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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

OnDecember 24, 2011

BySasikumar parupalli

2011PGP853

(Section E)

INDIAN INSTITUTE OF MANAGEMENT

INDORE


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Executive Summary

Charles Bowman, the CEO of West Lake Home Furnishings LTD came across a proposal of

reducing the retail price of a signature line of decorative lamps from $69.99 to @29.99 for a

period of one year. This customer has a large U.S based retail chain accounted for one-third

of West Lakes wholesale business in 2006. He also assured for providing prominent shelf

space to their product.

West Lake Home Furnishings LTD is intending to stay at top of its business and is very eager

to grow. After analysing the benefits like increase in profit, growth of sales, market

penetration, effect of reduced price on other businesses and the rapport with the

wholesaler, it has been decided to accept the offer. Large and promised order for a year is

the justification for accepting the reduced price in the offer.


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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 customers retail pricing Maintaining good rapport with the wholesale customer

Evaluation of Options:

Rejection of the proposal

An immediate growth in sales cannot be achieved after rejecting the proposal. The

growth in the retail store will follow a steady trend. In the retail sector, profits can be

increased 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 wholesaler

may get the consignments directly from Asian suppliers, which may reduce the market share

of West Lake in due course of time. Any competitor accepting the offer by the wholesale

customer can also affect the brand value and market share of West Lake. Rejecting the

proposal may also affect the relation with the Wholesale customer and may lead to

subsequent loss of business with them.

Accepting the proposal

An immediate growth in sales from the wholesale business can be achieved with

immediate effect. Profit from Retail store and Internet sales can also be increased to some

extent. Future prospect for a better growth also is obvious.

Market penetration of the signature line of decorative lamps and thereby the brand West

Lake will be deep due to the prominent shelf space at the wholesalers retail chain all over

and due to the increase in sales by five times. Market share of West Lake will also get

increased by this. By accepting the offer, West Lake can rule out the chances of other


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competitors taking up the offer and chances of the wholesaler getting consignments directly

from Asian suppliers are ruled out, thereby avoiding a potential competition.

Reduction in retail price of Signature line of lamps for the particular Wholesale customer

can later make other wholesalers negotiate on price, which can lead to a reduced gross

margin from the entire wholesale business. This can be controlled by linking it to the volume

of purchases, which can ultimately lead West Lake into a high volume low margin

company 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 customer

Recommendation:

It is recommended to accept the offer from the wholesale customer as it fulfils all

criteria for evaluations.

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