GROUP REPORT: Manchester products: A Brand

Transition Challenge

May 2013

Manchester products: A Brand

Transition Challenge

Manchester Products Inc.

Manchester was one of the leading manufacturers of premium

office furniture in the United States. In 2004 Manchester revenues

were $2.33 billion. Manchester aspires to be a leader in

household furniture. Aside from, the company’s skills in

engineering, ergonomics, and durable designs could be applied to

household furniture products. For these reasons, the company

targeted a strategic expansion into the household furniture market-

a market it entered in 1999 when it established Manchester

Household. MH consisted of three product lines. The Manchester

Relaxer lines consisted of ergonomic recliners that quickly became

popular due to their style and comfort. The introduction of the

Relaxer products officially took Manchester out of the office and

into the living room. Both home office and media/entertainment

product lines had also been introduced into the market with positive

reviews. However, Manchester faced more difficult in distribution

for these products. Although Manchester had achieved critical

mass of distribution in upscale furniture stores, there were still

substantial holes in their distribution network. On the other hand,

Manchester’s home products had been featured in leading

style magazines, and a successful national advertising campaign

had coincided with the launch. In 2003 Sales for MH climbed to

$200 million, in 2004 climbed to $260 million, and in 2005 were

expected to grow 30%. Management felt MH’s long-term growth

prospects and profit potential were excellent.

Manchester’s aims to provide a complete family of household

furniture products in the mid- to upper -price po ints . The main

barr ier in achieving this objective was Manchester’s deficient

access to household-furniture distribution channels.

Paul Logan, Inc.

Paul Logan, Inc. was the premiere name in high-end, fashionable

consumer goods, and was considered a true lifestyle brand. In

2004, Paul Logan operated four divisions: Apparel (40% of

revenue), Home Décor (26% of revenue), Fashion Accessories

(23% of revenue), and the furniture division, PLFD (11% of

revenue). In 2004 total Paul Logan revenues were $9 billion.

It was January 7th, 2005, a long-time leader in office furniture, had

made a bold move into the household furniture market with its

recent acquisition of Paul Logan’s Furniture Division (PLFD). The

acquisition of PLFD dramatically expanded Manchester’s Household

Furniture Division (MH) overnight and provided them with a strong

brand and an instant market-leader position in the household

furniture segment. However, Manchester was given rights to use

the Paul Logan brand name for only three years.

The PLFD acquisition contains the following furniture products

categories: Accent Pieces, Bedroom, Chairs/Sofas,

Dining/Kitchen, Entertainment/Media, Home Office, and Tables.

Paul Logan will continue in other divisions.

PLFD offered an extensive line (over 150 SKUs) of high quality

furniture. PLFD’s has a recognize and respected brand in furniture.

Paul Logan established sales force, with strong relationships to

leading distribution channels, and its talented design team was two

driving forces behind the division’s success. The bold hues and

unique styles immediately caught the public’s attention.

Through the acquisition of PLFD, MH was able to gain better access

to household distribution channels. In addition, CEO Colleen Jones

felt PLFD’s design skills with respect to colors, shapes, and textures

coupled with Manchester’s engineering strength, manufacturing

expertise, and ergonomic innovations would be a winning

combination.

The acquisition included the PLFD sales, management, and design

teams, 10 distribution centers, 4 manufacturing facilities, inventory

for all 150 products, and the right to use the Paul Logan brand

name with these products for three more years. But, any new

products introduced by Manchester could not use the brand of Paul

Logan.

Comprehensive analysis:

There is nothing perfect in the world, the company’s M&A also like this (the M&A is

a very complex and difficult organization process), so we need seriously consideration

every factor to make the brand transformation to successful.

SWOT analysis:

Strength:

1, high quality workmanship and good design team

2, faultless value chain

3, variety kinds of products

4, high quality of products

5, different demand customers can be well satisfaction

6, products availability is better

The PLFD and MH are having their own good special characteristics, such as

workmanship, design team, value chain, and products’ quality and so on. It will

continuous expand the products availability, satisfaction different demand customers,

and improvement the brand power through the MH merger the PLFD.

Weakness:

1, ambiguous strategy

2, a series of company integration

There is not having an accurate strategy of merger in high management level. The

merger process will lead to many departments reorganization; if one factor integration

not in control, it will be make big trouble in future.

Opportunity:

1, market leader position

2, improvement brand awareness

3, high share of market

4, high barriers of industry

The MH Company will achieve the largest market share and market leader position in

the US’ furniture market through the merger of MH and PLFD; this strong company

(Manchester products Inc.) must make a high barrier to new entrants of furniture

industry.

