Essay Preview: Cah
Report this essay
Problem Case Study for Curtis Automotive Hoist
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, CAHs sales force is essential to CAHs success. The sales force focuses on serving large ÐŽodirectÐŽ± 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, CAHs prominent reputation allows it to charge a premium when its competitors are mainly competing on price.
Despite CAHs competencies, its US distribution faces serious challenges. CAHs 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 CAHs sales and holds growth potential in future, the current US distribution system may hurt CAHs growth. Another problem is CAHs 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 ÐC 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. CAHs 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 CAHs 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 companiesЎЇ 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