INTRODUCTION
The FFE industry (Furniture, fixture and equipment)
The education FFE (Furniture, Fixtures, and Equipment) industry is characterized by its fragmented nature, with only one major dealer dominating the market Most other companies in this sector are classified as small to medium-sized enterprises, highlighting the competitive landscape of the industry.
As defined by Hitesh Bhasin 1
A fragmented market is characterized by the absence of a dominant organization, resulting in a competitive landscape where numerous small and medium-sized companies vie for market share alongside larger firms In this environment, no single entity possesses the power to steer the industry in a unified direction.
Using this definition, the size of dealers and their product offering in the
The PreKindergarten to 12th grade school market is notably fragmented, with School Specialty being the sole large dealer in the sector This company operates as a conglomerate, encompassing various businesses including curriculum, supplies, audio-visual technology, and school furniture Notably, the school furniture segment of School Specialty generated $190 million in revenue, according to their public annual report released at the end of 2017.
Table 1 School Specialty’s annual report 2015 – 2017
Thirty-Five Weeks Ended December 26, 2015
Distribution revenues by product line
Customer Allowances/ Discounts (6,211,000) (5,868,000) (3,055,000) (4,133,000) Total Distribution Segment $594,955,000 $598,840,000 $466,323,000 $583,774,000
Curriculum revenues by product line
Total Curriculum Segment $63,428,000 $57,482,000 $37,955,000 $38,094,000 Total revenues $658,383,000 $656,322,000 $504,278,000 $621,868,000
(Source: School Specialty’s annual reports)
The school furniture market was valued at approximately $4 billion to $5 billion from 2018 to 2022, characterized as a fragmented market where no single dealer holds a substantial share School Specialty, the largest dealer in this sector, commands less than 5% of the total market, highlighting the diverse competition within the industry.
Figure 1 North American addressable school furniture market
(Source: Global School Furniture Market 2017 – 2021 2 )
School Outfitters company
Founded in 1998, School Outfitters began as a small dealer of furniture, fixtures, and equipment (FFE) just before the rise of online retail The company offered a standard range of FFE products, including school chairs, teacher chairs, desks, and whiteboards, similar to other dealers of the time To reach customers, School Outfitters utilized FAX communications and provided a paper catalog detailing their products and prices The company primarily targeted the largest school districts in the U.S., which had greater funding opportunities based on student enrollment and local property values, with additional, albeit limited, federal government funding for schools.
Table 2 Top 10 largest US school districts
Rank Name of district State Enrollment
3 City of Chicago (SD 299) IL 396,641
10 Hawaii Department of Education HI 186,825
(Source: US Department of Education, National Center for Education Statistics 3 )
As a fledgling startup with just two employees, School Outfitters prioritized targeting large school districts to capitalize on financial opportunities, as they lacked distinct features to set themselves apart from competitors at that time.
School Outfitters initially targeted K-12 school districts for their marketing efforts using FAXes Over time, their audience has expanded to include Preschool and PreKindergarten, now focusing on public and private PK-12 school districts.
Founded in 1998 with a small team, School Outfitters has grown to approximately 170 employees, supplemented by temporary staff during the peak buying season from June to August This busy period aligns with when schools receive government funding, allowing them to assess student numbers and initiate purchases for additional furniture, replacement items, or small projects.
School Outfitters features a well-defined organizational structure that includes essential departments such as accounting, customer service, human resources, information technology, marketing, sales, and supply chain management.
Chief Innovation and Marketing Officer Finance Chief Revenue Officer Chief Supply Chain Officer
Sales Customer Service Buyers Logistics SourcingOperations ImprovementTechnology Marketing
Figure 2 School Outfitters organization structure
School Outfitters competition
Initially, School Outfitters faced competition from other dealers who depended on suppliers for their products At that time, many competitors were still using outdated methods like paper catalogs and faxes, which limited the competitive landscape However, as School Outfitters embraced modern marketing strategies and developed a robust e-commerce website, it gained a significant advantage over those still clinging to traditional practices Eventually, most competitors recognized the need to adapt to the changing market dynamics.
The shift from traditional catalogs to Internet search engines has made online lead generation increasingly effective While some competitors struggled to adapt to digital marketing, School Outfitters successfully embraced this new approach, gaining an edge in the market As a result, certain dealers became adept at online marketing, while others fell behind.
In today's competitive landscape, School Outfitters distinguishes itself by sourcing products from both traditional suppliers and its own private labels, which are obtained directly from manufacturers The accompanying chart illustrates a selection of competitors in relation to School Outfitters.
Outfitters model of being both a dealer and supplier.
The chart highlights the core assets and capabilities of various competitors in the market Companies such as Virco primarily operate as suppliers and lack a robust direct-to-consumer model In contrast, entities like School Specialty and Wayfair function as both dealers and suppliers, showcasing a more integrated approach to reaching customers.
Outfitters Since School Outfitters lives in both worlds it’s useful to have context like this to understand their strengths.
The information in below chart is based on internal information, internal research to compare capabilities and assets The important features to recognize are that (1)
School Outfitters offers a comprehensive range of products and solutions, making it a convenient one-stop shopping destination for customers With a selection of private label products that provide good margins, the company enhances its profitability Additionally, School Outfitters maintains control over much of its supply chain, allowing for streamlined operations They have developed efficient systems that facilitate transactions and generate valuable data for analysis However, the primary challenge facing School Outfitters in the FFE school market is managing large projects, which often come with low profit margins.
Sales department
The Sales team operates across the entire United States, encompassing the eastern, western, and central territories It is organized into groups of sales representatives, each reporting to one of three dedicated sales managers.
Figure 4 Sales department organization chart
Sales representatives are categorized into two types: phone and chat representatives, both requiring similar skills and knowledge about customer environments, solutions, and products While chat representatives excel in written communication and manage multiple chats simultaneously, phone representatives focus on verbal communication and handle one call at a time A system is in place for both types to receive and distribute incoming customer requests, which also records interactions for reference.
When a sales representative receives a customer inquiry, they begin by asking essential questions to determine the customer's identity and whether they are a new or returning client The representative then searches for the customer's name or phone number in the order management system For existing customers, they access the customer record to review previous quotes and orders, gaining insight into the customer's history with School Outfitters before generating a new quote.
Sales representatives engage independently with customers to identify their needs, backed by training from School Outfitters on educational environments and product solutions To instill confidence, they demonstrate expertise throughout the conversation, progressively adding products to the quote Once all items are included, they discuss pricing, shipping, and installation, addressing any customer concerns regarding costs, competitor discounts, or budget limitations The system allows sales representatives to view all pricing elements, with the only constraint being the necessity to maintain a positive margin.
