L3 Group 5 Champion

1. How would you characterize the industry Jones Blair is in?

Jones Blair operates in the architectural paint coatings industry, and is divided into three broad
segments: Architectural Coatings, Original equipment manufacturing coatings and Special
purpose coatings.

The industry can be characterized as a mature market. In other words, the market is getting
saturated, where significant growth and innovation are impossible. As shown in the case, the
industry growth rate is between 1 to 2 % per year. With competition from alternative materials
and increasing costs to comply with the environmental regulations, it reveals that the industry
is enduring a growing pressure. The increasing use of materials such as plastic and aluminium
would be a major reason accounting for the slow growth rate of the industry since these
materials only require a small amount of paint. Also, the improvement in the quality of paints
allows more efficient painting and hence, requires less paint for each application and longer
time interval between each application. On top of that, paint manufacturers are required to
comply with the emission goals, this further erodes the low profit margins in the industry and
poses challenges for some companies to make research and development commitments, which
is necessary to remain competitive in the painting business.
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2. How should Jones Blair’s market area be segmented? What are the characteristics of each
of these segments?

The market area of Jones Blair’s market can be broken down into the different market
segments and sub-segments. This market can be divided into two geographic areas, DFW and
non-DFW areas. These two segments have distinctive needs and vary in purchase behaviours.
DFW areas are metropolitan areas, which is the business and financial center. The sales volume
of architectural paint and sundry is declining. While non-DFW areas are in the rural part of the
countries and the sales of these products are increasing, showing a potential to develop in this
aspect. Each segment (DFW and non-DFW areas) can be divided into three sub-segments, which
are Do-it-yourselfers (DIY), professional painters and contractors. For Do-it-yourselfers,
durability, ease of use and customer services are the key criteria when they are comparing
different paint products. In particular, DIY customers are demanding customized services from
retailers, who can help with paint application, colour matching, surface preparation and
durability. Also, from their point of view, paints are regarded as commodities. Do-it-yourselfers
are therefore more price sensitive. In addition, DIY customers tend to engage in a more
extensive decision-making process as they will spend more effort on information search
beforehand. Also, their purchase behaviours tend not to follow the classic categorical hierarchy
as they will first decide on the retail outlet and then the paint band.

While for professional painters, quality and durability are the two key criteria when seeking for
paint products, since their reputation is directly affected by the paints’ quality. Also, they are
looking for professional retailers who can offer a mix of service for them. In broad terms, they
are hoping to build a collaborative relationship with retailers that can cater their special needs.
For instance, professional painters are looking for swift delivery service, flexible pickup time
and knowledgeable store employees who can help with colour mixing. Also, unlike DIY
customers, professional painters tend to make repurchases at their preferred outlets for paint
and sundries. Therefore, professional painters are more reluctant to change their suppliers and
paint brands.

For contractors, they are more price sensitive. Therefore, price would be the key determining
factor in their purchase decision.
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3. Which segment(s) should Jones Blair pursue? Why?

DIY Professional
DFW $ 1.8 M / 33.6M = 5.4 % $ 4.2 M / 14.4 M =29.2 %
Non-DFW $ 4.2 M / 28.8 M =14.6 % $ 1.8 M / 3.2M = 56.3 %

It is indicated that in the survey ,retail outlets 70% of sales through JB’s DFW dealers went to
professional painters while 70% of JB’s sales through non-DFW outlets went to
Do-it-yourselfers. According to the calculation, JB is strong in the professional market with a
34% market share. But JB is quite weak in the DFW area for the household segment with 5.4%.
JB is also not performing well in the DFW area with only 12.5% market share compared to non
DFW area (18.8%).

Jones Blair should pursue the following two segments.

The non-DFW DIY segment is highly prioritized with its high potential growth. Large volume
distribution is absent in this segment due to the low population density. Moreover, the number
of brand names per store are seemingly less than that in DFW areas. Also, price is a less
important factor, whereas the "client-seller" relationship is more important. A less competitive
environment would suggest potential growth if JB can manage to deliver customized services.

Professionals in DFW could be another major segment for JB. In this segment, they are looking
for high quality paints. The key element is quality instead of price since their reputation is
directly linked to their work. Professionals are looking for some long-lasting, washable paint.
And that higher quality would often suggest a higher price but professionals would accept to
pay more for the higher quality. Therefore, If JB can justify the higher price with a higher
quality, they can likely convince professional painters to purchase their products.

The third and fourth segment should not be pursued.

The third segment would be Non-DFW Professional, which accounts for 56.3% of the market
share. Since JB is already dominant and being the market leader in the segment, JB can
continue to grow and excel in this segment with its strong influence in the segment. However, it
is too competitive and saturated, we do not recommend this segment.

The last segment would be DIY in DFW. This target group is quite price-sensitive which poses
challenges for JB to market their paints. Even though JB is benefitting from the well-established
distributors’ networks. However, their major distributors - paint stores are charging a higher
price than other chain stores, which makes it less competitive. As paint has come to be seen
more and more as a commodity, price is seen as the most important element in order to
outcompete JB’s competitors for this segment. Overally, this segment is unattractive to JB since
it is too price sensitive.
L3 Group 5 Champion

4. Among the four different plans proposed by the different VPs, what strategy should Jones
Blair adopt?

JB’s current contribution margin: 35%

Adopting the following proposed strategy is recommended :

Add a sales representative to target professionals in Non-DFS area (Preferred) :

Break-even sales = 60,000/35% = $171,428
Total no. of accounts in Non-DFW area = 200*60% = 120 accounts
Account sales = 6mil/120 accounts = $50,000/ accounts
Break-even accounts = 171,428/50,000 = 4 new accounts

The goal is seemingly achievable with 4 additional new accounts in a year. And the cost to hire
an additional sales representative only amounts to 60,000 a year, which cost the least among
the 4 strategies. Also, a sales rep has always been the most effective way to generate new sales
and possible leads, who would also be highly appreciated by professional painters who are
looking for quality services.

Explanations and analysis of not adopting the remaining strategy can be found as below.

Increasing advertising budget by $350,000 on DIY:

Breakeven sales = 350,000/0.35 = 1 Mil
Breakeven market share = 1Mil/6Mil = 16.7%

If JB allocates additional $350,000, it would require 1 million Dollar additional sales, which
means an 8.3% increase over current sales. This poses a growing pressure on JB. Also, an
additional spending of 350,000 accounts for nearly a double of current expense. However, the
effect of brand advertising may deem ineffective. Since, the consumer buying process shows
that DIY customers tend to decide on the retail outlet first, not a brand. Thus, JB should focus
on cooperative advertising instead of brand advertising.

Cut price by 20%:

Current Price Cut

Selling P $100 $80
VC $65 $65
Contribution $35 $15
Contribution Margin 35% 18.75%

JB’s Current gross margin: 12mil*35% = 4.2 Mil

To maintain current gross margin, the required sales is $28 Mil, which is a 233% increase from
current sales in a year, which would be nearly impossible. Also, price cut would not be a
long-term strategy. Price cut may attract short term customers. However, the profit would not
sustain. In addition, JB has long been a high-end brand, offering quality paints with high quality
L3 Group 5 Champion

services, severe price cuts would hurt their long-established image which would incur extra
costs to recover.

Do Nothing
Operating in the competitive paint market, JB may lose its competitive advantage easily if it fails
to develop continuously and react to market needs in a timely manner.