Surfside: Marketing and Hot Tub

In order to remain competitive in the market and increase hot tube sales, Surfside Leisurescapes must address the following. Failure to respond to these critical issues will decrease sales and weaken the quality of the employee workforce. * Seasonality – 78% of hot tub sales occur from April 1st to September 30th. In order to remain profitable overall, sales need to increase during the winter months. * Hydrotherapy – A potential value added service to recommend the therapeutic benefits of hot tubs. Surfside will need to penetrate into this market to increase market share. * No marketing plan – Increased competition – 12 new competitors have entered the market; 3 being direct. A lack of promotional strategy and no target demographic will result in a decreased market share (exhibit 1). Situation Analysis

Surfside Leisurescapes market size is decreasing. This is caused by new entrants entering the market as threat of new entrants is high (exhibit 2). The old grass roots marketing strategy has not been sufficient to deal with the new competition. Seasonality is a large issue, 78% of sales occur during the “on” season (exhibit 4). This issue is compounded because of the difficulty to retain quality salesmen during the “off season”. An unusually cold climate has also negatively affected sales. As a result, potential customers may have bought substitutes such as large jetted bath tubs that aren’t susceptible to climate (exhibit 2). Hydrotherapy is a critical opportunity. This is a new market segment that Surfside has not yet explored. 30% of Newmarket’s population consists of retirees over the age of 55 (City of Toronto, 2005). This represents a major opportunity to target a new demographic.

Hydrotherapy can aid high blood pressure, and arthritis, a common concern amongst this age group (Natural Healers, 2006). A further critical issue is Surfside’s lack of marketing experience. Because surfside has had limited competition in the past, their marketing approach has mainly been grass roots. Surfside will have to develop a promotional strategy targeted to their target market demographic. Without a proper marketing strategy past clients will be stolen by the new competition. Surfside’s competitive advantage is that they are well respected and established within their community. They have a highly experienced sales team that is family oriented. This is backed with a Readers Choice award. Surfside’s hot tubs division had sales in 2004 of $749,800. They earned a net profit margin of 7% on this. Industry standard net profit margin is 12% (BizStats, n.d.). Decision Criteria

* Increase sales of hot tubs by 15% for 2005. This is meant to motivate employees by reaching a historically obtainable target. * Increase net profit margin to the industry average of 12% for 2005. Options

Option 1: Hire an additional salesman for the hot tubs division. An additional employee would cost an extra $72,490. This employee would have to sell an addition 23 units to justify his salary. This is an increase of 25% of unit sales (exhibit 5). Much higher than our target to increase sales by 15%. A further risk is that hiring an additional employee would create a competitive selling environment as a large part of their salary is commission based. This strays away from Surfside’s competitive advantage of offering a family friendly environment. Option 2: Hydrotherapy training

To train an employee in hydrotherapy would cost $2,000 for a week course (Natural Healers, 2006). Sales would increase from 10.8% to 20.6% increasing net income 12.9% to 14.6% (exhibit 8). Risks of this option include losing their primary target market and failing to raise awareness of hydrotherapy benefits. Customers would see this as a value added service; increasing customer loyalty. Also, this option addresses employee retention by smoothing sales throughout the year as these customers buy hot tubs for health reasons which are not climate dependant. Option 3: Direct Mail

Direct mail reaches more couples aged 35 – 55 than any other media. There would be 6 purchases directly from the ads. It will also raise the most awareness. Surfside will be able to reach 25,087 homes in and around the area (City-Data, 2006). This will build brand awareness and will help to increase sales in the future. Immediate effects will be an increase in NI of 19,044 and will increase hot tub sales 6.5%. Option 3: Product mix

Pacific hot tub floor space is restricted to showing only 2 hot tubs (exhibit 9). A strategy for targeting our cost sensitive market would be to entice cost sensitive users with inexpensive models. Eclipse T tubs can be used as a promotion to get customers in the store. With the selling price being only $5,300, this is very competitive to the competition (exhibit 7). Europa LT should also be on the showroom floor because of its past performance (exhibit 3). To mitigate the risk of losing sales of other models, they should still remain available to order and be stocked. These budget hot tubs can introduce new low end buyers into buying a hot tub with the hopes of turning them into loyal customers. Ultimately, this will increase Surfside’s market share and ability to sell higher end, higher margin models to these customers in the future. Recommendation and Action Plan

Surfside should pay $2,000 to train an employee in hydrotherapy. This option meets decision criteria for increasing sales and NI. These customers are more likely to buy throughout the year which helps decrease seasonality and which will increase employee retention. Surfside can mitigate the risks of losing their primary demographic by advertising in media that targets both the health conscious and women ages 35 – 55. The first step is to contact a reputable school with a hydrotherapy training course such as Natural Healers. Secondly, Surfside should send out door hangers advertising the health benefits and quality service. This form is more noticeable and differentiates them from other more common direct mail alternatives. These will be sent out to the 25,087 households 3.5 times a year. Once during December, May, and August. This will increase awareness during the low and peak seasons.

