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Example research essay topic: Joint Venture Unit Sales - 1,944 words

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How could Curtis Automotive Hoist (CAH) maintain its fast growth and prestigious brand image with expanded market share given its limited financial and human resources? Should it adopt a market penetration strategy in US or should it follow a market development strategy and expand to Europe? If it adopts the market penetration strategy, should it approach the US market through the establishment of a sales office or through enhanced joint efforts with its current distributor? If entering Europe is desired, should CAH start with licensing or joint venture agreement with Bar Maisse or through direct investment? Key Issues CAH manufactures and markets surface automotive hoists in North America. The company has successfully positioned its product as a superior offering and used extensive personal selling to promote and serve the product.

Its strengths lie first in its superior product and the extensive product line. Additionally, CAH has design expertise and possesses four patents including one for the key safety feature. Second, Cah's sales force is essential to Cah's success. The sales force focuses on serving large direct accounts and has been able to get approval from them. It established a distributor network across North America and has generated about 25 % of annual unit sales. Finally, Cah's prominent reputation allows it to charge a premium when its competitors are mainly competing on price.

Despite Cah's competencies, its US distribution faces serious challenges. Cah's exclusive US distributor fails to actively promote the sales of Curtis Lift. In fact, the lift is but a minor product within the wholesalers complete product line and accounts for only 20 % of its total lift sales. Given that US market currently accounts for 60 % of Cah's sales and holds growth potential in future, the current US distribution system may hurt Cah's growth. Another problem is Cah's high production cost. Its cost of sales accounts for approximately 72 % of sales, which is at least 20 % higher than that of dominant players.

The relatively low contribution margin leaves the company little flexibility in competition. Competitive and Industrial Analysis The customers of hoists are new car dealers, used car dealers, specialty shops, chains and independent garages. CAH mainly targets the specialty shop segment, particularly those wheel alignment shops. As the purchase of a hoist represents a major capital investment, customers value the features and brand of the hoist. As parent companies of car or service dealerships often play a key role in the purchasing decision, extensive personal selling is required to thoroughly convey the large amount of complex information before getting approval from parent companies. The hoist industry is a mature one dominated by two large US firms C AHV Lifts and Berne Manufacturing.

Both compete primarily on price in the focused in-ground and two-post surface markets. Together the two companies take up 60 % of the market. The scissor lift segment is one of the fastest growing product types. Between 1995 and 1997, unit sales rose 6. 7 %, second only to the two point lift.

In contrast are other product types such as In-ground lifts and Four Post lifts that are either maturing or declining. It is likely for scissor lift to grasp shares from those segments. Cah's direct competitors in this growing market are AHV Lifts and Mete Lift. They offer less features at lower price. As hoist buyers are less price sensitive but value product features, CAH has succeeded in acquiring a 46 % share within this segment despite its higher price. The leading position will help CAH to compete for shares from those maturing and declining product types.

Alternative Courses of Actions To maintain its rapid growth, CAH faces two strategic moves -- penetrating US market and entering European market. US market is ten times that of Canadas and is Cah's most important market. CAH has been involved in this market through its US wholesaler for three years. Its superior offering and established reputation is well received here.

More importantly, the competent sales force and existing customer network may serve as an excellent starting point for CAH to pursue this market more aggressively. The authorized supplier status of a few large direct accounts will ensure relatively stable order inflow to CAH. Another advantage is the close geographic proximity of CAH to targeted US market. It eliminates the need for capital investment and facilitates communication, distribution and promotion. If CAH can improve its US distribution system, the market will be easy for it to tap.

On the other hand, Europe represents a potential growth opportunity as well. The Big Four countries (i. e. Germany, France, the United Kingdom and Italy) have a combined market size comparable to that of USs. While changing standards and tariffs may keep competitors from elsewhere from entering, the free movement of goods, persons, services and capital within EU countries may greatly facilitate companies pursuit of global market share and profits. Additionally, there appears no dominant player in the market yet.

However, entering European market is not easy. It involves huge time, financial and human resources investment and / or careful selection of strategic partner. And the key question here is if CAH can adapt its distinctive competencies to the new market. Little is known about the customer, competition and future sales.

What if European customers are more price sensitive? How can CAH take advantage of its reputation and expertise in personal selling if it is to rely heavily on its partner for marketing activities? Another question is whether Bar Maisse, the potential partner, will give its full commitment as it also manufactures and markets other wheel alignment equipment. Given that only about 25 % of market development strategies are successful, the European market is riskier. Alternative 1: Penetrating US market Option 1: Establishing a sales office Advantages: Establishing a sales office will not only take advantage of the existing sales expertise, but also allow CAH to get first hand market information and enhance its distribution expertise. Additional sales efforts may also get more large direct accounts.

