Question

Hydropump, Inc. produces and sells high-quality pumps to business customers. Its marketing research shows a growing market for a similar type of pump aimed at final consumers-for use with jacuzzi-style tubs in home remodeling jobs. Hydropump will have to develop new channels of distribution to reach this target market because most consumers rely on a retailer for advice about the combination of tub, pump, heater, and related plumbing fixtures they need. Hydropump's marketing manager. Robert Black, is trying to decide between intensive and selective distribution. With intensive distribution, he wouid try to sell through all the plumbing supply, bathroom fixture, and hot-tub retailers who will carry the pump. He estimates that about 5,600 suitable retailers would be willing to carry a new pump. With selective distribution, he would focus on about 280 of the best hot-tub dealers (two or three in the hundred largest metropolitan areas).

Intensive distribution would require Hydropump to do more mass selling-primarily advertising in home renovation magazines-to help stimulate consumer familiarity with the brand and convince retailers that Hydropump equipment will sell. The price to the retailer might have to be lower too (to permit a bigger markup) so they will be motivated to sell Hydropump rather than some other brand offering a smaller markup.

With intensive distribution, each Hydropump sales rep could probably handle about 300 retailers effectively. With selective distribution, each sales rep could handle only about 70 retailers because more merchandising help would be necessary. Managing the smaller sales force and fewer retailers—with the selective approach-would require less manager overhead cost.

Going to all suitable and available retailers would make the pump available through about 20 times as many retailers and have the potential of reaching more customers. However, many customers shop at more than one retailer before making a final choice-so selective distribution would reach almost as many potential customers. Further, if Hydropump is using selective distribution, it would get more in-store sales attention for its pump-and a larger share of pump purchases-at each retailer.

Black has decided to use a spreadsheet to analyze the benefits and costs of intensive versus selective distribution.

f. Hydropump's marketing manager thinks that the hot-tub dealers will pay more attention to the company's product if they get a higher than normal level of attention and help from Hydropump sales reps. However, a sales rep would only be able to spend the extra time with each dealer if he is responsible for fewer accounts. If each rep is assigned only 47 dealers, instead of 70, how many more sales reps would be needed, and how much would personal selling costs increase?

number of sales reps needed at 47 dealers per rep                        _________

personal selling cost for this number of sales reps                         _________

less, personal selling cost for 4 sales reps $72,000

equals, increase in personal selling cost                                           _________

Answer 1

First Question

Analysis of Cost and Benefit Analysis of Intensive Distribution vs Selective Distribution

Particulars	Intensive Distribution	Selective Distribution	Preferred Value	Preference
Factors given without value
Advertising Cost	High	Low	Low	Selective
Profit Margin	Low	High	High	Selective
Manager Overhead Cost	High	Low	Low	Selective
Customer Potential	Same		High	Indifferent
In Store Sales Attention	Low	High	High	Selective
Share of Pump Purchases per Retailer	Low	High	High	Selective
Quantitative Factors
Number of Retailers/ Dealers	5600	280
Number of Retailers/Dealers a single rep can handle	300	70
Therefore, Number of Sales Rep required	19	4
Sales Rep Personnel Cost ($72000/4 = $18000)	$342,000	$72000
Sales Rep Cost	High	Low	Low	Selective

Conclusion: From the above analysis it seems Selective Distribution is more preferrable.

Second Question

Particulars	Amount
Number of Sales Reps needed at 47 dealers per rep (280/47)	6
Personnel Selling Cost for 6 reps ($72000 / 4 * 6)	$108,000
Less: Personnel Selling Cost for 4 Sales Reps	$72,000
Increase in Personnel Selling Cost	$36,000

Conclusion: If each Sales Rep is assigned 47 dealers instead of 70, 2 additional Sales Rep needs to be appointed. This will increase the Personnel Selling Cost by $36000.

Your feedback is very valuable for me. Please give me a feedback. Also let me know if any further clarification is required.