The S No-Risk Program - Assignment Example

? THE S’NO RISK PROGRAM Table of Contents Table of Contents 2 Answer 3 Answer 2 4 Answer 3 6 Answer 4 10 Answer 6 11 References 12 Bibliography 13 Answer 1 The case deals with a situation when in 1984 the marketing Director for consumer products, Dick Pollick reacted to the investigation done by Programs Manager Susan Erdahl. Susan evaluated that American Home Assurance Company was planning a hike in premium from the recent 2.1% of the annual sales proceeds to 8% of the sales for the subsequent year. The investigation details also included study on other insurance companies of the market and the study expose that the charge of Lloyd’s (London) ranged between 6% and 10%. After going through the entire case it can be said that the most important reason behind the sudden hike in rates by the insurance firms was sudden flow of demand for Toro products, especially the shovels during the winter months (Bell, 1994, pp.1-2) and the interest of consumers in buying larger models of shovels so as to take optimum benefit of the deal. The growing interest among the consumers to purchase Toro shovels provided dealers the prospect to clear stock from their warehouses and this helped them to regain their lost confidence. Also S’ no risk program had basic cost of sales of 2.1% of sales which is generally 10% and hence the rates were heaved. The reasonable estimation of rates of insurance will depend on the factors like customer preferences, product demand, competitor’s insurance rates, cost of sales, scope of profit of the company etc. Based on the case, the effect of plausible insurance rates and their relationship with profitability can be derived from the following table- Items Single Stage Power Shovel Two-Stage Power Shovel   Min Max Min Max   Price ($) Retail Price 270 440 640 1500 Units Sold 100000 100000 20000 20000 Total Revenues 27000000 44000000 12800000 30000000 Basic Cost of Sales/Premium @ 2.1% 567000 924000 268800 630000 Profit 26433000 43076000 12531200 29370000 Premium @6% 1620000 2640000 768000 1800000 Profit @ 6% 25380000 41360000 12032000 28200000 Premium @8% 2160000 3520000 1024000 2400000 Profit @ 8% 24840000 40480000 11776000 27600000 premium @ 10% 2700000 4400000 1280000 3000000 Profit @ 10% 24300000 39600000 11520000 27000000 From the chart shown above it can be concluded that when the rates are raised profitability will get reduced and vice-versa. Answer 2 The S’ No risk program by Toro is shown below: From the consumer’s point of view, the above pattern showcases an appealing proportion of refund which is utterly reliant on the amount of snowfall in the area. The pattern states that when the snowfall would increase, the consumers would have the alternative to purchase any model of shovel and during lesser snowfall the customers would be allowed money back. However the money back alternative would be applicable till the average snowfall reaches 50%. Further than that the consumers won’t get the reimbursement advantage. Hence it can be concluded that both the approach would be in support of the customer benefit. However a condition might arise when a purchaser makes the purchase of a self-propelled two-stage shovel worth $1500 and during that year the average snowfall in the area reaches 80%, then he will not be entitled to any money back benefit. In such situation the consumer might think that he has made an incorrect choice by expending $1500 for the shovel when he had the alternative to procure the shovel valued at $ 640. The table in the previous discussion demonstrates that the clients prefer to expend the smallest amount and obtain the most gain from a deal. Therefore we can state that the rate which would be most accepted by the consumers is 6%. However 6% would not be favored by the insurance company as it would not bring them enough profits. Thus Toro must select a moderate rate considering both the related stakeholders and it should opt for the 8% rate. Answer 3 Snowfall is the common decision trap here. From Toro’s perspective, the volume of sales would exclusively depend on the quantity of snowfall. From the Insurance firm’s perspective, the snowfall would estimate how much premium it would bring to the firm and for the customers the snowfall would direct their choice of expenditure towards the shovel. Here comes the necessity for a decision tree. A decision tree helps in analyzing complex decisions and this is done with the aid of a decision criterion i.e. a guideline for making sound decisions (vserver1.cscs.lsa.umich.edu, n.d., p.5). To guide the three groups towards a feasible decision we are representing the decision tree for each of them below- For Toro - Yes No Yes No Yes No Unhappy consumers both will be unhappy Unhappy firms Both will be happy Insurance firms will be happy Consumers will be happy For Insurance Firm - For Consumers- Thus in the above decision tree we can see that three different groups have opted for three different rates for fulfilling their individual objectives. However it can be concluded that the S’no Risk program by Toro serves to be a great remedy for consumer’s “regret” as it comes with the money-back option during lesser snowfall and a useful shovel during heavy snowfall. In both ways, it benefits the consumers. Answer 4 Based on the perspective of Toro, in order to achieve the desired objective it is advisable that the rates should be lowered so that continuing the promotion remains viable business. However, from the perspective of insurance companies higher rates are always better as they will earn higher by increasing rates. But the primary objective is to keep the product intriguing to the customers so that sales do not plummet. A balanced approach should be adopted that considers the demand of insurance companies and at the same time do not hurt Toro’s profitability. 5. Although initially the distributors resisted new promotion that replaces 10% discount program, but soon after the promotion was launched customers showed lot of interest towards and dealers were also able to sold out large models which were previously lying idle in inventory. Hence, in short it may be said that the program was successful (Bell, 1994, pp.2-3). Answer 6 The program was highly successful and has been able to draw attention of the customers for Toro’s products. But despite its success it cannot be said with certainty that the same enthusiasm would be continued over the coming years. For instance, the customers might be biased towards previous records and when they come to know about the fact that few people actually opted for the deal in previous they may lose interest. Also, the weather stations forecasted possibility of stronger snow in coming fall. In such case, Toro’s products would eventually experience stronger sales irrespective of such kind of promotion. Hence, repeating the program may not be such a good idea in terms profitability, which would be affected when adversely when promotion is repeated due to high prevailing rates (Bell, 1994, pp.2-3). References Bell, D. E. (1994). The Toro Company S’ no Risk Program. Retrieved from http://www.homeworkmarket.com/sites/default/files/toro.pdf. vserver1.cscs.lsa.umich.edu. (n.d.) Decision Trees. Retrieved from http://vserver1.cscs.lsa.umich.edu/~spage/ONLINECOURSE/R4Decision.pdf. Bibliography True Value, (2013). Toro S’ No Risk Guarantee: If It Doesn’t Snow, Toro Gives Homeowners Their Money Back. Retrieved from http://www.truevalue.com/assets/images/cms/pdf/ToroSnoRisk.pdf. cs.cmu.edu. (1997). Decision Tree Learning. Retrieved from http://www.cs.cmu.edu/afs/cs.cmu.edu/project/theo-20/www/mlbook/ch3.pdf. Read More