"Toro Co. S'no Risk Program" case study focuses on the campaign of the company wherein customers who bought the snowthrower would receive a refund if the next winter brought only modest snowfall. It analyzes whether the program was a success or not.
David E. Bell
Harvard Business Review (185017-PDF-ENG)
August 21, 1984
Case questions answered:
- Why did the insurance company raise the rates so much? How would you estimate a fair insurance rate?
- From the perspective of the consumer, how were the paybacks structured, and how might they be restructured to entice you at an equal or lower cost of insurance? How does the program influence your decision to purchase?
- What are the common decision traps that each group in point (2) is susceptible to? Develop a matrix or decision tree in order to compare the groups. How does the program impact the consumer’s “regret”? (Hint: Map the possible outcomes for the consumer.)
- From either Toro Co.’s or the insurance company’s perspective, how would you frame your argument to achieve your desired objective?
- Was the program successful? Why or why not?
- If you were Dick Pollick, would you repeat the program? Assume you manage the S’No Risk program and argue your case. To what biases are you susceptible to in this case?
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Toro Co. S'no Risk Program Case Answers
Toro Co. is a company that was developed on residual lawn care products. Years before 1983, Toro had started to develop winter care products like snow throwers.
The loss of sales experienced in the previous years left the retailers unhappy with several leftover inventories, which Toro reconsidered in a bid to make them happy. This created the Toro Co. S’no Risk Program.
The S’No Risk Campaign was regarded as a great success, leading to a dramatic increase in profit and sales. The American Home Insurance company increased the interest rates on snow thrower products of Toro Co. since they realized that the annual potential liabilities of the snowblower products were at their potential ($5,846,299) in 1982.
This was actually a big liability for the organization to consider for American Home, and they came to realize that the insurance policy being used was important for Toro in order to make the campaign successful. The $5, 846, 299 represented 19.5% of the year’s sales. This exceeded the 10% discount rate that Toro is accustomed to giving to their customers and their shareholders.
The S’No Risk Campaign was of immense success because many people were more interested, specifically in buying the Toro Co. products, and the insurance company managed to develop a contract that was readily accepted to meet the claims proposed in the campaign. Consequently, the insurance company was to take only 2.1% of the premium train value of the snow throwers.
At the time of the campaigns, very few actual claims existed, which was a comfort for American homes. However, the possibility of more claims existing was based on the unpredictability of the weather.
It is essential to note that the unpredictability still poses a big risk for the American Home. Thus, an increase in the premium is acceptable because of the increased risk of liabilities.
An estimate of a fair interest rate would be at 5% of sales. A 5% increase will give the American Home a stronger premium in the case of more claims and still gives Toro a 5% bare minimum savings of their normal programs.
These statistics were actually suitable for Toro Co. They were gambling on the weather, which was uncontrollable, and therefore claimed that they had confidence from the insurance company regarding their product.
From the consumer’s perspective, based on the analysis of the payback structure, the payback structure can be considered a…
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