Magellan Boatworks Case Study

In late October 2016, Walt Robinson, Senior Vice President of Sales and Marketing for Magellan Boatworks, was preparing the company’s sales forecast and marketing budget for its 2017 fiscal year. (See Exhibit 1 for Magellan’s marketing and sales expenses and income statement.) Magellan, located in Georgetown, South Carolina, was a midsize manufacturer of customized, power cruising yachts.1 As he considered the company’s results for 2016, Robinson wondered whether he needed to request a budget increase, or whether his team could determine how to increase sales even if it had less money in the coming year.

Robinson had asked Tony Paroli, Magellan’s Vice President of Sales, to arrange a conference call that afternoon with the Sales team to discuss what marketing strategy and communication tactics the company should use. He hoped this meeting would help him finalize his recommendations by November 1, when he would present his proposed budget to Magellan’s president.

The Boatbuilding Industry in the United States in 2016

In 2016, the total expenditures on boats and accessories in the United States were $35.9 billion. Approximately 238,000 new powerboats were sold. Although only 5% of those boats were larger than 26 feet, these “luxury boats” accounted for almost 38% of the $17.4 billion in new boat sales. Sales in this segment were cyclical, and tracked closely with the overall economy. Sales of these larger boats were down about 12%. There were also an estimated 958,000 pre-owned boats sold, and 11.9 million registered boats in the United States.

In the luxury segment, boats were typically built to order. About half were sailboats; the other half were diesel or gasoline powered. Buyers picked from several hull designs and then selected from numerous options for the boat’s interior appointments, its navigation systems, and so on. These boats

1 A cruising yacht was defined as a boat that was between 26 and 49 feet long. It usually had living quarters and could be powered by sail or motor or both. Cruising yachts (boats) were generally able to travel long distances, such as a trip from Miami to Brazil.

HBS Professor John A. Quelch and College of Charleston Professor James T. Kindley prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Many thanks to Robert W. Shaw, II (MBA 1984) for his assistance. Although based on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental.

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tended to cost $300,000 (for a 26-foot boat with no frills) and up. An industry rule of thumb was that each foot of a boat with standard amenities cost about $20,000.

Competitors

Ninety-five percent of luxury powerboats sold in the United States were built domestically. The boat industry was fragmented, with over 3,000 boatbuilders listed as active. Many builders were one- man shops that built only two or three boats annually and often offered lower prices than Magellan could. Robinson felt that the company lost business to these builders because buyers perceived them as providing a more customized boat for a better price.

Magellan also competed against several national boatbuilders, such as Beneteau, a French company with a large production facility in South Carolina, and Hinckley, an established builder based in Portland, Maine. These companies built up to 500 boats a year and could offer wide variety and value pricing due to their scale. Robinson felt that these competitors’ boats appealed to more conservative buyers, for whom comfort and traditional design mattered most.

Many builders offered docking, storage, and maintenance services. Customers valued brand names, but other factors were more important. Exhibit 2 has information about customers’ selection criteria.

Customers

Most new buyers of high-end boats fell into one of two broad groups. Younger customers, 40 to 55 years old, tended to purchase sailboats. Customers older than 55, a much larger group, usually purchased powerboats. Customers for these boats tended to be successful, high-net-worth individuals or couples. Many had grown up around boats and boating. The purchase of a cruising yacht was often the fulfillment of a lifelong dream.

Boatbuilders typically targeted men, although couples bought most boats. Somewhat like purchasing a house, each person had strong opinions about certain aspects of the boat and usually prevailed in decisions that mattered most to them. For example, one partner might care more about hull designs and navigation equipment, while the other partner focused on interior amenities.

Magellan Boatworks

Magellan Boatworks was a subsidiary of a large conglomerate that owned businesses in the recreational vehicles, sporting equipment, and leisure resort industries. It was founded in 1978 by Lee and Debra Rogers, who grew the business and sold it to a private equity firm in 2001. This firm expanded production capacity and increased Magellan’s marketing efforts before selling it to the conglomerate in 2007.

Magellan sold its boats to a narrow range of customers. Most came from coastal areas within 300 miles of its headquarters. Its contemporary designs appealed to successful, highly active people, especially those who had second homes in its coastal area or had moved to the area from the Northeast or Midwest to retire. Moving to a coastal location was often a significant milestone, and the purchase of a boat often manifested a buyer’s desire to “chart a new course.”

Over the last decade, Magellan’s fortunes had ebbed and flowed. Despite the economic downturn and financial crisis of 2008, it kept most of its employees working by procuring government contracts to build some small Coast Guard boats and refurbish boats used by the U.S. Navy and the National Oceanic and Atmospheric Administration (NOAA). Sales picked up in 2012 as the economy improved

and affluent retirees began increasing