Every month, sales representatives and their managers convene to assess performance and skills Prior to this meeting, the sales manager analyzes the representatives' monthly quotes, orders, recorded calls, and overall performance for the year.
The manager provides essential feedback and additional training to help sales representatives enhance their performance, focusing on the reasonableness of discounting practices Monthly meetings serve as the sole opportunity for sales representatives to receive valuable feedback and quick training tips Currently, there is no established system requiring sales representatives to involve the sales manager during the finalization of quotes or orders with customers Consequently, sales representatives must rely on their memory to apply the manager's feedback to future quotes and orders.
PROBLEM CONTEXT
FFE market situation
Historically, manufacturers have dominated the market by controlling the products available, with dealers primarily selling what these manufacturers design and produce Typically, manufacturers are well-known companies recognized nationwide, particularly among educational customers, while dealers tend to be regional firms familiar only to local school systems Although suppliers may have established brands, they face stiff competition, often offering a narrow product assortment that overlaps with other manufacturers, resulting in minimal differentiation in the marketplace.
Market fragmentation limits dealers' control over product costs, customer pricing, and profit margins, leading to intense price competition that favors consumers Dealers, who do not own the manufacturing process, receive only a fraction of the available margin, while manufacturers retain a significant portion As competitive price pressures arise, dealers often bear the brunt, as manufacturers benefit from brand recognition and a network of dealers, allowing them to exert greater control over pricing This dynamic forces dealers to accept lower margins in order to remain competitive in the market.
Mr David Lewis – Chief Innovation and Marketing Officer said that
Historically, the industry has seen a distinct separation between dealers and suppliers/manufacturers, resulting in significant fragmentation with numerous dealers and a limited number of suppliers This competitive landscape has led to reduced pricing for customers, while suppliers have largely maintained their costs Consequently, dealers have been compelled to lower their overall profit margins.
School Outfitters company situation and its business results
School Outfitters, a competitive dealer, has experienced significant growth in revenue, customer base, and staff, leading to an expanded product assortment that enhances customer choices Despite these successes, the company continues to grapple with the challenge of tight margins associated with selling products from other suppliers.
Ms Michelle Booher – Sales Manager stated that
School Outfitters fosters a positive culture dedicated to supporting educators, establishing itself as a leader in the educational furniture market The company prioritizes customer satisfaction by delivering high-quality solutions, products, and services With a strong commitment to enhancing educational environments, our team actively assists educators in achieving optimal results for their students This dedication is reflected in our impressive customer retention rates and exceptional Net Promoter Score (NPS).
Figure 5 School Outfitters sales volume
School Outfitters operates on a people-intensive, high-touch business model that prioritizes customer support As the company grows, it necessitates an increased full-time equivalent (FTE) headcount to manage various manual tasks effectively This approach ensures that customers are relieved from handling complex issues related to suppliers, manufacturers, and carriers, allowing them to concentrate on other important aspects of their jobs By managing these challenges, School Outfitters enhances the overall customer experience and fosters stronger business relationships.
The chart below represents FTE headcount increases as gross margin % increases
Figure 6 FTE headcount and gross margin %
(Source: Internal Data) 2.2.2 hnology to be efficient
School Outfitters identified the need for improved operational efficiency due to the extensive activities and document management required by their business model To address this, they implemented several software system changes aimed at minimizing manual workloads Additionally, the company developed software to enhance the integration between their website and the ERP (Enterprise Resource Planning) system, while also utilizing EDI (Electronic Data Interchange) to streamline processes.
The integration of interchange systems with suppliers and carriers has streamlined processes such as order finalization and automatic purchase order approvals However, as the company expanded, the complexity of orders increased, particularly with the addition of installation services Despite advancements in technology, the demand for human involvement in various activities remains significant.
By terming ‘technological enabler’, Clayton, Jerome and Jason 4 agreed that sophisticated technology whose purpose is to simplify, provides solution to settle down problems that previously required innovation.
William and Phillip (2017) emphasized that the innovative and intensive use of technology is crucial for industrial sustainability, enhancing living standards, increasing leisure activities, and providing a competitive edge in global trade They highlighted that by significantly investing in science and technology, industries can achieve higher rates of product innovation and greater technological integration, ultimately leading to improved productivity.
Below Hoshin charts represent for the proportion of activities which are automatically done by the system.
Approximately 98% of purchase orders automatically approved by the system
Approximately 88% of purchase orders automatically sent to suppliers and warehouses
Approximately 100% of carrier invoices automatically received and imported
Approximately 88% of supplier invoices automatically match to purchase orders
Figure 7 Hoshin charts – Examples of automated processes
(Source: Internal Data) 2.2.3 Update the business model – Be a dealer and a supplier
School Outfitters has enhanced its business model by introducing private label products to improve the industry's tight profit margins The company offers four distinct private labels: Learniture, Norwood, Sprogs, and Egghead, each featuring a unique assortment of products.
By having own products, the company expected to increase its gross margin % (GM
Gross margin percentage, or gross profit margin percentage, is a key profitability metric that evaluates a company's gross margin relative to its revenue This measurement highlights the extra margin a supplier typically receives By manufacturing directly, School Outfitters eliminates the need for third-party suppliers, thereby increasing their profit margins This strategy addresses their narrow margin challenges while enabling them to uphold their high-touch service model.
Deciding which activities to manage internally and which to outsource significantly influences the success of new-growth ventures, as highlighted by Clayton and Michael Companies typically adhere to the core competencies principle: tasks aligned with their core strengths should be performed in-house, while those outside their expertise should be outsourced to firms that can execute them more effectively.
School Outfitters had checked and recognized they had plentiful resources that they could manufacture products and push them to be a manufacturer instead of being only
20 a dealer Additionally, School Outfitters also noticed that private label products have a signigicant contribution to GM% increase.
Mr David Lewis shared that
To enhance profit margins, School Outfitters developed its own private labels, positioning itself as both a supplier/manufacturer and a distributor This strategic move significantly boosts the company's potential for increased margins, particularly through its private label offerings.
The chart illustrates the various stages in the supply chain where product margins are generated It highlights that different segments, including retailers and distributors, can capture these margins With its updated business model, School Outfitters is positioned to benefit from both retailer and distributor margins effectively.
Figure 8 Typical breakout of margin
(Source: Internal Data) 2.2.4 tial results after using private label tables
School Outfitters adopted a new business model by collaborating directly with global manufacturers to produce tables under their private label, Learniture Despite testing the Learniture table, the anticipated improvement in profit margins was not achieved, as the actual margin percentage remained largely unchanged.
Figure 9 Initial actual gross margin % including Learniture tables
Ideally, the Learniture tables should have noticeably increased the margin % because these tables have a higher starting, or opportunity margin % Instead it was not changed significantly.
