Read this case study and then complete the task set out on the page following the case.

Case study: Hills Style Kitchens

Background

After several months of planning, negotiating with Westpac for finance and spending $120,000 on fit-out, a new and ambitious kitchen supply and renovation venture opened its showroom in March 2018.

The enterprise, branded as Hills Style Kitchens, is located in a retail precinct consisting of a number of furniture and homewares outlets in the northern part of Sydney's Hills District. The associated factory and warehouse, which constitute the operational part of the business, are situated in an industrial estate two kilometres from the showroom.

The business

Proprietor Mark Whittaker has a background in the home renovation industry. Originally a carpenter, for the past 15 years he has been manager and owner of a successful business supplying cabinets and joinery to builders and do-it-yourself home renovators. This business has now been subsumed into Hills Style Kitchens which will offer a complete package of kitchen design, manufacture and installation to the end consumer. The plan is to target the kitchen renovation and replacement market rather than the new home sector.

The intention is that Hills Style Kitchens will become a market leader emphasising quality, innovation and customised design. Service and attention to detail will be hallmarks of the business and the use of high- quality materials will be featured.

Mark will manage the manufacturing and installation aspects of the business. His wife and partner in the enterprise, Jane, has formal qualifications in interior design. Her role is to provide the design expertise and to manage the showroom.

At present there are seven employees in the factory and warehouse and one assistant is employed in the showroom. Mark and Jane are aware that marketing and business development activities will need to be undertaken if the business is to succeed. Their experience and knowledge of these functions is limited and none of their present employees could be expected to assume these responsibilities.

Current situation

Over the past three years overall growth in the home renovation sector has been modest - around 3% p.a. - and the sector can clearly be categorised as mature. However Hills Style Kitchens is situated in an area of Sydney characterised by extensive residential development. Additionally, the popularity of TV household makeover programs may provide some impetus for the home renovation sector.

Kitchen renovation or replacement arises from a number of motivating factors, the most common being the age of the kitchen. The average life- span for a kitchen is 15-20 years. At that stage, cupboards, drawers, benchtops and appliances such as ovens and dishwashers may deteriorate to the point of being unserviceable and need to be replaced. Secondly, homebuyers frequently make replacement of the kitchen a priority when purchasing a house or apartment more than a few years old. A new kitchen becomes a way for the new owners to stamp their personalities on the property.

A third factor is home extension. When planning any extension of the family space within the house it is common for homeowners to renew and extend the kitchen.

Competition

Competition in the sector is intensive. Aside from long-established and well-known specialty firms such as Degabriele and Nobbys, there are many small firms in the Sydney area servicing essentially local markets. Indeed the current Sydney Yellow Pages has four pages of listings in this category. Ikea offers a relatively inexpensive kitchen design and installation service and Bunnings caters to the do-it-yourself portion of the market.

The industry and the business to-date

Housing Industry association statistics indicate that there were 140,000 kitchen renovations in NSW in 2017. The average price was just under $25,000. However, in its first six months of business the average amount spent on a Hills Style kitchen was approximately $30,000. Hills Style monthly gross income during that period has ranged between $120,000 and $150,000.

Approximately 85% of home renovations of all types are financed by personal loans from banks or credit unions. It can be assumed that the percentage for financing kitchen renovations would be identical. Currently a fixed rate personal loan of this nature would incur an interest rate of around 12% p.a.

Median household income in the Hills District is $2350 per week. This amount is just over 10% above the median for the overall Sydney metropolitan area.

The great majority of house in the Hills District were built between the mid - 1960's and the mid -1980's. There is some new development, particularly in the designated growth centres such as Rouse Hill but the new home sector is not where Mark and Jane Whittaker wish to focus their business.

End of case study

The Task

Assume you have just been appointed as Marketing and Business Development Manager for Hills Style Kitchens.

Prepare a marketing plan that will enable the operation to achieve sales of $300,000 per month within 18 months. Your plan should incorporate appropriate marketing models and should draw on strategic marketing theory in support of your analysis and recommendations.

Additional facts and assumptions relevant to your plan are as follows:

The Reserve Bank has recently maintained interest rates and the majority of economists predict no change in coming months. At present a fixed-rate personal loan for $25,000 would incur monthly repayments of $658 over four years and a $30,000 loan would require monthly repayments of $790.

The marketing budget is $60,000 for the next 12 months. This amount is the most that can be made available for promotion and any research you may recommend. Depending on sales this amount may be increased by 10% the following year.

Population growth has been significant in this part of Sydney over the past decade. Current planning provides for 6.5% p.a. growth in this region until 2020.

End of Examination Paper