SEPTEMBER 25, 2016

MINOLTA CAMERA CO. LTD

CASE STUDY ANALYSIS

PRASHANT PRATAP SINGH

61710779

Q1. Why is Minolta facing a gray market problem at the time of the case? In your answer,
appeal to consumer service output demands in the market(s) where gray market product is
sold; channel flow performance; and the Equity Principle.
ANSWER:
Minolta is facing the gray market problem because of the following reasons:
1. Significant Price difference between Germany/USA and Japan/Hong Kong market.
Since the cost borne by the dealers in normal channel flow is same across different geography
the profit for the dealers should ideally be same. However, the profit margin in Hong Kong
and Japan is much lower than in Europe that it violates Equity principle. Thus the price in
Hong Kong and Japan is so cheap that a smuggler, keeping a 5% margin and smuggling it to
the USA and Germany market still finds it priced competitive than the price through Minoltas
normal channel.
2.

Uniformity of the product service outputs across geography.

Minolta manages all its production and marketing from Japan and supplies same products and
services across all geographies but at different price to its end customers. For instance:
1. They had uniform global warranty scheme bundled with the product.
2. Same product line with same specifications, model numbers were sold across markets.
3. Uniform packaging was used for its products sold across markets.
4. Even the marketing campaign was same for all markets.
Also the service output levels were almost same across the two channels thus excluding the
price difference, the end customers was indifferent for buying the product from either of the
channels.

Q2. Where is the gray market product originating? Trace the flow of gray market product and
show financially how the gray market is supported.
ANSWER:
The gray market product originated from either Japan or Hong Kong. Detailed product flow and
prices can be seen in the Exhibit 1.
Q3. What do you suggest that Minolta do in the face of growing gray market sales? Consider
these alternatives: (a) do nothing; (b) take action against Goddard; (c) vertically integrate
further down into the channel; or (d) make product or warranty alterations to its products in
different markets.
ANSWER:
To address the problem at hand we propose alternative (d) make product and warranty alteration to
its products in different markets.
By doing this they will be able to make some differentiation between the products and services
offered across geographies and thus might justify the price difference. Also, marketing and selling
the different product models in Germany than in Hong Kong or Japan will deter the end customer
from buying the low cost Chinas imported products for perceived inferior quality than products
sold in Germany. By doing the specific marketing campaign for different geography, Minolta would increase
its referent power. Similarly, changing the warranty policy and not giving in warranty for products not

bought through the authorized channels would deter end customers buying the product coming
from gray product channel.

EXHIBIT 1 : CHANNEL FLOW OF MINOLTA's CAMERA Co. Ltd

Production Cost
$62.00

MINOLTA (JAPAN)

Cost for Whole Salers

$108.00

WHOLESALER's (JAPAN)

Single Distributor
HONGKONG

Cost to Distributors (HK)

$121.00

Own Subsidiary
USA

Cost to Distributors (USA)

$123.00

Own Subsidiary
GERMANY

Cost to Distributors (GERMANY)

$130.00

Retailers

$136.00

Retailers

$148.00

Retailers

$205.00 /

Retailers

$189.00

End Customers /
people who work for
smugglers

$170.00

End Customers

$174.00

End Customers

$342.00

End Customers

$270.00 / $210.00

Large Departmental Stores

SMUGGLERS
$165.00

Discount Type Operations

NORMAL CHANNEL

Speciality Retailers

GREY EXPORT CHANNEL

Minolta Dealers
1.205 x 165 = $ 199