CASE STUDY: INTEGRITY, PROFITS, AND CONFLICT PALLES FLORAL & GARDENS

COMPANY OVERVIEW AND HISTORY

Palles Floral & Gardens (Palles) is a rather large retail facility that also facilitates a wholesale flower & plant supply organization. The wholesale portion of their business sells flowers, plants, small trees and other products in parts of four mid-western states.

GOVERNING PHILOSOPHY: The company is primarily family operated, has a great reputation, and has opened several retail stores located between 40 and 70 miles away from its main location. Because this is a family-run business, the business follows the same Christian principles that the family uses in their daily lives. The Palles are active in their church. They attribute much of their success to their Christian beliefs and fair treatment of their customers. Besides their Christian standards, the Palles run their company with the same business principles that many other top notch business organizations use.

LOCATION, LAYOUT, AND INVENTORY: Palles' primary location might be better described as a "complex". Their location is comprised of a large retail location with numerous components. There are large open air display areas throughout the facility grounds. Twelve medium- and large-size greenhouses comprise the year-round home for plants grown on the property or brought in from other growers. Most of their greenhouses have low and medium height plant beds; in select greenhouses there are usually hanging baskets of flowers, plants, or other related products above the plant beds.

There is also a rather large "L" shaped retail store. Customers or commercial accounts can purchase fresh flower and plant creations in the custom flower shop section of the store. Next to the custom flower shop area is a Christian, or what some call religious, section. This section features different products with a Christian or religious statement. All items in this area are different from what is found in the rest of the store. Vases, collectibles, wall plaques, candle holders, some bookends, and a variety of items with a Christian theme can be purchased there. Even a few unusual and rather artistic yard water fountains are featured, some with Christian themes, as well as a few beautiful wall fountains.

This part of the store started fairly small and has grown larger as more interesting and special products are added to the inventory. Over the years as this section has grown in popularity, the Palles family feels a special place in their heart for this part of the store, and they believe this small area within the store is an extra special source of pride.

WHOLESALE BUSINESS: Other floral and garden stores purchase wholesale from the Palles Wholesale Greenhouses on a regular basis. These wholesale buyers sell these items to their own customers. Over the years the Palles family has been very customer service-oriented, with an emphasis on offering a broad variety of "home grown" products to all their customers. Their reputation for the greenhouse is solid, and they have a very strong customer base. The customer base comes from over five decades of excellent products and service to their markets.

CURRENT SITUATION

The Palles family wholesale business is strong; however, they have noticed their retail sales have headed into a bit of a slump over the last three years.

NEW HIRE, INVENTORY AGREEMENT, & MARKETING: In an attempt to increase their own retail sales, the Palles family has recently hired someone from the outside, so that they can get a fresh perspective on their retail business. John Mellin was recently hired to run their retail store and the retail garden center. John is not really involved with the wholesale greenhouse or any wholesale portions of the business. John's background is in retail; he comes with a very good reputation and is highly recommended.

In the final interview prior to being hired, John requested and received an agreement from the owners of Palles which stated that he would be allowed to keep the sources of new product offerings confidential. The owners would know where all products came from, but other employees, wholesalers and retail customers would not get specifics (no import or product labeling, State or Federal laws would be violated). John described this request as an effort to help enhance the marketing and wholesale plan.

John is focused on improving all retail product areas, and wishes to increase store sales and improve profitability. Part of this plan involves new "specials" to improve customer interest and response from advertising programs. John also wants to bring some diversity to the facility with new ideas, new products and some new market penetration pricing strategies, as well as change some of the "same annual retail look" within the facility. This idea sounds appealing to everyone on the inside at Palles; a fresh look in the greenhouses and stores, new products to share with customers, and healthier margins are always helpful, especially after three years of softer retail profits.

After a few months of late winter behind him, John's marketing plan is about to take effect. As part of the April/May push John plans to introduce some plants from a Southeast Coast wholesaler. These new products will add some diversity to the product line; in addition, the items would provide a "different" kind of look to the product mix and add visual appeal. There is also a group of more tropical appearing plants (for indoor use) that John wishes to purchase from a Florida wholesaler. In addition to variety, these product lines would add some price advantage to the Palles stores. The contracts for the new products are signed, some products are in stock, and subsequent shipments will arrive as agreed over the next four weeks.

PRODUCT ROTATION: Some of these new products have to be purchased in rather large quantities. As with most flower and plant facilities, how long the products can be kept "on the shelf" is a concern. The Palles had agreed to purchase a large quantity of product in order to get a low overall price. To help facilitate the new "product's rotation" and keep products fresh and healthy, John wants to sell some of these same flowers and plants at a marked up price to Palles existing wholesale customers. There is room for margin because of the low price at which they purchased the products, the turnaround times would be helpful, and the profits from reselling would be unanticipated income. It sounds like a good plan, but it is a new strategy that the company has not used before.

BENEFITS: These shared cost wholesale transactions would help reduce the freight costs for his in-store purchases, and make margins better for the facility. In addition, the wholesale sales would create a faster rotation of the products. As part of this process, John would prefer that the wholesale customers not know where these items were grown. In John's marketing plan, keeping the source location gives him a competitive edge and allows him to have an "exclusive" of sorts with these products. These "new" plants are based from seeds and starter plants that ultimately had to originate in portions of Central America, an area with a wide variety of healthy, beautiful flowers and plants. These items would be entirely new to the Palles customers.

IDENTITY CRISIS: The Palles family has no issue with the products being purchased elsewhere; however, John wants to mix new product in with the products from their own greenhouses. Because of this, an issue of product identity has come up in their conversations. John wants to let all the customers believe the new products (including the more price sensitive flowers and plants) are grown in the Palles greenhouses, which is not true. Additionally, the price-sensitive products that are brought in from Florida have durability and seasonal longevity issues; both of these things could cause customer dissatisfaction.

One concern with John's scheme is that the Palles have a long tradition of simply telling it "like it is" and being candid with all of their customers. Additionally, the Palles family is concerned that their reputation would be damaged if any quality problems would arise from new products that are grown from an area with which they have little history or experience in selling. John insists that where the plant/flower seeds originate, or where they are actually grown is not important, after all as John put it "we all grow products the same way and in temperature and humidity controlled environments." John's focus is to simply increase sales with new products and healthier margins from another geographic area. He would imply to customers that the new products are grown locally in the family greenhouses.

QUESTIONS

QUESTION 1

If a plant or flower product line is more sensitive to the climate in which it is being sold (i.e. it is actually from a geographic area with much different weather/climate), does the retailer have a responsibility to notify the customers of this fact prior to purchasing that product in case of sensitivity to the local climate? Does this matter? State your position, and provide justification in about a paragraph.

QUESTION 2

With a situation such as the Palles Family business, past customers have always purchased products grown in the local greenhouses - unless otherwise clearly stated. These customers will now be purchasing items, at least some of which are grown elsewhere. Is it necessary to advise the customers of this change in part of the product line? Ethically does this matter?

What are the arguments for and against telling the customers what the origins of the plants are? Where do you stand on this issue? In your response, include one outside citation that backs up your position. Be sure to cite using APA.

QUESTION 3

If you were a member of the Palles Family, what would you wish to share with John, the new manager, about the Palles business that he might not realize? Please reply with a two-three sentence answer, and then provide about a paragraph of justification for your comments as well as a plan for how you would approach John.