Case presentation on

Conroy’s 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 Conroy’s Acura
Car dealership firm; Founded in 1986 by Ross Conroy; First Acura dealership in Toronto and First in North America
Competitors: Acura CSX - Entry Acura RSX –
 Comparable offerings (in terms of dealership)- Saab, Volkswagen, Honda level luxury car - Small sporty
 Higher end pricing – BMW, Mercedes-Benz $31,860 sedan - $35,100
 Same range pricing – Lexus (Toyota), Infiniti(Nissan)

Sold 6 models of new cars: Acura TSX - Acura TL - Mid

Entry level luxury sized luxury car -
Cars bought directly from Honda’s Canadian distributor and sold with a markup
- $42,984 $49,680
Sold pre-owned cars, provided services
Marketing strategies: Billboards, direct mails, radio, TV sports, newspaper, magazine Acura MDX - Acura RL –
Customer Retention strategies: quarterly postcards, promotional letters Sport Utility Oldest model -
Vehicle - $61,776 $79,812
US Automobile Industry Analysis -
Porter’s 5 Forces

Bargaining Power Bargaining Power

Threat of
of Automotive of Automotive Threat of New
Substitutes – LOW
Buyers - HIGH ; Suppliers – LOW; Competitive International
; bicycles,
various brands and numerous Rivalry - HIGH ; Entrants -
subways, buses,
models of the cars suppliers rely on there are too MEDIUM; initially
and trains but for
to choose from some particular many choices for brand loyalty
many areas &
nowadays auto the customers. towards American
reasons, cars are
manufacturers to car firms
preferred
buy their products
 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 Greater CLV
• Increased price & retention rate
ROM
• Decreasing maintenance costs & discount
rate

Maximize Maximize Return on Marketing

Stakeholder Value • Increased profits with new marketing effort
v/s Increased costs
 The Decision(2/3)
Greater CLV
Increasing Bottom Line CSX
8% RSX CSX
6% 8% RSX CLV
RL CSX 6%
9% RL
9% CSX
MDX TSX RSX
15% MDX TSX
29% RSX
TSX 29% 15%
TL TSX
TL
33% Gross Profit
33%
• Maximizing Sales Revenue from TL,MDX & TSX • Greatest CLV for TL,MDX & TSX with given base data
•Reducing maintenance costs for other segments •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)
Modified Settings
Fixed Costs $1,20,000
Conclusion:-
Car CSX RSX TSX TL MDX RL
Total Sales 84 62 114 240 180 35 1. Focus on TSX,TL & MDX segment.
New Sales 65 40 100 180 130 32
Return Sales 19 22 14 60 50 3 2. Reducing Markup in Lower Segment.
Avg. Markup 7.8% 7.8% 8.0% 8.0% 8.0% 7.8%
Return (Yrs) 4.00 4.00 4.00 4.00 4.00 4.00 3. Trying to increase retention rate of
Retain Rate 2.5% 2.5% 27.5% 40.0% 30.0% 2.5%
Yr. Main Cst $10 $10 $30 $40 $35 $10 High Value Customer by increasing
Disc. Rate 5% 5% 8% 9% 9% 5%
expenditure on customer retention
Acq. Cost $219 $219 $219 $219 $219 $219
Dealer Cost $29,500 $32,500 $39,800 $46,000 $57,200 $73,900 programmes including loyalty
Avg. Price $31,801 $35,035 $42,984 $49,680 $61,776 $79,664
T Life Maint $2,807 $2,072 $13,518 $43,888 $24,687 $1,170
programs which limit customer
Tot. Acq. $14,260 $8,775 $21,938 $39,488 $28,519 $7,020
Unit Gross $2,301 $2,535 $3,184 $3,680 $4,576 $5,764
maintenance cost to the mentioned
T Gr Lifetime $1,58,661 $1,29,227 $3,45,149 $9,65,535 $7,82,225 $1,67,368
T Gr Net of Acq. $1,44,401 $1,20,452 $3,23,211 $9,26,047 $7,53,706 $1,60,348
numbers.
Profit Comparison - Two Scenarios 4. Discounting high end cars at higher
PROFIT PROFIT discount rates considering higher
MOD PROFIT $24,28,165 INC COST $60,035

BASE PROFIT $24,22,632 INC PROF $5,533

cost of debt for high end cars.
GAIN $5,533 ROM 9.22%