Figure 10 Learniture table’s starting margin % as more products are added
PROBLEM IDENTIFICATION
Possible problem 1: Unsuitable products for educational environment
Riaz and Tanveer define a product as anything offered to customers that meets their wants or needs, highlighting its crucial role in the buying and selling process The Learniture table, a private label of School Outfitters, exemplifies this concept Kotler identifies three levels of product: the core product, which represents the fundamental benefit—such as a chair providing a place to sit; the actual product, which includes distinguishing features that set it apart from competitors; and the incremental product, which encompasses intangible benefits like after-sales service and free shipping.
Learniture, established in 2015, has struggled to gain popularity compared to more established brands, leading to customer unfamiliarity with its tables As a result, many consumers continue to prefer tables from brands that have been available in the market for decades.
Many buyers may lack technical expertise when it comes to selecting tables for their schools, leading them to question the suitability of Learniture tables However, School Outfitters specializes in designing and manufacturing Learniture tables that boast superior features, quality, and higher profit margins compared to other vendors Additionally, School Outfitters stands out from its competitors by rigorously testing its products to ensure exceptional quality.
Ms Peg Schroer said that
Our tables undergo rigorous certification processes and comprehensive quality and safety checks that surpass those of major competitors We conduct thorough material safety assessments for toxins and strength testing, ensuring we meet all the necessary certifications our customers seek Additionally, we actively involve our customers in the product design process, allowing them to review samples before mass production and provide valuable feedback This commitment to quality and customer engagement results in superior tables with enhanced features, which our satisfied customers consistently choose over other vendors.
Mr David Lewis also said that
Learniture tables were high quality and feature rich compared to competing brands.
School Outfitters conducted an analysis of order data to assess the sales performance of Learniture tables, confirming that these tables are indeed being included in customer purchases This verification process ensures an accurate understanding of the demand for Learniture tables among customers.
The investigation revealed a notable rise in the purchase of Learniture tables, particularly in the key years of 2017 and 2018, where the quantity sold experienced a substantial increase.
Figure 11 Units sold of all Learniture tables
Possible problem 2: Learniture table’s starting margin % not large enough
A less likely but possible scenario is the starting margin % for Learniture table is less than expected.
Manufacturers selling to industrial and commercial markets depend significantly on distributors for various marketing and support functions According to Roger and Jule 11, it is beneficial for manufacturers to manage the entire value chain, from suppliers to end customers, as this enhances strategic management positioning.
In fact, School Outfitters could see the benefit of getting whole value chain as being a manufacturer and they started to launch Learniture table At a minimum School
Outfitters anticipate a margin difference of 4 to 6 percentage points between the Learniture table and the vendor's table Specifically, the margin percentage for Learniture must exceed that of the vendor by at least 4 points (i.e., Learniture table margin % - vendor’s table margin % >= 4) If this margin difference is insufficient, the advantages of choosing the Learniture table will be negligible.
Ms Peg Schroer said that
My team worked hard to create much more margin in our Learniture table Our table has 5 to 15 points higher margin That’s the starting margin, the opportunity margin
We source our Learniture tables directly from manufacturers to eliminate unnecessary costs and maximize our starting margin By designing our products for small package shipping instead of freight, we ensure more affordable delivery options, ultimately benefiting our customers.
By analyzing the product data of Learniture tables in comparison to other vendors, School Outfitters identified a significant margin difference, averaging at least 12 percentage points higher for Learniture This substantial margin presents a strong opportunity for Learniture tables to deliver the anticipated benefits.
Figure 12 Margin % of Learniture table compared to vendor’s table
Possible problem 3: Learniture tables not being sold as expected
A key concern in sales is not just the volume of tables sold but how effectively phone and chat sales representatives are facilitating these transactions Typically, customers first explore the website for information before reaching out for assistance During a phone call, the sales representative provides guidance and prepares a quote, which the customer reviews and approves before finalizing the order through the ERP system Similarly, chat sales representatives engage with customers via chat, following the same process All orders are then entered into a purchase order system for fulfillment by suppliers or warehouses This process raises concerns about potential discrepancies in how sales representatives present product information and how it is ultimately reflected in customer orders.
Weinberg 12 argued that optimal sales compensation programs can be designed by incorporating two key features that is allowing sales personel to set prices and basing commissions on gross margin He concluded that corporate profits will be maximized under these conditions because sales personel and the firm are sharing the same quantity.
Ms Peg Schroer shared that
Sales representatives earn commissions that directly correlate with their sales performance, leading to higher pay as they sell more This commission-based structure often shifts their focus from the company's needs to their personal financial goals, prioritizing individual achievements over collective objectives.
Sales representatives currently have the flexibility to set customer pricing based on their evaluation of individual circumstances However, there may be inaccuracies in the pricing input for Learniture tables that need to be addressed.
School Outfitters is analyzing sales data to determine if there is a pricing difference between orders managed by sales representatives and those placed online Web orders involve customers researching products on the website, selecting their desired items, and completing the purchase through an online checkout process Once finalized, these web orders are electronically synchronized with the main ERP and order-taking system.
PROBLEM VALIDATION
The FFE industry has experienced significant growth in recent years, with Learniture emerging as a leading brand among prestigious manufacturers However, the management team at School Outfitters is concerned about declining profit margins compared to initial projections To address this issue, it is crucial to validate the primary problem among the three identified challenges, as this will provide a solid foundation for developing effective solutions that drive positive change.
Sales of Learniture tables have not met expectations, which appears to be linked to the behavior of sales representatives Their actions are negatively impacting the realized margin percentage for these tables.
Gross margin is closely linked to short-term profit determinants, as highlighted by William, Gary, and Stephenson Notably, it is a variable significantly influenced by pricing reductions implemented by salespeople.
Mr Dan Swanson – Vice President of Marketing said that
Our pricing strategy appears inconsistent, as our website displays prices differently than the information provided by our sales and chat teams This discrepancy can lead to confusion among customers and may impact their purchasing decisions.
Ms Peg Schroer also confirmed that
Some employees in the company fail to recognize the effort involved in maintaining product margins, mistakenly believing that deep discounts are necessary for customer satisfaction Daily reports reveal instances where discounts are applied unnecessarily, raising concerns about sales representatives compromising profit margins This practice creates an expectation among customers for future orders, as they may anticipate similar discounts, ultimately undermining the company's profitability.
Using actual customer orders and separating them by web orders versus sales representative orders, School Outfitters sees there is a noticeable difference in margin
% The sales representative orders with Learniture tables has a noticeably lower margin % It also shows an improved trend line for web orders compared to sales representative orders.
