Problem Definition
We are a warehouser (B2B) and have been facing a decline in profits since past 2 years. We would like you to figure out why this is happening and provide recommendations to reverse this trend.
Case
Telephony Technology Warehouser
Comments
The case is designed to be presented to the candidate by an interviewer, who plays the role of a representative of a telephony technology warehouser.
Short Solution
Key Question 1: Why is the firm facing a decline in profits?
Answer: The industry looks mature and is rapidly ageing. It is bad business to be in.
Key Question 2: What should the firm do?
Answer: The firm should recognize that there is little the firm can do to increase profitability in the current market conditions. The firm should look for options for exiting the industry.
Detailed Solution
Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.
Paragraphs highlighted in blue can be verbally communicated to the interviewee.
I. Background
The candidate should ask for more market information. The interviewer should provide all available information & data to candidate and it is up to candidate to define the issues that should be looked into based on the data/info provided.
Share Diagram 1 with candidate if deemed necessary.
As a warehouser, we purchase telephony technologies from manufacturers, and then sell them to a group of resellers, who in turn sell them to end consumers.
We are the largest company in the industry. Apart from one competitor who is almost as large as us, there are several small players in the market. In recent years we have not seen any new market entrants and all firms sell at industry-wide prices.
The reseller market can be divided into Corporate (largest), Value-Added (medium), and E-tailer (smallest) segments.
Please share Table 1 with the candidate.
II. Solution
After looking at the table, the candidate should be able to come up with the following observations:
- The overall industry has shrunk
- The client's overall market share has declined
- Value-added is the largest segment and the firm has lost market share in this segment as well
From the above observations, the candidate should be able to make the following conclusion:
- It is a bad business to be in as the overall industry has shrunk, both on price and volume basis
Since the overall volume has decreased, it could mean that the client and competitors are getting cut out from the value chain - the manufacturers maybe directly selling to the resellers or to the end consumers.
Falling prices can be a result of the price wars which are happening because of the shrinkage of the industry. We can see that the industry is rapidly ageing. Since there are no opportunities of product differentiation, there is little the firm can do to increase profitability. The firm should recognize this and look for options for exiting the industry.
III. Concluding Observations
The industry looks mature and is rapidly approaching obsolescence. There is little the firm can do to increase profitability. The firm should recognize this and look for options for exiting the industry.
Difficult Questions
What kind of options could the firm consider for exiting the industry?
- Diversify into another industry
- Sell the firm
- Close the firm
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