2002, Professor Jerome M. Katrichis
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Sports Authority Example
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1. Maintain product mix / depth
Sports Authority’s focus will be to maintain and/or increase product depth of all three product categories. The company will continue to focus on their extensive equipment product line, with continued sales goals of 51% of total company sales. Apparel and footwear lines will also maintain their product mix arrangement. An increase in costs is not expected, therefore, the budget will not be effected. As Sports Authority strives to meet their profit objectives, the product mix of the company will be re-evaluated on a yearly basis. If unit sales start to decline, Sports Authority will aggressively market product promotions through sales and discount coupons to brand loyal customers.
2. Price increase
A 3% increase in prices on all Sports Authority merchandise will be effective January 1, 2001. Because Sports Authority emphasizes a large merchandise selection and enhanced customer service, customers will continue to frequent Sports Authority stores and sales will not be negatively impacted by the slight increase in prices.
Sports Authority’s budget will not be affected directly by the increase in prices; however, the company will encounter at least a 3% gain in their profit margin and an overall 10% gain in gross margin. The price increase will be assessed at the end of fiscal year 2001. If sales volume continues to remain level and Sports Authority’s gross and profit margins increase by the levels previously indicated, the same pricing strategy can followed for the following year. However, if the company experiences a significant drop in sales volume after the price increase, and Sports Authority’s profit margins decrease, an evaluation of the company policy will need to be conducted.
3. Frequent customer discount program
By implementing frequent customer discount programs, Sports Authority will continue to maintain customer satisfaction through price incentives, which will include coupons and in-store promotions. The frequent customer discount programs will track individual customer purchases and offer discounts for frequently purchased items. The program will serve as a reward for loyal customers as part of Sports Authority’s differentiation strategy.
The frequent customer discount program will take effect beginning January 2001 with new discounts offered once every 3 months. The program is projected to increase sales revenues, and will therefore be evaluated on an individual basis against sales from the previous year.
There is no specific budget estimated at this time for this program. However, if the overall program has not increased sales by at least 10% at the end of fiscal year 2001, the program will either be discontinued or restructured.
4. Modify sales structure and increase sales training
To promote Sports Authority’s differentiation strategy, an increase in employee training will take effect immediately. Current employees and new hires will be trained extensively in Sports Authority’s product lines. Management staff will conduct monthly training seminars and suppliers will periodically conduct product specific training sessions. The company sales force will be restructured and employees will specialize in certain departments such as outdoor equipment, indoor equipment, apparel, and footwear. This will produce a more knowledgeable sales staff.
It is estimated that the cost for implementing future sales training programs and modifying Sports Authority’s sales structure will be 10% over current costs. However, this increase will be balanced by the rise in sales due to heightened customer satisfaction and product knowledge. The modification of the sales training program will be implemented and exercised on a continual basis throughout the year and will begin in March 2001. The program will be further evaluated for quality and effectiveness at the end of each year. Therefore, the main focus of the program during its implementation period will be to maintain Sports Authority’s tradition of excellent customer service and to excel in its differentiation strategy.
5. Expand reach of advertising
Advertising costs will increase by 5% to include a new advertising campaign for Sports Authority’s development and expansion into the Mid-West and Western United States. The advertising theme will include promotion of the “get out and play slogan” and will target the company’s three product lines with a strong focus on equipment. Traditional media channels such as television and billboards will be utilized.
The full implementation date for the new advertising campaign is targeted for mid-2001. The advertising budget will initially increase and then once the program is completely implemented after two years, the budget will be reduced in half. This budget, as well as the new advertising campaign, will be evaluated at the end of the first two years for its effectiveness in increasing sales revenues. If results indicate little or no effect, the budget will be further increased by an additional 3% and re-evaluated at the end of the following year.
6. Technology marketing
A focus on e-commerce advertising and marketing will be explored and implemented immediately to increase advertising reach. Promotions will include advertisements that focus on Sports Authority’s product mix and expansion program to the West. Advertisements will be targeted through search engines, for example a consumer requesting information about skiing will view an advertisement for Sports Authority stores. The effectiveness of these efforts will be monitored through sales revenues. Evaluation of this new marketing format as well as sales revenues will be monitored on a quarterly basis.
The budget for this new marketing strategy will increase by 10 % during the first year of implementation. If this project proves to be unsuccessful, Sports Authority will need to reconsider this marketing strategy and utilize other resources for advertising and marketing.
7. New store openings
Store locations will expand into the West and Mid-West regions, with a minimum of 10 stores opening per year over the next five years. These stores will be consistent with the company’s current location structure. The size of the stores will be equivalent to the standard 40,000 gross square feet. The store leases will typically provide an initial 10 – 25 year term with multiple five – year renewal options.
The estimated cost for opening these stores will amount to $5 million by the end of the first year and will total $25 million for the five-year plan. This cost primarily consists of license fees to open the stores, and overall rental income. Costs may increase further due to minimum annual rent requirements, which are subject to periodic adjustments and other charges, including a proportionate share of taxes, insurance, and common area maintenance. Once the stores have been in operation for at least two years, Sports Authority will evaluate their progress based on sales per store location. Sales from existing stores will be used as a benchmark based on similar demographics.
8. Increase Internet sales
The Internet, as a distribution tool, will continue to be a central focus for the company for the implementation of cost effective pricing and retailing of manufacturers’ goods. Customers will be made aware of opportunities to directly purchase merchandise through the Internet and price incentives will later be implemented including discounts on shipping and handling. Internet links will be utilized to establish partnerships with suppliers. Sports Authority’s budget will be affected slightly by the increase in Internet sales due to the additional workforce necessary to process and handle Internet orders and to conduct website maintenance. Sports Authority’s goal will be to increase its overall market share in Internet sales by 0.25% over the next five years.