Haverwood Furniture Individual Summary
In 2008, Haverwood Furniture and Lea-Meadows Inc. merged into one company. The issue at hand involves merging the selling efforts of the two companies. They both go about selling their products differently and the best plan of action is uncertain. John Bott, of Haverwood, believes that Haverwood sales representatives implement the best selling strategy whereas Martin Moorman, the national sales manager at Lea-Meadows believes that they have the superior strategy. Haverwood is a manufacturing company that makes medium-high priced furniture made out of wood. Net sales for Haverwood was 75 million in 2007 with a before tax profit of 3.7 million. They employ their own sales representatives who represent 1000 different retail accounts for the company. These representatives earn an annual salary of 70,000 (plus expenses) and receive a commission of .5% of the company’s net sales. Haverwood believes that their sales personnel are highly regarded in the furniture industry, knowledgeable about wood furniture, and willing to work with buyers and retail sales personnel.
The only negative aspect about Haverwood’s selling strategy is that all of the retail accounts that the merger will create do not carry the complete Haverwood line. In order to combat this, Botts was instructed to push the sales reps, urging them to make 10 sales calls per week and increasing the call frequency to seven calls per year. On the other hand, Lea-Meadows is a small, privately owned manufacturer of upholstered furniture for living and family rooms. The company is known for using some of the finest fabrics and frame construction. Their net sales in 2007 were 5 million. Total industry sales for upholstered furniture manufacturers were 15.5 billion.
This number is expected to increase 3% annually in the future. Lea- Meadows employs 15 sales agents. These agents also represent several manufacturers of noncompeting furniture and home furnishings. Sales agents are paying 5% of net company sales. The agents call on specialty furniture and department stores. They called an estimated 1000 retail accounts in 2006 and 2007. All of the agents had relationships with and worked closely with their retail accounts.
Option 1: Assign Lea-Meadows Line to Haverwood Sales Force
Botts believes that assigning the line to Haverwood sales force was the correct decision because they have a professional, adaptable and knowledgeable sales force and they know many of the buyers personally who were responsible for upholstered furniture. In addition the Haverwood sales team has a 5% higher profit margin than that of Lea-Meadows. In addition, taking on the Lea-Meadows line would require only about 15% of current sales call time, making it relatively easy for the sales force to take on. Botts also called on the company motto that “only our people are able and willing to give”, meaning that Lea-Meadows salespeople would not represent the principles the company was founded on.
His final reason was that it wouldn’t look favorably on the company if representatives and agents called on the same stores and buyers, which would also mean that Haverwood would possibly be paying commission twice on one sale. However Bates knows that it would be difficult to train the Haverwood sales representatives on all of the different aspects of the Lea-Meadows line.
Break Even Analysis:
$700,000 in salaries
$130,000 in sales administration
Break Even Equation
This number means that if the expected sales volume is greater than $18,444,444.44 then the company’s sales force should be used. If the expected sales volume is less than $18,444,444.44 then the independent sales agents should be used. For Haverwood, since their projected sales is equal to 78 million [((12,900,000-12,400,000)/12,400,000) industry growth is 4%, applied that to Haverwood sales], it signifies that Bates should use the Haverwood Sales force to sell the Lea-Meadows line.
Option 2: Keep Lea-Meadows Sales Agents
Moorman believes keeping the sales agents for the Lea-Meadows line is the right decision. He called upon the fact that the agents (and he, himself) have already established contacts and were highly regarded with years of experience. The sales agents would also be a very small cost beyond commission. In addition he believes that the agents are committed to the line. Moreover he argued that some of the Lea-Meadows agents called upon buyers that were not contacted by the Haverwood sales reps. Finally, he disagreed that the Haverwood sales reps could easily learn about the Lea-Meadows line. With the combinations of fabric, skirts, pillows, springs, and fringes the company has, the sales rep would have to be knowledgeable about over 1 billion possibilities.
However, as shown by the break even analysis, it is not economically justifiable for these two companies to operate separately any longer. Just by the economics, it is an easy decision for Bates to just use the Haverwood sales agents. Bates, However has personal ties with Moorman which affects his decision. If they do not use the Lea-Meadows sales agents, then Moorman will lose his job. Although this is a significant factor for Bates, it is obvious that using Haverwood sales representatives if the right decision for the company in terms of profitability.
Option 3: Hire More Sales Reps
The third option that Bates is considering is hiring additional sales representatives. These sales representatives would be trained to understand Haverwood and Lea-Meadows furniture. However, doing so would require restructuring the sales territories and would possibly take commissions away from existing sales representatives. It also does not seem necessary to take on additional sales reps after conducting the break even analysis.
Because of the break-even analysis, it is easy to see that Bates should decide to solely use Haverwood, Inc. sales representatives. It is more profitable for the company to give these accounts to the Haverwood sales reps. It would also allow Bates to have more control over the sales representatives as they would all be Haverwood reps and not Lea-Meadows.