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GROUP REPORT: Manchester products: A Brand Transition Challenge

May 2013

Manchester products: A Brand Transition Challenge


Manchester Products Inc. Manchester was one of the leading manufacturers of premium office furniture in the United States. In 2004 Manchester revenues were $2.33 billion. Man ch e st er

as pi r e s t o b e a l ea d e r i n h ous e hol d fu r ni t u r e. Aside from, the companys skills in engineering, ergonomics, and durable designs could be applied to household furniture products. For these reasons, the company targeted a strategic expansion into the household furniture market- a market it entered in 1999 when it established Manchester Household. MH consisted of three product lines. The Manchester Relaxer lines consisted of ergonomic recliners that quickly became popular due to their style and comfort. The introduction of the Relaxer products officially took Manchester out of the office and into the living room. Both home office and media/entertainment product lines had also been introduced into the market with positive reviews. However, Manchester faced more difficult in distribution for these products. Although Manchester had achieved critical mass of distribution in upscale furniture stores, there were still substantial holes in their distribution network. On the other hand, Manchesters home products had been featured in leading style magazines, and a successful national advertising campaign had coincided with the launch. In 2003 Sales for MH climbed to $200 million, in 2004 climbed to $260 million, and in 2005 were expected to grow 30%. Management felt MHs long-term growth prospects and profit potential were excellent. Manchesters aims to provide a complete family of household furniture products in the m i d - t o u p p e r -price p o i n t s . The m a i n b a r r i e r in achieving this objective w a s Manchesters deficient access to household-furniture distribution channels. Paul Logan, Inc.

Paul Logan, Inc. was the premiere name in high-end, fashionable consumer goods, and was considered a true lifestyle brand. In 2004, Paul Logan operated four divisions: Apparel ( 40% of revenue), Home Dcor ( 26% of revenue), Fashion Accessories ( 23% of revenue), and the furniture division, PLFD (11% of revenue). Logan revenues were $9 billion. It was January 7th, 2005, a long-time leader in office furniture, had made a bold move into the household furniture market with its recent acquisition of Paul Logans In 2004 total Paul

Furniture Division (PLFD). The acquisition of PLFD dramatically expanded Manchesters Household Furniture Division (MH) overnight and provided them with a strong brand and an instant market-leader position in the household furniture segment. However, Manchester was given rights to use the Paul Logan brand name for only three years.

The PLFD acquisition contains the following furniture products categories: Pieces,

Accent

Bedroom, Chairs/Sofas, Dining/Kitchen, Entertainment/Media, Home

Office, and Tables. Paul Logan will continue in other divisions. PLFD offered an extensive line (over 150 SKUs) of high quality furniture. PLFDs has a recognize and respected brand in furniture. Paul Logan established sales force, with strong relationships to leading distribution channels, and its talented design team was two driving forces behind the divisions success. The bold hues and unique styles immediately caught the publics attention. Through the acquisition of PLFD, MH was able to gain better access to household distribution channels. In addition, CEO Colleen Jones felt PLFDs design skills with respect to colors, shapes, and textures coupled with Manchesters engineering strength, manufacturing expertise, and ergonomic innovations would be a winning combination. The acquisition included the PLFD sales, management, and design teams, 10 distribution centers, 4 manufacturing facilities, inventory for all 150 products, and the

right to use the Paul Logan brand name with these products for three more years. But, any new products introduced by Manchester could not use the brand of Paul Logan.

Comprehensive analysis:
There is nothing perfect in the world, the companys M&A also like this (the M&A is a very complex and difficult organization process), so we need seriously consideration every factor to make the brand transformation to successful.

SWOT analysis:
Strength: 1, high quality workmanship and good design team 2, faultless value chain 3, variety kinds of products 4, high quality of products 5, different demand customers can be well satisfaction 6, products availability is better The PLFD and MH are having their own good special characteristics, such as workmanship, design team, value chain, and products quality and so on. It will continuous expand the products availability, satisfaction different demand customers, and improvement the brand power through the MH merger the PLFD. Weakness: 1, ambiguous strategy 2, a series of company integration

There is not having an accurate strategy of merger in high management level. The merger process will lead to many departments reorganization; if one factor integration not in control, it will be make big trouble in future. Opportunity: 1, market leader position 2, improvement brand awareness 3, high share of market 4, high barriers of industry The MH Company will achieve the largest market share and market leader position in the US furniture market through the merger of MH and PLFD; this strong company (Manchester products Inc.) must make a high barrier to new entrants of furniture industry. Threat: 1, American economic recession 2, growing competition 3, high bargain power of supplier 4, lots of small companies development by low cost rapidly 5, American internal market become saturation There are many risks in the market; those are having big affections to company, such as the American economic recession was directly made the low ability of buyer; import and small companies lead to high competition; due to bad economic condition the internal market was reduced and saturation.

