Question

Performance Lawn Equipment (PLE)

PLE, headquartered in St. Louis, Missouri, is a privately-owned designer and producer of traditional lawn mowers used by homeowners. Annual sales are approximately $180 million. Both end users and institutions (organizations) are important customers for PLE. This case is ONLY about organizations (such as retail outlets) that buy from PLE. There are two type of organizations that are PLE customers: (1) dealerships or retail stores that in-turn sell to end-customers, and (2) organizations that buy products to use in their operations (such as golf courses or professional lawn care businesses). A purchasing manager in such organizations makes the decisions about which brand of lawn mowers to buy and how many to buy.

Elizabeth Burke has recently joined the PLE management team to oversee production operations. She has asked you to analyze results of a survey of purchasing managers in PLE’s institutional customers.

The worksheet Purchasing Survey in the Performance Lawn Care database provides data obtained from a survey of purchasing managers of institutional customers. Respondents rated PLE on the following seven attributes:

Delivery speed-the amount of time it takes to deliver the product once an order is confirmed

Price level-the perceived level of price charged by PLE

Price flexibility-the perceived willingness of PLE representatives to negotiate price on all types of purchases

Manufacturing image-the overall image of the manufacturer

Overall service-the overall level of Service necessary for maintaining a satisfactory relationship between PLE and the purchaser

Sales force image—the overall image of the PLE’s Sales force

Product quality-perceived level of quality

Responses to these Seven Variables were obtained using a graphic rating Scale, where a 10-centimeter line was drawn between endpoints labeled "poor and 'excellent." Respondents indicated their perceptions using a mark on the line, which was measured from the left endpoint. The result was a scale from 0 to 10 rounded to One decimal place.

Two measures were obtained that reflected the outcomes of the respondent's purchase relationships with PLE:

Usage level-how much of the firm's total product is purchased from PLE, measured on a 100-point Scale, ranging from 0% to 100%

Satisfaction level-how satisfied the purchaser is with past purchases from PLE, measured on the same graphic rating scale as perceptions 1 through 7

The data also include four characteristics of the responding firms:

Size of firm-size relative to others in this market (O = Small; 1 = large)

Purchasing structure-the purchasing method used in a particular company (1 = centralized procurement, 0 = decentralized procurement)

Industry-the industry classification of the purchaser l = retail (stores that resell to end consumers such as Home Depot), 0 = private (nonresale, Such as a profession lawn care business)

Buying type-a Variable that has three categories (1 = new purchase, 2 = modified rebuy, 3 = Straight rebuy)

Elizabeth Burke would like to understand what she learned from this data.

Cluster Analysis:

Apply cluster analysis to analyze the data to create a segmentation of institutional customers. For example, can PLE segment customers into groups with similar perceptions about the company? Do not use “Usage level” or “Satisfaction level” in making the clusters. Check to see if the clusters differ on usage level and satisfaction or not. Which clusters have high usage and satisfaction and which ones do not? Suggest actions management can take to increase usage and satisfaction for the different clusters.

Regression Analysis:

Can regression models provide insight about the drivers of satisfaction and usage level? What are the most important variables that need to be influenced to increase satisfaction and usage level? Suggest ways management can do so.

Summarize your results in a report to Ms. Burke.

