Unexpected margin of learniture tables a case of school outfitters company

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business - Do Thi Thu Hien UNEXPECTED MARGIN OF LEARNITURE TABLES: A CASE OF SCHOOL OUTFITTERS COMPANY MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City, Year 2020 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business - Do Thi Thu Hien UNEXPECTED MARGIN OF LEARNITURE TABLES: A CASE OF SCHOOL OUTFITTERS COMPANY MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: DR NGUYEN THI MAI TRANG Ho Chi Minh City, Year 2020 EXECUTIVE SUMMARY The United States (US) education market has been robust for more than twenty years This includes the furniture, fixture and equipment industry also known as FFE A core set of products within FFE are school chairs, desks, tables, and other staple products needed within any school classroom and building The growth has been driven by student population growth, the need to replace old school buildings, and the belief that education pedagogies need to change The student population has grown significantly and also there has been a significant increase in immigration This increase in preschool to 12 grade students pushed the limits of the existing education infrastructure That is, there have been more students than the existing school buildings could handle Students no longer had a place to sit within existing classrooms This forced temporary classrooms to be built and then completely new buildings to be built Consequently, it caused the purchase of new FFE At the same time, educators were rethinking the effectiveness of old teaching methods The typical scenario of a lecture style classroom was no longer favored, no longer believed to be effective Parents and teachers both started expecting education buildings and classrooms to look modern and use new teaching styles New styles such as project based learning, collaborative learning, etc were also driving the design and purchase of new FFE These factors led to an increase in companies manufacturing and selling FFE The nature of schools being distributed within urban and rural school systems across the US led to many small FFE dealers Some manufacturers were well known and grew to supply the many FFE dealers Overall, we can say the dealers (FFE sellers) were fragmented across the industry There were only a few large dealers and a lot of small to medium sized dealers The fragmented nature of the dealers created a lot of competition even with the growth in the school market Dealers were often pushed to give lower prices to capture a customer’s order This competition led to lower margin dollars in total However most of the loss in margin happened with dealers, not with manufacturers This forced innovations and difficult choices for their business models ACKNOWLEDGEMENTS This study was conducted as my thesis for Master of Business Administration program I would like to express my sincere gratitude to my supervisor Nguyen Thi Mai Trang for all of her encouragement, enthusiasm, continuous support, which helped me in all the time of research and writing this thesis My sincere thanks also goes to School Outfitters’ representatives for their continuous support and encouragement, to my family and friends for greatly supporting me in completing this research TABLE OF CONTENTS EXECUTIVE SUMMARY ACKNOWLEDGEMENTS .3 LIST OF TABLES LIST OF FIGURES INTRODUCTION 1.1 The FFE industry (Furniture, fixture and equipment) .7 1.2 School Outfitters company .8 1.3 School Outfitters competition 10 1.4 Sales department 12 PROBLEM CONTEXT 14 2.1 FFE market situation 14 2.2 School Outfitters company situation and its business results 15 PROBLEM IDENTIFICATION 22 3.1 Possible problem 1: Unsuitable products for educational environment 23 3.2 Possible problem 2: Learniture table’s starting margin % not large enough 25 3.3 Possible problem 3: Learniture tables not being sold as expected 27 PROBLEM VALIDATION 28 POTENTIAL CAUSES 29 5.1 Potential cause 1: Sales representatives habitually offer discounted pricing to customers 29 5.2 Potential cause 2: Sales representatives feel compelled to match competitor prices 30 5.3 Potential cause 3: Sales representatives are concerned about the quality of Learniture tables 31 5.4 Potential cause 4: Sales representatives have too much visibility and control with margin % 32 5.5 Cause – and – effect tree 35 CAUSE VALIDATION 36 SOLUTION 38 7.1 Uneffective implemented solution and evaluations 38 7.2 The first alternative solution: No discounting allowed 39 7.3 The second alternative solution: Management controlled discounting 43 ORGANIZATION OF ACTIONS 49 CONCLUSION 52 10 SUPPORTING INFORMATION 54 REFERENCES 73 LIST OF TABLES Table School Specialty’s annual report 2015 – 2017 Table Top 10 largest US school districts Table Comparison between sales representative discounted margin and undiscounted margin Table Comparison between sales representative discounted margin and undiscounted margin including 20% sales loss Table Comparison between sales representative discounted margin and controlled margin Table Action plan LIST OF FIGURES Figure North American addressable school furniture market Figure School Outfitters organization structure Figure School Outfitters 2019 competition Figure School Outfitters sales volume Figure FTE headcount and gross margin % Figure Hoshin charts – Examples of automated processes Figure Typical breakout of margin Figure Initial actual gross margin % including Learniture tables Figure Learniture table’s starting margin % as more products are added Figure 10 Units sold of all Learniture tables Figure 11 Margin % of Learniture table compared to vendor’s table Figure 12 Margin % of sales representative orders compared to margin % of web orders INTRODUCTION 1.1 The FFE industry (Furniture, fixture and equipment) The education FFE industry can be considered to be fragmented, that there is only one large dealer in the industry All the other companies are considered to be small to medium sized As defined by Hitesh Bhasin “The fragmented market is defined as a