Figure 13 Margin % of sales representative orders compared to margin % of web orders
POTENTIAL CAUSES
Potential cause 1: Sales representatives habitually offer discounted pricing to
According to the research conducted by William, Gary, and Stephenson, salespeople with pricing authority are inclined to offer discounts to achieve their sales targets This pricing authority is rarely utilized to sell products at prices exceeding the listed price, which can lead to a decrease in gross margin as the level of pricing authority increases.
Interviews revealed that sales representatives frequently offered discounts to customers, often without prompting A comparison of web and phone orders indicated that representatives consistently discounted products, particularly Learniture tables, which saw deeper discounts that diminished their realized margin percentage to levels similar to vendor tables While this strategy aimed to enhance customer acquisition and retention, it diverged from management's expectation that representatives should employ alternative selling techniques for these purposes.
Mr David Lewis stated that
The article highlights a common business issue where sales representatives struggle to recognize the true value of their offerings to customers They often resort to excessive discounting as a default strategy to secure orders, mistakenly believing that lower prices are necessary to persuade customers to choose School Outfitters This practice has led to a habitual expectation among customers for deep discounts, particularly on the company's private label tables, undermining the perceived value of the products.
Potential cause 2: Sales representatives feel compelled to match competitor
The research into the problem also showed sales representatives believed they needed to match a price the customer said they had from a competitor.
Ms Kayla Keck – Phone sales representative shared that
I find myself in a challenging situation where customers often report lower prices from competitors for vendor tables I've quoted To remain competitive, I must actively promote our tables while manually checking competitor websites to verify these claims If a competitor offers a better price, it's crucial for me to match it to retain the customer's business.
31 the customer just tells me they have a better price I may have to match it It would be better if our prices were already lower than our competitors.
While matching a competitor's price may be acceptable occasionally, doing so regularly may reveal underlying issues with product pricing strategies or indicate a need for improved training for sales representatives This behavior suggests that sales staff perceive School Outfitters' market approach as solely focused on offering the lowest prices, which contradicts the company's actual positioning.
The company's approach focuses on providing high-touch service rather than simply competing on price, which does not equate to being the lowest High-touch service ensures that customers are supported through the complexities of their orders, minimizing their involvement in potential issues This strategy allows sales representatives to emphasize unique selling points beyond just pricing, making it unnecessary to match competitors' prices or offer the lowest rates.
Weinberg 12 assumed that the salesperson can have close contact with customer, and so that is best able to estimate the effects of discounts offered However, William, Gary and Stephenson 13 argued that if sales personels do not have adequate market knowledge to predict customer response to discount level, they may overestimate customer price sensitivity due to high motivation to get the sale, and so discounts given may be greater than necessary.
Ms Michelle Booher – Sales Manager shared that
We faced challenges in matching competitor prices, requiring us to offer deeper discounts to secure orders In the education sector, customers prioritize the lowest price, which often determines their purchasing decisions.
Potential cause 3: Sales representatives are concerned about the quality of
Sales representatives express skepticism about the quality of the Learniture table compared to its competitors, undermining its perceived value According to Kotler and Armstrong, branding plays a crucial role in enhancing a product's value to customers Despite Learniture's inherent value, reflected in its pricing, design, and features, the sales team failed to recognize this and opted to reduce the price to boost its appeal.
Mr Phil Rogers – Sales representative said that
To encourage quick purchasing decisions, we regularly offer discounts on products and shipping, ensuring customers choose School Outfitters over competitors These discounts not only attract first-time buyers but also help retain them in a competitive market Additionally, to boost sales of our private label tables, we need to make their pricing appealing through discounts, as this incentivizes customers to select our tables over other options.
Learniture tables are designed to match or surpass the quality and features of competitor products, with a strong focus on build quality, material safety, and certification School Outfitters prioritizes rigorous testing to ensure high standards, resulting in Learniture tables often achieving superior quality and safety certifications This commitment highlights a notable gap in understanding between sales representatives, which has led to price reductions.
According to Roger and Jule (2011), certain manufacturers believe that maintaining control over the entire value chain is essential for ensuring product quality, providing excellent customer service, and achieving a satisfactory profit margin for all stakeholders involved.
Mr David Lewis also said that
The sales representatives failed to recognize the added value the company offered beyond mere discounts, leading to an over-reliance on price reductions Additionally, they did not appreciate the superior quality and rich features of Learniture tables in comparison to competing brands Consequently, the company's new strategy was undermined by these internal misunderstandings.
Potential cause 4: Sales representatives have too much visibility and control
The sales representatives had an open view of the table’s available margin in the company’s ERP and order taking system.
Ms Kayla Keck admitted that
As a sales representative, I enjoy significant autonomy in assisting customers, allowing me to recommend suitable products and offer competitive pricing The company places a high level of trust in us, granting full control over product pricing and visibility into profit margins This enables us to understand our pricing flexibility and make informed decisions about discounts for customers.
This empowered the sales representatives to be comfortable with discounting
Learniture tables offer higher profit margins compared to vendor products, which has created a challenge for the sales team and the company due to the transparent visibility of crucial financial data.
Research by William, Gary, and Stephenson highlights that companies granting significant price-setting authority to their sales teams tend to experience consistently poor performance This suggests that excessive pricing power for sales personnel can lead to ineffective marketing and sales outcomes.
The sales team's focus should center on utilizing their experience and company model to sell effectively, rather than being influenced by varying table margins Allowing over 20 sales representatives to independently determine pricing leads to inconsistent product prices, where customers may receive different quotes from different representatives This inconsistency creates a disjointed customer experience compared to the fixed pricing on the website Additionally, the varying levels of selling skills and business understanding among representatives result in fluctuating margin percentages, which undermines the company's overall strategy Ultimately, this situation shifts control of the company's success from management to individual sales reps, hindering a cohesive approach to achieving business goals.
Ms Peg Schroer mentioned that
To enhance sales effectiveness, it is crucial to implement better training for sales representatives and establish a system that limits unnecessary discounts on orders We must ensure that decision-making regarding discounts is not left to a small group of individuals, as this can lead to inconsistencies A shift in the mindset and actions of our sales team is essential for improved performance.
Learniture table’s starting margin not large enough Unsuitable products for educational environment
Learniture table has a significant margin% points Learniture is less popular than other brands difference compared to vendor’s table
Learniture tables are as same as vendor’s tables Unexpected Margin of Learniture Tables
Sales representatives are authorized to discount and control margin %
Sales representative inputs pricing for Learniture table in error
Learniture tables not being sold as expected
Cause – and – effect tree
From the results of interview with six respondents together with literatures and theories, the preliminary cause - and - effect is developed as follows:
The unexpected margin of Learniture tables can be influenced by three main factors: the use of unsuitable products for the educational environment, an insufficient starting margin, and lower-than-expected sales Among these, the primary contributor to the unexpected margin is the underperformance in sales or the discounting behaviors of sales personnel.
