File-It Supplies Inc, Present Situation Patsy Akaka is the marketing manager of File-It Supplies which is a file folder manufacturer that has been in business for 28 years. Other primary lines they are file markers, labels and indexing systems. On the other hand 40% of FIS? s file folder business is in specialized lines including oversized blue-print and engineer drawings for several high tech industries. Even though the company has a unique knowledge in the field, Patsy is facing a complicated situation as her main customer has requested for the third time the purchase of FIS products under its own private brand.
Business Center as their main customer is a major distributor of office supplies and the strategy of using their own brand is already in more than 45 products in the market. The company accounts for about 30% of FIS? s sales, so keeping this customer satisfied is more than important for Patsy in order to avoid a potential downturn in the business. Strategy Analysis FIS has been an innovative company allocating filing products in sophisticated niches, offering assortments and products quite difficult to match for the competition.
Patsy has avoided in the past the issuance of a private brand for BC under the application of corporate policies focused on limiting the dependence on any or one customer along with the manufacturing of high quality products instead of directing efforts to a low price product orientation. FIS works under a Multi channel distribution concept taking advantage of their local and regional stationers plus the sales volume generated by the 150 stores owned by BC.
Nevertheless, local stationers have started to identify ways in which they can affect FIS? s market share by obtaining more competitive prices and one is with the structuring of buying groups. In the mean time BC knows their time is getting shorter as superstore chains are already offering assorted lines with their own brands so the bet on quality relies on the existed added value provided by FIS but in order to compete shoulder to shoulder with these large chains it will need its own brand too.
The final consideration for FIS is to understand that under the negative of manufacturing a private brand the odds for BC to swap to another manufacturer are higher than what would have been in the past. What to do? FIS is facing a dilemma that in one way can potentially affect its brand equity and sales margins but on the other can assure a long term relationship under some changes in its product placement. But the existing conditions in the market are clear and the risk to lose the most important customer can cause several financial problems in the long run.
The first thing Patsy has to do is to compile sufficient evidence and financial information that will let FIS President understand that BC is facing a highly competitive environment that will oblige the company to take more aggressive decisions and one can be to find a company that can replicate FIS products under their own brand. FIS can avoid this situation as they have the capacity and the experience to deliver what BC needs.
Once this scenario is understood, FIS needs to structure a business proposal under legal terms that has to assure the presence of their own brand in a certain amount of BC stores and BC will have to agree on keeping prices of the new brand within normal margins in order to directly compete with superstores but not to use FIS manufacturing capacities to bring prices to new lower records. Therefore the limitation of FIS brand in some BC stores will be compensated with the volume margins that will be generated by the new private brand.