Description
This is a PPT includes topics like current problems,possible alternatives, economic analysis.
Lotus Development Corporation
Situation in hand
? The Director of Sales operations in Lotus development
Corporation has to decide between the two alternatives
1. Sell its products through existing distributors and dealers OR 2. Sell products directly to large corporate users using its own sales force
Current Problems
? Problem Associated with Distributors
1. Centralized buying procedures adopted by large corporates calls for greater sales efforts which cannot be provided by distributors. ? Problems Associated with Direct selling 1. Existing sales force cannot cater the entire fortune 2000 companies 2. The company’s distribution logistics is not capable of providing small lot sizes (Bulk breaking facility not available). 3. The medium and small business users prefer purchases from dealers and distributors.
Possible Alternatives
? Given that medium and small businesses prefer to purchase
through dealers the channel should not be modified for that segment
? In the large corporate segment we have two alternatives
1. Sell through distributors and dealers
2. Direct selling using its own sales force
Economic Analysis
? Given that large corporates account for approximately one-
half of its sales:
? We can predict that in 1986 and 1987 the revenues from 1-
2-3 sales in large corporates would be $80 millions and $94 millions respectively
? Given that through direct selling a sales person needs 40
hours (considering travelling time) to complete a sale of 100 programs.
Economic Analysis
? Given that by direct selling the company can generate a
revenue of $360 per program compared to $300 through distributors and house accounts
? Also given that with the existing sales force of 90 the
company can cover maximum 1000 companies of the fortune 2000 list, hence we double the sales force and see whether it is economical to go for direct selling.
Economic Analysis
? From the projected revenue figures of 1-2-3 in 1986 and 1987
The number of programs to be sold through distributors in 1986 = 266667 The number of programs to be sold through distributors in 1987 = 313333
? We assume that the projected sales were calculated
irrespective of the channel used and hence the number of programs demanded will not change depending on the channel used ? We also assume that the company’s direct sales personnel should cater to all fortune 2000 companies to achieve the projected sales figure
Economic Analysis
? With sales force of 180 (to cover all fortune 2000 companies) we
calculate the minimum demand of programs required such that using direct selling force would provide revenues equal to that obtained by using distributor-retailer channel $360*x –($150000*180)=300*x x= 450000 programs
? We see that better margins can be obtained by using direct
selling force only if the company can sell more than 450000 programs
? Hence in 1986 and 1987 the company would incur losses of $11
millions and $8.2 millions respectively if it chooses direct selling
Conclusion
? From the calculations it is evident that it is not economical
for Lotus development Corporation to go for direct selling alternative with the present forecasted demand
? However if the forecasted demand is expected to rise
significantly once direct selling is incorporated, the company should go for that alternative.
? The medium and small businesses should however be
catered through dealers and distributors considering the service output demand of that segment.
doc_379880151.pptx
This is a PPT includes topics like current problems,possible alternatives, economic analysis.
Lotus Development Corporation
Situation in hand
? The Director of Sales operations in Lotus development
Corporation has to decide between the two alternatives
1. Sell its products through existing distributors and dealers OR 2. Sell products directly to large corporate users using its own sales force
Current Problems
? Problem Associated with Distributors
1. Centralized buying procedures adopted by large corporates calls for greater sales efforts which cannot be provided by distributors. ? Problems Associated with Direct selling 1. Existing sales force cannot cater the entire fortune 2000 companies 2. The company’s distribution logistics is not capable of providing small lot sizes (Bulk breaking facility not available). 3. The medium and small business users prefer purchases from dealers and distributors.
Possible Alternatives
? Given that medium and small businesses prefer to purchase
through dealers the channel should not be modified for that segment
? In the large corporate segment we have two alternatives
1. Sell through distributors and dealers
2. Direct selling using its own sales force
Economic Analysis
? Given that large corporates account for approximately one-
half of its sales:
? We can predict that in 1986 and 1987 the revenues from 1-
2-3 sales in large corporates would be $80 millions and $94 millions respectively
? Given that through direct selling a sales person needs 40
hours (considering travelling time) to complete a sale of 100 programs.
Economic Analysis
? Given that by direct selling the company can generate a
revenue of $360 per program compared to $300 through distributors and house accounts
? Also given that with the existing sales force of 90 the
company can cover maximum 1000 companies of the fortune 2000 list, hence we double the sales force and see whether it is economical to go for direct selling.
Economic Analysis
? From the projected revenue figures of 1-2-3 in 1986 and 1987
The number of programs to be sold through distributors in 1986 = 266667 The number of programs to be sold through distributors in 1987 = 313333
? We assume that the projected sales were calculated
irrespective of the channel used and hence the number of programs demanded will not change depending on the channel used ? We also assume that the company’s direct sales personnel should cater to all fortune 2000 companies to achieve the projected sales figure
Economic Analysis
? With sales force of 180 (to cover all fortune 2000 companies) we
calculate the minimum demand of programs required such that using direct selling force would provide revenues equal to that obtained by using distributor-retailer channel $360*x –($150000*180)=300*x x= 450000 programs
? We see that better margins can be obtained by using direct
selling force only if the company can sell more than 450000 programs
? Hence in 1986 and 1987 the company would incur losses of $11
millions and $8.2 millions respectively if it chooses direct selling
Conclusion
? From the calculations it is evident that it is not economical
for Lotus development Corporation to go for direct selling alternative with the present forecasted demand
? However if the forecasted demand is expected to rise
significantly once direct selling is incorporated, the company should go for that alternative.
? The medium and small businesses should however be
catered through dealers and distributors considering the service output demand of that segment.
doc_379880151.pptx