A study by McKinsey & Co., referenced by Bhattacharya and Friedman, analyzed 1,000 firms and revealed that a 1% price increase, while maintaining constant sales, led to an average profitability boost of 7.4% Furthermore, Anthes highlighted similar findings, emphasizing the significant impact of pricing strategies on profit margins.
McKinsey & Co.’s study showed the effect of pricing on profitability was even stronger than that of increasing sales volume or reducing costs.
The management team at School Outfitters emphasizes a high-touch business model, prioritizing exceptional customer care over low pricing strategies Rather than relying on discounts to attract customers, they focus on enhancing their professional skills to provide a superior shopping experience.
While unsuitable products for the educational environment and the limited starting margin of Learniture tables can impact overall margins, they are not the primary reasons for the unexpected margin issues faced by School Outfitters regarding Learniture tables.
Shapiro and Varian (16) emphasize that the marginal cost of information, particularly software, is exceedingly low, rendering traditional sales methods ineffective in the online marketplace They caution that pricing strategies like competition matching or cost-based pricing can lead to failure Instead, they advise companies selling information online to establish prices based on the perceived value that customers assign to the information.
CAUSE VALIDATION
School Outfitters identified that the primary factor contributing to the lower margin percentage for Learniture tables is the authority given to sales representatives to offer discounts and manage margins This issue is not related to the pricing, quality, or customer acceptance of the Learniture tables, but rather the significant influence of sales practices on profitability.
In the education industry, improving margin is essential for sustaining and growing profits, as stagnant margins can lead to declining financial performance Companies must distinguish themselves by offering innovative benefits and capabilities, which places ongoing demands on marketing, sales, and product development teams Each of these areas requires significant investment, with marketing currently facing pressure to enhance visibility through paid search engine optimization and to cultivate a brand that resonates with and adds value for customers in the long term.
Tim 19 emphasizes that incorrect pricing can lead to significant losses in revenue and profits, ultimately resulting in the downfall of a business This mispricing not only threatens profitability but can also lead to bankruptcy, increased unemployment, and a shift of customers to more competitive alternatives With inadequate profits, companies struggle to invest in productivity enhancements and the development of future products, which are essential for meeting customer demands Consequently, businesses that fail to adapt often become irrelevant and face extinction.
Profit is essential for retaining top talent, as a decline in profits can lead to inadequate compensation, prompting skilled individuals to seek opportunities elsewhere These talented employees drive innovation and operational efficiency, playing a crucial role in shaping the future of the business and generating future profits Their contributions create a competitive edge, and without both profit and this key talent, the company risks stagnation and decline.
Reducing prices or offering discounts can lead to unnecessary complications within a company As highlighted by Howard in Stines' study, a 40% gross margin means that a 10% price cut requires a one-third increase in sales to maintain revenue, while a 20% price reduction necessitates doubling sales to achieve the same financial outcome.
A 30% discount necessitates a staggering 400% increase in sales, making the effort required to maintain profitability twice as challenging Howard highlighted that the primary objective of any business should be to generate profits, not simply to increase workload.
Investigating the effects of allowing sales personnel to apply discounts and manage margin percentages is crucial, as it has significantly impacted the sales performance of Learniture tables Understanding this relationship will help School Outfitters identify the primary issue and develop effective strategies to enhance their sales outcomes.
SOLUTION
Uneffective implemented solution and evaluations
School Outfitters aimed to enhance their profit margins by concealing a portion of the margin from sales representatives, while keeping the order-taking system unchanged From the perspective of the sales team, there appeared to be no significant alterations in their interactions with products, discounts, or customers The sole adjustment made to address the margin concern was allowing a higher cost to be recorded for products.
The increased table cost permeated the entire system, leading sales representatives to perceive a reduced margin in the order-taking process Although they retained the ability to discount as needed, this perception of diminished margin resulted in less frequent discounting This straightforward system illustrated how perceived costs can influence sales strategies.
“Out Cost” As an example, a table has an actual cost of $20 Its cost is instead set to
$25 in the product record The sales representatives see a margin based on the $25 This ensured at least $5 of the margin (25% of the margin) is not discounted.
Theoretically, this solution should work well since it’s simple overall It keeps the order taking system the same It should reduce discounting and save margin.
However, there are several issues that made this solution undesirable after trying to use it.
Setting up and maintaining pricing tables requires careful consideration of margins to ensure profitability while allowing sales representatives to offer discounts Each time a customer price is altered, it’s essential to reassess the associated costs to maintain the desired protected margin This ongoing process demands dedicated personnel to regularly review and update both the protected margin and table costs, ensuring that the company's financial goals are met without compromising sales effectiveness.
Sales representatives realized that the margin was obscured, leading them to estimate the actual margin for discounting purposes This shift resulted in inconsistent discounting behavior, with each representative independently determining the discount to offer customers Consequently, the company struggled to maintain the expected margin levels.
Mr Dan Swanson shared that
This method faced significant challenges due to fluctuating supplier costs and changing customer prices, making maintenance difficult Each product required individual setup and ongoing updates, which became cumbersome, especially for suppliers with extensive product lines Additionally, the inconsistency in approaches among multiple team members further complicated the process.
The method of safeguarding margins led to significant reporting issues, resulting in inaccurate updates on protected margin performance Consequently, reports either overstated or understated margin results, eroding confidence in the data and prompting queries, which ultimately slowed down decision-making processes.
These issues caused this solution to become far less effective and desired than originally thought Too much work, too much confusion, and some distrust was
The first alternative solution: No discounting allowed
This solution eliminates all discounting by sales representatives, ensuring they cannot alter customer prices or margins when generating quotes or orders The prices and margins established in the product record remain fixed, safeguarding the opportunity margin for every phone and chat quote and order.
Mr Dan Swanson said that
One potential solution is to eliminate all discounting, which would enable the company to capture the full margin on each product sold, thereby enhancing profitability from every order This approach ensures price consistency across all sales representatives and the website However, the primary concern lies in whether customers will embrace this change.
Analyzing the current situation reveals a potential decline in customer numbers, as many may anticipate discounts based on previous experiences or find competitors' prices more appealing In the educator market, there is an established expectation for discounts, which could hinder sales representatives who rely heavily on this strategy to encourage purchases.
Each table sold will generate the full available margin, as sales representatives are not permitted to discount the price established in the product record Consequently, the actual margin for a quote or completed order will reflect the original opportunity margin, which is expected to enhance the company's overall margin percentage.
Sales representatives can complete orders more quickly as they no longer need to calculate margin percentages or discounts during customer conversations This streamlined process eliminates the need for complex math and allows representatives to focus on other important aspects of the customer interaction, resulting in a more efficient and focused conversation.
