Naturally, this decision would not over-extend CIMA financially, but we can not guarantee that it would not lead to overall sales increases or sales increases in core markets. Therefore, we must rule out this alternative.
Our second alternative is to aggressively target the weekender market. This decision is problematic for a couple of reasons. First, although the company seems to be able to afford the half a million dollars it needs to invest in product development and equipment, that is likely not the end of the story. The factory is operating at 85% capacity and is looking to enter a high-volume market. CIMA will likely need to hire new staff and may need a new facility. Second, producing a low-end shoe for weekenders may help CIMA reach a new market and expand sales, but it may impair sales to bread-and-butter markets. In short, CIMA's reputation for producing high-end boots could take a hit. Also, despite rosy projections, we must question how well CIMA will compete against major retailers like Nike and Reebok who can easily out-market CIMA.
Adding lower end models to the core mountaineering and serious hiker markets also is problematic. First, there is an affordability factor. This option requires at least the same investment -- and perhaps slightly more -- than targeting the weekender market, and it produces a lower sales volume than that option. Put simply, it has a worse return on investment. In addition, despite positive sales projections, we can not guarantee that sales will increase. Competitors could react with even lower prices and CIMA could find itself in an un-winnable race toward zero. And CIMA's core customers, who depend on CIMA's quality boots to save their lives, may not be excited that the company is introducing a lower-quality boot. There could be some brand impairment. In the end, retailers may be interested in the move and CIMA could experience some sales increases, but we simply can not advocate this move as a cure-all.
This move makes sense for a couple of reasons. First, it is affordable. CIMA will have to hire sales staff to cultivate distributor relationships, but, in theory, sales personnel pay for themselves (they generate more in sales than they are paid in salary). Second, sales will increase. CIMA has neglected more than half of the U.S. And Canada and if it builds even a corresponding market share in those regions, sales should at least double. Also, this move will not require investment in product development. The downsides of expanding distribution are that CIMA could face a capacity issue as it grows; and if it accepts too much distribution from mail-order catalogues, it could hurt sales to retailers. Also, the competitive issues that CIMA is facing in the West will likely be mirrored in other regions.
Recommended Solution
CIMA should look to increase its distribution to include all of the U.S. And Canada. This method could double sales without having to launch new products or leave the core mountaineering and serious hiker markets. The company should not accept mail-order business at this juncture, as CIMA has enough room to grow by just reaching out to more retailers. There is no sense, with all the growth potential that already exists, in jeopardizing the retailer relationships.
CIMA may eventually face capacity problems, but focusing on new distributors allows the company to control its growth and grow incrementally -- perhaps just a handful of states at a time. CIMA may face the same competitive threats in other U.S. And Canadian markets that it is facing in the West, but by expanding distribution CIMA gets to grow sales while buying time and getting a free look at whether the weekender market, for example, will retain its strong growth pattern.
Bibliography
Cravens, David W. And Piercy, Nigel F. (2003). Strategic Marketing. McGraw-Hill Irwin, Boston.
