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