marketplace where no single organization has enough influence to move the industry in a single direction Fragmented market consists of several small and medium organizations that compete with one another and with large organizations, but there is no one single company that dominates the entire market.” Using this definition, the size of dealers and their product offering in the th PreKindergarten to 12 grade school market can be shown to be fragmented There is only one large dealer which is School Specialty However School Specialty is actually a combination of businesses such as curriculum, supplies, audio visual technology, and school furniture Its school furniture business is $190 million based on the published public annual report at the end of 2017 Table School Specialty’s annual report 2015 – 2017 Distribution revenues by product line Supplies Furniture Instruction & Intervention AV Tech Planners Freight Revenue Customer Allowances/ Discounts Total Distribution Segment Curriculum revenues by product line Science Total Curriculum Segment Total revenues Fiscal Year Ended December 30, 2017 Fiscal Year Ended December 31, 2016 Thirty-Five Weeks Ended December 26, 2015 Fiscal Year $305,423,000 190,766,000 43,294,000 17,200,000 34,157,000 10,326,000 (6,211,000) $594,955,000 $315,986,000 183,060,000 37,117,000 18,023,000 41,126,000 9,396,000 (5,868,000) $598,840,000 $233,919,000 141,280,000 29,372,000 13,171,000 47,193,000 4,443,000 (3,055,000) $466,323,000 $314,615,000 132,150,000 54,429,000 24,510,000 53,153,000 9,050,000 (4,133,000) $583,774,000 $63,428,000 $63,428,000 $658,383,000 $57,482,000 $57,482,000 $656,322,000 $37,955,000 $37,955,000 $504,278,000 $38,094,000 $38,094,000 $621,868,000 Ended April 25, 2015 (Source: School Specialty’s annual reports) The school furniture market is estimated to be $4 billion to $5 billion between 2018 and 2022 With School Specialty being the largest dealer in the market, it has less than 5% of the total market This matches the definition of a fragmented market – no one dealer has a significant portion or control of the market Figure North American addressable school furniture market (Source: Global School Furniture Market 2017 – 2021 ) 1.2 School Outfitters company School Outfitters started in 1998 as a very small furniture, fixture, and equipment (FFE) dealer It was created just before the onset of the Internet being used for retail sales It offered a typical assortment of FFE products such as school chairs, teacher chairs, school desks, and whiteboards, that is similar to most dealers at the time It reached customers by sending FAXes to each school and offering a paper catalog or products and prices It targeted the largest school districts in the US as they had the most funding School funding is largely determined by the number of students and the property values of the school’s community The federal government provides a small amount of funding for schools management at those brands says “the customer will be back next year” So they know the expectation is not high We have hired product designers in our office and we use the factory’s expertise to help us design tables we are happy with School Outfitters is about integrity We go by the Golden Rule to treat others how we want to be treated Not just in sales but in all parts of the transaction such as customer service, accounting and our website design And how our tables are the same We design and quality check much more than the vendors’ tables Our tables are put through certification processes, quality and safety checks that even the very big vendors not We have material safety checks (for toxins), strengh testing,… We have all the certifications our customers want and need, much more than our competition with other vendors We also have customers directly involved in the design of the products They get a chance to review product samples before we build a large quantity of them, then give feedback Yes I know our tables have great quality and more features than tables of other vendors and we can see our customers like it and buy it Do Thi Thu Hien: Thanks madam You also mentioned about losing margin in the transactions Would you please tell me more about that? Peg Schroer: My team worked hard to create much more margin in our Learniture tables Our table has to 15 points higher margin That’s the starting margin, the opportunity margin We are sourcing our product directly from manufacturers instead of suppliers And we are careful about not adding unnecessary cost to our Learniture tables We maximize the starting margin We also design them, as much as possible, to ship small package instead of freight Freight shipping is more costly I checked orders every day, especially larger orders Our tables should have much more margin when the orders are finalized compared to vendors’ tables Instead, many tables are discounted to the point that their margin is about the same, close to the vendors’ tables It’s crazy because they started out with much more margin So I don’t know why so much margin is lost Of course the sales representatives need to work with the customer But losing so much margin… there’s a problem Vendors’ and Learniture tables are already priced competitively The sales representatives shouldn’t need to discount our tables very much Maybe at first the Learniture tables may need discounted a little to entice the customer to buy it However, we need to be careful about that because then the customer expect a better price later Anyway, the problem is the discounts eliminate all the opporunity for the company to get better margins It’s a problem we need to fix Do Thi Thu Hien: Among the problems you’ve just listed out, what is the possible problem which mainly impacts to the unexpected margin of Learniture tables? Peg Schroer: Some people in the company don’t understand how hard we work to create margin in products They think customers must be given deep discounts I look at reports and most orders every day and I see orders that were given discounts that shouldn’t be needed I don’t know why 60 sales