Purchasing Survey
Delivery speed	Price level	Price flexibility	Manufacturing image	Overall service	Salesforce image	Product quality	Usage Level	Satisfaction Level	Size of firm	Purchasing Structure	Industry	Buying Type
4.1	0.6	6.9	4.7	2.4	2.3	5.2	32	4.2	0	0	1	1
1.8	3	6.3	6.6	2.5	4	8.4	43	4.3	1	1	0	1
3.4	5.2	5.7	6	4.3	2.7	8.2	48	5.2	1	1	1	2
2.7	1	7.1	5.9	1.8	2.3	7.8	32	3.9	1	1	1	1
6	0.9	9.6	7.8	3.4	4.6	4.5	58	6.8	0	0	1	3
1.9	3.3	7.9	4.8	2.6	1.9	9.7	45	4.4	1	1	1	2
4.6	2.4	9.5	6.6	3.5	4.5	7.6	46	5.8	0	0	1	1
1.3	4.2	6.2	5.1	2.8	2.2	6.9	44	4.3	1	1	0	2
5.5	1.6	9.4	4.7	3.5	3	7.6	63	5.4	0	0	1	3
4	3.5	6.5	6	3.7	3.2	8.7	54	5.4	1	1	0	2
2.4	1.6	8.8	4.8	2	2.8	5.8	32	4.3	0	0	0	1
3.9	2.2	9.1	4.6	3	2.5	8.3	47	5	0	0	1	2
2.8	1.4	8.1	3.8	2.1	1.4	6.6	39	4.4	1	1	0	1
3.7	1.5	8.6	5.7	2.7	3.7	6.7	38	5	0	0	1	1
4.7	1.3	9.9	6.7	3	2.6	6.8	54	5.9	0	0	0	3
3.4	2	9.7	4.7	2.7	1.7	4.8	49	4.7	0	0	0	3
3.2	4.1	5.7	5.1	3.6	2.9	6.2	38	4.4	0	1	1	2
4.9	1.8	7.7	4.3	3.4	1.5	5.9	40	5.6	0	0	0	2
5.3	1.4	9.7	6.1	3.3	3.9	6.8	54	5.9	0	0	1	3
4.7	1.3	9.9	6.7	3	2.6	6.8	55	6	0	0	0	3
3.3	0.9	8.6	4	2.1	1.8	6.3	41	4.5	0	0	0	2
3.4	0.4	8.3	2.5	1.2	1.7	5.2	35	3.3	0	0	0	1
3	4	9.1	7.1	3.5	3.4	8.4	55	5.2	0	1	0	3
2.4	1.5	6.7	4.8	1.9	2.5	7.2	36	3.7	1	1	0	1
5.1	1.4	8.7	4.8	3.3	2.6	3.8	49	4.9	0	0	0	2
4.6	2.1	7.9	5.8	3.4	2.8	4.7	49	5.9	0	0	1	3
2.4	1.5	6.6	4.8	1.9	2.5	7.2	36	3.7	1	1	0	1
5.2	1.3	9.7	6.1	3.2	3.9	6.7	54	5.8	0	0	1	3
3.5	2.8	9.9	3.5	3.1	1.7	5.4	49	5.4	0	0	1	3
4.1	3.7	5.9	5.5	3.9	3	8.4	46	5.1	1	1	0	2
3	3.2	6	5.3	3.1	3	8	43	3.3	1	1	0	1
2.8	3.8	8.9	6.9	3.3	3.2	8.2	53	5	0	1	0	3
5.2	2	9.3	5.9	3.7	2.4	4.6	60	6.1	0	0	0	3
3.4	3.7	6.4	5.7	3.5	3.4	8.4	47	3.8	1	1	0	1
2.4	1	7.7	3.4	1.7	1.1	6.2	35	4.1	1	1	0	1
1.8	3.3	7.5	4.5	2.5	2.4	7.6	39	3.6	1	1	1	1
3.6	4	5.8	5.8	3.7	2.5	9.3	44	4.8	1	1	1	2
4	0.9	9.1	5.4	2.4	2.6	7.3	46	5.1	0	0	1	3
0	2.1	6.9	5.4	1.1	2.6	8.9	29	3.9	1	1	1	1
2.4	2	6.4	4.5	2.1	2.2	8.8	28	3.3	1	1	1	1
1.9	3.4	7.6	4.6	2.6	2.5	7.7	40	3.7	1	1	1	1
5.9	0.9	9.6	7.8	3.4	4.6	4.5	58	6.7	0	0	1	3
4.9	2.3	9.3	4.5	3.6	1.3	6.2	53	5.9	0	0	0	3
5	1.3	8.6	4.7	3.1	2.5	3.7	48	4.8	0	0	0	2
2	2.6	6.5	3.7	2.4	1.7	8.5	38	3.2	1	1	1	1
5	2.5	9.4	4.6	3.7	1.4	6.3	54	6	0	0	0	3
3.1	1.9	10	4.5	2.6	3.2	3.8	55	4.9	0	0	1	3
3.4	3.9	5.6	5.6	3.6	2.3	9.1	43	4.7	1	1	1	2
5.8	0.2	8.8	4.5	3	2.4	6.7	57	4.9	0	0	1	3
5.4	2.1	8	3	3.8	1.4	5.2	53	3.8	0	0	1	3
3.7	0.7	8.2	6	2.1	2.5	5.2	41	5	0	0	0	2
2.6	4.8	8.2	5	3.6	2.5	9	53	5.2	1	1	1	2
4.5	4.1	6.3	5.9	4.3	3.4	8.8	50	5.5	1	1	0	2
2.8	2.4	6.7	4.9	2.5	2.6	9.2	32	3.7	1	1	1	1
3.8	0.8	8.7	2.9	1.6	2.1	5.6	39	3.7	0	0	0	1
2.9	2.6	7.7	7	2.8	3.6	7.7	47	4.2	0	1	1	2
4.9	4.4	7.4	6.9	4.6	4	9.6	62	6.2	1	1	0	2
5.4	2.5	9.6	5.5	4	3	7.7	65	6	0	0	0	3
4.3	1.8	7.6	5.4	3.1	2.5	4.4	46	5.6	0	0	1	3
2.3	4.5	8	4.7	3.3	2.2	8.7	50	5	1	1	1	2
3.1	1.9	9.9	4.5	2.6	3.1	3.8	54	4.8	0	0	1	3
5.1	1.9	9.2	5.8	3.6	2.3	4.5	60	6.1	0	0	0	3
4.1	1.1	9.3	5.5	2.5	2.7	7.4	47	5.3	0	0	1	3
3	3.8	5.5	4.9	3.4	2.6	6	36	4.2	0	1	1	2
1.1	2	7.2	4.7	1.6	3.2	10	40	3.4	1	1	1	1
3.7	1.4	9	4.5	2.6	2.3	6.8	45	4.9	0	0	0	2
4.2	2.5	9.2	6.2	3.3	3.9	7.3	59	6	0	0	0	3
1.6	4.5	6.4	5.3	3	2.5	7.1	46	4.5	1	1	0	2
5.3	1.7	8.5	3.7	3.5	1.9	4.8	58	4.3	0	0	0	3
2.3	3.7	8.3	5.2	3	2.3	9.1	49	4.8	1	1	1	2
3.6	5.4	5.9	6.2	4.5	2.9	8.4	50	5.4	1	1	1	2
5.6	2.2	8.2	3.1	4	1.6	5.3	55	3.9	0	0	1	3
3.6	2.2	9.9	4.8	2.9	1.9	4.9	51	4.9	0	0	0	3
5.2	1.3	9.1	4.5	3.3	2.7	7.3	60	5.1	0	0	1	3
3	2	6.6	6.6	2.4	2.7	8.2	41	4.1	1	1	0	1
4.2	2.4	9.4	4.9	3.2	2.7	8.5	49	5.2	0	0	1	2
3.8	0.8	8.3	6.1	2.2	2.6	5.3	42	5.1	0	0	0	2
3.3	2.6	9.7	3.3	2.9	1.5	5.2	47	5.1	0	0	1	3
1	1.9	7.1	4.5	1.5	3.1	9.9	39	3.3	1	1	1	1
4.5	1.6	8.7	4.6	3.1	2.1	6.8	56	5.1	0	0	0	3
5.5	1.8	8.7	3.8	3.6	2.1	4.9	59	4.5	0	0	0	3
3.4	4.6	5.5	8.2	4	4.4	6.3	47	5.6	0	1	1	2
1.6	2.8	6.1	6.4	2.3	3.8	8.2	41	4.1	1	1	0	1
2.3	3.7	7.6	5	3	2.5	7.4	37	4.4	0	1	0	1
2.6	3	8.5	6	2.8	2.8	6.8	53	5.6	1	1	0	2
2.5	3.1	7	4.2	2.8	2.2	9	43	3.7	1	1	1	1
2.4	2.9	8.4	5.9	2.7	2.7	6.7	51	5.5	1	1	0	2
2.1	3.5	7.4	4.8	2.8	2.3	7.2	36	4.3	0	1	0	1
2.9	1.2	7.3	6.1	2	2.5	8	34	4	1	1	1	1
4.3	2.5	9.3	6.3	3.4	4	7.4	60	6.1	0	0	0	3
3	2.8	7.8	7.1	3	3.8	7.9	49	4.4	0	1	1	2
4.8	1.7	7.6	4.2	3.3	1.4	5.8	39	5.5	0	0	0	2
3.1	4.2	5.1	7.8	3.6	4	5.9	43	5.2	0	1	1	2
1.9	2.7	5	4.9	2.2	2.5	8.2	36	3.6	1	1	0	1
4	0.5	6.7	4.5	2.2	2.1	5	31	4	0	0	1	1
0.6	1.6	6.4	5	0.7	2.1	8.4	25	3.4	1	1	1	1
6.1	0.5	9.2	4.8	3.3	2.8	7.1	60	5.2	0	0	1	3
2	2.8	5.2	5	2.4	2.7	8.4	38	3.7	1	1	0	1
3.1	2.2	6.7	6.8	2.6	2.9	8.4	42	4.3	1	1	0	1
2.5	1.8	9	5	2.2	3	6	33	4.4	0	0	0	1