School Outfitters ensures consistent pricing across all purchasing channels, including chat, phone, and web orders Customers will encounter the same price regardless of the sales representative they interact with, leading to a uniform experience This approach minimizes customer inquiries related to pricing discrepancies and eliminates the expectation of discounts, ultimately streamlining the purchasing process.
Failing to meet customer expectations can significantly impact sales, especially when customers are operating within a limited budget Many may wish to order from School Outfitters but require a discount to make their purchase feasible Additionally, if a competitor offers a more attractive discount, it could sway customers away, even if they prefer School Outfitters Previous experiences with pricing and discounts can also influence their decision-making process.
Engaging with a sales representative at School Outfitters can lead customers to anticipate discounts, and failing to deliver on this expectation may result in disappointment This disconnect can create the impression that School Outfitters does not prioritize customer value, potentially harming customer relationships.
Sales representatives often rely heavily on discounting as a key strategy in their sales approach, viewing it as an essential tool in their arsenal While they should possess a diverse set of skills to persuade customers to choose School Outfitters, the reliance on discounts can overshadow other important selling techniques When representatives lose control over discounting, they may feel inadequate in fulfilling customer needs, leading to frustration and diminished selling effectiveness This ultimately results in fewer completed orders and can hinder overall sales performance.
Competitive pricing poses a significant challenge for School Outfitters, as customers frequently compare prices online or consult their approved dealer lists When customers discover dealers offering discounts or more attractive pricing, it becomes increasingly difficult to persuade them to choose School Outfitters Educators, often constrained by fixed budgets and limited funding from government sources, may prioritize cost over other valuable services and benefits Consequently, while the quality of service is appreciated, price remains a crucial factor in their purchasing decisions.
To assess the anticipated margin improvement of this solution, we will analyze total sales over a five-year period, utilizing a comparison between the current average margin with discounting and the expected margin without discounting This evaluation will incorporate a blend of vendor tables and Learniture tables The analysis will focus on the impact of eliminating discounts, based on projected sales totaling $502 million over five years.
Based on current sales representative behavior and discounting, the realized discounted margin % for this comparison is 25% This is compared against not allowing any discounting which has a realized margin of 35%.
Table 3 illustrates the margin realized by comparing the discounted margin from sales representatives with the undiscounted margin of the new solution It highlights a significant margin improvement, with a delta of $50,200,000 over five years, achieved by eliminating sales representatives' discounting practices.
Table 3 Comparison between sales representative discounted margin and undiscounted margin
Margin $ at 25% Margin $ at 35% Margin Delta $
The response of customers to the removal of discounting is crucial for sales impact, particularly for School Outfitters, where customers are often price sensitive due to fixed annual budgets Many clients may anticipate discounts based on their previous experiences with the company Without these discounts, some customers may feel undervalued and opt to switch to alternative dealers.
A projected 20% decline in sales at School Outfitters is attributed to its strict no discounting policy, according to insights from sales management with extensive industry experience Table 4 illustrates the adjusted five-year sales forecasts, reflecting this anticipated loss and a resulting profit margin of 35%.
Table 4 Comparison between sales representative discounted margin and undiscounted margin including 20% sales loss
Margin $ at 25% Margin $ at 35% Margin Delta $
It represents the margin delta $ is a gain of only $15,060,000 over five years if sales representatives are not allowed to discount A lower gain when a loss of sales is factored in.
The second alternative solution: Management controlled discounting
Sales representatives retain limited discounting capabilities, as the system now dictates the maximum discount for each table and order This advanced system analyzes the necessary discounts for the company and customers, removing margin percentage visibility from the sales representatives Consequently, margin percentage is no longer a consideration in their customer interactions, ensuring optimized margins for each table and order.
According to the recommendations of William, Gary, and Stephenson, any necessary pricing changes should be initiated by the sales force, who must submit specific deviations from the list price This process also requires authorization from managerial levels to implement the price adjustments effectively.
Joseph 18 also found that firms giving salespeople the least pricing authority generate the highest levels of gross margin Authorizing salespeople with pricing leads to the possibility of tradeoffs between price and effort Concluded by sales managers, they believe this would cause sales personnel to take the path of using discounting rather than spending effort on selling.
Ms Peg Schroer said that
Sales representatives often compromise profit margins, highlighting the need for improved training for both them and their managers Additionally, modifying the BOSS system to align more closely with the website's policies, particularly by restricting discounting, is essential for better margin management.
Mr David Lewis also shared that
School Outfitters recognizes the necessity for improved communication across departments to address current challenges Additionally, the company acknowledges the need for a technological overhaul to manage and centralize the discounting capabilities of its sales representatives By implementing a more controlled discount system, School Outfitters aims to gradually refine its discounting strategy, using data analysis to find the ideal balance between discount levels and profit margins.
Initially, sales representatives retain similar discounting capabilities, ensuring a comparable experience for both them and customers Over time, management analyzes discounting practices and customer reactions to gradually decrease the allowable discounts Sales representatives no longer have visibility into margin percentages or specific discount amounts; instead, they utilize a dropdown menu for discount levels This shift allows them to concentrate on enhancing their sales skills while maintaining confidence that discounts can still be offered when necessary Management continually evaluates sales performance and customer acceptance of reduced discounts, optimizing total margins by systematically lowering discount allowances.
The order taking system will regulate discounting practices, leading to increased profit margins As management evaluates customer responses to discounts and monitors sales representative performance, further margin improvements will be identified Eventually, an optimal balance will be established between margin percentage and total margin across all orders and sales representatives While this approach may not capture the full potential margin, it effectively aligns sales representative discounting strategies with customer pricing acceptance and overall company profitability.
The new solution emphasizes the importance of building relationships in sales, while still allowing for discounting as a tool It encourages sales representatives to enhance their selling skills and expand their toolkit, enabling them to effectively communicate the quality and features of their products By focusing on a broader range of selling points beyond just price, representatives are motivated to cultivate individual relationships with customers, ultimately leading to improved sales performance.
Shifting the sales representatives' focus from margin percentages to the benefits of School Outfitters enhances their sales approach with customers By emphasizing the high-touch service and sophisticated solutions provided by School Outfitters, such as managing supplier and carrier issues and ensuring timely delivery of tables, representatives can create a more compelling sales narrative Additionally, highlighting the features and quality of Learniture tables during customer conversations will not only provide stronger reasons for customers to choose School Outfitters but also establish a clear differentiation from competitors.
