current distribution policy and network.

In November 2015, the company planning process for Gibraltar Door, Inc. had just concluded, and Richard Haworth, director of sales and marketing, was reviewing the corporate

sales goal for 2016. The plan established a sales goal of $12.5 million for 2016, which represented a 36 percent increase in sales over projected 2015 year-end sales.

During the planning process, a number of fellow executives had voiced concern over

whether the distribution approach used by Gibraltar Door was appropriate for the expanded sales goal. Haworth felt that their concerns had merit and should be given careful consideration. Though he had considerable latitude in devising the distribution strategy, the final choice would

have to be consistent with achieving the 2016 sales goal. His approach and action plan had to be prepared in a relatively short time to permit implementation in January 2016. The Company

Gibraltar Door, Inc. is a privately owned regional manufacturer of residential and commercial garage doors. Projected year-end company sales were $9.2 million in 2015 with a net income of $460,000 (see Exhibit 1). The company manufactures both insulated and non-

insulated steel residential and commercial garage doors and supplies springs, cables, rollers, and side roller tracks for its products. Surveys of its dealers indicate that the majority of its doors are replacement purchases in the home remodeling segment of the residential housing market, with

the balance of sales going to the new residential housing market and the commercial replacement garage door market.

The company distributes its garage doors through 300 independent dealers that typically offer

three different garage door manufacturer brands and 50 exclusive dealers that stock and sell only Gibraltar doors. (Exclusive dealers often service competing brands of garage doors in their market area.) Combined, these 350 dealers service 150 markets in 11 western and Rocky

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Exhibit 1 Gibraltar Door, Inc. Income Statement Projection: For the

Period Ending December 31, 2015

Net Sales $9.200.000

Cost of Goods Sold 6,900,000

Gross Profit $2,300,000

Selling, General, & Administrative Expenses 1,840,000

Net Profit Before Income Tax $460,000

 

 

Mountain states and parts of north and west Texas. The exclusive dealers, however, are the sole 1

Gibraltar Door dealers in 50 markets. According to Haworth, this disparity in distribution policy

and market coverage occurred as a result of the company’s early history in gaining distribution. Haworth added, “Gibraltar does not have a policy on exclusive versus nonexclusive dealers. As it so happens, the 50 exclusive dealers have been consistent performers for us. We have chosen not

to distribute through other dealers in their markets given the mutually beneficial relationship we have enjoyed.”

The 350 dealers that sell Gibraltar doors engage in garage door sales, installation, and

service. Most dealers operate from a single location. All stock and sell garage door openers and hardware. The two major garage door opener suppliers are Overhead Door, which also sells the Destiny, Odyssey, and Legacy brands, and Chamberlain, which makes openers under its own

label, as well as Craftsman and LiftMaster brands. All 350 Gibraltar Door dealers are located in markets with populations of approximately 250,000 or less. All 150 markets are roughly equivalent in terms of population and housing units according to U.S. Census 2000 figures.

Gibraltar Door operates two distribution centers. These distribution centers allow the company to maintain an inventory of garage doors and hardware near its dealers for quick delivery. A distribution facility also operates at the company’s manufacturing plant. The company

employs 10 technical sales representatives. Eight representatives call on each independent (nonexclusive) dealer twice a month on average. Two representatives call on the 50 exclusive dealers.

The Residential Garage Door Industry The residential garage door industry in the United States was expected to post sales of $2.2

billion at manufacturer’s prices in 2015. Steel garage doors account for 90 percent of industry sales. The home remodeling (replacement) market accounted for the bulk of steel garage door sales. Demand for replacement steel garage doors was driven by the continued aging of the

housing stock in the United States and the conversion by homeowners from wood doors to lighter weight, easier-to-maintain steel doors. Also, product innovations such as insulated steel doors, new springing systems, and residential garage doors with improved safety features have

made steel doors popular. Projected 2016 sales of residential garage doors to the home remodeling market were $2.25 billion, representing a 2.4 percent increase.

