The oil sands development area surrounding Fort McMurray, also known as Northern Alberta, is currently Canada’s fastest growing economic area. However, Bolster, the company with the highest market share in this region and accounting for one third of the total market share nationwide, did not have a video system design team in Northern Alberta. On the other hand, Vickers, based in Edmonton, Alberta, held 50% of the local market share and provided 75% of the servicing in this area. Despite having a national distributor called National Electronics (National), local businesses preferred to work with Vickers due to its close proximity and convenient access. Unfortunately for National, their nearest warehouse was located approximately 750 Km away from Fort McMurray in Calgary, Southern Alberta. This distance posed a challenge for National to effectively serve the booming economy of Northern Alberta. Without a dedicated system design team in Northern Alberta, there is a significant risk of losing potential business opportunities as competition among the top 4 players intensifies. Each of these players holds 15% of the market share and actively competes for customers. In an attempt to address this issue back in 2007, management tried to persuade National to operate in Northern Alberta but were unsuccessful.
In the meantime, Vickers had already set up a significant foothold in this fast-growing area. They had their main office, warehouse, and engineering team strategically located in Edmonton. Additionally, they also had a warehouse and sales team situated in Fort McMurray, which was conveniently close to the planned oil sands region. It only took six hours by car to travel between Edmonton and Fort McMurray.
Vickers has been in business for 20 years and their salespeople have received extensive training and provided better service to northern Alberta compared to national distributors. This is exactly what customers want – a good track record, service support, and the lowest price. Vickers has proven themselves as an effective dealer by taking on responsibilities such as managing the warehouse, inventory storage, providing engineering expertise and services, maintaining relationships with local dealers and end-users, and increasing Bolster’s business in the area. Therefore, they have requested a better pricing discount from Bolster and to be named as a distributor. However, the management is concerned about granting distributorship to a local dealer as it may harm their relationship with national distributors, similar to what happened in 2004 when Albright Industries was given distributorship to compensate for a 7% drop in market share and to generate growth in Quebec. Fortunately, National’s dissatisfaction disappeared in the long run since they are not competing for the same market. In the past five years, National has not made any significant advancements in business in northern Alberta, despite being aware of the potential for increasing market share.
It appears that National has no interest in expanding its presence in northern Alberta. Due to advancements in technology and increased competition from three other major players, Bolster struggled to maintain a gross margin of 40% of the factory price. Granting Vickers a distributorship in the current situation would further jeopardize the financial stability of the company. However, this move has the potential to increase the market share to over 90% if they receive distributor discounts. It would also result in a complete overhaul of the distribution channel, which is crucial in determining the cost and options for financial analysis. Customer service is a significant concern, particularly because industrial video equipment is primarily used in harsh environments. In the event of equipment failure for end-users, distributors and dealers must act quickly to prevent production stoppages. As Bolster focuses more on technological development, the responsibility falls on distributors and dealers. Despite doubling its trained sales team to four, Vickers would still struggle to manage the extensive area if given a distributorship. Additionally, hiring a sales team is challenging due to competitive compensation within the industry.
“THE PROBLEM STATEMENT
How can we minimize the negative consequences of handling the Vickers’ distributorship request?”
OPTIONS
1. Granting Vickers territorial distributorship.
2. Granting Vickers national distributorship.
3. Maintaining it as a territorial dealership.
4. offering only distributor’s discount without granting distributorship.
CRITERIA FOR EVALUATION
1. Evaluating the Relationship with Distributors and Dealers, Financial Implications, Market Share, and Customer Satisfaction (Services) as options.
Option 1: Granting Vickers Territorial Distributorship
Granting Vickers territorial distributorship would not create substantial dissatisfaction among management, Vickers, and National if they do not compete for the same market, as was the case in 2004 when Albright was given distributorship. However, if Vickers were to receive distributorship, Bolster would have to offer a 10% price discount, further weakening Bolster’s financial standing. It is crucial to increase market share in northern Alberta, which has the potential for one-third of the total market share. Since neither Bolster nor National have a presence in northern Alberta, it would be wise to grant distributorship to Vickers so that they can capture 90% of the market share. This move would also enhance customer service for end users, as Vickers already has a presence in the area.
Option 2: Granting Vickers a National Distributorship
Granting Vickers a National Distributorship would undoubtedly damage the relationship with National, as they will ultimately be competing for the same market in the long run.
