Increase Sales or Market Share Case #1

From: http://consultingcases.blogspot.com/2012/09/increase-sales-or-market-share-case-1.html

Colt Responds to Beretta’s Entry to U.S. Market

Case Type: business competition, competitive response; increase sales.

Consulting Firm: IBM Global Business Services (GBS) first round job interview.

Industry Coverage: aerospace & defense.

Case Interview Question #00553: Our client Colt’s Manufacturing Company (CMC, formerly Colt’s Patent Firearms Manufacturing Company) is a United States firearms manufacturer headquartered in Hartford, Connecticut. Colt is best known for the engineering, production, and marketing of firearms over the later half of the 19th and the 20th century. Colt’s earliest designs played a major role in the popularization of the revolver and the shift away from earlier single-shot pistols. The most famous Colt products include the Walker Colt, Single Action Army or Peacemaker, and the Colt Python.

Colt has been the national market leader of firearm manufacturing and sales for more than 150 years. Recently, however, they have seen a sharp decrease in sales. What are the reasons of their sales drop and what can we do to proliferate sales?

Additional Information: (to be given to candidate if asked)

• Colt’s market share in year 2011 was 45%; in 2009 was 55%.
• The firearms industry in the U.S. has grown by 3% annually in the last two years.
• The most popular “Colt M1911″ pistol constitutes 70% of Colt’s sales. Remaining sales are from specialty firearms suppliers.
• Costs of production, distribution and marketing have not changed over the last two years.
• Prices increased only with the rate of inflation.
• Brescia, Italy based Italian firearms manufacturer Beretta entered the U.S. market in 2007 and has since been growing rapidly. They outsource their production and thus offer a cheaper alternative: the “Beretta M9″.
• Besides a few small local companies, no new company has entered the U.S. firearms industry.

 

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case obtained from

Colt Responds to Beretta’s Entry to U.S. Market

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SUGGESTED ANSWERS:

 

me: so you are asking me to identify the reasons for the decrese in sales and try to increase sales? are there any other objectives that I should know of?

 

I: no, you are to focus on the designated task. 

 

me:  before I jump into analyzing the firm, i wanna know how the industry overall is doing.

 

I: The firearms industry in the U.S. has grown by 3% annually in the last two years.

 

me: so the market overall is doing okay, the problem must be the client-specific. Do we have data on how much has our market share changed?

 

I: Colt’s market share in year 2011 was 45%; in 2009 was 55%.

 

me: so the market share has gone down by 10% of the total market. Can i ask for a breakdown of all the businesses that we do? market breakdown of all the different types of colts that we sell?

 

I: The most popular “Colt M1911″ pistol constitutes 70% of Colt’s sales. Remaining sales are from specialty firearms suppliers.

 

me: ok have we gone out to ask the customers what they need from us?

 

I: no.

 

me: you probably wanna do a little market research there to find out.

 

I: what else?

 

me: ok, i would look at the competition. Have the competitors launched new products?

 

I: not exactly. 

 

me: are there any new entrants to the market?

 

I:  Brescia, Italy based Italian firearms manufacturer Beretta entered the U.S. market in 2007 and has since been growing rapidly. They outsource their production and thus offer a cheaper alternative: the “Beretta M9″.

 

me: so price-wise, our product is more expensive than the competition, which is a new market entrant. So it seems to me that the Italian firm is the reason why we are loosing market share, would you agree?

 

I: go on. 

 

me: so i would look into the competition here. they offer a product that is an alternative to our colt, and is much cheaper because they outsource their production.

there are a few options we can do.

• we could acquire the competitor. is that a good idea? another idea is to merge with the smaller firms that you mentioned to achieve economies of scale, but I would be extremely cautious about mergers and acquisitions. I would have to look at the customers, the products, the company and the competition to do an analysis to arrive at a conclusion.
• we could merge with the competitor.
• we could try to copy the competitor. probably hire the management of the competitor too. we could outsource our products and we could achieve cost savings and offer the products at a better price to our customers.
• we could increase our own profile through PR campaign and advertisement. The Italian firm wins market share because it is cheap, if we can offer the same price or slightly higher price, and follow up with PR and marketing, even some kind of loyalty program, then we should be able to pick up more sales.

 I: summarize for me.

 

me: our client is experiencing a decline in sales and market share. the market overall is doing well, so it was the company specifically. the main reason for the decline would be the new entrant to the market which is the Italian firm that make cheaper alternative through outsourcing.

So i would suggest we could copy their model and launch PR and marketing campaigns to win customers. Another way to increase market share might be to acquire the Italian firm, or to acquire the smaller competitors to achieve economies of scale that make our price competitive again. Merging with the Italian firm might also be an option, but I would not rush into it, because when the company is loosing ground to its enemy, it doesn’t usually sell at a high price.