Bolster Electronics
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Bolster Electronics has by far maintained a standard supply chain management via National distributors with minor exceptions of OEMs and Vickers Industrial Supplies. The firm has been striving to improve its market share in the state of Alberta, which is the fastest growing state in Canada. National Electronics presence in the state is minimal. Since last five years, National Electronics has been indifferent to the need for increased market penetration in the area. Vickers on the other hand, has shown keen interest in expanding market share which is evident from their phenomenal growth from 5% to 70% of the market in last five years.
In order to increase its market share in the state of Alberta, retaining a key dealer like Vickers is vital to the business. Vickers not only possess the functional capabilities required for smooth operation of the business, but they have also maintained excellent relationship with customers. They have been able to manage their business along with bearing the responsibilities equivalent to that of a distributor for the region. Under these circumstances, Vickers demand for distributorship is not irrational. But the present market share of 75% by Vickers in Alberta is a very small fraction of national distributors overall market size. At the same time, Vickers has been focusing more on their demand for distributor pricing and not on distributorship. Awarding distributor pricing would imply a gain of 10 percentage basis points (refer Exhibit 1) to Vickers and an equal loss to the Bolsters. It may also be followed by a similar demand from other dealers. However, Bolster can tackle those requests by stating Vickers added responsibilities and outstanding performance in the past years.
Bolster in 2007, had already denied Vickers request of distributorship in Northern Alberta. So turning a deaf ear again might provoke them to switch to competitors, leading to a loss of up to 90% market share in Alberta. So it is in Bolsters interest to consider Vickers demand for distributor pricing. At the same time safeguarding the interests of National Distributors by restricting Vickers market is of paramount importance. Finding an appropriate middle ground like a territorial distributorship is the need of the hour. However it is important to note that even the three other major suppliers follow the policy of routing through National Distributors, hence Vickers might not land up with distributorship even with other firms.
Vickers are aiming at 90% of Albertas market share given that they are offered a distributor pricing of $52 per unit. This will only result in a loss of $ 0.35 Million to Bolster (refer Exhibit 2). However, Bolster should appreciate Vickers efforts by offering them a reasonable discount. For instance, at a discount of $2 per unit and a targeted market share of 85%, the firm would be able to generate