Case presentation on
Conroys Acura: CLV
and ROM
Presented by: Sec X | Group # 5
Abhinav Prakash
Abhishek AK
Amit Shukla
Anshuk Pradhan
Kshitij Pathak
Shaunak Chakraborty
Sudhanshu Shekar Singh
Vikas V. Singh
About Conroys Acura
Car dealership firm; Founded in 1986 by Ross Conroy; First Acura dealership in Toronto and First in North America
Competitors:
Comparable offerings (in terms of dealership)- Saab, Volkswagen, Honda
Higher end pricing BMW, Mercedes-Benz
Acura CSX - Entry
level luxury car $31,860
Acura RSX
Small sporty
sedan - $35,100
Same range pricing Lexus (Toyota), Infiniti(Nissan)
Sold 6 models of new cars:
Cars bought directly from Hondas Canadian distributor and sold with a markup
Acura TSX Acura TL - Mid
Entry level luxury sized luxury car - $42,984
$49,680
Sold pre-owned cars, provided services
Marketing strategies: Billboards, direct mails, radio, TV sports, newspaper, magazine
Customer Retention strategies: quarterly postcards, promotional letters
Acura MDX Sport Utility
Vehicle - $61,776
Acura RL
Oldest model $79,812
US Automobile Industry Analysis Porters 5 Forces
Bargaining Power
of Automotive
Buyers - HIGH ;
various brands and
models of the cars
to choose from
nowadays
Bargaining Power
of Automotive
Suppliers LOW;
numerous
suppliers rely on
some particular
auto
manufacturers to
buy their products
Competitive
Rivalry - HIGH ;
there are too
many choices for
the customers.
Threat of New
International
Entrants MEDIUM; initially
brand loyalty
towards American
car firms
Threat of
Substitutes LOW
; bicycles,
subways, buses,
and trains but for
many areas &
reasons, cars are
preferred
Sales and existing marketing efforts
$120,000 spent annually marketing to new customers via billboards, direct mails, radio, television
etc.
Approximately 650 cars were sold each year spread over the six models. After the fixed expenses
net profit generated is usually two per cent of sales revenue.
$10/year/existing customer is spent by the firm much of which is spent on sending postcards and
sending out information.
Success of marketing efforts were judged by comparing the cost of marketing effort to the
number of extra cars sold. But this method did not take into account the possibility of repeat
customers.
New marketing initiatives were required to provide a significant return on marketing investments.
Sales was broken down into two types: sale to new customers and sale to previous customers.
Proposed strategy
New Customers:
According to the VP of sales Rachel De Lima, to increase the number of new customers the firm
need only do more of what they were already doing (more advertisements etc.).
However, the sales staff believed that by lowering the margin they would be able to achieve the
necessary volumes and increase their sales.
Retention of existing customers:
Since retaining an existing customer was less expensive than acquiring a new one, the firm
focussed their efforts on improving the customer retention rate.
Providing free oil changes, customer reward programs, increased contact with customers and
conducting surveys of existing customers were some of the suggested steps.
The Decision(1/3)
Increasing Bottom line
Greater Sales Revenue
Reduced Costs
CLV
Bottom
Line
ROM
Maximize
Stakeholder Value
Greater CLV
Increased price & retention rate
Decreasing maintenance costs & discount
rate
Maximize Return on Marketing
Increased profits with new marketing effort
v/s Increased costs
The Decision(2/3)
Greater CLV
Increasing Bottom Line CSX
8%
RL
9%
CSX
8%
RSX
6%
CSX
TSX
15%
MDX
29%
RL
9%
RSX
TL
33%
TL
33%
Gross Profit
Maximizing Sales Revenue from TL,MDX & TSX
Reducing maintenance costs for other segments
CLV
CSX
TSX
15%
MDX
29%
TSX
RSX
6%
RSX
TSX
Greatest CLV for TL,MDX & TSX with given base data
Increasing retention rate via increased maintenance
Maximize ROM
ROM should be at least as high as returns obtained by investing in stock market : Considering investment in Honda
Motor Company(beta=1.24); Japanese Government return over 10 yr period(4 yr T-Bill); Average Market Cap Rate
the calculated Return on Equity : 1.07 %
The Decision(3/3)
Fixed Costs
Car
Total Sales
New Sales
Return Sales
Avg. Markup
Return (Yrs)
Retain Rate
Yr. Main Cst
Disc. Rate
Acq. Cost
Dealer Cost
Avg. Price
T Life Maint
Tot. Acq.
Unit Gross
T Gr Lifetime
T Gr Net of Acq.
Modified Settings
$1,20,000
CSX
Conclusion:-
RSX
84
65
19
7.8%
4.00
2.5%
$10
5%
$219
$29,500
$31,801
$2,807
$14,260
$2,301
$1,58,661
$1,44,401
TSX
62
40
22
7.8%
4.00
2.5%
$10
5%
$219
$32,500
$35,035
$2,072
$8,775
$2,535
$1,29,227
$1,20,452
TL
MDX
RL
114
100
14
8.0%
4.00
27.5%
$30
8%
240
180
60
8.0%
4.00
40.0%
$40
9%
180
130
50
8.0%
4.00
30.0%
$35
9%
35
32
3
7.8%
4.00
2.5%
$10
5%
$219
$39,800
$42,984
$13,518
$21,938
$3,184
$3,45,149
$3,23,211
$219
$46,000
$49,680
$43,888
$39,488
$3,680
$9,65,535
$9,26,047
$219
$57,200
$61,776
$24,687
$28,519
$4,576
$7,82,225
$7,53,706
$219
$73,900
$79,664
$1,170
$7,020
$5,764
$1,67,368
$1,60,348
Profit Comparison - Two Scenarios
PROFIT
PROFIT
MOD PROFIT
$24,28,165
INC COST
$60,035
BASE PROFIT
$24,22,632
INC PROF
$5,533
ROM
9.22%
GAIN
$5,533
1. Focus on TSX,TL & MDX segment.
2. Reducing Markup in Lower Segment.
3. Trying to increase retention rate of
High Value Customer by increasing
expenditure on customer retention
programmes including loyalty
programs which limit customer
maintenance cost to the mentioned
numbers.
4. Discounting high end cars at higher
discount rates considering higher
cost of debt for high end cars.