From above SWOT analysis, we can see there are obvious advantages and disadvantages of those companies, how to deal with the weakness and threat directly determination companys future.

3C Analysis Corporation The corporation needs strategies to maximize the strengths of corporation relative to the competition in the functional areas. This is a main factor to achieve success in the industry. The corporation doesnt have to be a leader in every area, but they must have one or more key factors, it will lead corporation improve. Manchester has a strong brand aware in the office furniture market; its helpful when they transition into household furniture market. Their technology of engineering, ergonomics and durable designs could be applied to household furniture products. Manchesters distribution is not strong. Their strategy is high quality and high-level design. PLFD is also good at the design and quality, and their distribution part is better. After acquisition, these MH and PLFD should keep their strengths and complete distribution. Brand aware of these two brands are high, it should be keep. Customer In the market, customer is a very important factor. Firms must understand the demand of customer, what the customer really wants. Base on this, firm can posit their suit market. If firms know the demand of customers, they can make the suit product to attract more customers. In this case, Manchester Product is main producing office furniture; the customer of Manchester is the office part. Manchester Product also set up household furniture that called MH in order to into the household furniture market, and then the customer recognition degree is very important.

In the household furniture industry, there are some important factors for customer, style of product, design, and quality of furniture, comfort, price of products, brand, material and durability. These factors are the customer focused before decide to buy. MH is famous on material and durability, and the Manchester Relaxer lines consisted of ergonomic recliners that quickly became popular. These strengths can help MH attract more customers. PLFD is a company that Manchester Product will acquisition. PLFD has an extensive line of high quality furniture, their products have high quality, their brand PLFD is instantly recognized and respected in furniture industry. PLFD also has a talent design team; this team provides the wonderful designs. Their unique style that called Signature Style quickly catches the publics attention. The distribution channels of PLFD are very strong. High MH: style, design PLDF: comfort, quality Importance to MH: brand, price customer PLDF: price, durability PLFD: material, brand MH: material, durability MH: quality, comfort PLFD: style, design

low Weak (exhibit 1 ) After the acquisition, these two companies could complement each others advantages in many aspects. MH and PLDF have different advantages in the customer factors; this merge can help MH complement the disadvantages. There also a weakness they both company strength strengths

have that is the higher price than other competitors. When they keep and develop the advantages, they also need consider about pricing. MH and PLDF have similar target customer that are homeowners, age 34-55, with income over $50,000, but the core customers of PLFD are more fashion-conscious and consider themselves trend setters. There was a 2003 Manchester survey of household furniture consumers showed buying behavior consistent with high information needs, moderate price sensitivity, and moderate brand importance. The key findings are below: 25% customers know the brand by corporations advertisement 60% customers know the brand by third part( friend, sales person) 30% customers choose upscale department stores for household furniture; 25% preferred specialty shops; 20% like large retail furniture chains, and 15% preferred smaller, independent furniture stores. There also are 15% split between catalogs and online retailers. Almost 60% will buy the current brand they use when they buy new furniture. 70% would visit more than one store to compare brand. 35% finally bought their furniture during a sale According the key information, we can know the process of customer decided to buy furniture. First customer gets information of the brand from the advertisement and third part. Then they select what kind of store they will go to buy furniture. Third they begin choose a brand, in this step, most customer will choose substitute brands, most customer also through comparing to choose a better brand. Finally they will make a decision what to buy. From this process, the merged company should to focus on positive market image building and good reputation gaining. They should focus on specialty shops and upscale department, and also keep good relationship with other distributors. For the merged company, develop a new brand and expand distribution is a wise choice. And obviously, do some sales can make for market share.

Competitors The competitors also are an important part for company. Company must make sure they can catch up their competitors. Company must know their position in the market.

