VERKLAR

AUSTRIA
CASE
STUDY

Sales and Distribution Management

Problems Faced by the Company:

The current discount system is more beneficial for large dealers- as they are the
only segment which has the adequate money to purchase in bulk and can store
large inventory for a long period of time. This is because as per the current deal
offered to dealers, several slow-moving items are also sold alongside more
popular items, whose inventory builds up over time. The dealers would ideally
like to maintain a less diverse product line, which conflicts with Verklars strategy
of being a quality provider of providing diverse solutions. In addition, overstock
is also expensive for the dealers due to the high maintenance, transportation
and handling costs inherent in such a fragile product like roof windows.
There is lesser incentive for smaller dealers and window-fitters to purchase
directly from the Verklar factory, as delivery from the Verklar factory can take as
long as 2 weeks. Thus, medium and smaller size dealers are purchasing from
larger Verklar dealers, rather than Verklar directly. For Verklar, this means lesser
revenue per unit window sold than in the past, as they are now selling windows
at a higher discount of 31% to the large dealers, who are in turn passing off a
part of this discount to downstream retailers. A few number of dealers have
switched to competitor products rather than deal with Verklars policies. In
addition, a few others place an order only after pooling multiple orders, thus
indirectly leading to a negative impression of Verklars tardiness in the minds of
the end consumer, thus impacting future sales. Also, since large dealers can sell
to both end users as well as small dealers, small dealers face a profit squeeze
while having to compete against large dealers in selling to window fitters.
Additionally, this concentrates buying power with the few remaining large
dealers, which enables them to negotiate aggressively on prices, often ending up
exporting products from other countries if the price becomes cheaper.
Another issue is that Verklar has major market share in roof windows and it is
there in the market for quite long time. Customers usually associate Verklar with
entire roof window segment and dealers sometimes took customers requests for
Verklar windows to be interest in roof windows in general as opposed to the
Verklar brand in particular.
There are other issues as well such as emergence of other players. For example
Karlis has become the second largest player with price as the differentiation
factor.

The New Verklar Austria Quota System:

The new operations and sales system was aimed to get back the lost market share
by increasing the number of medium-size dealers and window fitters in the Verklar
distribution system in Austria. This was a value based system where key problems
of the dealers were being tackled. The features and the problem being serviced by
the new system are as follows:
Problem
High Order size to
avail
maximum

Feature
The number of orders to avail maximum discount has been
decreased from 100 to 50. Thus costing $13000 in-place of

Sales and Distribution Management

discount for dealers
High inventory hold
up cost for dealers
Stockout issue for
dealers
Late
delivery
to
customers
thus
tarnished
dealer
reputation
Low
profits
for
dealers due to high
overhead costs

Payment Delay
For
buyers

non-frequent

the huge sum being charged earlier

Verklar will stock all the inventory in their own warehouse
and will deliver to the customers doorstep once an order is
received.
Verklar provides a guarantee that the window being
requested will be present with them always.
Verklar promises to make the delivery to the customers
within 48 hours of the placement of the order and 80% of
the orders to be serviced within 24 hours.
Verklar will take care of all the delivery and holding costs.
They will also take care of all the promotion costs. Thus the
dealers who were earlier making only 1-2% profit at max will
be able to make 5-7% profit due to the abovementioned
savings.
The new system will allow autodebit from the dealers
account and thus no delay in payment and quick servicing.
Quantity based discounts available for non-frequent buyers
if they ordered large quantities.

The Verklar Quota System looked very good on paper and was suppose to address
all the problems but was not well received by the dealers for the following reasons:

The large dealers with high power thought that Verklar will not be able to
stock up enough quantity and will have frequent stockouts.
The large dealers believed that Verklar will not be able to timely service all
the requests and this will thus tarnish the image of the dealers.
The small dealers found the plan attractive but had financial concerns with
the initial order of $13000.

Recommendation:
The new plan is very attractive to all and has a too good to be true problem for the
large dealers and the funding issue for the smaller ones. Thus the solution would
not require to change this well thought out plan but to modify the way it is being
addressed to the dealers.
The program should first try to renegotiate with the dealers with following
modifications:

In the initial phase as the dealers have huge storage space built in, they can
keep their most sought after products in their own space and let the less
ordered windows be delivered by Verklar as per the new plan. This allows
them to test the efficiency of the new plan without risk.
Also, the dealers participating in the new scheme be given an extra
incentive of 0.5-1% extra discount.
For the smaller dealers the scheme would offer special credit options where
they can pay amounts in 2 halves. First half paid upfront and the second half
paid after certain amount of sales have been made.

Sales and Distribution Management

Also, the dealers should be kept aware of the investments and method
changes being made to improve the supply chain; this being one of the major
concern for the dealers.
In addition to this dealers should be pacified about the storage capacity
saying, till the necessary storage capacity is not available the older
warehouses would not be shut.

This new plan will allow few dealers to accept the plan and start the beta phase.
Once the other dealers see that the new plan has huge financial benefits and
Verklar has been able to prove it's efficiency in delivering the goods, their concerns
will be alleviated and will also adopt the new scheme.