There are several large national manufacturers and many regional and local manufacturers in

the U.S. residential garage door industry. The largest garage door manufacturer in the United

A “market” is defined by Gibraltar Door as roughly equivalent to a U.S. Census–designated metropolitan statistical area 1 (MSA). An MSA consists of (1) a city having a population of at least 50,000 or (2) an urbanized area with a population In excess of 50,000, with a total metropolitan population of at least 100,000. An MSA may include counties that have close economic and social ties to the central county. Examples of metropolitan statistical areas include the Modesto, California MSA; Pueblo, Colorado MSA; and the Cheyenne, Wyoming MSA.

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States is the Clopay Corporation. Clopay Corporation markets its garage doors through a network of some 2,000 independent dealers and large home center chains, including Home

Depot, Menards, and Lowe’s Companies. Other large, well-known garage door manufacturers are Overhead Door Corporation, Wayne-Dalton Corporation, Amarr Garage Doors, and Raynor Garage Doors. Gibraltar Door, Inc. is considered to be one of the smaller regional garage door

manufacturers in the industry. In early 2015, Richard Haworth commissioned two studies of the residential garage door

industry in the markets served by Gibraltar Door. One study was a survey of 3,000 prospective

residential garage door buyers in 25 cities that represented a cross section of the company’s markets. A summary of the survey results is shown in Exhibit 2.

A second study was commissioned to identify the number of dealers that installed residential and commercial steel garage doors in the 150 markets served by Gibraltar Door and estimate

their approximate sales volume. Internet searching and telephone directories were searched to identify the independent garage door sellers and installers in each market area. Using industry data to adjust for sales of garage door openers, labor installation charges, garage door and opener

maintenance and repair revenue, and the like, this study identified 3,002 independent garage door dealers with estimated 2015 steel garage door sales (at manufacturer prices after adjusting

Exhibit 2 Residential Garage Door Survey Results Summary: 2015

1. Residential garage door name awareness was very low. Just 10 percent of prospective buyers could provide a brand name when asked.

2. When asked what criteria they would use in buying a new residential garage door, price, quality, reliability of the installer, and aesthetic appeal of the door were mentioned most frequently in that order.

3.

Friends, relatives, and neighbors were the principal sources identified when asked where they would look for information about residential garage doors. The Intenet and newspaper advertisements were the next most frequently mentioned information sources. A company that may have installed or serviced a garage door opener or repaired an existing door also was considered an information source.

4. Thirty percent of prospective buyers expected to get at least two bids on a residential garage door installation. Virtually all expected to receive and review product literature, including warranty information, prior to installing a new door.

5. Fifteen percent of prospective buyers said they would install their own residential garage door when a replacement was needed.

6. Steel garage doors were preferred to wood garage doors by a nine to one margin.

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for markups) of $316.8 million. Replacement parts sold to dealers added another $31.7 million to the estimated garage door sales, bringing the total market size to $348.5 million in 2015. This

research also reported that independent garage door dealers did not sell all brands of garage doors carried at an equal rate. As a rule, for dealers that sold three different manufacturer brands, the dominant brand accounted for 60 percent of their sales, the second brand, 30 percent of sales,

and the third brand, 10 percent of sales. Commenting on the research, Haworth said, “These numbers indicate that our market share is about 2.6 percent. I know we can do better than that. In fact, the ambitious sales goal of $12.5 million in 2016 is achievable given the potential existing

in our present markets.” The Distribution Strategy Issue The strategic planning process had affirmed the overall direction and performance of

Gibraltar Door’s sales and marketing initiatives with good reason. The company recorded sales gains in each of the past 10 years that exceeded the industry growth rate and had added 50 dealers in the past decade. The $12.5 million sales goal for 2016 was driven principally by

supply considerations. Senior executives were of the firm belief that the company had to attain a larger critical mass of sales volume to preserve its buying position with suppliers, particularly with respect to raw materials for its garage doors, namely, galvanized steel and insulated foam.