representatives give away margin for orders It sets an expectation with customers for the next time they order from us If we give a discount now then the customer will want it again later If it’s a lot of discount then it will be expected with the next order Do Thi Thu Hien: As a Chief Supply Chain Officer, what are the reasons you think which caused that problem? Peg Schroer: There’s a lot of the issue that’s about sales representatives understanding Or they are only thinking about themselves Sales representatives are paid based on commission The more they sell the more commission, the more pay, they get They don’t think about the company’s need as much as their personal need They think more about their individual goal instead What I see is an order is given a deep discount because sales representatives think our pricing is not competitive That’s not correct My teams check prices for all of our key products each week We are on target compared to our competition We even give examples of key products including our private label tables and competitor pricing Sales representatives hear pricing from a customer, from a competitor, and they don’t realize the competitor used a different product option like a nylon guide instead of a metal guide Or it’s a different material Or even we have free shipping on some tables and the competitor doesn’t Giving a discount only because the customer mentions a competitor isn’t good The other reason is sales representatives give too much discounting for our Learniture tables They it for vendors’ tables however they give even a deeper discount for our tables They really don’t understand that our Learniture table is high quality and has lots of features the competitors’ tables may not have We test our tables much more than competitors and ensure the quality is high They shouldn’t give a discount because they think our tables are lower quality We are as good as our competitors or better The tables are already priced well Giving a discount to make the price lower than a vendor isn’t needed We design and manufacture our Learniture tables to have great features, quality and a much higher margin than vendors’ tables We see sales representatives selling it at the same margin as vendors All of our effort is lost when they that The other thing is we can see the Learniture tables are being sold on the website at a good margin Customers are buying it on the website and accepting the price we published Looking at the orders every day it looks like sales representatives are selling it much less than the website I don’t understand why we can sell it on the website with a good price and margin but it looks like it’s not sold the same by sales representatives Do Thi Thu Hien: What solutions you and the management team applied to improve this situation? Peg Schroer: We needed to control what the sales representatives They need better training and the system needs to prevent them from discounting so many orders that don’t need it We can’t let more than 20 people decide what each table in each order should be discounted We’ve needed to change what the sales representatives have thought and done We can’t put so much 61 effort into creating great private label tables with the high margins, that we need as a company, then have sales representatives have given it away so easily and frequently The problem is sales representatives giving away margin and we’ve needed to train them better, their managers maybe, and changed BOSS system so it is closer to the website with not allowing discounting Do Thi Thu Hien: What are your suggestions besides the solutions you just shared? And among them, which is the best method that should be applied now? Peg Schroer: The BOSS system change should include sales representatives not seeing the available margin It’s too easy to see a lot of margin available in Learniture tables and think it’s okay to give some of it away There’s no good reason for it The sales representatives should sell on price not on available margin They also need to be trained to have more tools than just margin They should focus on other selling techniques and on knowing the Learniture tables well so they can have more tools than just margin and discounting They should know the features, types of testing each table has, and other things the customer cares about besides discounting Do Thi Thu Hien: Yes Thanks for taking your time for this interview Your responses truly help me better understand the company In-depth interview 3:  Interviewer: Do Thi Thu Hien  Interviewee: Ms Michelle Booher  Title: Sales Manager  Age: 40  Working experience period: years  Status: currently working for School Outfitters company Do Thi Thu Hien: Nice to meet you madam! Thanks for letting me conduct this interview Could you please introduce something about yourself? Michelle Booher: I’m a sales manager for School Outfitters For my career I have always been in inside sales, not field sales It means I’ve worked in call centers for my career doing both inbound and outbound sales calls My role at School Outfitters is to help a team of sales representative, phone and chat, to achieve the company’s revenue goals I manage, monitor, and give guidance to sales representatives about the activities they should and the best way to them I meet each sales representative regularly to review their performance and help them to improve I ensure sales representatives are working well with customers to give them expert guidance on solution and product purchases I watch how the sales representatives are performing to give encouragement if we need to perform better to achieve the company goals 62 Do Thi Thu Hien: Yes So can you tell me how many sales representative your team now has? What are their main responsibilities, and which territories they are operating? Michelle Booher: I have sales representatives – the other sales managers have to 10 sales representatives I’m responsible for the sales representatives performing their best, coaching them, analyzing how we can have stronger connections with key customers, managing their time, and