Clique Pens: The Writing Implements Division of U.S. Home Harvard Case Solution & Analysis

Threats of Substitutes

Threats of substitutes are high because there is a very low margin to differentiate the products from one another. Consumers are purchasing writing implements by considering its packaging, price and the way it is displayed in the retail stores. There are a very few customers who are brand conscious while purchasing writing implements however, their buying behavior is also affected by the factors such as price and packaging. The industry is well established with a number of competitors working there, therefore, buyers have no switching and searching costs to find a substitute of a product. Customers can easily access substitutes of inexpensive pen to a super luxury pen in the market.

Barriers to Entry

Barriers to entry are high because the industry is already experiencing tough competition among existing firms and it will be very difficult for the new entrants to get a strong position in the industry due to high start up and maintenance costs. Start up costs doesn’t mean the cost required for setting up a business because there are only a few equipments required to design and develop a normal quality ball point; however, it would require higher costs to market and convince retailers and buyers to purchase an unknown brand or relatively new product. There is a very low customer loyalty in this industry. Every manufacturer has to invest heavily in marketing and advertisement to attract customers. If a manufacturer stop spending on advertisement and marketing, it will soon lose touch with the customers as Schlitz Beer did.

Proposed Solutions

Following are the available solutions with the Ferguson to implement for the support of the MDF to increase gross profit, consumer attraction and retailer satisfaction.

  • Consumer Oriented MDF

The consumer-oriented MDF means that the Clique Pens Writing Division of US Home should spend heavily on advertising and consumer direct discounts such as instant coupons.

Pros: The implementation of this action will help the company to get an additional increase of 5% in retail sales and will also result in an increase of gross profit margin of 2% from 36% to 38%. This will increase the touch between the consumers and will help the company to generate long term sales.

Cons: Retailers didn’t like instant coupons; therefore, it will increase the difficulties for Clique in getting shelf space and life. The option is risky enough and it can result in the further decrease of the gross profit margin. The company is already spending 30% more on advertisement and promotion as compared to its rivals, which is showing that consumers cannot be swayed by advertisement at all. Moreover, there are only 1.3% consumers in the industry who are using discount coupons; therefore, the allocation of funds to discount coupons has low efficiency level.

  • Use MDF as Opportunistic Fund

Another option that is available with the Ferguson is to use MDF funds as sales opportunistic funds. Apart from sales, it can be used as an opportunistic fund of the company to resolve different issues as well as to exploit opportunities that are available in the market.

Pros: The availability of the opportunistic fund will help Clique to invest in any type of opportunity available in the industry without wasting time in arranging funds. The company could increase its market share by 0.4% next year and the overall gross profit has a chance of increase of 3.5%. The funds can be used in other departments of the company as well, in order to improve and control its gross profit margin.

Cons: This will leave the Clique Pens Writing Division of US Home with certain unsolved issues that it is experiencing currently and will require the management to sort out various useful ways to invest the MDF.

  • Increase or Decrease in the Price

An increase in the price of the Clique Pens Writing Division of US Home products will help the company to improve their gross profit margin because many buyers in this industry are not price sensitive. Through aggressive marketing, the company can attract a number of new customers towards their products. The company is already using competitive prices and it is not wise enough to further reduce prices.

Pros: The increase in price could increase the company’s gross profit margin.

Cons: The company cannot increase the price because retailers are usually avoiding those products that comes with high manufacturer margin and low retailer margins. According to the estimations, a 6% increase in price will reduce 1% sales. Clique is not in the condition to bear further reduction in sales and gross profit. Competitors are working on thin margins and the increase in price will eliminate them from competition.................................

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