The system features a sophisticated analysis mechanism that determines discount levels based on order sizes and margin percentages, necessitating regular manual assessments to maintain acceptable order conversion rates It performs real-time calculations to establish the permissible discount for sales representatives, factoring in the company's break-even points, individual table costs, and total order amounts, including shipping Sales representatives must apply discounts to each table and shipping item individually Additionally, a management work queue is in place to handle requests for larger discounts, where managers evaluate similar criteria before approving or rejecting these requests.
Sales representatives may experience confusion with the new system and its discounting process, as they must apply discounts individually to each table and shipping item When a sales representative utilizes the maximum discount yet still needs to adjust the product or shipping price to meet a customer's expectations, they must remove discounts from other items in the order This can lead to delays in processing quotes and orders, causing frustration for both the customer waiting on the phone or chat and the sales representative striving to fulfill discount requests effectively.
To assess the anticipated margin improvement of this solution, we will analyze total sales over five years, amounting to $502 million A comparison will be made between the current average margin, which incorporates discounting, and the projected new margin achieved through system and management-controlled discounting This evaluation will encompass a blend of vendor tables and Learniture tables, highlighting the differences in margin calculations between the existing discounting methods and the proposed improvements.
Current sales representative behavior and discounting have resulted in a realized margin of 25% In contrast, the new expected margin, informed by system and management controls, anticipates a realized margin of 33%.
Table 5 illustrates the margin dollars achieved by comparing the discounted margins from current sales representatives with those generated by a new system designed to minimize discounting Additionally, it highlights the margin improvement, referred to as Margin Delta $, resulting from the transition from sales representative discounting practices to a system-controlled approach that effectively reduces discounts.
Table 5 Comparison between sales representative discounted margin and system and management controlled margin
Margin $ at 25% Margin $ at 33% Margin Delta $
The result is a gain in margin of $40,160,000 over five years if sales representatives discounting is controlled by the system and management.
This innovative solution utilizes a sophisticated system that balances margin, controlled discounting, customer response, and data analysis to ensure minimal impact on sales Management oversees discounting levels, allowing sales representatives to meet customer needs while maintaining profitability Customer feedback is continuously analyzed; if responses to discounts are positive, management may further decrease the allowable discount, whereas a negative response would prompt a slight increase Drawing from past experiences with “Out Cost,” management is confident in significantly reducing discounts without compromising sales volume, aiming to identify the optimal margin percentage while preserving overall sales performance.
Mr Dan Swanson answered that
ORGANIZATION OF ACTIONS
School Outfitters faces a critical issue with unexpected margins that must be addressed to mitigate its negative impacts After evaluating various solutions within limited time and resources, management-controlled discounting has been identified as the most feasible approach, necessitating some system screen modifications This solution can be divided into three main phases: preparation, execution, and training and maintenance During the preparation phase, essential actions include discovery, data analysis, and updates to product, sales representative, and manager screens The execution phase focuses on development and production release, while the final phase emphasizes training across all relevant departments and ongoing system maintenance.
The detailed action plan which takes six months from November 2019 to April 2020 is scheduled and presented as table below
Phases Activities Objectives People involved
Apr 2020 Discovery - Define scope of work – Nature of changes, how it will work, which parts of the system will be changed.
- Align expectations across departments – Timing of requirements, target release date, who must allocate priority time to the project, who owns final decisions.
Management and business departments agree on scope, timelines, and project roles
Data analysis - Define data query - All order data need to analyze discounting, sales representative behavior,
- Analyze data - Determine how much discounting is typical across order size and margins.
- Create discount equations – Based on fitting a formula to order size and margin matrix from data analysis.
- Map discount formula to sales representative process - Define how data will be used in quotes/orders.
- Product break even (PBE) point calculation – Cost of each product carrying its material, design, storage, and landing costs.
- Company break even (CBE) point calculation – Cost of each product carrying its fully loaded burden of all calculations to control discounting
- Create business requirement document for development team
Identify system changes needed for product record screens
- Design new layout for item information screen
- Create business requirement document for development team
Identify system changes needed for sales representative quote/order screens
- Create PBE and CBE view to guide managers on allowing additional discounting
- Create field for managers to give additional discount in quotes/orders
Identify system changes and workflow needed for manager quote/order screens
- Design new layout for item information screen only for managers
- Create business requirement document for development team
Development - Development team receives business requirements and analyses.
- Development team give feedback to business analyst and business departments about feasibility
- Design software and database changes
- Assign and code system and database changes
Design and code system and database changes then complete quality testing
- Identify system components to deploy
- Build plan for deployment to coordinate system updates and people
- Notify business deployment is “Starting”
- Perform production tests to ensure updated system functions as expected
- Notify business deployment is “Complete”
Deploy system updates to production
Training - Prepare presentation for each role using system Train business - Analytics changes departments on - Business
- Prepare training material to handout to sales how to use new Analyst representatives and managers system updates - Supply Chain
- Receive any issues or difficulties from business departments
- Report issues to developers and coordinate fixes and production update
- Track root causes to improve future system updates
Provide support to business departments for new system updates
CONCLUSION
The education furniture, fixture and equipment (FFE) market has been growing in the
In recent decades, the increasing student population in the US has provided suppliers with greater opportunities to sell and expand their products The rise of online sales has further contributed to the growth of the market and the number of dealers, intensifying competition and offering customers more choices This abundance of options has resulted in price pressure on dealers, while suppliers maintain control over product offerings and costs Consequently, dealers face tight profit margins, making it challenging to achieve significant profitability.
School Outfitters, a dealer in the education furniture market, is at a pivotal point of growth that necessitates a strategic shift to enhance profitability While the company has successfully navigated challenges posed by traditional customer and competitor mindsets, it faces significant difficulties in improving margins on transactional orders With most costs already optimized, the introduction of private label products was intended to eliminate supplier influence and increase margins However, the anticipated improvements in profitability from this new model have not materialized as expected This thesis seeks to analyze the underlying issues through detailed assessments and interviews to uncover the reasons behind the stagnant margins of School Outfitters' private label offerings.
School Outfitters faced challenges in managing product-level margin concealment to prevent sales representatives from discounting Given the vast number of products and the necessity for regular price adjustments, the company reevaluated its approach After thorough analysis of various solutions, they implemented a new strategy to control discounting that aligns with the company's needs This solution enables all sales representatives to adopt a more scientific method for assessing customer discount requirements, effectively balancing customer expectations with the company's goal of increasing profit margins.
SUPPORTING INFORMATION
Researchers typically employ two main methodologies for their thesis: Quantitative and Qualitative research Quantitative research focuses on numerical and statistical data, often collected through questionnaires and surveys, while qualitative research aims to gather insights into people's opinions and underlying reasons through in-depth interviews In this thesis, the qualitative approach is favored over the quantitative approach, as it is essential for understanding human behavior, although the quantitative method still offers valuable statistical information.
