folders similar in quality to OSI's FILEX brand, which now has ‘over 60 percent of the market. This is not che firs time that Business Center has asked (OSI to produce a ile folder line for Business Center. On both previous occasions, Shahla turned down the requests and. Business Center continued to buy In fact, Business Center not only continued to buy the file folders but also the rst of OSI’ ‘product lines. And total sales continued to grow as Business Center built new stores. Business Center accounts for about 30 percent of Shahla Vasques’s business. And FILEX brand file folders account for about 35 percent ofthis volume. In the past OSI consistently refused such dealer-branding requests asa matter of corporate policy. This policy was set some years ago because of a desire (1) to avoid excessive dependence fon any one customer and (2) to sel its own brands 50 that its success is dependent on the quality of its products rather than just alow price. The policy developed from a concern that if it started making products under other customers’ brands, those customers could shop around fora low price and the business ‘would be very fickle. At the time the policy was set, Shahla ‘alized tha it might cost OSI some business. Bu it was felt wise, ‘nevertheless, to be better able to control the firm's future. ‘OSI has been in business 28 years and now has a sales vol ume of $40 million. Its primary products are file folders, fle markers and labels and a variety of indexing systems. OSI offers such a wide range of size, color, and type that no competitor can ‘match it in its par of the market. About 40 percent of OSI file folder business isin specialized lines such as files for oversized blueprint and engineer drawings; see-through files for medical markets; and greaseproof and waterproof files for marine, oil field, and other hazardous environmental markets. OSI’s com- petitors are mostly small paper converters. But excess capacity inthe industry is substantial, and these converters are always ‘hungry for orders and willing to cut prices. Further, the raw ma- terials for the FILEX line of file folders are really available SI's distribution system consists of 10 regional stationery suppliers (40 percent of total sales), Business Cente, Inc. (30 per- cent), and more than 40 local stationers who have wholesale and retail operations (30 percent). The 10 regional stationers each hhave aboutsix branches, while the local stationers each have one wholesale and tree or four retail locations. The regional suppl crssell directly to large corporations and to some retailers In con- trast, Business Centers main volume comes from sales to local businesses and walk-in customer at its 150 real stores ‘Shahla has a real concer about the future ofthe local sta- toners’ business. Some are seriously discussing the formation of buying groups to obtain volume discounts from vendors and thus compete more effectively with Business Centers 150 retail stores, the large repionals, and the superstore chains, whch are spreading rapidly. These chains—for example, Staples, Office ‘World, Office Max, and Office Depot—operate stores of 16,000 to 20,000 square feet (ie, large stores compared to the usual 14. Showtime Media Bob Merita, manager of Showtime Media, is looking for ways to increase profits. But he's turning cautious after the poor results of his last effort during the previous Christmas season. Showtime Media is located along a busy cross-town 558 ‘office supply stores) and let customers wheel through high, stacked shelves to supermarket-like checkout counters. Thens chains stress convenience, wide selection, and much lowe prices than the typical ofice supply reales. They buy drery from manufacturers, sich as OSI, bypassing wholesalers jk” Business Center Its likely that the growing pressure from these chains is causing Business Center to renew its proposal to buys file line with its own name. For example, Staples offers its ows dealer brand of files and many other type of products. [None of Shahla’ other accounts is neatly a effective in re. tailing as Business Center, which has developed a good reputa, tion in every major city in the country. Business Center’ profs have been the highest in the industry. Further, its brands are almost as well known as those of some key producers—and its ‘expansion plans are aggresive. And now, these plans are being pressured by the fast-growing superstores, which are alteady [knocking out many local stationers. Shablais sure chat OS's brands ae well entrenched inthe market, despite the fact that most available money has been devoted to new-product development rather than promotion of existing brands. But Shahla is concemed that if Business Center brands its own file folders, i wil sell hem ata discount and may even bring the whole market price level down. Actos all the lines of fle folders, Shahla is averaging a 35 percent gross margin, but the commonty used file folders sought by Business Center are averaging only a 20 percent gross margin. And cut- ting this margin further does not look very attractive to Shahla. ‘Shahla isnot sure whether Business Center will continue to sell OSI’ FILEX brand of folders along with Business Cen ters own file folders if Business Center is able to find a source of supply. Business Center's history has been to sel its own, brand and a major brand side by side, especially ifthe major brand offers high quality and has strong brand recognition. Shahla is having a really hard time deciding what to do about the existing branding policy. OSI has excess capacity and could easily handle the Business Center business. And she fears that ifshe turns down this business, Business Center wll just go elsewhere and its own brand will cut into OSTs existing sales at Business Center stores. Further, what makes Business Centers offer especially attractive is that OSI's variable manufacturing costs would be quite low in relation to any price charged to Business Center—that is, there are substan- tial economies of scale, so the extra business could be very profitable—if Shahla doesn’ consider the possible impact on the FILEX line. This Business Center business will be easy © fet, but it will require a major change in policy, which Shahla will have to sell to Ramon Torres, OSI's president his may not be easy. Ramon is primarily interested in deve coping new and better products 50 the company can avoid the commodity end of the business.” Evaluate OS's curent strategy. What should Shahla Vasquet deo about Business Centers offer? Explain street about two miles