Aware of brand (%) Paul Logan National Furniture SVEDE Curits Furnishings Manchester Dynasty O'Leary Avery Products Star Goods Home Comfort Direct 80 78 65 60 45 43 40 30 25 18

Own a product (%) 45 40 34 42 20 32 30 22 19 8

price point mid, upper-mid, upper mid, upper-mid, upper value mid mid, upper-mid, upper mid, value upper mid value upper-mid

(Exhibit 3 Unaided Brand Awareness and Product Ownership of TOP 10 Home Furnishing companies) From exhibit 3, we can know aware of Manchester is middle in the competitors, the data of own a product is very low, because Manchester is a office furniture brand and just transit to household furniture part. Manchesters price point is mid, upper-mid and upper. The position is high. Paul Logan is the highest brand in the exhibit, not only aware of brand, but also owns a product. Merged company should keep PLFDs competition advantage, and consider the brand use.

In the household furniture industry, compare with the closest competitors, Manchesters products are more comfortable, durable, and with higher quality, but in other part Manchester is very weak. Compare with HLFD the strengths of Manchester are not obvious, and the weaknesses is obvious. In the US household furniture market, the competition become more and more intense, the new entrants into the market and many competitors use low cost strategy. Merged company should rely on the core competitiveness of PLFD, in order to into household furniture industry.
15 10 5 0 -5 -10 -15 -20 -25 -30 MH rating vs. closest competitors MH rating vs. PLFD

(Exhibit 4Marketing strengths and weaknesses of MH and PLFD)

Financial analysis:
Income statement 2003 PLFD 2003 MH 2004 PLFD 2004 MH

Gross sale

1000

200

1000

260

Variable cost

680

134

680

174.2

320

66

320

85.8

Contribution margin

32%

33%

32%

33%

marketing expense

174

24.6

189

42.6

Additional SG&A

100

20

100

20.8

Profit before tax

46

21.4

31

22.4

Profit margin

5%

11%

3%

9%

PLFD push and pull total market expenditure 2005 = push program + pull program = (purchase allowance + volume rebates + cash discount + personal selling material + press relations + trade shows + in-store merchandising) + (national advertising + co-op advertising + consumer rebates + functional support expenses + corporate promotion assessment) = (0% + 2.5% + 0% + 0.7% + 0.2% + 0.2% + 0.7%) + ( 6.8% + 6.4% + 0.1% + 3% + 0.4% + 0%) = 4.3% + 16.7% = 21% (% of sale)

MH push and pull total market expenditure 2005 = push program + pull program = (retail intensive plan + cash discount + personal selling material + press relations + trade shows + in-store merchandising) + (national advertising + co-op advertising + consumer rebates + functional support expenses + corporate promotion assessment) = (0.6% + 0.9% + 0.8% + 0% + 0.2% + 0%) + (11% + 4.3% + 6.9% + 0% + 0.2% + 1.2%) = 2.5% + 23.6% = 26.1% (% of sale)

From above financial figures we need to compare PLFD and MH profit margin

Income Statement Summary (% of sales) 2003 PLFD Gross sales Variable costs Contribution margin Total marketing expenses Additional SG&A Profit margin 100.00 % 68.00% 32.00% 17.40% 10.00% 4.60% MH 100.00 % 67.00% 33.00% 12.30% 10.00% 10.70% PLFD 100.00 % 68.00% 32.00% 18.90% 10.00% 3.10% 2004 MH 100.00 % 67.00% 33.00% 16.40% 8.00% 8.60% PLFD 100.00 % 68.00% 32.00% 21.00% 10.00% 1.00% 2005 MH 100.00 % 67.00% 33.00% 26.10% 8.00% -1.10%

Marketing expenditures (% of sales) 2003 PLFD Push programs Pull programs Total 7.00% 10.10% 17.40% MH 1.00% 10.90% 12.30% PLFD 8.00% 10.80% 18.90% 2004 MH 2.00% 14.20% 16.40% PLFD 4.00% 16.70% 21.00% 2005 MH 3.00% 23.60% 26.10%

We found the both companies profit margins all reduced from 2003 to 2005, because the American economic recession. The American economic recession was had strong affection to bargain power of buyer, especially to company buyers (office furniture buyers), so MH profit margin appeared negative growth. There is another important reason led to MH profit margin negative growth that is total marketing expenditure, the MH total marketing expenditure increased from 16.4% (2004) to 26.1% (2005). According to the results of the PLFD and MH profit margin, we easy to see that the

profit margin of PLFD is better than MH, this trend will be continuous to development, because the overcome economic recession need to the industry restructuring, this is a long term process. So the MH needs increase the lifestyle furniture brand power through merger PLFD brand.