During the planning process, company executives agreed that additional investment in advertising and promotion dollars was necessary to achieve the ambitious sales goal. Accordingly, Haworth was able to increase his marketing budget by 20 percent for 2016. It

was decided that this incremental expenditure should be directed at the 100 highest-potential markets currently served by Gibraltar Door. These included the 50 markets served by

exclusive dealers and 50 markets served by independent dealers, which had yet to be finalized. The remaining 50 markets and independent dealers would continue to receive the level of advertising and promotion support provided in 2015. This support was typically in the

form of cooperative advertising allowances for newspaper advertising, with additional incentives for featuring the Gibraltar Door name, and product literature.

Haworth saw his charge as determining the characteristics, the number, and the locations of

the dealers Gibraltar Door would need to meet its sales goal of $12.5 million in 2016. Initially this would involve identifying the types of dealers that would work closely with Gibraltar Door in meeting company objectives.

A number of different viewpoints had been voiced by Haworth’s fellow executives. One viewpoint favored increasing the number of dealers in the markets currently served by the company. The reasoning behind this position was that it would be difficult for existing dealers to

attain the sales goal specified in the corporate plan. Executives expressing this view noted that

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even with a 2.4 percent increase in sales following the industry trend, it would be necessary to add at least another 100 dealers. They said these dealers would likely be independent

(nonexclusive) dealers located in the 100 markets not served by exclusive dealerships. Haworth believed that adding another 100 dealers in its present markets over the next year would not be easy and would require increasing the sales force that serviced nonexclusive dealers. Executives

acknowledged that this plan had more merit in the long run of, say, three to four years. However, their idea had merit as a long-term distribution policy, they thought. The incremental direct cost of adding a sales representative was $80,000 per year.

A second viewpoint favored the development of a formal exclusive franchise program, since

27 nonexclusive dealers had inquired about such a possibility in the last year. Each of these dealers represented a different market, and each of these markets was considered to have high potential and be a candidate for the new advertising and promotion program. These dealers were

prepared to sell off competing lines, most of which were supplied by regional and local garage door manufacturers. They would sell Gibraltar doors exclusively in their market for a specified franchise fee.

In exchange for the dealer’s contractual obligation to stock, install, and service the company’s products in a specified manner consistent with Gibraltar Door’s policies, the company would drop present dealers in their markets and not add new dealers. Furthermore, these

executives noted, the company’s current contractual arrangements with its independent dealers allowed for cancellation by either party, without cause, with 90 days’ advance notification. Thus, the program could be implemented during the traditionally slow first quarter of the upcoming

year. If adopted, company executives believed the franchise program in these 27 markets could be served by the advertising and promotion program. The other 50 markets served by exclusive dealers would be unaffected, since the advertising and promotion program was already budgeted

for these dealers. The remaining 73 markets would also be unaffected, except for increased advertising in 27 high-potential markets.

A third viewpoint called for a general reduction in the number of dealerships without granting any formal exclusive franchises. Executives supporting this approach cited a number of factors favoring it. First, analysis of dealers’ sales indicated that 50 of Gibraltar Door’s dealers

(all exclusive dealers) produced 70 percent of company sales. This success was achieved without a formal franchise program. Second, these executives believed that committing the company to an exclusive franchise program could limit its flexibility in the future. And, third, an

improvement in sales-force effort and possibly increased sales might result if more time were given to fewer dealers. Although a number had not been set, some consideration had been given to the idea of reducing the number of dealers in the 150 markets served by the company from

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350 to 250. This would mean that the 50 exclusive dealers would be retained and 200 nonexclusive dealers would operate in the remaining 100 markets of which the top 50 would

benefit from the additional marketing spending. A fourth viewpoint voiced by several executives was not to change either the distribution

strategy or the dealers. Rather, they believed that the company should do a better job with the

current distribution policy and network.

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