Vickers Industrial Supplies

Vickers Industrial Supplies (Vickers) has requested and presented a strong case to be named as a distributor. As they have been successful in expanding the market share and having served its customers on technical fronts like system design, it has assumed a higher bargaining power than earlier. Thus there is need to consider Vickers request seriously and analyze its effect on company policies, relationship with existing distributors, effect on profit , margin and market share in order to take a strategic decision.

In the last five years they have proved their strength in expanding the market share and their ability to perform the distributor's functions[Exhibit 1].. In the competitive market they require to offer more attractive deals to customer to increase the market share further. As a distributor Vickers will have benefit of distributor's discount which they will use to offer more attractive deals to customers. This will help increase the market share and will help achieve the target of 90% market share.

Vickers is currently performing warehousing and system design functions, for which they are incurring extra costs compared to the normal dealers and hence their demand to have higher margins to bear these extra costs is quite reasonable. At present equipment worth $31are being sold to Vickers at the rate of $62, which causes more profit than overall target of 40 percent gross margins. Hence there is reasonable scope for providing further discount to the Vickers maintaining the desired profit margin. The request for distributorship has been made in past too in the year 2007. Rejecting Vickers request will decrease their motivation and can even cause the loss of an important dealer in the growing market.

On the other hand our national distributors who are handling more than 90 percent of our market will object the approval of a new distributor in the market. Approving a distributorship to Vickers might cause the National distributor to move the company's product to their secondary line rather than the primary line. This will adversely affect the growth and service in the majority of our market which is handled by the national distributors. As per our policy in Canada [exhibit2]national distributors dedicate resources to grow the business volume and brand equity of our product line. Approving distributorship to Vickers may result in chaotic situation as the National distributor and Vickers may result in competing for the same customer. So far Vickers is serving the end user only and has not a significant interest in distributing the product to the dealers. Also approving one request of distributorship form a dealer will attract more such requests from different dealers, and handling many such requests will become extremely difficult.