overall ensuring my team is meeting the company goal My team covers the US Central territory Do Thi Thu Hien: Besides, there are two more things that I want to clarify First, can you share with me how would you to review their performance? And second is how to set the company goal? Michelle Booher: The review is a one on one meeting each month with me and the sales representatives We cover typical topics of how they are performing to goal, feedback on their customer and product knowledge, and how well they are quoting and then converting the quotes to orders Our technology system allows us to listen to all sales representative calls So I listen to these and take notes on how the sales representative can improve then give them this feedback and will check again the next time we meet The company goals are set through an annual planning process that matches to the multi-year strategic plan The company determines what the revenue is based on things continuing as they are Then factors in planned changes to acquisition, products, price changes, etc to determine the total needed revenue The revenue goal is then divided across the sales representatives and website The sales representatives are informed of their monthly and annual goals If the company goal is $500mm, and there are 25 sales representatives, we subtract the expected website revenue from $500mm and then divide the remaining amount by the number of sales representatives Do Thi Thu Hien: In your opinion, what you think about the business of School Outfitters? Michelle Booher: School Outfitters has a good culture and helps educators It’s a strong company in the furniture education market We focus on doing the right things for customers, providing a high quality solution, product, and service Many people in the company are supportive of educators and want to help them get the best results for students by having great educational environments We have pretty good customer retention and a great NPS (Net Promoter Score) Do Thi Thu Hien: Could you please share with me the sales results of the company in more details? Michelle Booher: For the time when there was a margin issue, the sales results, revenue, was reasonably good We are an inbound sales team It means we get leads from customer phone or chats calls coming into School Outfitters We monitor the number of quotes created from phone 63 calls or chats There should be a good ratio of quotes from calls or chats And there should be a good ratio of quotes converted to orders We give a quote to a customer and the customer thinks about it then decides to finalize the order or not For this period of time, all of these ratios are good and our sales is stable or increasing The main concern is the margin from the orders isn’t matching the company’s expectation School Outfitters has started testing its own brand named Learniture and this alongs with national (vendor) brands aren’t giving an increase in margin as expected Do Thi Thu Hien: As a sales manager, what are the reasons you think that caused the unexpected margin? Michelle Booher: We had some difficulty due to matching prices from competitors We had to discount more to get the order because the customer had a better price from a competitor The education customer is focused on the lowest price and that usually wins the order Also at that time we introduced School Outfitters’ branded tables (Learniture) These had to be sold with more discount to get customers to buy them This is how sales happen The most recent complete sales results is from the end of 2019 Do Thi Thu Hien: So as my understanding, discounting is the main reason that caused unexpected margin, isn’t it? Michelle Booher: Yes Discounting is the main reason for the unexpected margin As I mentioned before, customers expect discounting for several reasons Sometimes because they have a better price from a competitor Sometimes because they don’t want to pay for shipping – maybe they want it to be free or a lower cost And sometimes because we are trying to sell our new branded tables Customers don’t know our new tables and a discount is an incentive for them to try it If we don’t discount sufficiently in these cases then we will lose the order and the customer will go to a competitor Low prices are what a customer expects Do Thi Thu Hien: How did you and your boss make a change to this situation? Michelle Booher: My manager and the executive team decided training is need for the entire sales team to help them understand the value School Outfitters provides This training should help the sales representatives have more tools to persuade customers to buy from us The goal is not to discount as much and instead show the customer the other benefits from School Outfitters Do Thi Thu Hien: What are your suggestions besides the solutions which are already applied? And among them, which is the best solution for now? 64 Michelle Booher: The sales team still needs to discount to win orders However, the system (ERP/order taking system) should be smarter The system should control the amount of discounting based on the order size and should know the amount of discounting necessary to win orders The company should be able to analyze all of our data to see what the intersection of discounting and winning orders is This can give the sales team guidance or limit the discount amount Also the sales managers should continuously coach the sales representatives so they know the value of the company and the company’s branded products so they have better information, a better tool to talk to customers In-depth interview 4:  Interviewer: Do Thi Thu Hien  Interviewee: Mr Phil Rogers  Title: Sales Representative  Age: 35  Working experience period: more than years  Status: currently working for School Outfitters company Do Thi Thu Hien: Hi! Could you please introduce something about yourself? Phil Rogers: My name is Phil Rogers I currently work for School Outfitters company as a sales representative Do Thi Thu Hien: Could you please share with me your opinion about sales activity in School Outfitters? Phil Rogers: