“A Seminar Report on Sears Auto Shock”

A report submitted in partial fulfilment for the award of the degree

Master of Business Administration

Submitted By:
R Winston Joel Samuel
USN NO: 1NX18MBA41

Under the Guidance of

Prof. Malani T N
Dept. of Management Studies

Nitte Meenakshi Institute of Technology

(An Autonomous Institute under Visvesvaraya Technology University, Belagavi)
Department of Management studies
2017-2019

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 Nitte Meenakshi Institute of Technology
(An Autonomous Institute under Visvesvaraya Technology University, Belgaum)
Department of Management studies
2017-2019

BONAFIDE CERTIFICATE

This is to certify that R Winston Joel Samuel, bearing USN 1NX18MBA41, is a Bonafide

student of Master of Business Administration course of the Nitte Meenakshi Institute of

Technology (2017-2019), affiliated to Visvesvaraya Technology University, Belagavi. A

seminar report on “Sears Auto Shock” is prepared by him under the Guidance

Of Prof. Malani T N, in partial fulfilment of the requirement of the award of the Degree of

Master of Business Administration of Visvesvaraya Technology University, Belagavi.

Prof. Malani T N Dr.S.Harish Babu Dr.H.C.Nagaraj

Internal Guide H.O.D of the Department Principal

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Summary

The company that this case revolves around is called Sears, Roebuck & Co.
The case starts with Michael J. Stumpf praising the company for being the best
Auto repair shop in America. Until he found out about the scams the company
had been running on the side to make extra money. Another customer called
Ruth Hernandez also had a bad experience when she went to change her tires
but was asked to change additional parts to just make more profit. She luckily
consulted another mechanic and found out that Sears had made a wrong
diagnosis.

This had been happening to a lot of people and it caught the eye of the
California’s Bureau Of Automotive Repairs (BAR). Which conducted an
eighteen month long undercover operation and revoked the operating permits of
72 Sears auto service centres in the state of California on June 10, 1992.
In the 18 month long sting operation, the BAR found out that cars emerged
from Sears in worse or unsafe condition, with loose brakes or improperly
installed parts, the investigation further revealed that mechanics, who had been
paid at an hourly rate, were told that commissions would replace their
compensation. This meant that they had to reach personal targets everyday in
order to earn more and were also pressured to sell a specific number of shock
absorbers or struts for every hour worked. This explains why all the customers
were being overcharged and how a company that was regarded as one of the
nation’s giants started facing such difficulties.

During the late 1980s Sears had been hurt by a national recession. They had a
lot of competition that time and to survive in the market they cut costs
drastically by using loss leader pricing. Their new appointed chairman at that
time Edward A. Brennan started to change and renovate the 868 outlets and
pushed new low prices. His main aim was to make every employee from the
sales floor to the chairman’s suite to focus on profits.

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Sears blasted the investigation as ‘incompetent and very seriously flawed.’ They
dodged every allegation they received by banking on their reputation and also
stated that they have been doing this for more than 60 years. They also tried
blaming it on political motives. Perry Chlan, the company spokesman even

denied the existence of the commission system in the 850 service centres
nationwide while trying to divert the attention to the customer relationship and
quality that the company strives to achieve as they believe in preventive service.
But, after further investigation an attorney general in California told that there
was deliberate decision by Sear’s management to set up a structure that made it
totally inevitable that a consumer will be oversold.

The chairman called a Press conference on June 15, in order to try and contain
the situation less than a week before, the state of California had charged sears
with improper sales practices in its California centres. After which New Jersey,
Florida and Alabama had similar investigations and hundreds of new complaints
were lodged against the company.

The company tries hard to retain the reputation by starting a national campaign
featuring full page advertisements in USA today, The Wall Street Journal etc..
An ‘Open letter to Sears Customers’ signed by the Chairman, which said that
the company would never exploit and violate a customer. There were critics
writing at the same time. Less than a week later, with sales in its auto centres
down by 15% nationally and 20% in California. Sears chairman Edward F.
Brennan held a news conference in Chicago, while continuing to deny that
Sears had intentionally wronged its customers, He conceded that the company’s
incentive compensation program and sales goals had created an environment
where mistakes occurred. He also announced that they would be replaced by a
non commission program intended to reward service personnel for high
customer satisfaction levels.

After many Cases being fought simultaneously, in late October the company
announced a settlement in California by agreeing to pay $8 million to end a
consolidated class action against it, and by providing $3.5 million to finance
auto repair training programs at the state’s community colleges.

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Solution of the case using Harvard Business School Model

Facts of the Case

Major Issues
 The company had been exploiting customers which led to an Ethical
issue.
 The company had come in the eyes of the law. Which in turn revoked
their services in California on June 10, 1992.
 The odds of winning the cases lodged against them was very low.
 Reputation of the 60 year old company was at stake.

Minor Issues

 The company was losing market share rapidly.

 Employees were pressurised to make more sales.
 All the Publicity and Public stunts to protect their name was failing
 Customer retention was starting to decline.
 Customer complaints were increasing drastically.
 Compensation and benefit policies of the company towards the
employees was low.
 Employees were being pressurised to reach unrealistic targets which in
turn led to poor service.

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Managerial Gaps

 The company was unjust to its customers just to make more profit
 The CEO was more inclined towards profit maximization and thus
neglected customer satisfaction.
 In the eagerness to earn more profits the company took an unethical route
to mmaximize profits.
 They went against their $40-50 dollar service policy.

Suggestions offered

 I would ask the chairman to try and gain back the emotions that people
have had for the company in the past
 Training and development is a must for the employees.
 The company must pay their employees regular wages and make
incentives a motivator rather than the main source of income
 The company has a lot to work on in its ethical policies and customer
relations. They cannot exploit people.
 The company should stick to the $45-$50 dollar service policy and they
will see positive change in the organization if they don’t charge
unnecessarily.
 The company could also try Rebranding to avoid any negativity in the
future.
 The company must do something for the society as theye were caught
exploiting the customers.

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Concepts learnt:

Marketing

 Sales
 Marketing
 Advertising
 Customer relation
 Business ethics
 Pricing strategies

Finance

 Shares
 Market share
 Financing policies

Human resource management

 Employee welfare
 Public Handling/ Public Representation

Bibliography

 AL GINI & ALEX

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