Reference no: EM13864066

CASE -

Handy Andy, Inc. Handy Andy, Inc., produced garbage/trash compactors at a factory in St. Louis, Missouri, and sold them throughout the United States. Nearly all sales were in large urban areas where trash collection costs were high. The basic unit was about 3 feet high, 2 feet deep, and 1 1/2 feet wide. A deluxe model had the same dimen- sions but contained more features. Because most of the sales represented units to be placed in existing kitchens, a wide variety of colors and trims were manufactured, pro- viding an exterior that would match almost any kitchen decor. The standard model came in five colors with three different trims for a total of 15 different combinations. The deluxe model came in 8 colors and 4 different trims for a total of 32 different combinations. Retail prices were set by the dealer, with prices for the standard model rang- ing between $310 and $350 and for the deluxe model between $390 and $450.

Sales in an area were usually slow until trash collectors, faced with rising landfill costs, raised their rates per can of refuse picked up. Because of the sporadic sales patterns and the wide number of colors and trims available, retailers usually stocked only a display unit or two. They had available an expensively printed brochure that included paint chips so buyers could select the color and finish they wanted. When the retailer completed the sale, he or she would take the order and promise delivery and installation within a given number of days. In each major city, there was one major Handy Andy dealer (factory distributor). Each dealer maintained a complete stock of all styles and trims of the Handy Andy compactors. (Handy Andy, Inc., insisted that these factory distributors stock at least five units each of the 47 different styles available.) The general agreement between the factory distributors and Handy Andy was that the factory distributor would deliver and install the compactor within five days after the distributor who had made the sale informed the factory distributor. For the delivery and installation, the factory distributor received 9 percent of the unit's wholesale price, half paid by distributor who had made the sale and half paid by Handy Andy as a credit against future orders. José Ortega worked in Handy Andy's distribution department in the St. Louis headquarters. He currently was working on a project to determine whether the compactor's warranty should be extended from one year to two years. The units were well built, and there had been almost no warranty work requested in the first year of each model's life. Because Handy Andy would have no records of work performed after the one-year period had expired, Ortega was randomly contacting buyers, using long-distance phones. Their names and phone numbers came from post- cards they had mailed in to register the warranty at time of purchase (see Exhibit 7-A). The phrase at the bottom of thecard referring to Handy Andy's records was to keep the buyer from waiting for a problem to occur and then mailing in the card. Whether this statement was necessary was unknown because so few defects had been reported. Ortega was in the process of contacting 500 purchasers who had owned the compactors for between one year and four years (when they had first been introduced) to determine whether the compactors had required repairs and, if so, the extent and cost of the repairs. In talking to purchasers, Ortega was impressed by the fact that there were remarkably few complaints involving the durability of the compactors. Another type of complaint did arise, however, one that Ortega had difficulty understanding until he heard many buyers, usually from the same few cities, tell an almost identical story. It appeared that in these cities the factory distributor would contact individuals who had purchased Handy Andy compactors from other, smaller dealers and would attempt to have them cancel the original order. The factory distributor told the buyer that the model originally requested was out of stock but that a better model could be supplied for the same price. The factory distributors also indicated that the buyers would receive better service if they bought from them because, they claimed, they provided service for all Handy Andy models sold in their area. In addition, the factory distributors in these few cities indicated that they, not Handy Andy, Inc., stood behind the one-year warranty.Ortega realized that he was uncovering a larger problem than he had been assigned to explore. He chatted briefly with his supervisor, who told him to revise the for- mat of his interview to include a few more questions con- cerning the installation. She also told him to begin calling individuals who had owned compactors for less than a year.

Ortega did this, and the only new information he uncovered was that the factory distributors in almost all cities did a better job of installing compactors that they had sold than they did those sold by smaller dealers. The deliv- ery was faster (in terms of elapsed time since sale), more time was spent explaining to the customer how the com- pactor worked, and phone calls were made to the customer 3 and 10 days after installation to make certain that the cus- tomer had no additional questions concerning the com- pactor's operation. When a compactor that had been sold by a smaller dealer was delivered, it was frequently left in the middle of the kitchen with scarcely a word exchanged between the customer and the installation personnel. Ortega had another meeting scheduled with his supervisor. As he entered her office, he was surprised to see Handy Andy's vice president of marketing also sitting in the office. Ortega's supervisor asked him to tell the vice president the results of his interviews. The marketing vice president asked Ortega, "Do you think this pattern exists in all markets?" "No," was Ortega's reply. "I'd say it was a problem in Jacksonville, Baltimore, Cleveland, Louisville, Denver, and San Diego. It may be a problem in Dallas and New Orleans. My sample wasn't very well structured in a metropolitan market sense; you will recall that it was a nationwide sample that was trying to look at repairs."

Questions -

1. Is this a customer service problem? Why or why not?

2. Marketing channels are the arrangement of intermediaries (wholesalers, retailers, and the like) that the firm uses to achieve its marketing objectives. Is the problem discussed in Handy Andy's marketing channels? Why or why not?

3. Logistics channels handle the physical flow of goods or services. Is the problem discussed in Handy Andy's logistics channel? Why or why not?

4. It appears that the factory distributors are exploiting the smaller dealers. Yet from what we can tell, Handy Andy in St. Louis has heard no complaints from the smaller dealers. Why wouldn't they complain?

5. What should Handy Andy's marketing vice president do? Why?

6. Redesign the warranty postcard, staying within the same dimensions, and include questions or statements that will make it easier for Handy Andy headquarters to detect whether installation practices of the type discussed in this case occur

7. In the case is the statement, "The factory distributors in these few cities indicated that they, not Handy Andy, Inc., stood behind the one-year warranty." Is this a problem for Handy Andy? Why or why not?

8. Assume that the situation described in question 7 is a problem. How should the firm deal with it?