their marketing campaign.Being away from retailers would allow them to sell products according to their wish and the retailers would not have much bargaining power.

The price elasticity of demand, the sensitivity of a product’s demand to the price, arevery low. According to Chen the increase in price of 6% would only result in 1% reduction of sales volume. This means that the prices can be increased and the consumer oriented advertising could take place as there is no lost in revenue and sales volume because consumers are not given discount.Lastly, the unique attributes of their pens such as the readily available ink formula and their utilitarian designs can be promoted for households and school businesses.

The bonus factor must also be considered,as the buyers at these retail stores get a bonus whenever they buy from manufacturers, it could be considered in the allocation of funds.For. instance, the buyer at Staples gets a bonus heavily weighted to his realized gross margins. The buyer at Wal-Mart has set margins around 35%, but is rewarded for obtaining things that affect cost, like warehouse allowances, roll-back promotions, and center-aisle programs.

If Clique were to fully implement MDF oriented to consumers, how should

Ferguson go about obtaining retailer support? What kind of competitive response should be expected?

The support of retailers is important because the majority of sales of Clique division is achieved through these retailers. The main self-interest of these retailers is to maintain their profit margins as compared to other retailers. The form of consumer advertising is crucial. In this case, advertising in the form of direct mail,flyers and television would have to be increased to create a brand image of their pens and pencils. The brand image and the inelastic demand of its products would allow it to increase the price of pens and pencils. This would keep retailers happy because their profits margins will be maintained and the Clique division would able to maintain their market share and increase their gross profit margin.

On the other hand, if discounts are reduced, the retailers would retaliate because they would not tolerate their margins deteriorating. As they have the strong bargaining power, they can force Clique division to go out of the market. Their products would not be placed on preferred locations or competitors’ products would be more preferred as compared to Clique division.

How should Ferguson manage the push/pull conflict between the marketing

Department (Chen) and the sales department (McMillan)?

The Conflict between the sales department and marketing department can only be managed if they are asked to work together keeping in view the main objectives of the Clique division that is to create brand image about firms’ products and to increase the gross profit margin of pens and pencils.

Recommendations

One of the recommendations is to increase the prices by 6%. The sales volume would only decrease by 1%. The Sales would increase leading to rise in the gross profit margin,however, this strategy would not give them control over their sales and increase market share and maintain margins.

Other options include dropping all discounts given to retailers and giving 10% discounts to customers. This would reduce sales 180 million as given in the calculation. This would happen because retailers will not market their pens and pencils to customers on their shelves effectively. However, it would improve their gross profit margin as shown in the calculation where it reached to 45%.

Clique Pens should create retailer-oriented Marketing Development fund. This strategy involves increasing deals with retailers and buys more shelf space, POS displays and cash register spaces.  The entire consumer promotion budget, coupons dominated, would be eliminated in favor of retailer-oriented MDF and gross margin offset fund. Retailers and Clique pens would establish joint sales & marketing control of the MDF. It allows a strengthening cooperation between marketing and sales teams. This alternative meets all objective criteria and recommended for implementation.

One of the recommendation is to acquire retailers’ stores which would give them more control over the marketing policy of the company.

Exhibit 1: SWOT Analysis

Exhibit 2: Porter five forces

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