Case Analysis Report on

‘American Box Company’

Executive Summary

ABC manufactures and sells corrugated cardboards and cardboard boxes in Boston. The company
has been incurring losses for the past 5 years and wants to become profitable. Sales reps have been
incurring high costs and the packaging industry is moving to pressboard further driving down
profitability. The objectives are to cut costs, maintain sustainability, increase market share and
increase utilization. In the short run ABC should bifurcate its distribution channels according to the
product which will help them reduce costs and in turn increase profitability. In the long run, ABC
should shift to manufacturing pressboards to match the market’s demands.

(100 words)

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Situation Analysis
American Box Company is a family-run business started by John Hamilton. It is headed by John’s
grandson, Bob Hamilton. ABC manufactures sheets of corrugated cardboard and finished cardboard
boxes and operates in the Boston-area market, meaning it is a local player. The company’s main focus
is on the b2b market as it prices its products in the low-end of the price range and sells mostly to
manufacturers who have their own boxing facility. The sales revenue generated by corrugated
cardboard has decreased by 54.91% from 1988-1992, and sales revenue generated by cardboard boxes
has decreased by 4.57% in the same period, which is much lesser than is the case for cardboard (refer
Exhibit 1).
ABC is the 23rd largest player in the US box market. There are 2 large competitors, Morgan Box and
Chase Box, who’ve been consolidating their operations by acquiring local box manufacturers.
Morgan Box’s market share increased from 8% in 1983 to 21% in 1991, while ABC’s market share
increased from 7.28% in 1988 to 8.18% in 1992 (refer Exhibit 2), not much growth in comparison.
But this increase in the market share is despite the 33.33% decrease in the market share of corrugated
cardboard from 1988 to 1992. This shows that the market has the ability to absorb more than the
current supply.
The US box market is highly competitive and price-driven, where buyers call the shots. This implies
that ABC can’t compete by changing the price of its products, so they need to cut the costs in order
to compete.
ABC operates with 2 distribution channels- direct sales force and independent sales representatives.
The direct sales force focuses on larger sales within Boston and sales reps focus on smaller sales in
distant areas. The commission paid to sales reps is more than twice the marketing expenses paid to
direct sales force (refer Exhibit 3), while the sales revenue generated by direct sales force is greater
than that of sales reps by 13% (refer Exhibit 3). Thus the commission and sales revenues of sales
reps are disproportionate and must be optimized to reduce costs.

Problem Statement
The short term problem is that disproportionate commissions to sales reps with respect to sales
revenue generated through that channel is incurring high costs to ABC which is translating into loss.
The long term problem is that the packaging industry is moving from corrugated cardboard to
pressboard, which is further driving down the profitability of ABC.

Objectives
1. Cut the costs which are translating into losses.
2. Maintain the sustainability of the business.
3. Increase the market share of ABC.
4. Increase capacity utilization which is currently at 55%.
(Here, the numbers indicate the priority of the objective)

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Options
1. Optimize the commission given to sales reps.
2. Have the sales reps sell only cardboards and direct sales force sell only finished boxes.
3. Move to manufacturing pressboards.

Option Evaluation

Option 1
ABC can optimize the commission of sales reps. The commission of sales reps should be
proportionate to the amount of sales revenue that they generate. The pros of this option would be that
the cost of marketing would come down allowing ABC to use the freed up money elsewhere. The
cons of this option would be a decrease in the performance of sales reps due to the decrease in
incentive.

Option 2
ABC can have sales reps sell only cardboards and direct sales force sell only finished boxes. The
cardboard sales through reps increased by 111.35% from 1988-1992 and finished boxes sales through
direct sales has increased by 92% for the same period, while cardboard sales through direct sales and
finished boxes sales through sales reps has decreased by 65.89% and 37.97% respectively (refer
Exhibit 1). The pros of this option would be optimization of the marketing budget because of the
bifurcation. The cons of this option would be that this option is only viable in the short run, because
the packaging industry is moving away from corrugated cardboards and this option will not be enough
in the long run to sustain the business.

Option 3
ABC can move to manufacturing pressboards. The market share of pressboards has increased by 86%
from 1988-1992 indicating that the packaging industry is shifting to pressboards (refer Exhibit 2).
The pros of this option would be that the company will have more opportunity to grow because of the
increasing demand for the new product, and since it is not the first entrant into the pressboard market,
they have an opportunity to innovate. The cons of this option would be the huge costs that moving to
a new market will incur, this will be very heavy on the company’s finances which are already having
to deal with losses year on year.

Decision
The best move in the short run is to have ABC’s sales reps sell only cardboards and direct sales force
sell only finished boxes, allowing them to optimize their marketing budget and it seems the effective
way to cut costs in the short run.
The option-objective matrix (refer Exhibit 4) depicts how this is the best move for ABC.

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Here, all 3 options have good synergy with the objectives, but having sales reps sell only cardboards
and direct sales force sell only finished boxes is better because it effectively cuts costs while helping
maintain sustainability of the business.

Action Plan
1. Remove finished boxes from sales reps’ marketing agenda and have them focus on selling
cardboards.
2. Remove cardboards from direct sales force’s marketing agenda and have them focus on selling
finished boxes.
3. Adjust commission of sales reps to match their sales revenue.
4. Start advertising in Boston to boost sales.
5. Move to manufacturing pressboards to have success in the long run.

Contingency Plan
The contingency plan would be to innovate and move to alternate packaging options like plastic. This
would give ABC the opportunity to start afresh and they would really need to focus on innovation in
order to have a competitive edge in the market.
(1000 words)

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Exhibits

Exhibit 1: ABC Sales Revenues ($000)

Year Board Box Overall

Reps Direct Total Reps Direct Total Total
1988 185 2800 2985 3139 1086 4225 7210
1992 391 955 1346 1947 2085 4032 5378
% 111.35% 65.89% 54.91% 37.97% 92% 4.57% 25%
Change increase decrease decrease decrease increase decrease decrease

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Exhibit 2: Cardboard Sales and Market Share

Year Industry Corrugated Corrugated ABC Sales ABC

Sales (tons) Cardboard Cardboard (tons) Market
Market Sales (tons) Share (%
Share (% of of
$volume) $volume)
1988 5247321 72 3778071.12 275100 7.28
1992 5168210 48 2480740.8 203000 8.18
% 1.5% decrease 33.33% 33.33% 26.20% 12.36%
Change decrease decrease decrease increase

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Exhibit 3: ABC Marketing Expenses and Distribution Channel Sales Revenue
(1992)

Distribution Marketing Marketing Sales Sales

Channel Expense ($) Expense % Revenue ($) Revenue %
Reps 593320 67.85 2338000 43.47
Direct 281200 32.15 3040000 56.53
Total 874520 100 5378000 100

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Exhibit 4: Option-Objective Matrix

Optimize the Have the sales reps sell Move to

commission given to only cardboards and manufacturing
sales reps direct sales force sell pressboards
only finished boxes
Cut the costs which are  
translating into losses
Maintain the  
sustainability of the
business
Increase the market   
share of ABC
Increase the capacity   
utilization which is
currently at 55%

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