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Case 2: Curtis Automotive Hoist
Curtis Automotive Hoist (CAH) manufactures and markets surface automotive hoists in North America. Hoist, is used by garages, service stations and other repair shops to lift cars for servicing. The company has successfully positioned its product as a superior offering and used extensive personal selling to promote and serve the product. Its strengths lie in the extensive product line and possession of four patents including one for the key safety feature. Also, CAHs sales force is essential to CAHs success. The sales force focuses on serving large “direct” accounts and has been able to get approval from them. It established a distributor network across North America and has generated about 25% of annual unit sales. Finally, CAHs prominent reputation allows it to charge a premium when its competitors are mainly competing on price.
The other two types of distribution are the Canadian Distributors who install and service units across Canada focusing on smaller chains, independent service stations and garages, and the US automotive wholesaler. Despite the CAHs competencies, the US distributor fails to actively promote the sales of Curtis Lift. In fact, the lift is but a minor product within the wholesalers complete product line and accounts for only 20% of its total lift sales. Given that US market currently accounts for 60% of CAHs sales and holds growth potential in future, the current US distribution system may hurt CAHs growth. Another problem is CAHs high production cost. Its cost of sales accounts for approximately 72% of sales, which is at least 20% higher than that of dominant players. The relatively low contribution margin leaves the company little flexibility in competition.
How could Curtis Automotive Hoist (CAH) maintain its growth and prestigious brand image with expanded market share given its limited financial and human resources?
Should it adopt a market penetration strategy in US or should it follow a market development strategy and expand to Europe?
If it adopts the market penetration strategy, should it approach the US market through the establishment of a sales office or through enhanced joint efforts with its current distributor?
If entering Europe is desired, should CAH start with licensing or joint venture agreement with Bar Maisse or through direct investment?
CAH competes in the specialty shop segment and particular, those shops that dealt with wheel alignment. The main target market are chains like Firestone and Canadian Tire, new car dealer like Ford, who devote a certain percentage of their lifts to the wheel alignment business, and independent garages who specialized in wheel alignment. Wheel alignment market forms 85% of the hoist sales. And only 15% uses hoist for other general mechanic repairs. Many of those chains and dealerships must have the parent companys approval for purchasing decision as it is a major capital investment.
Two large US firms dominate the hoist industry: AHV lifts and Berne Manufacturing, who together hold approximately 60% of the market and focused mainly on in-ground market and the two-post surface market. The scissors lift alignment is the fastest growing product types and is grasping shares from the in-ground lifts and the four-post lifts. There for the main competitors for CAH, whose focus and specialty are the scissors lifts, are AHV and local small regional competitor Mete Lift, who lacks in safety features. Both competitors offer fewer features at low price, but the buyers are less price sensitive and value product features, especially safety. Like this CAH has gained 46% market share in a segment that is still to grow.
Opportunities and Alternatives
To maintain its rapid growth, CAH faces two strategic moves – penetrating US market and entering European market. US market is much bigger than that of Canadas and is CAHs most important market. CAH has been involved in this market through its US wholesaler who for period of three years was selling CAHs complete product line. Its superior offering and established reputation is well received here. More importantly, the competent sales force and existing customer network may serve as an excellent starting point for CAH to pursue this market more aggressively. The authorized supplier status of a few large direct accounts will ensure relatively stable order inflow to CAH. Another advantage is the close geographic proximity of CAH to targeted US market. It eliminates the need for capital investment and facilitates communication, distribution and promotion. New England states, the three largest mid-eastern states and the three larges Atlantic states are only a day driving if Curtis had an office based in New York. The US market hold great potential, which has been recognized from Mr. Curtis and Mr. Gagnon as the Curtis lift was a minor product within the wholesalers total line.
Other growth opportunity has been identified with penetrating in European market where 4 countries combined market represents segment comparable by size with the US one. And with the idea of one market in the face of European union, the potential is even bigger. However, the European market is not easy. It involves huge time, financial and human resources investment and/or careful selection of strategic partner. And the key question here is if CAH can adapt its distinctive competencies to the new market. Great knowledge must be acquired about the customer, competition and future sale, perceptions, culture and values. Research in those areas is mandatory. How can CAH take advantage of its reputation and expertise in personal selling if it is to rely heavily on its partner for marketing activities? Another question is whether Bar Maisse, the potential partner, will give its full commitment as it also manufactures and markets other wheel alignment equipment. Given that only about 25% of market development strategies are successful, the European market is riskier.
Alternative 1: Penetrating US market
Option 1: Establishing a sales office in New York
Advantages: Establishing a sales office will not only take advantage of the existing sales expertise, but also allow CAH to get first hand market information and enhance its distribution expertise. The companys sales force has great experience and can get more large direct accounts. The initial overheads are not going to be oversized and tremendous, and breaking even will be achieved easier.
Disadvantages: