It is late July 2021. You, a junior management consultant, are in a meeting with the lead partner at your firm and the investor group that owns Rodie Electronics Ltd. (Rodie). Rodie is a company with 150 employees and annual revenues of $18 million. The investor group is concerned that the strategy implemented by the current CEO, JJ Dobbs, may be alienating Rodie's core customers and its staff, and thus may not be sustainable in the long term.

History

Rodie was established over 30 years ago on the outskirts of Lethbridge, a mid-size Western Canadian city. The store originally followed a strategy of offering the best electronic products at the best price with the best service.

Rodie was the first electronics store in the area with the look of a warehouse. Most of the store's inventory was left in half-open boxes that were placed on the floor or on large industrial shelves. To fulfil its promise of having the best service, Rodie hired selectively and invested significant funds in training each sales employee. Rodie managed to hold on to its sales staff by paying a generous base salary supplemented with bonus pay based on the store's total monthly sales.

Rodie flourished until the national big-box electronics retailers expanded into Lethbridge, and online retailers of electronics entered the market. These big-box stores and online retailers could purchase and sell products at lower prices due to their high volume of sales. In addition, online retailers had lower costs, since they were not required to maintain a physical location. As a result, Rodie added tile flooring and higher-end fixtures and lighting to better compete for customers who had come to expect a pleasant shopping environment along with great service.

Due to the competition, Rodie's profitability declined, although it was able to maintain a steadfast group of loyal customers, mainly due to their relationship with the sales staff and the fact that Rodie was locally owned and managed.

Rodie's previous CEO initially responded to the sharp drop in profits by cutting each department's budget by 15%. He did so by reducing the sales staff's bonuses and benefits, a tactic that led to many of the most experienced salespeople resigning. These sales staff were then replaced by part-time staff with lower wages, fewer benefits, and a limited bonus plan.

In addition, a long-needed investment in a new point-of-sale (POS) and inventory information system with customer relationship management capabilities was postponed indefinitely.

Unfortunately, these cost-cutting tactics failed to return Rodie to profitability, and Rodie's CEO at the time, who was close to retirement, was asked by the investor group to step down in November 2019.

Current operations

The investor group determined that Rodie needed marketing help and hired JJ Dobbs, an automotive marketing executive, to be Rodie's new CEO in December 2019. JJ determined that the competition for customers was so fierce that Rodie's operating costs and sales prices would have to be further reduced for it to regain profitability.

JJ reduced sales staff's compensation to the minimum wage and introduced a commission based on individual sales. JJ also cut training costs for all staff, stating that the large individual commissions would be enough to motivate the staff to learn how to best sell electronics. To reduce inventory and shipping costs, JJ cut the number of products available, keeping only mid-range branded products and a generic-brand product line.

With the new sales tactics and reductions in inventory, Rodie became profitable under JJ Dobbs in 2020. However, there was an increasing number of customer complaints regarding the poor customer service and the low quality of the generic-brand items. JJ responded to the negative customer feedback by frequently exclaiming that the staff just needed to try harder to make more sales if they were to help Rodie achieve profitability.

Appendix I

Notes from an interview with JJ Dobbs, CEO of Rodie Electronics Ltd.

JJ Dobbs, Rodie's CEO, would like to maintain the company's current strategy, as this strategy has increased Rodie's profits by more than $1.2 million from the prior year.

Alternatively, JJ has suggested that if the investor group does not like Rodie's current strategy, then the company should focus its strategy on low-cost products.

JJ has recently visited several large electronic and consumer product fairs, and he is impressed at the increase in the variety of low-cost electronics, furnishings, and consumer products that can be easily sourced. JJ proposed that Rodie focus entirely on selling these items. As part of this new strategy, most sales staff could be eliminated and replaced with high school students working on the floor to ensure enough stock is available. Rodie would return its warehouse to its original appearance.

JJ notes that the product costs, including shipping, would be about 50% less, so Rodie could easily undersell competitors with branded electronic equipment or furnishings. In addition, no one currently offers a broad range of low-priced generic goods in the Canadian market.

Appendix II

Notes from interviews with Rodie's sales staff

The salespeople are frustrated with the new compensation system and the move toward aggressive selling tactics with customers.

The sales staff earn the largest bonuses for persuading customers to buy Rodie's new extended service contracts, as they have profit margins of over 80%. However, some sales staff feel guilty about selling them, as they do not cover much beyond what the provincial sales act states retail stores must cover, or even what manufacturers' warranties offer.

A sales manager said that he was nostalgic for the early days when the sales staff worked as a team to put a total home package together for the customer. Currently, salespeople are very reluctant to ask others for help, as they do not want to share the commission, so each salesperson tries to be a product expert for all of Rodie's products.

Another sales staff member confided that she often volunteers to go to customers' homes after work to help them install the new electronic equipment for free and to recycle their old electronics to make the sale.

The sales staff are also concerned that they often spend a significant amount of time educating the customer regarding each product's features, only to have the customer leave Rodie without buying anything. Some sales staff wonder if customers are "showrooming" that is, going to a physical store to see and evaluate a product, such as a TV, and then buying the product elsewhere at a lower price. Rodie currently does not sell its products online.

Appendix III

Notes from an interview with the investor group

The lead investor noted that a new upscale shopping mall is opening on the outskirts of Lethbridge. The developer (whom one of the investors is familiar with) is wondering if Rodie would like to reserve a spot in the mall as the only consumer electronics store. The developer is willing to trade a 15-year lease for a prime location in the mall with approximately the same floor space (10,000 square feet), the necessary leasehold improvements, plus $200,000 in cash in exchange for Rodie's current building and land. In return, Rodie must agree to sell a broad range of high-end electronic products that will appeal to the wealthy clientele the mall hopes to attract.

The lead investor noted that this change in strategy would mean Rodie would once again focus on advising customers on which products to purchase, as well as offer full installation, disposal of customers' old electronics, and an extended warranty as part of a full-price package.

The lead investor ended the meeting by noting that although Rodie has enough capital to fund its near-term working capital needs, it lacks the capacity to borrow additional funds. He feels that the $200,000 cash proceeds would help to fund the needed IT upgrades for the POS and inventory systems, plus provide the working capital needed to fund a larger inventory of higher-end products.

Required:

After meeting with the investors, the lead partner, Jacki Anand, asks you to review her interview notes (Appendixes I, II, and III) before preparing a report for her. Jacki asks that you:

Part 1 Prepare a SWOT analysis.

Part 2 Identify three strategic alternatives available for future growth. For each of the strategic alternatives, analyze their relative strengths and weaknesses as a fit for Rodie.

Part 3 Recommend the best strategy for the business.