This research primarily utilized secondary data and in-depth interviews for data collection Key secondary sources included the TechNavio report on the Global School Furniture Market from 2017 to 2021, the Park catalog detailing the Top 10 Largest US School Districts, and internal data from historical databases within the school system.
Outfitters company Along with secondary data, literature reviews were also used to support secondary data and information from in-depth interviews to make them more valid and reliable.
As in-depth interview is the main method to collect qualitative data, researcher conducted six interviews with respondents within the company, which can be divided into two groups:
The management team includes key figures such as Mr David Lewis, the Chief of Innovation and Marketing Officer; Ms Peg Schroer, the Chief Supply Chain Officer; Mr Dan Swanson, the Vice President of Marketing; and Ms Michelle Booher, the Sales Manager.
- The second group includes two sales representatives who are currently working at School Outffiters, one is experienced and one is nearly experienced.
Interviews aim to gather insights, opinions, and data from participants regarding the unexpected margin of Learniture tables and their proposed solutions The in-depth interviews are structured around specific questions posed to the respondents.
Research objectives: To explore and understand the problem lead to unexpected margin of
Learniture tables, what is the main cause and propose the most appropriate solution to solve it.
1 Warm-up introduction To get to know the respondent and understand the current situation related to business activities in School Outfitters company
2 Explore potential problems and validate what is the main problem.
To research the main problem that leads to unexpected margin, find out the main cause of the problem
3 Recommentations and solutions To suggest solutions and find out the most appropriate solution to implement
Question First group Second group
1 Could you please introduce something about yourself and your current position in School Outfitters? X X
2 In your opinion, do you think School Outfitters is successful so far? X X
3 Can you please share me more detail about sales results of the company? X
4 Could you please share with me about your sales activity?
Do you have any advantage and disadvantage? X
5 Can you share the reason why you are having difficulties in seling products? What are you doing to be able to sell? X
6 Could you please share with me the unexpected margin issue? X
7 From your opinion, what are the reasons you think that may cause this issue? X
8 Among these solutions, what is the most important to you? X
9 What were the solutions that the company had taken to settle down the problem? Was it effective? X
10 Have you ever thought about other solutions? X
11 Do you have any suggestions besides the solutions which were already applied? X
12 In your opinion, what is the best solution? X
Interviewer: Do Thi Thu Hien
Title: Chief Innovation and Marketing Officer
Status: currently working for School Outfitters company
Do Thi Thu Hien: Nice to meet you sir! Could you please introduce something about yourself?
David Lewis: My name is David Lewis I’m the Chief Innovation and Marketing Officer at
With 15 years of experience at School Outfitters, I currently lead teams in Cincinnati, Ohio, focusing on Marketing, Technology, and Operations Improvement Additionally, I oversee teams in Ho Chi Minh City, Vietnam, dedicated to Software Development and Business initiatives.
Do Thi Thu Hien: Thank you for giving a little time for this interview Do you think that
School Outfitters’ business is successful as expectation?
David Lewis, of School Outfitters, emphasizes the company's success stems from its proactive approach to change and innovation By continuously evolving with market trends, School Outfitters aims to enhance educational outcomes through improved furniture solutions The company also draws inspiration from innovations in other industries, recognizing that past successes do not guarantee future achievements.
Do Thi Thu Hien: Could you please share more detail about sales results of the company?
David Lewis highlights that the company has consistently increased its sales revenue throughout its existence, despite experiencing challenging years, notably during the 2009 US recession Recently, School Outfitters has shifted its focus from solely pursuing sales growth to prioritizing margin growth, recognizing that while sales growth enhances market share, profitability is essential for long-term sustainability.
Increased sales growth often leads to higher costs and cash flow challenges, as expenses may rise disproportionately to profits This situation creates significant pressure on companies to meticulously manage every cost, hindering their ability to make strategic decisions To alleviate this pressure, businesses should concentrate on margin growth to enhance profitability As price competition intensifies and drives prices lower, companies like School Outfitters must identify effective strategies to improve their profit margins.
Do Thi Thu Hien inquired about the necessity for School Outfitters to enhance its profit margins, highlighting the existing margin challenges the company faces.
David Lewis highlights the historical separation between dealers and suppliers/manufacturers in a fragmented industry, where numerous dealers compete against a limited number of suppliers This competition has led to lower customer pricing, while suppliers have maintained their costs, resulting in reduced margins for dealers To address this issue, School Outfitters sought to enhance its margins by creating its own labels, positioning itself as both a supplier/manufacturer and a dealer This strategy aimed to significantly boost margins, particularly through its private label, Learniture, which focuses on tables However, initial tests revealed that margins for Learniture tables did not improve A thorough analysis uncovered key issues, including a disconnect in understanding the company's value to customers and sales representatives' tendency to discount products too readily, believing that discounts were necessary to secure sales.
Outfitters' sales representatives mistakenly believed that deep discounts on the company’s private label tables were necessary to attract customers, leading to a habitual expectation for future discounts This misperception overlooked the added value and high quality of Learniture tables, which are rich in features compared to competing brands Consequently, the company's new strategy faltered due to these internal behaviors and misunderstandings.
Do Thi Thu Hien: What are solutions that you and the management team think about to improve margin problem?
David Lewis from School Outfitters emphasizes the necessity for improved communication across departments to address ongoing issues He acknowledges that a change in the technology system is essential to centrally manage the discounting capabilities of sales representatives By implementing a more controlled discount system, the company aims to gradually reduce excessive discounting over time.
58 Company analyzes data to find the ideal balance between discounting and margin gain Sales representatives will receive training to fully utilize their sales tools and understand the company's unique high-touch model, which sets it apart from competitors This model has been validated by positive Net Promoter Score (NPS) results, indicating strong customer satisfaction with School Outfitters Continuous coaching will be provided to ensure representatives grasp these concepts Additionally, the updated technology system introduces an approval process for exceptional discount requests, enabling sales management to assess and authorize discounts beyond standard limits.
Do Thi Thu Hien: Could you please clarify me why the sales representatives are supposed to understand the company value and the high touch model?
David Lewis emphasizes the importance of understanding the company's values and model to ensure alignment in thinking He notes that if employees perceive the model as lacking a high-touch approach, it can lead to misalignment with the organization's goals.
Focusing solely on achieving the 'lowest price' can lead to unintended behaviors that diverge from company executives' intentions It is essential for all teams within the organization to have a clear understanding of the company's values and business model to ensure consistent actions and thought processes A lack of clarity in these areas can result in misguided behaviors that hinder overall success.
Do Thi Thu Hien: Thanks What else do you want to share with me?
David Lewis: It’s important to understand that a business cannot stand still It cannot never say