Exhibits
Exhibit 1: SWOT analysis
| Opportunities: * Health conscious customers seeking hot tubs for therapeutic benefits| Threats: * Big Box stores competing as a cost leader * Direct competitors competing on quality * Sales Subject to weather * Direct competitors offer easy to transport/assemble products| Strengths: * Readers choice award; well respected within the community * Niche – Highly experienced/ high quality family oriented service| * Tailoring Surfside high quality service to recommend a hot tub to customers seeking therapeutic benefits is a sound market penetration strategy to increase sales and overall market share| | Weaknesses: * 78% sales occur during “on” season * Difficulty retaining talented salesmen during the “off” season * No past marketing experience| | * A lack of a marketing plan wasn’t a concern before competitors started to have an effect on sales. A marketing plan will have to be tailored to Surfside’s target demographic. * Seasonality affects employee retention and ultimately sales.

Exhibit 2: Porters 5 forces
Supplier bargaining power
High: Suppliers have large bargaining power, 2002 market crash has put many suppliers out of business. Currently there are only 8 suppliers for the hot tub market in Canada. As a result, hot tubs purchased for resellers are relatively inelastic. Surfside should not remain dependant on one supplier to increase their bargaining position. They should also avoid competing on price as they have higher costs than major retailers. Buyer bargaining power

Low: There are many resellers of hot tubs in the market. Many small and independently owned who purchase small quantities. As a result, this limits the negotiation power of hot tubs. Big box stores also buy hot tubs; they will have more negotiating power as they sell more units. This is a substantial risk for surfside. To increase margins, Surfside should compete on loyal customers and quality and avoid competing on cost. Competition within the industry

Medium: As direct competitors focus more on quality, price is less of a concern. Additionally, low fixed costs and no excess capacity limits rivalry within the industry. That being said, an increasing number of competitors entering the market will continue to fight for market share. Surfside should compete in a niche market: customer and brand loyalty Threat of substitutes

High: There are many potential substitutes for hot tubs. Primary substitutes include large baths. Also, residential in ground and out of ground pools are substitutes. Large jet baths are particularly concerning because of Toronto’s cold climate. Although, meant primarily for one. Hot tubs main benefit is a social experience. This puts hydrotherapy at risk. Expanding the market definition to include generic and budget competition increases the threat of substitutes further. Some examples include personal saunas, fitness equipment, and home patios. Advertising to raise awareness of hot tubs will mitigate this threat. Threat of new entrants

High: There are little barriers to entry. Relatively low investment and low knowledge requirements make entering and exiting the industry easier. As a result, competition may increase. Small businesses such as surfside will have to compete on quality salespeople and customer loyalty.

Exhibit 10: Reach of advertising media

Assumptions:
Market demographics extrapolated from Toronto (City of Toronto, 2000), Hot tub buying rate is .18% (based on number of hot tubs bought in Canada during 2005/population (Pool and Spa marketing, 2007). Exhibit 3: Model Profitability

Exhibit 4: Proportional unit sales during the year

Exhibit 5: Addition Sales Employee Breakeven

Assumption: CM is average for 2004
Exhibits 6: Income Statement

Assumption: SG&A, insurance is industry standard ((BizStats, n.d.) Exhibit 7: Competitor Analysis
There are 3 direct competitors to Surfside:
Beachcomber has a significantly higher selling price compared to the other competition. Prices range from $5,000 to $15,000. They target customers who are conscious of quality and offer high quality customer service and support. Backyard pool offers two lines of hot tubs. Soft tub is affordable, lightweight, and easy to set up. Coleman specializes in physician-designed-zone therapy; a threat to the hydrotherapy market. These hot tubs are mid-priced at $6,000 to $10,200. Sundance is a manufacturer and retailer who sell direct to customer. They sell high end hot tubs which have received prestigious certification. Prices range from $8,000 to $16,000. Sundance target market is quality conscious individuals. Beside the three direct competitors Surfside also competes with big box stores that operate with low margins but large amounts of sales. They target the price sensitive market. Exhibit 8: Hydrotherapy Analysis

Assumption: Market data is extrapolated from Toronto’s demographic. Hot tub Buyers response rate is .18%. This is the total amount of hot tubs per person in Canada (Pool and Spa marketing, 2007).

References

BizStats (n.d.). Free Building materials-Garden equipment and supplies Sector Sole Proprietor Financial Reports by BizStats. Free Business Statistics, Financial Ratios and Industry Statistics by BizStats. Retrieved January 22, 2013, from http://www.bizstats.com/sole-proprietorship-business-financials/retail-7.0000/building-materials-garden-equipment-and-supplies-7.0400/show Canadian communication foundation (2012, November). Canadian Communications Foundation | Fondation des Communications Canadiennes. Canadian communication foundation. Retrieved January 22, 2013, from http://www.broadcasting-history.ca/index3.html?url=http%3A//www.broadcasting-history.ca/listings_and_histories/radio/histories.php%3Fid%3D399%26historyID%3D181 City of Toronto (2005). 2011 Census: Marital Status, Families, Households. toronto.ca | Official website for the City of Toronto. Retrieved January 23, 2013, from http://www.toronto.ca/demographics/pdf/censusbackgrounder_hhds_2011.pdf City-Data (2006). Newmarket, Ontario – Population, Age characteristics, Dwellings, Houses, Language, Education, Work, Industry, Earnings, Income, Immigration, Citizenship, Labor. Stats about all US cities – real estate, relocation info, crime, house prices, cost of living, races, home value