Problem statement
Foxy is considering whether to continue using trade shows or venture into online sales to distribute their collection. Trade Shows provide Foxy with a chance of meeting retailers who would be willing to add Foxy collections to their merchandise. Foxy attends Trade Shows targeting retailers dealing in Women’s fashion accessories and giftware boutiques. The Trade Show strategy is however, time consuming and Ger and Chemel spend about 50% of their working time travelling. Now that they are married, Ger and Chemel feel that they will not be able to devote adequate time to attending trade shows.
Recommendations
The alternative to distributing their collections through trade shows is to market their collections online. An online store would give Foxy an opportunity to reach out to customers globally. In addition, Ger and Chemel would not have to travel as much as they do when attending trade shows. However, fist time customers who are unfamiliar with Foxy collections are unlikely to buy than if they were buying them from a retail store.
Analysis
The analysis considers the cost, contribution, breakeven, and the profitability of each of the two distribution strategies.
Cost of each distribution strategy
The costs of the trade show distribution per year are as follows:
The booth will be used on 30 trade shows meaning that it will be used for three years and the costs for making the booth can be spread over three years. Registration costs, shipping costs, travel costs, and cost of promotional materials are variable costs per trade show. The variable costs per trade show are multiplied by the number of the trade shows per year to obtain the total cost per each item per year. If Foxy decides not to attend the trade shows they would have $83,000 for use on the online marketing campaign. The $83,000 is the cost of the online store that will be used on paying the pay per
Contribution
The contribution of necklaces and earrings for the two distribution channels are calculated as follows:
The trade shows generate a higher contribution per order of $286.75 as compared to the online store contribution of $16.40 per order. The trade show generates a higher contribution than the online store because retailers make a bigger order as compared to end consumers. While end consumers order consists of two necklaces and a pair of earrings, retailers order consists of twenty five necklaces and twelve earrings.
Breakeven point
The breakeven point for each strategy is as follows
Breakeven point = fixed costs/contribution per unit
In order to for the trade show distribution strategy to breakeven, Foxy would have to secure 294 orders per year. On the other hand, Foxy would have to secure 5,061 in online orders in order to break even. The breakeven point of the online store is quiet high at 5,061 orders as compared to the trade show distribution strategy because while the fixed costs of the two strategies are the same, online store contribution per order of $16.40 is much lower as compared to the contribution per order of the trade show strategy of $286.75 per order.
Profitability
The profitability of the two strategies is as follows:
On average, customers order between 20 and 45 orders per year, half the customers order twice per year meaning that when the orders are 20 per show, they will be 30 orders from that show i.e. (20 + 50%*20). When orders are 45, the total orders per show will be 67.5 (45 + 50%*45). Since they attend 10 shows per year, the total orders are expected to range between 300 orders and 675 orders. The profits of the trade shows are expected to range between $31,692 for 300 orders per year, and $139,223 for 675 orders per year.
If 3% of 79,048 visitors per day placed an order, Foxy would make a profit of $14,112,371, and if 5% of the visitors placed an order per day, Foxy would make a profit of $23,575,952.38.
Implementation
The analysis indicates that the online store distribution strategy will be more profitable with a projected profit range of between $14,112,371.43 and $23,575,952.38 as compared to the trade show distribution strategy with a projected profit range of between $31,692 and $139,223. The online distribution strategy will allow the partners to spend more time with their families now that they are married and simultaneously be able to increase the profitability of their business.
Conclusion
An online store will give Foxy a global reach to customers that would not be possible through the trade show distribution strategy. However, first time customers may be skeptical about the quality of the Foxy products and may be reluctant to purchase the collections online. To overcome such customer resistance, Foxy should make use of referrals and customer testimonials to convince first time customers about the quality of their products.
A referral program would involve providing incentives such as discount codes to customers who refer Foxy products to other consumers who make purchase on the online store. People tend to trust their friends referrals than the trust the company advertisements. In global businesses people from different parts of the world are only comfortable making an order online if they can identify with one of their own. For instance, a German customer is more likely to purchase on the online store if they watch or read a customer testimonial from another German who has made a purchase on the online store. Referrals and customer testimonial can go a long way in eliminating the doubts associated with making online purchases.
