Case Analysis on WEST LAKE HOME FURNISHINGS LTD. A report submitted to Professor Swatantra In partial fulfillment of the requirements of the course of Written Analysis and Communication On December 24, 2011 By Sasikumarparupalli 2011PGP853 (Section E)INDIAN INSTITUTE OF MANAGEMENT INDORE
Executive SummaryCharles Bowman, the CEO of West Lake Home Furnishings LTD came across a proposal ofreducing the retail price of a signature line of decorative lamps from $69.99 to @29.99 for aperiod of one year. This customer has a large U.S based retail chain accounted for one-thirdof West Lake’s wholesale business in 2006. He also assured for providing prominent shelfspace to their product.West Lake Home Furnishings LTD is intending to stay at top of its business and is very eagerto grow. After analysing the benefits like increase in profit, growth of sales, marketpenetration, effect of reduced price on other businesses and the rapport with thewholesaler, it has been decided to accept the offer. Large and promised order for a year isthe justification for accepting the reduced price in the offer.
Problem Statement:To take a decision on “whether to accept the proposal or to reject it”.Evaluation Criteria Increase in Profits Growth in Sales Market penetration & Market Share Effect of price reduction on other customer’s retail pricing Maintaining good rapport with the wholesale customerEvaluation of Options:Rejection of the proposal An immediate growth in sales cannot be achieved after rejecting the proposal. Thegrowth in the retail store will follow a steady trend. In the retail sector, profits can beincreased by hiring a sales consultant. Similarly, by improving the marketing strategy &internet sales profits can be increased.Market penetration will be following normal trend. There is a chance that the wholesalermay get the consignments directly from Asian suppliers, which may reduce the market shareof West Lake in due course of time. Any competitor accepting the offer by the wholesalecustomer can also affect the brand value and market share of West Lake.Rejecting theproposal may also affect the relation with the Wholesale customer and may lead tosubsequent loss of business with them.Accepting the proposal An immediate growth in sales from the wholesale business can be achieved withimmediate effect. Profit from Retail store and Internet sales can also be increased to someextent.Future prospect for a better growth also is obvious.Market penetration of the signature line of decorative lamps and thereby the brand WestLake will be deep due to the prominent shelf space at the wholesaler’s retail chain all overand due to the increase in sales by five times. Market share of West Lake will also getincreased by this. By accepting the offer, West Lake can rule out the chances of other
competitors taking up the offer and chances of the wholesaler getting consignments directlyfrom Asian suppliers are ruled out, thereby avoiding a potential competition.Reduction in retail price of Signature line of lamps for the particular Wholesale customercan later make other wholesalers negotiate on price, which can lead to a reduced grossmargin from the entire wholesale business. This can be controlled by linking it to thevolumeof purchases, which can ultimately lead West Lake into a high volume – low margincompany in the long run. A good relation can be maintained with the wholesale customer,thereby assuring present and future association with them.Negotiating with the Wholesale customerRecommendation: It is recommended to accept the offer from the wholesale customer as it fulfils all criteria for evaluations.