F and R Auto Repair
Strategy and Implementation Summary
The following section outlines the company’s strategic focus in growing the business.
5.1 Competitive Edge
F & R Auto’s competitive edge lies in the vision of its partners, who understand better than many of their rivals that a service visit does not just include repairing a client’s car, it includes the entire service experience from the first time a client talks to their mechanic until they decide to stop driving. The long-term profitability of a service firm of this type lies in the repeat customer that finds F & R’s services an excellent experience, DESPITE the fact that they usually have suffered a inconvenient breakdown. The company will seek to examine ALL aspects of the service experience to seek ways to improve its customer satisfaction. In addition, all employees will be rigorously trained and retrained to think about customer satisfaction in order to create a self-sustaining company culture that revolves around this issue.
5.1.1 Positioning Statement
It is the express purpose of F & R to become the local leader in quality and service experience of all the small (non-dealerships) automotive repair firms within the Seattle area while maintaining a low cost plan. Once a reputation for quality and service experience is created, and an ongoing network of referrals is bringing in new business, the company plans to re-evaluate its strategy and positioning within the market to see if a differentiation strategy is viable. If so, this will allow the company to raise prices and increase profit margins in relation to its rivals. This in turn is expected to leverage long-term growth until F & R can reach a regional scope of operations.
5.2 Marketing Strategy
The company has a modest program of marketing its services that include the following:
- Direct mailers.
- Newspaper ads.
- Yellow pages.
- Referrals through other local businesses.
Each of these marketing approaches has the advantage of being low cost and creating service awareness. The company’s long-term marketing goals are to use local radio and TV ads similar to the Les Schwab Tire Center ads.
The company is also investigating the possibility of having a grand opening program that would feature discounts, food, a local radio disc jockey, and other promotional ideas.
5.2.1 Promotion Strategy
The principal owners of F & R Auto expect that a significant number of their pre-existing clients (where Ford and Ronald currently work) will desire to switch to F & R Auto to retain the services of their personal mechanics. This will provide a sufficient income until F & R can build up a reputation and see its marketing program take effect.
This promotion strategy will take the form of flyers, direct mailers, price discounts, and advertisements in newspapers and yellow pages. F & R does not desire to spend a large amount on marketing until the firm is ready to expand either into new facilities or open up new ones. It is estimated this will occur sometime after year five.
5.2.2 Pricing Strategy
F & R Auto exists in a purely competitive environment where each firm must be a price taker. In other words, the firm has no ability to affect the market price of its services, regardless of how many automobiles it repairs. In this case, therefore, marginal revenue (the revenue incurred by producing or servicing one more unit) is equal to the price charged. Furthermore, because the demand curve is essentially horizontal, F & R can service automobiles at total capacity without effecting the price.
What all of this means for F & R Auto is that the company must seek to charge its clients at the market price (or lower). Research has shown that the average price is approximately $400 per vehicle. As long as marginal costs do not exceed revenues, the method to maximize short-run profits is to service automobiles at maximum capacity. This means that F & R Auto can expect an ROA of approximately 4.5%
5.3 Sales Forecast
Since the automotive repair industry is, operationally, a job-shop environment, it is somewhat difficult to estimate sales. For job-shops, each individual product or service is tailored or unique to that job, and is only initiated once an order is made. However, the sales forecast reflect the professional opinion of Mr. Ford in how much sales he will make based on the following assumptions:
- The number of clients Ford and Ronald can attract from their previous companies.
- The effect of planned promotions and word-of-mouth marketing.
- Current prices and costs of doing business.
- The types of automobiles and jobs that will occur in every month.
For the most part, sales for an automobile repair firm are steady year round and reflect little seasonality.
The table and charts below outline the sales forecast. Three years of annual sales and costs of sales are shown. Twelve monthly tallies are included in the appendices.
|Year 1||Year 2||Year 3|
|Small repair jobs||$60,000||$67,200||$71,904|
|Large repair jobs||$67,800||$75,936||$81,252|
|Direct Cost of Sales||Year 1||Year 2||Year 3|
|Small repair jobs||$6,000||$6,720||$7,190|
|Large repair jobs||$6,780||$7,594||$8,125|
|Subtotal Direct Cost of Sales||$17,880||$20,026||$21,542|