Well, as a sales representative, I would say that it’s not really easy to sell product to the customer, but I hope it would be better in the future Do Thi Thu Hien: Could you share the reasons why you are having difficulties in selling products? And so what are you doing to be able to sell? Phil Rogers: Sure Our customer is very concerned about price, quality, and on time delivery They also need a lot of guidance on solution and product selection Many customers don’t buy school furniture frequently so they have difficulty sorting through the choices and what’s important To help the customer make a quick decision, we frequently give a discount on the product or shipping We have to this and make sure the customer will buy from us Offering a discount keeps us competitive with other dealers and helps to keep the customer with School Outfitters We give a discount to get the customer the first time and often still need to give it to retain them 65 There is a lot of competition The company also wants us to sell more of our private label tables To that we have to make the price interesting by discounting it Otherwise there’s no reason for the customer to choose our tables For the concern about quality we can show them the materials used to make the table Also I talk to them about the warranty so even if an issue happens they can feel comfortable it won’t be a problem The warranty will cover a fix or replacement of the same table But it’s not enough just to tell them thickness of the metal or type of plastic We have to tell them in a way they can understand…tell them what’s good, better, and best and give them prices for each Also sometimes the customer is concerned about how long it takes to be shipped and delivered, not only on time but how long too During our busy season, there are many more customers ordering and suppliers have a hard time shipping on time and delivering soon Many of our suppliers make the table as needed, they make it when an order is received Sometimes they have inventory but mostly they don’t have much Most of the year, the bigger concern is about price and quality The customer wants to get the best deal, best price for the table School Outfitters does a lot of forecasting to estimate the demand for tables and buys these before the busy season to put into inventory This gives us a competitive edge compared to other dealers because we can often ship quickly instead of relying on a supplier who may have long lead times Having inventory and giving a discount helps us to overcome the difficulties in selling products Do Thi Thu Hien: So among these approaches, what is the most important you think to improve selling product? Phil Rogers: Definitely discounting the price is the most important Customers check other dealers and need to feel they are getting the best price We would lose many orders if we don’t discount It’s what the customers expect, to have a discount on product or shipping Some customers are also not comfortable ordering from an Internet company Before they had a sales person come to their building to help them choose and buy products This made them comfortable So we have to overcome their way of thinking by giving a discount Do Thi Thu Hien: Have you ever thought about an alternative option? Phil Rogers: If we want to sell only on the Internet then pricing is critical We could have stores customers could go to so they can see product and talk in person to a sales representative Or we could give them samples But this delays the order and is a lot of cost that may not give an order Really we have to show the best price on the website and customers call to get a discount If they didn’t call then they probably don’t care about price So if they call it’s important to keep them on the phone by giving a great price 66 Interviewer: Yes Thank you for taking your time! In-depth interview 5:  Interviewer: Do Thi Thu Hien  Interviewee: Ms Kayla Keck  Title: Phone Sales Representative  Age: 32  Working experience period: years  Status: currently working for School Outfitters company Do Thi Thu Hien: Good morning and nice to meet you! Could you please introduce something about yourself and your current position? Kayla Keck: Good day! My name is Kayla Keck I’m a sales rep with School Outfitters I’ve worked here for few years answering phone calls from customers and selling products Do Thi Thu Hien: Could you please tell me more about your specific work in School Outfitters? Do you have any advantage or disadvantage while doing your work? Kayla Keck: The biggest advantage is School Outfitters really cares about its customers The company and management are always first concerned about having the right knowledge, customer understanding, helping the customer, doing the right thing for the customer, and taking care of any problems so the customer can feel good As a sales representative, I have a lot of control and freedom to work with the customer to guide them to the right products and give them good pricing The company trusts the sales representatives a lot We have complete control over product pricing and can see how much margin each product has Then we can know how much flexibility we have with reducing the price for the customer A disadvantage is there is a lot of competition for school furniture The customers are looking for the best pricing so that means we must discount to keep the customer with School Outfitters and not use a competitor I was given a lot of training on the products and our customer’s situations I can understand how the customer is thinking and what their environment is like Supply Chain provides training about the features and quality of products so I can talk with expertise with customers We have good technology with our order taking system, website, and phone systems to be fair to the sales representatives and to give the customers a good experience It's important to the customer that our phone calls are answered quickly and the sound is very clear It gives them a sense of support and quality to have the calls answered by a person and to not have problems on