from the downtown of a metropolitan area of I million and near a large university. Itsells a wide vat ety of products used for its diferent types of multimedia presen” tations. Its lines include high-quality video and digital cameras.color scanners for use with computers, flat-panel monitors, teleprompters and projection equipment, including video- ‘beam overhead projectors, and electronic projectors that pro- duce large-screen versions of computer output. Most of the sales of this specialized equipment are made to area school boards for classroom use, to industry for use in research and sales, and to the university for use in research and instruction. ‘Showrime Media aso offers a good selection of production- quality video media, specialized supplies (such as the large- format acetates used with backlit signs), video and audio cediting equipment, and a specialized video editing service. In- sxead of just duplicating videos on a mass production basis, Showtime Media gives each video editing job individual attention—to add an audio track or incorporate computer sraphics as requested by a customer. This service is really ap- recited by local firms that need help producing high-quality DVDs—for example, for training or sles applications. “To encourage the school and industrial trade, Showtime Media offers a graphics consultation service. If a customer wants to ereate a video or computerized presentation, profes- sional advice is readily available. In support of this ree ser vice, Showrime Media carries fll line of computer software for multimedia presentations and graphics work. Showtime Media has four fulltime store clerks and two ‘outside sales reps. The sales reps call on business firms, attend trade shows, make presentations for schools, and help both current and potential customers in their use and choice of rultimedia materials. Most purchases are delivered by the sales reps or the stores delivery truck. Many repeat orders come in by phone of mail, but e-mail and electronic file ex- change have become common. ‘The people who make most of the over-the-counter pur- chases are (1) serious amateurs and (2) some professionals who 15, The Herrera Group Maya Herrera, owner of The Herrera Group, is deciding whether to take on a new line. She is very concerned because, although she wants more lines, she feels that something is wrong with her latest possibility. Maya graduated from a large midwestern university in 2006 with a BS. in business. She worked selling cell phones for a year. Then Maya decided to go into business for herself and formed The Herrera Group. Looking for opportunities, Maya placed several ads in her local newspaper in Columbus, Ohio, ‘announcing that she was interested in becoming a sales epre- sentative in the area. She was quite pleased to receive a number of responses. Eventually, she became the sales epresentative in the Columbus area for thre local computer software producers: ‘Aceto Company, which produces accounting.related software; Saleco, Inc., a producer of sales management software; and Inv, Ine.,a producer of inventory control software. Al of these ‘companies were relatively small and were represented in other areas by other sales representatives like Maya. The companies ‘often sent her leads when customers from her area expressed, interest at a trade show or through the company’s website Maya's main job was to call on possible customers. Once she made a sale, she would fax the signed license agreement to prepare videos or computerized presentation materials on a fee basis. Showtime Media gives price discounts of up to 25 per cent off the suggested real price to customers who buy more than $2,000 worth of goods per year. Most regular customers qualify for the discount. Tn recent years, many amateur photo buffs have pur chased digital cameras to capture family pictures. Fre- ‘quently, the buyer is a computer user who wants to use the computer as a digital darkroom—and the cameras now available make this easy. Showtime Media has not previ ‘ously offered the lower-priced and lower-quality digital ‘models such buyers commonly want: But Bob knew that lots of such digital cameras were bought and felt that there ‘ought to be a good opportunity to expand sales during the Christmas gift-giving season. Therefore, he planned a special pre-Chhristmas sale of two of the most popular brands of digital cameras and discounted the prices to competitive discount store levels—about $129 for one and $189 for the ‘other. To promote the sale, he posted large signs in the store windows, gave the sale a lot of space on the home page ‘of Showtime's website, and ran ads in a Christmas gift-suggestion edition of the local newspaper. This edition appeared each Wednesday during the four weeks before Christmas. At these prices and with this promotion, Bob hoped to sell at least 100 cameras. However, when the Christmas returns were in, total sles were five cameras. Bob ‘was extremely disappointed with these results—especially because trade experts suggested that sales of digital cameras in chose price and quality ranges were up 300 percent over last year—during the Christmas selling season. Evaluate what Showrime Media is doing and what happened ‘wth the special promotion. What should Bob Merita do to increase sales and profs? the respective producer, who would then UPS the programs directly to the customer of, mote often, provide a key code for ‘a website download. The producer would bill the customer, ‘and Maya would receive a commission varying from 5 to 10, ppereent of the dollar value of the sale. Maya was expected to pay her own expenses. And the producers would handle any user questions, either by using 800 numbers for out-of-town calls or by e-mail queries toa technical support group. ‘Maya called on anyone in the Columbus area who might use the products she sold. Ac frst, her job was relatively easy, and sales came quickly because she had little competition. Many national companies offer similar products, but at that time they were not well represented in the Columbus area ‘Most small businesses needed someone to demonstrate what the software could do, In 2008, Maya sold $250,000 worth of Accto software, earn- ing a 10 percent commission; $100,000 worth of Saleco soft- ware, also earning a 10 percent commission; and $200,000 worth of Invo software, earning a 7 percent commission. She was encouraged with her progress and looked forward to ex- panding sales in the future. She was especially optimistic be- ‘cause she had achieved these sales volumes without overtaxing sase)