Case Study

Lou Krantz started his carpet business Regal Carpets in Oakland, California in 1995 with a brainwave idea, "Why do customers need to travel to out of town stores in order to buy their carpets - why doesn't the store come to them" he thought. So hiring a van equipped with samples, he travelled the city selling carpets direct via door-to-door promotion. He then contracted out the fitting to local carpet fitters. The venture ‘took off' and soon he had more business than he could cope with. Not having the capital to expand himself, he hit on another brainwave - why not franchise the business? In return, Regal Carpets would supply the training, the sales techniques and the samples. In less than 10 years over 600 franchises had been appointed in the USA and Regal Carpets is now established as one of the Top 500 privately owned businesses. Its slogan, "The Carpet Store to your Door", had clearly taken the USA by storm.

The key factors of the success of Regal Carpets are Convenience, Value and Customer Service. With a range of over 1,500 carpets, and now also including other floor coverings such as wood, vinyl and ceramic tiles, the customer choice is comprehensive. But more than that, the range can be inspected under actual home conditions to enable customers to get a feel for what the product might look like against the background of their furniture, curtains and wallpaper. To give a modern appeal to this, Krantz introduced the company's carpet imaging system whereby customers can see the room to be carpeted on a computer screen, giving a virtual representation of exactly how it would appear after being fitted with the choice of each carpet under consideration. With no retailer or middlemen, low staff overheads and no heavy stock to carry, Regal Carpets can pass on a good portion of the savings to the customer guaranteeing lower prices than carpet shops, whilst at the same time making higher profits.

Having covered the US, Lou Krantz began to consider the overseas market. From his base in Oakland he decided that UK, France and Spain would be his next stage of development. He called in his most successful Californian franchisees for a discussion and on discovering that Carlos Pedraza of Mexican parentage could speak Spanish, appointed him as European Vice President - although Carlos had never been to Europe. The meeting in Oakland concluded that Europe would be a good place to go, in particular the UK, France and Spain.

Said Krantz: "In any case, we've covered the US from coast to coast, so we'll now start again in Europe." He didn't believe there were any differences between Americans and Europeans apart from the language and that would be overcome by appointing local franchisees. So it was agreed to launch into the UK, France and Spain during 2011. Krantz's target was to launch 30 direct franchises in the UK , 25 in France, and 15 in Spain by the end of 2015.

Franchisees would be sought and appointed on the following basis:

An up-front fee of £80,000 (or euro equivalent) would be paid to Regal Carpets; and then a royalty on sales of 6%.Franchisees would need to lease a mid- sized van eg Ford Transit, or local equivalent. Each franchisee would be given an exclusive operating territory of 40,000 households.

On appointment, Regal Carpets would give the franchisees training sessions in the computer virtual imaging software, and also put them through an intensive franchise operations course, in their respective countries.

Read the above case study and answer the following questions

1. As an international consultant, advise Regal Carpets on the market information required to support the successful launch in the UK, France and Spain.

2. Franchising has grown during the last 15 years both in USA and Europe. Outline the problems and opportunities that Regal Carpets might face in entering the UK, France, and Spain with this method of market entry.

3. With examples, identify and critically review the various means by which a company might segment its international markets.

4. In recent years, more companies are investigating the potential of entering emerging markets as a form of market development. What difficulties might arise in entering these markets, and how might these be handled?

5. Taking as an example a company operating in any (named) product field, identify for what marketing reasons it might take part in international trade fairs, and briefly outline the key preparations it would need to make for trade fair participation.

6. A company is considering exporting to a new overseas market, and coincidentally it has just received an approach by an established export agent which is offering its services in the new market. How do you think the company should respond to this approach, and what criteria might it use to select an agent for the new market?