Threat:

1, American economic recession

2, growing competition

3, high bargain power of supplier

4, lots of small companies development by low cost rapidly

5, American internal market become saturation

There are many risks in the market; those are having big affections to company, such

as the American economic recession was directly made the low ability of buyer;

import and small companies lead to high competition; due to bad economic condition

the internal market was reduced and saturation.

From above SWOT analysis, we can see there are obvious advantages and

disadvantages of those companies, how to deal with the weakness and threat directly

determination company’s future.

3C Analysis

Corporation

The corporation needs strategies to maximize the strengths of corporation relative to

the competition in the functional areas. This is a main factor to achieve success in the

industry. The corporation doesn’t have to be a leader in every area, but they must

have one or more key factors, it will lead corporation improve.

Manchester has a strong brand aware in the office furniture market; it’s helpful when

they transition into household furniture market. Their technology of engineering,

ergonomics and durable designs could be applied to household furniture products.

Manchester’s distribution is not strong. Their strategy is high quality and high-level

design. PLFD is also good at the design and quality, and their distribution part is

better. After acquisition, these MH and PLFD should keep their strengths and

complete distribution. Brand aware of these two brands are high, it should be keep.

Customer

In the market, customer is a very important factor. Firms must understand the demand

of customer, what the customer really wants. Base on this, firm can posit their suit

market. If firms know the demand of customers, they can make the suit product to

attract more customers. In this case, Manchester Product is main producing office

furniture; the customer of Manchester is the office part. Manchester Product also set

up household furniture that called MH in order to into the household furniture market,

and then the customer recognition degree is very important.

In the household furniture industry, there are some important factors for customer,

style of product, design, and quality of furniture, comfort, price of products, brand,

material and durability. These factors are the customer focused before decide to buy.

MH is famous on material and durability, and the Manchester Relaxer lines consisted

of ergonomic recliners that quickly became popular. These strengths can help MH

attract more customers. PLFD is a company that Manchester Product will acquisition.

PLFD has an extensive line of high quality furniture, their products have high quality,

their brand PLFD is instantly recognized and respected in furniture industry. PLFD

also has a talent design team; this team provides the wonderful designs. Their unique

style that called “Signature Style” quickly catches the public’s attention. The

distribution channels of PLFD are very strong.

High

Importanc

e to

customer

low

MH: style, design

PLDF: comfort, quality

MH: quality, comfort

PLFD: style, design

MH: brand, price

PLDF: price, durability

MH: material, durability

PLFD: material, brand

Weak company strength strengths

(exhibit 1 )

After the acquisition, these two companies could complement each other’s advantages

in many aspects. MH and PLDF have different advantages in the customer factors;

this merge can help MH complement the disadvantages. There also a weakness they

both have that is the higher price than other competitors. When they keep and develop

the advantages, they also need consider about pricing.

MH and PLDF have similar target customer that are homeowners, age 34-55, with

income over $50,000, but the core customers of PLFD are more fashion-conscious

and consider themselves trend setters. There was a 2003 Manchester survey of

household furniture consumers showed buying behavior consistent with high

information needs, moderate price sensitivity, and moderate brand importance. The

key findings are below:

25% customers know the brand by corporation’s advertisement

60% customers know the brand by third part( friend, sales person)

30% customers choose upscale department stores for household furniture; 25%

preferred specialty shops; 20% like large retail furniture chains, and 15%

preferred smaller, independent furniture stores. There also are 15% split between

catalogs and online retailers.

Almost 60% will buy the current brand they use when they buy new furniture.

70% would visit more than one store to compare brand.

35% finally bought their furniture during a sale

According the key information, we can know the process of customer decided to buy

furniture. First customer gets information of the brand from the advertisement and

third part. Then they select what kind of store they will go to buy furniture. Third they

begin choose a brand, in this step, most customer will choose substitute brands, most

customer also through comparing to choose a better brand. Finally they will make a

decision what to buy.

From this process, the merged company should to focus on positive market image

building and good reputation gaining. They should focus on specialty shops and

upscale department, and also keep good relationship with other distributors. For the

merged company, develop a new brand and expand distribution is a wise choice. And

obviously, do some sales can make for market share.

Competitors

The competitors also are an important part for company. Company must make sure

they can catch up their competitors. Company must know their position in the market.

Aware of brand

(%)

Own a product

(%)price point

Paul Logan 80 45 mid, upper-mid, upper

National Furniture 78 40 mid, upper-mid, upper

SVEDE 65 34 value

Curits Furnishings 60 42 mid

Manchester 45 20 mid, upper-mid, upper

Dynasty 43 32 mid, value

O'Leary 40 30 upper

Avery Products 30 22 mid

Star Goods 25 19 value

Home Comfort

Direct18 8 upper-mid

(Exhibit 3 Unaided Brand Awareness and Product Ownership of TOP 10 Home

Furnishing companies)

From exhibit 3, we can know aware of Manchester is middle in the competitors, the

data of own a product is very low, because Manchester is a office furniture brand and

just transit to household furniture part. Manchester’s price point is mid, upper-mid

and upper. The position is high. Paul Logan is the highest brand in the exhibit, not

only aware of brand, but also owns a product. Merged company should keep PLFD’s

competition advantage, and consider the brand use.