the call The website gives us a good tool to talk with the customer We can guide them to some pages and then I can be on the same page with the customer So we can talk about product specifically with the details in front of the customer 67 A big disadvantage is that we are an online only dealer The customer can’t go to our store to see and touch the products in person Buying furniture online is still not completely comfortable for customers So we have to show our expertise and get the customer to trust that we understand their needs and are experts That they will be happy with their purchase Another difficulty is we have our private label named Learniture Management wants us to switch the customer to buy Learniture tables It’s not clear what the benefit is The customers don’t know our label and product well We must convince them to consider Learniture tables They already have a lot of vendors’ tables in their schools Many times the easy choice for them is to match what they already have So why should they consider our tables? We must give them a strong, compelling reason to consider our tables Remember they can’t see or touch the table So we need to give them a strong reason like price The vendors have been around a long time They have solid tables that customers already like Their manufacturing is very good at making high quality tables They know the customer better than School Outfitters because they work directly with them on some projects So their quality and features are better than our Learniture tables I’m not sure how we can catch up to have the same quality and features I want to have a strong relationship with customers and if I push an inferior table on them then I may lose their trust Overall I’m in a difficult position Customers call me and say they have a better price for a vendor’s table I quoted them Then I should push our tables to them I have to manually check competitor websites to compare prices when a customer says they have a better price If the competitor has a better price then I need to match it Even if 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 Do Thi Thu Hien: Can you please share with me the reasons why you encounter these problems? What did you to fix the problem you have? Kayla Keck: The problems are what I mentioned before Competitors don’t know our Learniture table but I should push them I must give them a compelling price for the customer to consider our tables Our sourcing team needs to ensure the quality is as good as vendors’ tables…really Learniture table needs to have better quality and features than other brands We need to be able to sell the customer on this We need to be able to tell customers why our tables are as good or better than the brands they know Overall the fix I can give the customer is a better price In Sales we know that if a customer calls us instead of ordering from the website then a discount is usually expected The more the customer orders, more products or quantity, the more they expect a discount The good thing is that with our system I can see the margin for each table and for shipping I can craft a deal for the customer that helps them to overcome the barriers they see The barriers of concern about quality, about not knowing our brand, about not being able to see the product in person, about not ordering 68 a brand they already know and have in their school I’m not sure we can sell as much of our Learniture tables as the company wants Do Thi Thu Hien: So among these solutions, what is the most important to you? Kayla Keck: Price is king It means most concerns can be mitigated by giving a customer a better price Maybe they don’t know our brand…I can get them to try it by giving a compelling price Maybe the customer is concerned about quality…I can get them to try it with a good discount A competitor has a better price, I can know the margin we have available and give a better price Educators have fixed funding They have a limited amount of funding, money, to use to buy furniture If they can get more products for their money then that’s important to them Sometimes they already have too little funding to meet their student’s needs So they always think about the price they get from us Do Thi Thu Hien: Have you ever thought about other solutions besides pricing? Kayla Keck: Well, it’d be good if customers can touch, see our tables in person This will help them overcome some of their concerns such as quality and features Having the table right in front of them solves many concerns…so long as our tables are better than vendors’ tables We could also have our tables certified in some way To be able to show customers that our tables are tested and proved to be very good with safety and quality I’m not sure what that will be, what testing is good But if there is some then it can help the customers to be more confident We could also use referrals Have a new customer talk with an existing customer that has our tables already It’d be interesting to have a network of existing customers that are willing to talk with new customers about our tables Still I prefer to be able to keep the customer on the phone and not let them go research with someone else I think our system should know the competitor’s prices and show us This helps us to not need to research it And we can easily talk with the customer about it But even with these we’ll still need to discount It’s a key tool the sales representatives have and customers still expect it and sometimes need it to buy from School Outfitters Do Thi Thu Hien: Thanks Kayla! After our conversation, I can understand your situation and yet it challenges you a bit However, I hope you successful and happy with your work Again, thanks for taking your time to share with me many things about your work! Have a nice working day to you! In-depth interview 6:  Interviewer: Do Thi Thu Hien  Interviewee: Mr Dan Swanson  Title: Vice President of Marketing  Age: 42 69  Working experience period: 10 years  Status: currently working for School Outfitters company Do Thi Thu Hien: Good morning sir! Could you introduce