Situation Analysis
Carrington Furniture is a manufacturer of medium- to high priced wood bedroom, living room, and dining room furniture. Carrington sells its furniture through 1,000 high-quality department stores and independent furniture stores nationwide. The company is very selective in choosing retail outlets. The company is known for their quality and knowledgeable sales team. Currently, Carrington employs 10 full time salespeople and two regional sales managers, which are paid in a base salary, and a small commission based on sales. In 2002, Carrington had $75 million in sales, and the company spent $3.675 million in advertising, or 5% of 2002 sales. On average, furniture companies spend 3.5% of their sales in advertising.
The household furniture industry is divided into three categories: wood, upholstered, and other (ready-to-assemble furniture). In 2002, the sales in the furniture industry were estimated to be $23.9 billion at manufacturer¡¦s prices, where 48% of the furniture industry sales were household wood furniture. Carrington¡¦s products fall into the 48% category, since they manufacture all wood furniture. The industry is moving towards an increased emphasis on premium quality products, given the fact that some baby boomers at this stage in life are interested in higher quality furniture.
Carrington has received a proposal constructed by the ad agency, Hervey and Bernham. The proposal states that the company should increase their advertising expenditure by $225,000. In the coming year the company is going to allocate an extra $300,000 to advertising, based on the projected increase 2003 sales. Alternatively, John Bott, Carrington¡¦s Vice President of Sales wants to allocate $135,000 to sales and administrative exp ...