In the household furniture industry, compare with the closest competitors,

Manchester’s products are more comfortable, durable, and with higher quality, but in

other part Manchester is very weak. Compare with HLFD the strengths of Manchester

are not obvious, and the weaknesses is obvious. In the US household furniture market,

the competition become more and more intense, the new entrants into the market and

many competitors use low cost strategy. Merged company should rely on the core

competitiveness of PLFD, in order to into household furniture industry.

makes

comforta

ble pro

ducts

makes

durable

products

has high

-quality

makes

products

that

are ge

nerally

price l

ower

makes

products

that

easily

found

makes

attrac

tive, g

ood lookig

product

-30

-25

-20

-15

-10

-5

0

5

10

15

MH rating vs. closest competi-torsMH rating vs. PLFD

(Exhibit 4Marketing strengths and weaknesses of MH and PLFD)

Financial analysis:

Income statement 2003 PLFD 2003 MH 2004 PLFD 2004 MH

Gross sale 1000 200 1000 260

Variable cost 680 134 680 174.2

320 66 320 85.8

Contribution

margin

32% 33% 32% 33%

marketing expense 174 24.6 189 42.6

Additional SG&A 100 20 100 20.8

Profit before tax 46 21.4 31 22.4

Profit margin 5% 11% 3% 9%

PLFD push and pull total market expenditure 2005 = push program + pull

program = (purchase allowance + volume rebates + cash discount + personal selling

material + press relations + trade shows + in-store merchandising) + (national

advertising + co-op advertising + consumer rebates + functional support expenses +

corporate promotion assessment) = (0% + 2.5% + 0% + 0.7% + 0.2% + 0.2% + 0.7%)

+ ( 6.8% + 6.4% + 0.1% + 3% + 0.4% + 0%) = 4.3% + 16.7% = 21% (% of sale)

MH push and pull total market expenditure 2005 = push program + pull program

= (retail intensive plan + cash discount + personal selling material + press relations +

trade shows + in-store merchandising) + (national advertising + co-op advertising +

consumer rebates + functional support expenses + corporate promotion assessment) =

(0.6% + 0.9% + 0.8% + 0% + 0.2% + 0%) + (11% + 4.3% + 6.9% + 0% + 0.2% +

1.2%) = 2.5% + 23.6% = 26.1% (% of sale)

From above financial figures we need to compare PLFD and MH profit margin

.

Income Statement Summary (% of sales)

2003 2004 2005

PLFD MH PLFD MH PLFD MH

Gross sales100.00

%

100.00

%

100.00

%

100.00

%

100.00

%

100.00

%

Variable costs 68.00% 67.00% 68.00% 67.00% 68.00% 67.00%

Contribution margin 32.00% 33.00% 32.00% 33.00% 32.00% 33.00%

Total marketing

expenses17.40% 12.30% 18.90% 16.40% 21.00% 26.10%

Additional SG&A 10.00% 10.00% 10.00% 8.00% 10.00% 8.00%

Profit margin 4.60% 10.70% 3.10% 8.60% 1.00% -1.10%

Marketing expenditures (% of sales)

2003 2004 2005

PLFD MH PLFD MH PLFD MH

Push programs 7.00% 1.00% 8.00% 2.00% 4.00% 3.00%

Pull programs 10.10% 10.90% 10.80% 14.20% 16.70% 23.60%

Total 17.40% 12.30% 18.90% 16.40% 21.00% 26.10%

We found the both companies profit margins all reduced from 2003 to 2005, because

the American economic recession. The American economic recession was had strong

affection to bargain power of buyer, especially to company buyers (office furniture

buyers), so MH profit margin appeared negative growth. There is another important

reason led to MH profit margin negative growth that is total marketing expenditure,

the MH total marketing expenditure increased from 16.4% (2004) to 26.1% (2005).

According to the results of the PLFD and MH profit margin, we easy to see that the

profit margin of PLFD is better than MH, this trend will be continuous to

development, because the overcome economic recession need to the industry

restructuring, this is a long term process. So the MH needs increase the lifestyle

furniture brand power through merger PLFD brand.