something about yourself? Dan Swanson: My name is Dan Swanson I’m the Vice President of Marketing at School Outfitters I’ve been here for 10 years and take responsible for overall marketing results of the company I oversee the marketing strategies and efforts in order to strenghthen company’s market position and achieve desired business goals Do Thi Thu Hien: Thanks for taking your time for this interview Firstly, I would like to know your opinion about School Outfitters’ business Do you think it’s successful so far? Dan Swanson: School Outfitters is successful We are probably the better than our competitors at understanding customer needs and guiding them through their journey of research to purchase and delivery We pride ourselves on treating customers the way we want to be treated – respectfully and with a shared goal of educating students We are also very good at customer service when an issue does occur Issues are a small percent of our order We have teams onshore and offshore that we train extensively to help customers and to retain them for future purchases Finally we are experts at Marketing and analytics to reach customers digitally and non-digitally and then use a rich data set to understand their behaviors and choices Over time School Outfitters has grown significantly in revenue and staff There probably have been some bumps in that growth as we figure out new ways to work internally to best serve the customer And probably things that were once sufficient in terms of process and team behavior is no longer good since we are larger and need a more consistent, cross departmentt flow, and a company focus So yes I think School Outfitters is successful However, as being a dealer, School Outfitters has to absorb the tight margin as many others dealers does To escape from that situation, School Outfitters did try private labels which can help the company to improve margin Conversely, there is a point that the margin did not improve as expected Do Thi Thu Hien: Could you please share me more the unexpected margin problem you just mentioned? Dan Swanson: This is actually a straight forward problem From an analytical data view, we have an inconsistent way of giving discounts and pricing to customers The website shows prices one way The sales and chat teams talk to the customer a bit different Even within the sales team there is no consistency in how to think about selling to customers and giving discounts This is one of the things I mentioned that was probably okay when we were smaller and less complex as a company Now with 20+ sales representatives it doesn’t work well Overall, it’s unclear analytically if the sales representatives are giving an optimal amount of discounting or too much Looking at the data, discounting happens for a high percentage of orders and varies dramatically across sales representatives This indicates there is probably too much 70 discounting happening As a company we should optimize and control discounting for profit and for a consistent customer experience Do Thi Thu Hien: From your opinion, what are the reasons you think that may cause this issue? Dan Swanson: A long time ago some of the sales representatives helped with other parts of the company so they understood the needs of the company and considered these other things as they were doing their sales They were knowledgeable about non-sales aspects of the company and that helped them to make more complete decisions about discounting Now the company is larger, the sales representatives are less knowledgeable about the needs of the company They focus on sales and on their commission Sales representatives are paid based on how much they sell They get a percent of the order price In their thinking it’s better to get more orders even if it needs discounting The amount of discounting doesn’t affect their commission very much Some but not a lot If they quickly close the order with the customer then move to the next customer, they win It means giving the customer a discount she/he wants will quickly close the order and the sales representative can move to the next customer Overall it is reasonable to say the issue is caused by sales representatives behavior to give a discount to persuade the customer to complete an order and the sales representative benefitting from it Do Thi Thu Hien: What were the solutions that the company had taken to settle down the problem? Was it effective? Dan Swanson: The only significant solution the company tried is Out Cost The basic idea is to show the sales representatives less margin in each product Before Out Cost they saw the full margin and used this in their head to decide how much discount to give a customer With Out Cost the margin the sales representative sees is less than before Some margin is hidden from the sales representatives This only changed how we worked with the product records The Supply Chain team changed the product cost stored in the product record Their goal was to protect some of the margin This was done to cover some other product costs – basically to simulate the fully loaded cost of the product This method also reduced the private label product margin substantially so it was similar to vendors’ product margin when the sales representative sees it Before they would see private label product had a lot of margin and discount it more However this method had problems It is very difficult to maintain because supplier costs change and customer prices change Every product has to be set and then maintained If a supplier has a lot of products, their cost change could require lots of work to update the system Also several people were doing this work and their approach was not consistent Do Thi Thu Hien: Thanks So you have any suggestions for solution that you think it may help the company later? Dan Swanson: Based on some recent conversations, two ideas are being considered One is to stop sales representatives from discounting The system will not allow price adjustments in the 71 quote/order screens The price all sales representatives give will be the full price set in the