How many customers were likely to switch
some of their purchases to Express?
In case of A/S the transactional customers contribute around
25% of the sales while 75% comes from relationship
customers
The impact of Express can be analyzed using two scenarios
Optimistic
Pessimistic
Total Sales
Sales from
transactional
customers
2,310.00
577.50
Optimistic
1,732.50
Pessimistic
1,039.50
Scenario
Sales from
relationship
customers
1,732.50
1,732.50
1,039.50
Expected loss of sales due to express
segment wise
Scenario
Total Sales BAS business
Value added Business
Optimistic
577.50
293.00
284.50
Pessimistic
1,270.50
601.00
669.50
Impact on sales and profitability
Transaction customers constitute 25% of sales.
Majority of transaction customers are BAS customers.
Assuming no selling expenses for transaction customers as
majority go by BAS.
Cost of good sold is 83% of sales.(Exhibit 2)
Selling and administration expenses is 9.2% of sales.
(Exhibit 2).
Selling expenses reduction in proportion with drop in sales
of relationship customers.
Impact on sales and profitability
Optimistic scenario 100% transaction customers switch to
Express
(Billion $)
Before Express
After Express
Total Sales
2310
2310
Transaction sales
(25%)
Current Sales
NA
577.5
NA
1732.5
COGS (83%)
1917.3
1437.975
Selling Expenses
159.39
159.39
Gross Margin
233.31000000
135.135
Impact on sales and profitability
Pessimistic scenario 100% transaction customers and 40%
relationship customers switch to express.
(billion $)
Before Express
After Express
(Billion $)
Before Express
After Express
Total Sales
2310
2310
Transaction sales and
relationship sales
(65%)
Current Sales
NA
1501.5
NA
808.5
COGS (83%)
1917.3
671.055
Selling Expenses
159.39
95.634
Gross Margin
233.31000000
41.811
Impact on sales and profitability
Overall effect
(billion $)
Change in %
sales
Change in %
gross margin
Optimistic
(25)
(42.1)
Pessimistic
(65)
(82)
QUESTION 3
How would A/Ss suppliers
react to Express?
All the 50000 customers are exposed to all the major
suppliers. In this way they will reach to more number of
customers through Express.
Since any supplier has franchised only 2 distributors for the
same line card (product line), they can very well intentionally
reduce the price of the products and further reduce the
margins of existing distributors. Margins for commodity
products (BAS) may get reduced from 25 % to lower levels
due to the intentional price reductions from the supplier.
Suppliers through the bulletin board have information about
the inventory levels of all the other competitors via their
franchised distributors. Hence with the proper demand
forecast they can efficiently modify their production
schedules to accommodate the inventories in lieu of the
competition.
On the other hand since no actual communication is
involved between the distributors and OEMs or customers,
hence it will be very difficult for the suppliers to
demonstrate and generate the demand. They used to
generate the demand with the help of their distributors.
QUESTION 4
Finally, Was Express a Threat to
or an opportunity for A/S?
Opportunities
Access to larger customer base
Reduction in selling cost
-cut down of sales representatives
-Transactional Cost
-Transportation Cost
Increase in reach to customers who couldnt be reached with
current business model
Reduction in time and effort in order to locate potential
customers
Scrutinizing the suspects (credibility check) is done by
Express Inc., avoiding Relational cheating
Threats
If enters Express Inc.
Increased competition Initiation of
price war
No demand creation, only order-taking
Reduced supplier control
Loss of market share to competitors
Risk of loosing franchisee distribution
from suppliers
No direct relationship with customers
Inability to build up long term
relationship
Demotivation of Sales Representatives
6% service fee
If Not
Current customers can move
to express system and use it
as a bargaining tool for
lowest prices
Limited customer base
Switching of Transactional & Commodity customers of A/S to Express
Do Not Go for express.
Analysing threats and opportunities:
Long term relationship is important in B2B
-Sales force remain motivated
6% service fee can be avoided
Exposure to customers is vital
Delivery of products might be compromised
-3rd party involvement
