Croft Industries

1. Croft Industries Geng Cui Dept. of Marketing and Intn’l BusinessLingnan University February, 2005

2. I. Problem Definition When Croft Industries, the price leader in asphalt shingles, raised its price from $18/sf to $20/sf, the competitors did not follow, causing Croft's market share to decline by 20%. In light of increasing competition, Croft Industries needs to determine its pricing strategy in the next year, to ensure its competitive viability and market leadership.

3. A Typical Residential House in North America

4. Asphalt Shingles • Asphalt shingles are currently the most popular type of residential roof material for a variety of reasons. They are relatively inexpensive, starting at around $0.80 per square foot installed and go up from there. Things that determine cost are geographical location, slope of the roof, height of the building, ease of access to the premises, complexity of the project, the particular type of shingle and numerous other factors. Asphalt shingles are very simple to install enabling many homeowners to do the work themselves. They come in a variety of colors and styles, are fairly durable (some have been tested and have achieved a class IV hail rating - the highest available!), and can be easily repaired and maintained.

6. WHAT ARE THEY? • Asphalt shingles come in two basic types: glass fiber (a.k.a. fiber glass) and organic. Organic shingles consist of an organic felt material which is generally paper saturated with asphalt to make it waterproof. A top coating of adhesive asphalt is then applied and the ceramic granules are then embedded. Organic shingles contain around 40% more asphalt per square (100 sq. ft.) than their glass fiber counterpart which makes them weigh more and gives them excellent durability and blow-off resistance.

8. II. Scenario Analysis • Firm Background and Strengths: • Regarded as having the highest quality in the market • All major distributors in the region carry the company's product. • No large competitors in the market • All firms are local operators • Thus, cost of freight is low • Market leader with 60% market share in 1989, and 40% in 1990

9. Market Environment: • Mature market and mature product • Slow economy, low housing startup • Consumers tightening up belt • Discretionary re-roofing • Market sales volume decline 6% in 1989 and 17% in 1990 • Economic future uncertain • Market may be depressed for a few more years

10. Competitive Situation: • Oligopoly situation: a few competitors selling the same product with some differentiation • Croft's share 60%, and five competitors wit lower shares • Croft has been the price leader and market leader • Demand relationship: • Typical: prices up, demand/sales do down • Some degree of elasticity • Dealers and installers control retail price

11. The Price Cut Move -- Causes • Why competitors have not followed Croft in raising the prices and leading to Croft’s market share to shrink? • Fear price increase will depress the market further • Fear of Croft's expansion • Challenger A wants to be the price leader • Chance to gain sales and market share • Installers use parity pricing • Charge the same price for all shingles and keep the difference • Discretionary for reroofing that can be postponed: • $20*600 – 1000 sf = $12,000 – 20,000/roof • Lower consumer awareness and knowledge

12. Financial Analysis: • Only the lowest cost can be the price leader without lowering profit in the long run. • Financial conditions of Croft and its five competitors in 1990 • Croft is the most profitable and yet not the most efficient • Competitors would be better off if they raised their prices as well • Lowering their prices have not helped them since installers marked prices in parity with Croft.

13. Financial Analysis for Croft and Competitors

14. Alternative Solutions and Implications • 1) Further price reduction -- $18.00 • pros: recoup market share, higher volumes, drive unprofitable competitors out of the market • cons: loss in profit • Would installers pass along the savings to customers? No. • 2) Keep the exiting price -- no change -- $20.00 • pros: keep the same profit level • cons: lose the role of price leader, further erosion of market share • 3)Revert back and raise price -- $22.00 • pros: higher profit • cons: lose more market share and price leadership

15. Decision (Tree) Analysis

16. Recommendation and Justifications • Keep $20 for the time being: • keep the healthy margin and profit • more capital for expansion and other projects • quality reputation will not be compromised • competition is weak and further retaliation unlikely • installers would not pass along savings • Risks • declining sales and market share • lose the market leadership position

17. III. Marketing Plan and Programs • Objectives • Increase the market share • Regain the market share lost and the market leader position • Improving brand awareness and perception • Improving dealer and installer relationship • Possible product innovation and differentiation

18. Marketing Strategies • Pull strategy: • advertising directly to consumers • Improving Croft brand awareness and perception • emphasis on value and long-term quality • Push strategy: • Develop a dealer and installer incentives program • Dealers should have the incentive to recommend Croft because of its lower prices. • Limited quantity discount up to 5% (less than a dollar) • free delivery

19. Marketing Programs I. • Advertising to consumers (pull strategy) • Awareness – Interest – Decision (AID) • Objective: education to improve awareness about the quality advantages of Croft shingles • Content: emphasize the value of Croft products, such as features • Rebate Coupon for choosing Croft • Time table: • spring – summer: housing start • Spring – fall: reroofing • Media plan: • local newspaper, weekend 1/4 page with coupon • local TV: reminder ads

20. Marketing Programs II. • Dealer and installer marketing: • Solidify quality perception • Promote dealer and installer “loyalty” • Channel management • Apply relationship marketing • Based on volume • Based on installed roofs • Create database to update accounts • Devise a dealer/installer incentives program

21. Implementation I. • Consumer Advertising • Time table: • spring – summer: housing start • Spring – fall: reroofting • Media plan: • local newspaper, weekend 1/4 page with coupon, two weeks before high season • Emphasizing features and benefits • Followup with reminder ads in peak season

22. Implementation II. • Create database to update accounts • Sales Analysis • Based on volume • Based on installed roofs • Apply relationship marketing • Create different levels of dealers/installers • Silver, Gold and Plantinum • Promote Croft as the Preferred Supplier – Win/Win • Devise a dealer/installer incentives program • Cumulative discount • Recognitions • Promotion brochures to dealers/installers • Certificates to dealers and installers • Emphasize the quality and benefits of Croft products • Specify the incentives based on volume and customers • Specify the next level of achievements and incentives

23. Evaluation and Control. • Measure consumer awareness and perception • Week-after Ad and brand recall • Monitor dealer/installer status • Monitor sales and market share quarterly • Revise pricing or promotion if necessary

24. Budget • For the newspaper ads: • Assuming $1000/week • For 4 weeks per season: 3*4*1000=12,000 • Monitor dealer/installer status • Printing and mailing cost minimum • Existing marketing staff will handle the implementation • Monitor sales and market share quarterly • Revise promotion if necessary

25. Forecast • Improved awareness and perception of Croft • Greater dealers/installer participation and more profitable relationships • Should regain the market share and leadership by year end. Thank you!