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SECTION A - Questions requiring calculations Question 1 - Customer Profitability Analysis [est 35 minutes] You have recently acquired a 15%...
Required: (Part 1)
Prepare a customer profitability analysis for the three distributors
Critically evaluate the differences in relative profitability of the three distributors
Required: (Part 2)
You subsequently meet with the general manager and sales manager to discuss the above findings and quickly learn that they have very different views on what corrective actions should be implemented.
The general manager believes that the distributor business model should be changed, and that the key drivers that you have identified should be charged directly to the distributor concerned. He is adamant that the pricing and gross margin structure should remain unchanged.
The sales manager argues strongly that maintaining consistent pricing is outdated and inconsistent with market reality. During the meeting he states that “...the cost of operating in some markets is simply higher than in others and doesn’t necessarily reflect differing levels of commitment and capability of the distributor...” He suggests that a better approach would be to scrap the existing pricing policy, and introduce new (and different) selling prices for each distributor, calculated to cover the cost of the various unique competitive circumstances that he argues exist in each territory.
After the meeting the general manager asks you what you intend to do regarding the alternative approaches.
Which of the two approaches will you implement – the general manager’s or the sales manager’s? Explain why you have made this recommendation and describe the advantages and disadvantages of each of the two alternatives.
Given the relatively low margins earned by Aspect Electronics, suggest how the distributor business model could be changed to improve profitability.