Solution:

How to solve the brand transition, this is a complex interweave organization,

planning, and implementation process. If one factor of the process having problem

maybe lead to the whole brand transition to failure, so it’s very difficult problem for

Adams, there are three different advises could to choose from top management team:

Strategy 1: this is a no brainer. The brand name should be changed to Manchester in

all product categories as soon as possible. This will show competitors quick and

decisive action and minimize any confusion that is associated with operating two

brand names. We must show our immediate commitment to the Manchester name.

Gary Burnett, COO.

Strategy 2: Gary’s suggestion ignores a critical issue: Manchester does not have the

brand strength to pull off an immediate brand name transition. Part of the reason we

bought PLFD was for the Paul Logan association. Let’s take advantage of their

superior brand awareness and delay the name change for as long as possible. Lisa

Marks, CFO.

Strategy 3: it does not have to be all or nothing for three years. Why don’t we pick

one or two products at a time and transition to the Manchester name gradually? I

suggest we take a look at products or categories that lend themselves to a low-risk

brand transition and start there. Jeremy Campbell, VP, Strategic Planning.

This is very difficult choice, because it is not a wise to change the Paul Logan as soon

as possible, because it will lost current brand awareness, need to education customers

and strong distribution channel could be destroyed; on the contrary, it will go against

its long-term development, if change as long as possible, the MH brand equity and

power in the market difficulty to improvement when we return the brand Paul Logan

after three years. Transition mid – point is better than above two strategies, but there

is nothing about delete brand Paul Logan in the strategy 3, because the customers

need a period to acceptance one brand logo by company's announce advertisement.

But according to bad economic crisis and difficult period of company, we

comprehensive analysis and evolution from four aspects: goal, human, finance, and

material, we found strategy 4 better than others, because strategy 4 will made more

profit rapidly, help company increase the brand equity and good performance for top

management team.

Strategy 4: we do not make new brand, so we should increase MH brand equity

through brand transition. Using two brand trademark products in the market at same

time in beginning; later, manufacture the products with two brand logo (MH and

PLFD), using the radiation effects continuous improve the MH brand power in home

hold furniture industry; at the end of the three years, delete the PLFD logo from

products gradually, finally, the products with only one brand logo is the MH. (We

need to complete the brand transition in the three years, because we can use the PLFD

brand for three years)

Implementation:

The brand transition is a complex process, it needs all departments of corporation

work to synchronize cooperation and perform their duties (such as: advertisement,

promotion, services, sale channel and so on) if we want to achieve the successful

brand transition.

The specific MH brand transition implementation process (there is three stages

in three years):

1, the first stage: we (the MH Company) will use the two brands MH and PLFD

products in the market at the same about six months. The two brands products mixed

enter each other’s distribution channel, for example, there are must having several

MH products in the PLFD sale spots, on the contrary, there are must have several

PLFD products in the MH sale spots. Training every sale staff announce to customers

that the MH acquisition the PLFD brand, we can promise the quality and services.

Advertisement agency should announce that the first point MH acquisition the PLFD

brand and the second point we can maintain the quality and services in the society use

any method.

2, the second stage (two years): we (the MH Company) will manufacture the all

PLFD products with new package, one product with two trademark logos MH and

PLFD. Giving the some discount to the customers that buy new package with two

logos’ products in the three months. Advertisement agency need to announce these

new package products in the market use any method, and promise the quality and

better services. Another promise is the all former PLFD customers also have the better

after services. We want to use the connectivity products’ radiation effects continuous

increase the MH brand equity and power in the market. Let’s the customers feeling

that those MH and PLFD no any difference, only have the new package and better

services and quality. We need have two market researches in this stage, according to

the customers’ reaction in the market to determination whether increase announces

and promotions.

3, the third stage (final six months): this is our MH company delete the PLFD process.

We will manufacture the connectivity products with two packages, for example, one

model product has little difference, which is the same product one is only MH logo

and another is two logos MH and PLFD. We will sale them at the same sale spots, and

give the discount to the customer whom buy the only MH brand products.

Advertisement agency need to announce that our MH Company will support new

package about products gradually, which is only one brand logo MH. We also need

market research to the customer reaction about only one brand logo in the market.

We believe that the MH brand equity and power will continuous increase through

above plan successful implementation. In this process we must consideration and

defense the completions from competitors.

Conclusion

The brand transition is a complex process, it needs all departments of corporation

work to synchronize cooperation and perform their duties (such as: advertisement,

promotion, services, sale channel and so on) if we want to achieve the successful

brand transition. How to make the customers accept the transition brand and increase

the market share is the ultimate goal of the transition process.

Everything has two sides in the world from the view of dialectical to explain, the

brand transition also like this. One side is we control and management the transition

process well led to continuous increase the brand equity and market share; another

side is we control bad led to damage the two brands and make company in difficulty

condition. So we must consideration seriously every factor before and in the transition

brand process.