LASA 1.The S'No Risk Program Case Study Example | Topics and Well Written Essays - 1000 words

LASA 1.The S'No Risk Program - Case Study Example Prior to the S’no Risk Program, there was a traditional sale held in the fall season wherein a 10% discount was offered (Bell, 1994). Eventually, the program took hold and a combination of factors including a surge in the snowfall and customers being enticed by the relative lack of risk meant that sales grew, and distributors were pleased to carry Toro products, even leading to cases of depleted inventories. The program lasted one year and then an evaluation was conducted, and the recourse offered by the insurance company called for an adjusted premium of â€Å"around 8% of sales for the coming year† (Bell, 1994, 3). This is approximately a four-fold increase from the previous annual period, and so it may be quite alarming. The reason for the rate hike however, is apparently due to the fact that American Home offered too cheap a rate initially. In this case, Susan conduct an independent study that analyzed the historical data, with regard to payouts as proscribed by the S’no Risk Program, and realized that in 1983, there would have been payouts of approximately 19% of sales (Bell, 1994, 3). With this information in mind, it makes sense that the insurance firm would want a higher rate, as the trend for payouts was higher than the low premium offered in the first year of the program. Another cause for the increased premium in the following year may have been due to the increasing total number of snow equipment components sold from 81/82 to 82/83 (Exhibit 1). The customer viewed the advertisement and was able to see immediately that there was a chance at varying rates of snowfall for a savings, and in some cases an absolute refund with the prospect of also keeping the Toro machine from the purchase. In essence, the consumer would be receiving something for nothing, and obviously they are the benefactors and Toro loses out in this scenario. Rather than offering different tiers of savings, I would suggest that it would be more simple to offering one large refund if the snowfall was below some threshold. This would be easier from an administrative standpoint, and if the consumers would still be drawn to purchase from such a modified program, the payouts would likely be minimized, which would be a favorable outcome for the income balance sheet of Toro. The S’no Risk Program executed in 1983 was a success, but it should be understood that Toro had several factors that were aligned in their favour. Their objective was accomplished of increasing sales, which allowed them to improve the year-to-year standing of their company, as well as afford the relatively low insurance premium, which also was a positive for the insurance company. As stated in the case, in the seasons leading up to the creation of the program, there was a plummet in the average snowfall, which meant that the market for snow equipment was in retreat. Toro needed an initiative that would jump start consumers and boost the sales of the company, and the pos sibility of an arrangement with Home Assurance was a welcome idea, even though it was not absolutely risk-free. If the insurance rate were higher, as it was recommended that it should have been, then the net sales generated off the snow equipment, less the payouts would have been less justified. This assumption would be further supported if the related premiums were to increase for the next yearly period. Likewise, if there was little snowfall at all not only would the payouts drastically increase, but it raises the doubts if many would purchase a piece