MORGANTOWN INC.

Roger A. Kerin∗

In November 1995 Morgantown Inc. merged with Lea-Meadows Industries, a manufacturer of

upholstered furniture for living and family rooms. The merger was not planned in the conventional
sense. Charlton Bates's father-in-law died suddenly in August 1995, leaving his daughter with
controlling interest in the firm. The merger proceeded smoothly. since the two firms were located on
adjacent properties and the general consensus was that the two firms would maintain as much
autonomy as was economically justified. Moreover, the upholstery line filed a gap in the Morgantown
product mix, even though it would retain its own identity and brand name.

The only real issue that continued to plague Bates was merging the selling effort. Morgantown had its
own salesforce, but Lea-Meadows Industries relied on sales agents to represent it. The question was
straightforward, in his opinion: "Do we give the upholstery line of chairs and sofas to our salesforce,
or do we continue using the sales agents?" Mr. John Bott, Morgantown's sales vice president, said the
line should be given to his sales group; Mr. Martin Moorman, national sales manager of Lea-Meadows
Industries, said the upholstery line should remain with the sales agents.

Lea-Meadows Industries

Lea-Meadows Industries is a small manufacturer of upholstered furniture for use in living and family
rooms. The firm is over seventy-five years old. The company has some of the finest fabrics and frame
construction in the industry, according to trade sources. Net sales in 1995 were $3 million. Total
industry sales of 1,500 upholstered furniture manufacturers in 1995 were $4.4 billion. Company sales
had increased 15 percent annually over the last five years, and company executives believed this
growth rate would continue for the foreseeable future.

Lea-Meadows Industries employed fifteen sales agents to represent its products. These sales agents
also represented several manufacturers of non-competing furniture and home furnishings. Often a
sales agent found it necessary to deal with several buyers in a store in order to represent all lines
carried. On a typical sales call, a sales agent would first visit buyers. New lines, in addition to any
promotions being offered by manufacturers, would be discussed. New orders were sought where and
when it was appropriate. A sales agent would then visit a retailer's selling floor to check displays,
inspect furniture, and inform sales people on furniture. Lea-Meadows paid an agent commission of 5
percent of net company sales for these services. Moorman thought sales agents spent 10 to 15
percent of their in-store sales time on Lea-Meadows products.

The company did not attempt to influence the type of retailers that agents contacted. Yet it was implicit
in the agency agreement that the agents would not sell to discount houses. All agents had established
relationships with their retail accounts and worked closely with them. Sales records indicated that
agents were calling on furniture and department stores. An estimated 1,000 retail accounts were
called on in 1995.

Morgantown Inc.

Morgantown Inc. is a manufacturer of medium- to high-priced living and dining room wood furniture.
The firm was formed in 1902. Net sales in 1995 were $50 million. Total estimated industry sales of
wood furniture in 1995 were $7.1 billion at manufacturers' prices.

The company employed 10 full-time sales representatives who called on 1,000 retail accounts in
1986. These individuals performed the same function as sales agents, but were paid a salary plus a
small commission. In 1995 the average Morgantown sales representative received an annual salary of
$65,000 (plus expenses) and a commission of 0.5% on net company sales. Total sales administration
costs were $112,500.

The Morgantown salesforce was highly regarded in the industry. The salesmen were known


Source: Roger A. Kerin, Edwin L. Cox School of Business, Southern Methodist University, Dallas, Texas.
particularly for their knowledge of wood furniture and willingness to work with buyers and retail sales
personnel. Despite these points, Bates knew that all retail accounts did not carry the complete
Morgantown furniture line. He had therefore instructed John Bott to "push the group a little harder." At
present, sales representatives were making ten sales calls per week, with the average sales calls
running three hours. Remaining time was accounted for by administrative activities and travel. Bates
recommended that the call frequency be increased to seven calls per account per year, which was
consistent with what he thought was the industry norm.

Merging the Sales Effort

In separate meetings with Bott and Moorman, Bates was able to piece together a variety of data and
perspectives of the question. These meetings also made it clear that Bott and Moorman differed
dramatically on their views.

John Bott had no doubts about assigning the line to the Morgantown salesforce. Among the reasons
he gave for this approach were the following. First, Morgantown had developed one of the most well
respected, professional sales groups in the industry. Sales representatives could easily learn the
fabric jargon, and they already knew personally many of the buyers who were responsible for
upholstered furniture. Second, selling the Lea-Meadows line would require only about 15 percent of
present sales call time. Thus he thought the new line would not be a major burden. Third, more
control over sales efforts was possible. He noted that Charlton Bates's father-in-law had developed
the sales group twenty-five years earlier because of the commitment it engendered and the service
"only our own people are willing to give." Moreover, our people have the Morgantown "look" and
presentation style that is instilled in every person. Fourth, he said it wouldn't look right if we had our
representatives and agents calling on the same stores and buyers. He noted that Morgantown and
Lea-Meadows Industries overlapped on all their accounts. he said, "We'd be paying a commission on
sales to these accounts when we would have gotten them anyway. "The difference in commission
percentages would not be good for morale."

Martin Moorman advocated keeping sales agents for Lea-Meadows line. His arguments were as
follows. First, all sales agents had established contacts and were highly regarded by store buyers,
and most had represented the line in a professional manner for many years. He, too, had a good
working relationship with 15 agents. Second, sales agents represented little, if any, cost beyond
commissions. Moorman noted, "Agents get paid when we get paid." Third, sales agents were
committed to Lea-Meadows line: "The agents earn a part of their living representing us. They have to
service retail accounts to get repeat business." Fourth, sales agents were calling on buyers not
contacted by Morgantown sales representatives. He noted, "If we let Morgantown people handle the
line, we might lose these accounts, have to hire more sales personnel, or take away 25 percent of the
present selling time given to Morgantown product lines."

As Bates reflected on the meetings, he felt that a broader perspective was necessary beyond the
views expressed by Bott and Moorman. One factor was profitability. Existing Morgantown furniture
lines typically had gross margins that were 5 percent higher than those for Lea-Meadows upholstered
lines. Another factor was the "us and them" references apparent in the meetings with Bott and
Moorman. Would merging the sales efforts overcome this, or would it cause more problems? Finally,
the idea of increasing the salesforce to incorporate the Lea-Meadows line did not sit well with him.
Adding a new salesperson would require restructuring of sales territories, potential loss of commission
to existing people, and "a big headache."

Question:

You are the executive assistant/management trainee working with Mr

Charlton Bates. (You were party to the meetings with John Bott and Martin
Moorman.) He asks you for your views, and what you would do in his
position. Give your response in 300 to 500 words.