Question

Topic: Strategy

Increase Horizontally Or Vertically?

Posted by Anonymous on 2/11/2008 at 1:32 AM ET 250 Points
Gud day marketing experts. My uncle is in need of your expertise. He used to be a manager of a distributioncompany for 3 years already. Since he got hold of the whole process, he decided to put up his own business. Together with a group of seasoned researchers and consultants, he was able to put up his own company that distributes kitchenware and sells canned goods.

One of his staff, the production manager believes that volume comes from satisfying needs. They will can any fruit or vegetable that they think customers want. The typical plants are not fully used. By adding new products, costs are spread over greater volume. So the production department is always looking for new ways to make more effective use of its present facilities.

Business was booming under his first three years of management because they focused on the large stores. in those three years, they also came up with a number of new product offerings to catch up with the large competitors. In the last 2 years, my uncles' company's sales volume has not increased much, together with the operations costs that really soared. My uncle thinks that the sales department is the one to blame because they were not able to deliver. I personally know the VP for sales and he told me that the mistake was that the company expanded horizontally by inceasing its product offerings while their competitors were expanding vertically, growing their own raw materials and making all kitchenware. "They control quality and make profits in manufacturing that can be used in promitions. The best sales people left us becasue of frustration," she adds. She thinks her team is just not competitive enough to reach the market the way they should with a comprable product and price.

The marketing research group also mentioned that the customers are pressed for time and aren't very selective, picking up other brands if the brand they like isn't available. Even if they advertised heavily, the size of the market hasn't grown. Consumers are also knowledgeable about prices and special promotions of competitors.

At this point, my uncle is trying o decide why his company isn't as profitable as it once was. He is even puzzled why some competitors are putting products on the market with low potential sales volume. Why?

Please help evaluate the situation of my uncle's company. Please throw in pieces of advise in any angle that you might think he should improve on that can help increase the sales.

Thank you.
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RESPONSES

  • Posted by CarolBlaha on 2/11/2008 at 8:54 AM Accepted
    Its always easiest to blame sales. Its also the easiest place to diagnose. In speaking with the sales manager, besides the problem he states-- what obstacles are they having selling the product you have?

    Your sales grew the first 3 years because you were pioneering and landing accounts. Those accounts are not growing -- how many new accounts have been opened?

    Expanding vertically is a very sound business decision. While expanding horizontally gives you an endless amount of sales opportunities-- it can increase operating costs. Sales people often say the "problem" with the situation is that if you had x product-- they could sell it. this is an excuse and not a reason. You have product to sell, and a niche, so go sell something.

    But I doubt sales is the total reason. When I go into a company you will find there is a "sales prevention" department. To reorg this business everyone is going to have to be on the same page.

    It is true that buyers in retail especially-- will not tolerate unavailable products or late delivery. The sales manager does seem to have grasp of her market. I'd pick her brains more. But be firm, she has to deliver with the tools she has. What changed that suddenly made you uncompetitive? When talent has left-- and talent always will-- does she have a plan for continually recruiting and attracting replacement?

    Why are operating costs rising? There seems to be leakage there. While sales have not risen, they haven't dramatically dropped. Start some trimming.

    I'm going toward certification in project management-- and that's getting me turned on to statistics in business management. As it relates to this question, create several "what if" scenarios and calculate impact before implementing. You are at a good place to make change. Sales are stagnant, not down. Turning this around at this point vs dire crisis is imperative.

    Carol
    Sell Well and Prosper tm
  • Posted on 2/11/2008 at 10:13 AM Member
    As for the fruit and vegetable canning part, I just read that there is a growing need for private labeling. Maybe there is a new opportunity there for you.
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