Traditionally the company’s basic approach has been to provide value added services to gain more and more relationship customers. Presently these customers account for 75% of total sales. It’s not possible to win such customers just by quoting price and delivery data through Express. The company will lose the most favored distributor status (and the rewards associated with it) by the suppliers since the company will merely get jump ball customers.
The company can think of using Express’ help in targeting only transactional customers but this option will not give enough margins later. In the present scenario for the commoditised products the company always has an option to search for highest margin supplier after getting the order. This flexibility will be lost when using express. Overall analysis of the case shows that there is not much to gain from using Express. In the long-term interest of the company it will be better if the company rejects Express proposal.
As for the measures the company should take to counter the challenge posed by Express they should focus more on turning present transactional customers into relationship customers. By the year 2000 almost 80% of the business will result from value added services. The company should focus on providing these high value services, creating demand, gaining suppliers support and thus expanding the business. The price and order related information should be provided on the website along with all the services provided by the company.
Explore the relationship between Arrow and its suppliers. How do the suppliers reward-franchised distributors? What are design wins? Jump balls? Most electronic component manufacturers (suppliers) relied on distributors to generate demand of the 2 chip categories: proprietary and standardized. Standardized chips were interchangeable and produced by multiple suppliers whereas proprietary chips were manufactured by a single supplier. Many suppliers ship their proprietary and standardized products to arrow at list price or slightly below it.
When Arrow gets a request for a price quote from the customer, they give the supplier the details of the customer and the opportunity. Then the Supplier decides how much of an additional discount they would provide to the distributors on this request. Hence, the suppliers know exactly what the distributors are doing and are also able to control prices. The level of discount provided varies depending on whether it is a design win or a jump ball.