RAJENDRA,AJAY

BANNER ID:03165721
PEAK GARAGE DOOR POSITION PAPER
Peak Garage Door Inc. has set a goal to increase their sales for 2004. Garage door industry is expecting a
growth of 2.4% while the management of Peak is looking to increase companys sales 26.4%. The
company currently has 50 exclusive dealers and 300 non-exclusive dealers. Management has three
proposals in front of them. The first suggestion is to increase the number dealers in their existing markets.
The second recommendation is to develop an exclusive franchise agreement with existing non-exclusive
dealers. The third recommendation is to decrease the number of dealers and focus companys resources
on increasing support for the existing dealers. Of course there is an option for them to leave everything as
it is. My suggestion is to go with the second recommendation due to the fact that exclusive dealers
produced 70% of companys sales and non-exclusive dealers contributed only 30%. In order for Peak
Garage Doors Inc. to reach their sales goal for 04 they will have to gain more exclusive dealers since
they contribute much more profit to the company.

THE INDUSTRY
The residential garage door industry sales for 2003 were $2 billion; 90% ($1.8 billion) of these sales
were steel doors, the type of door the Peak specializes in. Projected industry sales for 04 were $2.05
billion, representing 2.4% increase. The industry consists of large national manufacturers and smaller
regional ones such as Peak. There has been a demand for steel doors from new homes, and from homes
looking to replace older wooded doors. Richard Hawly, Peaks Director of Sales and Marketing,
conducted a survey to prospective garage buyers; he also commissioned a study to identify number of
dealers that are in the same markets as Peak. The results of the survey found that brand awareness was
very low showing that only 10% surveyed were able to provide a brand name. The survey also found that
independent dealers did not sell all brands at an equal rate. For the dealers that sold 3 brands, the
dominant brand made up 60% of the sales for that store, 2nd brand made 30%, and 3rd brand made 10%.

THE ORGANIZATION
Peak Garage Doors Inc. is a privately owned firm and has had 2003 sales of $9.2 million and net profits
before taxes of 460,000. Given is a 2003 income statement (pg.411) which states that cost of goods sold
was $6.9 million. With the sales and cost of goods sold numbers we can figure out that the contribution
margin for Peaks garage doors is $0.25 for every dollar sold. The company has 2 distribution centers and
employs 8 sales representatives for independent dealers and 2 sales reps for the exclusive dealers, each
rep

with

Employees

salary

of

$80,000.

Monthly Calls

Independent Dealer Reps 8

Below

is

the

summary

Stores/rep Salary ($80,000/rep)

2

300/8= 37.5 $640,000.00

of

employee

composition.

RAJENDRA,AJAY
BANNER ID:03165721
Exclusive Reps 2

50/2= 25 $160,000.00

The case states that Peaks 50 exclusive dealers make up 70% of their sales while the 300 independent
dealers provide 30%. Using the 2003s sales of $9.2 million, table below summarizes dealer makeup:
Dealer Type
Independent
Exclusive

% Of sales
300

30.00%

$ Sales $ Per Dealer % Total sales per dealer

$2,760,000.00

50 70.00% $6,440,000.00

$9,200.00

0.10%

$128,800.00

1.40%

Quantitatively we can conclude that exclusive dealers are 14 (1.40/0.10) times more profitable than the
non-exclusive ones.

Peak Garage Door, Inc. wants to increase their sales from 9.2 million in 2003 to 12.5 million. This is an
increase of $3.3 million or 26.4% over Peaks 2003 numbers. The industry is expected to grow by 2.4%
and Peak wants to grow by more than ten times the industry average. For Peak to meet this daring sales
goal there will have to be some considerable changes to their current business approach.

PROPOSALS BY MANAGEMENT
First proposal is to increase the number of dealers in markets that are currently served by the company.
The main reasons this was proposed is due to the fact that the large increase in sales expected by
management would be practically impossible with the current number of dealers. Peak currently serves
150 markets that are equivalent in terms of population size. The second proposal would be an exclusive
franchise agreement with some existing independent owners. 27 independent dealers have inquired to
Peak about becoming exclusive dealers for their areas. This would involve Peak providing more
marketing support for these areas as well as a franchise fee paid for by the dealer. This would require
Peak to drop all other independent dealers in these markets since they do not want them to be in the direct
competition with one another. The remaining 73 markets would not be affected. Either party can cancel
the contract with 90 days advanced notification. The third proposal suggests eliminating a number of the
independent dealers. It is stated in this proposal that 70% of the sales for Peak are made through their
exclusive dealers. The argument made by this proposal is that there has not been an exclusive dealership
program in place before, and the company might not need one. The franchise program could also make
Peak less flexible to future changes. This plan would have the number of non-exclusive dealers in the
150 markets decreased by 100 to a total of 200 while the 50 exclusive dealers would remain as they
currently are. Ultimately, company can choose to stay as it is. However, this would mean that their
chances of reaching their sales goal are slim.

RAJENDRA,AJAY
BANNER ID:03165721
POTENTIAL RESULTS

The first proposal would be to increase the number of dealers in the existing markets. We have seen by
the numbers before that each independent dealer bring an average of $9,200 in sales to the company.
There would also need to be an increase in the sales force. Right now, each sales rep has 37.5 stores that
they service. An increase of 100 dealers would require 3 additional reps at a total fixed cost of $240,000.

The second option takes 27 existing independent dealers and converting them to exclusive franchises for
the final 3 quarters of the year. The average exclusive dealer brings $96,600 in sales.

The third suggestion is to reduce the number of dealers by 100. This would mean that 3 employees could
be let go, as the number of stores serviced would go down. This would decrease the payroll by $240,000.
The average independent dealer would be expected to bring $9421 for 2004. The loss of 100 of these
dealers would mean a loss of $942,100 in sales to the company.
Choosing option 3 would lead to a loss.

Option four is to do nothing. This would mean that everything would stay the same, and Peak could
expect a 2.4% increase in sales.

CONCLUSION
According to the calculations, it will be impossible for the company to reach the sales goal of 12.5
million regardless of which option they choose. However the best outcome is with the option number two
which is to develop an exclusive franchise agreement with existing non-exclusive dealers.