Solution:
How to solve the brand transition, this is a complex interweave organization, planning, and implementation process. If one factor of the process having problem maybe lead to the whole brand transition to failure, so its very difficult problem for Adams, there are three different advises could to choose from top management team: Strategy 1: this is a no brainer. The brand name should be changed to Manchester in all product categories as soon as possible. This will show competitors quick and decisive action and minimize any confusion that is associated with operating two brand names. We must show our immediate commitment to the Manchester name. Gary Burnett, COO. Strategy 2: Garys suggestion ignores a critical issue: Manchester does not have the brand strength to pull off an immediate brand name transition. Part of the reason we bought PLFD was for the Paul Logan association. Lets take advantage of their superior brand awareness and delay the name change for as long as possible. Lisa Marks, CFO. Strategy 3: it does not have to be all or nothing for three years. Why dont we pick one or two products at a time and transition to the Manchester name gradually? I suggest we take a look at products or categories that lend themselves to a low-risk brand transition and start there. Jeremy Campbell, VP, Strategic Planning. This is very difficult choice, because it is not a wise to change the Paul Logan as soon as possible, because it will lost current brand awareness, need to education customers and strong distribution channel could be destroyed; on the contrary, it will go against its

long-term development, if change as long as possible, the MH brand equity and power in the market difficulty to improvement when we return the brand Paul Logan after three years. Transition mid point is better than above two strategies, but there is nothing about delete brand Paul Logan in the strategy 3, because the customers need a period to acceptance one brand logo by company's announce advertisement. But according to bad economic crisis and difficult period of company, we comprehensive analysis and evolution from four aspects: goal, human, finance, and material, we found strategy 4 better than others, because strategy 4 will made more profit rapidly, help company increase the brand equity and good performance for top management team. Strategy 4: we do not make new brand, so we should increase MH brand equity through brand transition. Using two brand trademark products in the market at same time in beginning; later, manufacture the products with two brand logo (MH and PLFD), using the radiation effects continuous improve the MH brand power in home hold furniture industry; at the end of the three years, delete the PLFD logo from products gradually, finally, the products with only one brand logo is the MH. (We need to complete the brand transition in the three years, because we can use the PLFD brand for three years)

Implementation:
The brand transition is a complex process, it needs all departments of corporation work to synchronize cooperation and perform their duties (such as: advertisement, promotion, services, sale channel and so on) if we want to achieve the successful brand transition.

The specific MH brand transition implementation process (there is three stages in three years):

1, the first stage: we (the MH Company) will use the two brands MH and PLFD products in the market at the same about six months. The two brands products mixed enter each others distribution channel, for example, there are must having several MH products in the PLFD sale spots, on the contrary, there are must have several PLFD products in the MH sale spots. Training every sale staff announce to customers that the MH acquisition the PLFD brand, we can promise the quality and services. Advertisement agency should announce that the first point MH acquisition the PLFD brand and the second point we can maintain the quality and services in the society use any method. 2, the second stage (two years): we (the MH Company) will manufacture the all PLFD products with new package, one product with two trademark logos MH and PLFD. Giving the some discount to the customers that buy new package with two logos products in the three months. Advertisement agency need to announce these new package products in the market use any method, and promise the quality and better services. Another promise is the all former PLFD customers also have the better after services. We want to use the connectivity products radiation effects continuous increase the MH brand equity and power in the market. Lets the customers feeling that those MH and PLFD no any difference, only have the new package and better services and quality. We need have two market researches in this stage, according to the customers reaction in the market to determination whether increase announces and promotions. 3, the third stage (final six months): this is our MH company delete the PLFD process. We will manufacture the connectivity products with two packages, for example, one model product has little difference, which is the same product one is only MH logo and another is two logos MH and PLFD. We will sale them at the same sale spots, and give the discount to the customer whom buy the only MH brand products. Advertisement agency need to announce that our MH Company will support new package about products gradually, which is only one brand logo MH. We also need market research to the customer reaction about only one brand logo in the market.

We believe that the MH brand equity and power will continuous increase through above plan successful implementation. In this process we must consideration and defense the completions from competitors.

Conclusion
The brand transition is a complex process, it needs all departments of corporation work to synchronize cooperation and perform their duties (such as: advertisement, promotion, services, sale channel and so on) if we want to achieve the successful brand transition. How to make the customers accept the transition brand and increase the market share is the ultimate goal of the transition process. Everything has two sides in the world from the view of dialectical to explain, the brand transition also like this. One side is we control and management the transition process well led to continuous increase the brand equity and market share; another side is we control bad led to damage the two brands and make company in difficulty condition. So we must consideration seriously every factor before and in the transition brand process.

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