BASIC MARKETING 18th Edition by Jerome McCarthy William Perreault, Joseph Cannon

Exercise 33

Spare Time Equipment
Mark Zimmerman, owner of Spare Time Equipment, is worried about his business' future. He has tried various strategies for two years now, and he's still barely breaking even.
Two years ago, Mark bought the inventory, supplies, equipment, and business of Spare Time Equipment, located on the edge of Minneapolis, Minnesota. The business is in an older building along a major highway leading out of town, several miles from any body of water. The previous owner had sales of about $500,000 a year but was just breaking even. For this reason-plus the desire to retire to Arizona-the owner sold to Mark for roughly the value of the inventory.
Spare Time Equipment had been selling two well-known brands of small pleasure boats, a leading outboard motor, two brands of snowmobiles and jet-skis, and a line of trailer and pickup-truck campers. The total inventory was valued at $250,000-and Mark used all of his own savings and borrowed some from two friends to buy the inventory and the business. At the same time, he took over the lease on the building-so he was able to begin operations immediately.
Mark had never operated a business of his own before, but he was sure that he would be able to do well. He had worked in a variety of jobs-as a used-car salesman, an auto repairman, and a jack-of-all-trades in the maintenance departments of several local businesses.
Soon after starting his business, Mark hired his friend, Ginny Wooten. She had worked with Mark selling cars and had experience as a receptionist and in customer service. Together, they handle all selling and setup work on new sales and do maintenance work as needed. Sometimes the two are extremely busy-at the peaks of each sport season. Then both sales and maintenance keep them going up to 16 hours a day. At these times it's difficult to have both new and repaired equipment available as soon as customers want it. At other times, however, Mark and Ginny have almost nothing to do.
Mark usually charges the prices suggested by the various manufacturers, except at the end of a weather season when he is willing to make deals to clear the inventory. He is annoyed that some of his competitors sell mainly on a price basis- offering 10 to 30 percent off a manufacturer's suggested list prices-even at the beginning of a season! Mark doesn't want to get into that kind of business, however. He hopes to build a loyal following based on friendship and personal service. Further, he doesn't think he really has to cut prices because all of his lines are exclusive for his store. No stores within a fivemile radius carry any of his brands, although nearby retailers offer many brands of similar products. Right now, the Internet does not provide much competition, but he fears future price competition from online boat shows.
To try to build a favorable image for his company, Mark occasionally places ads in local papers and buys some radio spots. The basic theme of this advertising is that Spare Time Equipment is a friendly, service-oriented place to buy the equipment needed for the current season. Sometimes he mentions the brand names he carries, but generally Mark tries to build an image for concerned, friendly service-both in new sales and repairs-stressing "We do it right the first time." He chose this approach because, although he has exclusives on the brands he carries, there generally are 10 to 15 different manufacturers' products being sold in the area in each product category-and most of the products are quite similar. Mark feels that this similarity among competing products almost forces him to try to differentiate himself on the basis of his own store's services.
The first year's operation wasn't profitable. In fact, after paying minimal salaries to Ginny and himself, the business just about broke even. Mark made no return on his $250,000 investment.
In hopes of improving profitability, Mark jumped at a chance to add a line of lawn mowers, tractors, and trimmers as he was starting into his second year of business. This line was offered by a well-known equipment manufacturer that wanted to expand into the Minneapolis area. The equipment is similar to that offered by other lawn equipment manufacturers. The manufacturer's willingness to do some local advertising and to provide some point-of-purchase displays appealed to Mark. And he also liked the idea that customers probably would want this equipment sometime earlier than boats and other summer items. So he thought he could handle this business without interfering with his other peak selling seasons.
It's two years since Mark bought Spare Time Equipment- and he's still only breaking even. Sales have increased a little, but costs have gone up too because he had to hire some parttime help. The lawn equipment helped to expand sales-as he had expected-but unfortunately, it did not increase profits as he had hoped. Mark needed part-time helpers to handle this business-in part because the manufacturer's advertising had generated a lot of sales inquiries. Relatively few inquiries resulted in sales, however, because many people seemed to be shopping for deals. So Mark may have even lost money handling the new line. But he hesitates to give it up because he doesn't want to lose that sales volume, and the manufacturer's sales rep has been most encouraging, assuring Mark that things will get better and that his company will be glad to continue its promotion support during the coming year.
Mark is now considering the offer of a mountain bike producer that has not been represented in the area. The bikes have become very popular with students and serious bikers in the last several years. The manufacturer's sales rep says industry sales are still growing (but not as fast as in the past) and probably will grow for many more years. The sales rep has praised Mark's service orientation and says this could help him sell lots of bikes because many mountain bikers are serious about buying a quality bike and then keeping it serviced. He says Mark's business approach would be a natural fit with bike customers' needs and attitudes. As a special inducement to get Mark to take on the line, the sales rep says Mark will not have to pay for the initial inventory of bikes, accessories, and repair parts for 90 days. And, of course, the company will supply the usual promotion aids and a special advertising allowance of $10,000 to help introduce the line to Minneapolis. Mark kind of likes the idea of carrying mountain bikes because he has one himself and knows that they do require some service year-round. But he also knows that the proposed bikes are very similar in price and quality to the ones now being offered by the bike shops in town. These bike shops are service- rather than priceoriented, and Mark feels that they are doing a good job on service-so he is concerned with how he could be "different."
Evaluate Mark Zimmerman's overall strategy(ies) and the mountain bike proposal. What should he do now?