Besides, this is an affordable option. It takes 89 unit sales for a new sales office of half the current size (i. e. two salespeople, a marketing manager and one sales support staff) to breakeven. Disadvantages: Direct sales efforts may lead to channel conflict with current US wholesaler. CAH may risk losing the exclusive distributor and possibly, most of US sales.

A 60 % decrease in sales will tumble the company. Option 2: Encouraging the US wholesaler to push the Curtis Lift Advantages: The current wholesalers established reputation and extensive distribution has greatly facilitated Cah's initial sales expansion. An effective hand holding process from the US wholesaler will lay a solid foundation for Cah's future development in US. Disadvantages: This could be an expensive option. As the wholesaler is only interested in selling a lift, probably the CAH has to provide further incentive by increasing his markup. Suppose CAH increases the markup from 22 % to 27 %.

This will reduce the contribution margin to 23 %, and the breakeven point therefore will be almost $ 6 million, a 61 % jump in sales revenue. As Curtis Lifts face direct competition from other products the wholesaler carries, this appears unlikely. Additionally, this option foregoes the opportunity for getting first hand market information and thus may hinder Cah's future marketing efforts in US. Alternative 2: Entering European market Option 1: Licensing Based on estimated cost, CAH makes 5 % (assumed) of $ 10, 990 as royalty fee is $ 549. 5 per unit. Advantages: Licensing allows CAH to make a quick, low risk and capital free entry into the market.

It brings inexpensive inventory returns and poses no threat to cash flow. Disadvantages: CAH loses the control over production and marketing, in which the company has strengths. Should quality deteriorate under the licensing agreement, Cah's reputation suffers. Also as the technology transfers, new competitors may emerge and could hinder Cah's future direct market expansion plan. Option 2: Joint venture Based on existing information, this may require a minimum of 273 unit sales for CAH to breakeven. Advantages: A joint venture will offer CAH direct access to the market at significantly lower risk.

Cah's active involvement in production and sales will help adapt its current strength to the new market, thereby facilitating the Curtis Lifts expansion into Europe. Disadvantages: Setting up joint venture requires higher investment and therefore is riskier than licensing. The question remains about future cooperation between the two partners. What if Bar Maisse seeks to control the operation? CAH risks losing the technology and revenue. Option 3: Direct Investment Advantages: Direct investment gets CAH closer to its customers and allows it to maintain the control over operation.

CAH may expect higher profits through this. Disadvantages: Direct investment requires a minimum $ 1. 2 million and takes at least 475 unit sales for CAH to breakeven. This is almost North America unit sales (i. e. 1, 054 unit in 1997) after the Curtis Lift has been marketed there for seven years. Given that CAH is a newcomer to the market with non existing reputation, distribution or customer network, this is hard to accomplish. Recommendation 1.

For CAH, market penetration in North America, particularly in the US market, is of greatest importance. Market development in Europe is of secondary importance. With its 60 % share of Cah's unit sales, the US market is simply too important for CAH to neglect. Besides, it holds comparable, if not more, growth potential for CAH and is easily accessible. With its superior offering, premium brand image, and existing sales expertise and customer network, CAH can exploit and enhance its strengths.

As lower initial investment is required, the US market will offer higher returns than European market. More unit sales will take advantage of economies of scale and drive down unit cost. 2. Establishing a sales office to complement rather than immediately replace the current US wholesaler. The current US wholesaler contributed at least 35 % of Cah's total US sales. It would be hard for a newly established sales office to reach the same level. Enhanced joint efforts with wholesaler will instead encourage him or her to promote the Curtis Lift more aggressively.

However, as the high production cost leaves little room for further financial incentives, the only way to motivate the wholesaler is to establish a cooperative relationship through improved logistic or category management, sales training etc. A sales office will accomplish this. Besides, the US based sales force will get direct market information throughout the process. To establish a sales office in 1999, CAH should start the recruiting and administration process immediately. It is recommended that a sales person other than Mr.

Gagnon should head the office. He or she should have existing relationships with the wholesaler and large direct accounts. Mr. Gagnon should continue to oversee the overall corporate sales and marketing activities. 3. Setting up joint venture is a viable market development strategy. If CAH decides to pursue the European market, a joint venture will not only offer existing distribution network at lower risks and required investment, but also get CAH insights into the new marketplace.

Additionally, Cah's control over production will help it maintain its premium brand image. A suitable joint venture partner for CAH should have 1) a common goals and should bring complementary and relevant benefits; 2) market knowledge; 3) Established reputation and distribution; 4) no involvement with direct competitive product. In developing the joint venture agreement, CAH and its partner must make extensive provisions for contingencies, profit accumulation and distribution, market orientation and a possible divorce. The agreement should also provide for change in the original concepts given the dynamic business landscape.


Free research essays on topics related to: unit sales, european market, joint venture, direct investment, market penetration

Research essay sample on Joint Venture Unit Sales

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