Hydropump, Inc. produces and sells high-quality pumps to business customers. Its marketing research shows a growing market for a similar type of pump aimed at final consumers-for use with jacuzzi-style tubs in home remodeling jobs. Hydropump will have to develop new channels of distribution to reach this target market because most consumers rely on a retailer for advice about the combination of tub, pump, heater, and related plumbing fixtures they need. Hydropump's marketing manager. Robert Black, is trying to decide between intensive and selective distribution. With intensive distribution, he wouid try to sell through all the plumbing supply, bathroom fixture, and hot-tub retailers who will carry the pump. He estimates that about 5,600 suitable retailers would be willing to carry a new pump. With selective distribution, he would focus on about 280 of the best hot-tub dealers (two or three in the hundred largest metropolitan areas). Intensive distribution would require Hydropump to do more mass selling-primarily advertising in home renovation magazines-to help stimulate consumer familiarity with the brand and convince retailers that Hydropump equipment will sell. The price to the retailer might have to be lower too (to permit a bigger markup) so they will be motivated to sell Hydropump rather than some other brand offering a smaller markup. With intensive distribution, each Hydropump sales rep could probably handle about 300 retailers effectively. With selective distribution, each sales rep could handle only about 70 retailers because more merchandising help would be necessary. Managing the smaller sales force and fewer retailerswith the selective approach-would require less manager overhead cost. Going to all suitable and available retailers would make the pump available through about 20 times as many retailers and have the potential of reaching more customers. However, many customers shop at more than one retailer before making a final choice-so selective distribution would reach almost as many potential customers. Further, if Hydropump is using selective distribution, it would get more in-store sales attention for its pump-and a larger share of pump purchases-at each retailer. Black has decided to use a spreadsheet to analyze the benefits and costs of intensive versus selective distribution.

c. With intensive distribution, how large a share (percent) of the retailers' total unit sales would Hydropump have to capture to sell enough pumps to earn $200,000 profit?

d. Hydropump's marketing manager thinks that the type of channel relationship possible with selective distribution would make it possible to get a large share (40 percent) of the pumps sold by its hot-tub dealers. But he realizes that the actual percent might vary. He thinks that the percent could be as low as 35 percent, or go as high as 45 percent. He wants to evaluate the effect that this might have on expected profits. Do a What If analysis, based on the selective distribution alternative, varying Hydropump's percent of dealer unit sales between 35 percent and 45 percent and displaying Hydropump's unit sales and profit, and then complete the missing numbers in the table below.

e. How important is it that Hydropump win at least a 40 percent share of the dealers' unit sales? Explain your reasons.

f. Hydropump's marketing manager thinks that the hot-tub dealers will pay more attention to the company's product if they get a higher than normal level of attention and help from Hydropump sales reps. However, a sales rep would only be able to spend the extra time with each dealer if he is responsible for fewer accounts. If each rep is assigned only 47 dealers, instead of 70, how many more sales reps would be needed, and how much would personal selling costs increase? number of sales reps needed at 47 dealers per rep _________ personal selling cost for this number of sales reps _________ less, personal selling cost for 4 sales reps $72,000 equals, increase in personal selling cost _________

g. With this change in the sales force, Hydropump's manager is confident that the firm will get at least 40 percentand perhaps as high as 50 percentof the pumps sold by the dealers. Evaluate Hydropump's likely profit in this situationand then compare it with your previous analysis (above). Would you recommend that Hydropump add the extra sales reps? Discuss your reasons.

SPREADSHEET FOR CALCULATIONS

	Intensive Distribution	Selective Distribution
Number of Retailers	5600	280
Retailers per Sales Rep	300	70
Sales Reps Needed	19	4
Salary per Sales Rep	18000.00	18000 00
Personal Selling Expense	342000,00	72000.00
Mass-selling Expense	200000.00	50000.00
Overhead Cost	120000.00	80000.00
Cost to Produce a Pump	35.00	35.00
Total Pumps Sold by Dealers	175000	26000
Hydropump's Percent of Dealers' Units	14.00	40.00
Total Expected Units	24500	10400
Price to Retailers	70.00	75.00
Hydropump Total Revenue	1715000.00	780000.00
Hydropump Total Cost	1519500.00	566000.00
Hydropump Profit	195500.00	214000.00