product record Second is to have system changes that tightly control the amount of discounting sales representatives are allowed to give The discounting allowed will be determined from data analysis, management review and directives, and customer response Do Thi Thu Hien: Can you tell me why you suggest those solutions? What are their benefits as well as their drawbacks? Dan Swanson: The first possible solution, not allow any discounting, will give the benefit of realizing all the product’s available margin It gives the full margin benefit to the company to improve profitability from each order It also helps keep the price consistent with all sales representatives and the website The biggest concern is whether customers accept this change well We are looking at how to analyze it It’s likely there will be a significant drop in customers for a while Either they already expect a discount because of previous purchases or they may not like the prices when they have other choices The other choices are School Outfitters’ competitors With this educator market, there is a learned behavior of expecting discounting Another possible downside to this solution is it may be frustrating to sales representatives who use discounting as a primary tool for persuading customers to purchase from them The second solution, control sales representative discounting with a system change and management, will give a higher realized margin than the current way of sales representatives discounting without control It should significantly protect more margin and optimize how much margin is protected over time It also uses actual data to analyze the performance of sales representatives and customer’s acceptance of less discounting Finally, it’s a much lower effort to setup products and maintain them A drawback for this is it requires significant system changes and data analysis There’s some risk of reducing discounting too much – this is a pretty low risk but it’s possible Do Thi Thu Hien: What is the best one that you think the company should apply? Dan Swanson: From an analytics and business view, the second solution is more favorable This is because the initial release will focus on the system changes However the allowed discounting, at first, will be similar to what the sales representatives already Then over time the discounting will be reduced through data analysis and management deciding how much discounting to cut It’s a lower risk solution compared to stopping all discounting The risk can constantly be mitigated If the customers show they need more discounting because we see lower sales, then the slightly more discounting will be allowed Mechanically and analytically, it’s an iterative approach to find the optimal discount level 72 REFERENCES (1) Definition of Fragmented Market Available from: https://www.marketing91.com/fragmented-market (2) Global School Furniture Market 2017 – 2021 Available from http://www.technavio.com/report/global-school-furniture-market (3) Top 10 Largest US School Districts Available from: https://www.theparkcatalog.com/blog/top-100-largest-school-districts-in-the-us (4) Clayton M Christensen, Jerome H Grossman, M.D and Jason Hwang, M.D The Innovator’s Prescription A Disruptive Solution for Health Care 2009 (5) Clayton M Christensen and Michael E Raynor The Innovator’s Solution Creating and Sustaining Succesful Growth 2003 November, Vol 25, No 11 (6) Cooper, Robert G and Kleinschimidt, Elko J New product performance: What distinguishes the star products Australian Journal of Management 2000 June; 25(1), pp 17 (7) Montoya-Weiss, M.M and Calatone, R Determinants of new product innovation: a review and meta analysis Journal of Product Innovation Management 1994 November, 11(5), pp 397-417 (8) Cooper, R.G New products: What seperates the winners from the losers PDMA Handbook for New Product Development 1996 (9) Riaz W and Tanveer A Marketing mix, not branding Asian Journal of Business and Management Sciences 2012, 1(11), pp 43-52 (10) Kotler P Principles of marketing European Edition: Prentice Hall 2014 (11) Roger J Calantone and Jule B Gassenheimer Overcoming Basic Problems Between Manufacturers and Distributors Industrial Marketing Management 1991, 20, pp 215 (12) Weinberg, C.B An Optimal Commission Plan for Salesmen’s Control over Price Management Science 1975 April, 21, pp 937-943 73 (13) William L., Gary L.Frazier and Stephenson P Ronald Deligating Pricing Authority to the Sales Force: The Effect on Sales and Profit Performance Journal of Marketing 1979 March, 43, pp.21-28 (14) Bhattacharya, A and Friedman, H.H Using ‘Smart’ Pricing to Increase Profits and Maximize Customer Satisfaction National Public Accountant 2001 August, 46(6), pp.34-38 (15) Anthes, Gary H The Price had Better be Right Computerworld 1998 December 21, (32), pp 65-66 (16) Shapiro, Carl and H R Varian Versioning: The Smart Way to Sell Information Harvard Business Review 2000, 78(2), pp 43-54 (17) William J Abernathy and Phillip L Townsend Technology, productivity and process change Technological Forecasting and Social Change 1975 Jan 1; 7(4):37996 (18) Joseph K On the optimality of delegating pricing authority to the sales force Journal of Marketing 2001 Jan; 65(1):62-70 (19) Tim, J Smith Pricing strategy: Setting price levels, managing price discounts and establishing price structures Cengage Learning; 2011 Jan 18 (20) Stines S Business definition and price discounting impact profit Newspaper Financial Executives Quarterly 1999 Second; 5(3):23-26 (21) Kotler P and Armstrong G Marketing: an introduction USA: Prentice-Hall 1993 74 ... breakout of margin Figure Initial actual gross margin % including Learniture tables Figure Learniture table’s starting margin % as more products are added Figure 10 Units sold of all Learniture tables. .. The overall realized (actual) margin % did not increase as expected 20 Figure Initial actual gross margin % including Learniture tables (Source: Internal Data) Ideally, the Learniture tables should... visibility and control with margin % 32 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