Answer 1

Cuurent Annual sales	180000000
Option 1
Event	Cost	Prob	Rev	Expected Revenue	Expected Profit
High	850000	0.6	2000000	1200000	690000
Low	850000	0.4	450000	180000	-160000
Total				1380000	530000
Option 2	NA = North American (Pilot)	or	NA and Global
Event	Cost	Prob	Rev	Expected Revenue	Expected Profit	Event	Cost	Prob	Rev	Expected Revenue	Expected Profit
High	200000	0.7	1200000	840000	700000	High	200000	0.9	2000000	1800000	1620000
				NAERH	NAEPH	Low	200000	0.3	450000	135000	75000
						NA and Global				1935000	1695000
										NAERH'	NAEPH'
Low	200000	0.3	200000	60000	0	High	600000	0.05	2000000	100000	70000
				NAERL	NAEPL	Low	600000	0.95	450000	427500	-142500
						Total				527500	-72500
										NAERL'	NAEPL'
Only NA			(	900000	700000	NA and Global Over all				2462500	1622500
				NAERH+NAERL	NAEPH+NAEPL					NAERH'+NAERL'	NAEPH'+NAEPL'

So we see the best option is to go for US pilot then launch Global:

Has a Expected Profit of:

1622500

As compared to pilot + NA:

Has a Expected Profit of:

700000

And direct launch

Has a Expected Profit of:

530000