Airwide Case Study
Airwide International is a rapid growing company of commercial and residential air conditioning systems in Europe. The company is broadly broken up into four divisions, one of which is Italy (Western Europe). Italy will be the country that the current dillema will be held in. Airwide shares competition with approximately 75 different manufactures of various air conditioning units. The existence of Asian companies has intensified the competition.
Italy is the largest producer of air conditioning units but they are only found in j12 percent of homes. This is significantly low considering the United States has an average of 71 percent in homes. This is a problem that Airwide has been evaluating for some time. Since Airwide would like to increase the percentage of air conditioning units throughout Europe, especially Italy. It came to no surprise that a dealer from Genoa approached the company in hopes to persuade them to sell the units at the higher discount.
Giacomo Marino, the dealer, stated that if he were to purchase the price to distributer for each unit, that his sales would increase sales because the salespeople would get the opportunity to take away business from retailers that sell Asian brands. Airwide International is facing a common problem that most companies of their size go through. Should the dealer maintain title of a dealer but pay the same for the air conditioning unit. This has been an ongoing proposal from Nuova Climatizzazione to Airwide.
The dealer would like to be granted the same financial status as a master distributer. Nuova has proven its success in their numbers. They serve approximately 320 accounts located in Genoa. In this proposal, Nuova stated that if they were to receive the higher discount this will increase Airwide sales by 20-25 percent in the next two years. One of the main concerns Airwide has with this proposal is that they have a master distributer in the northern region who believes the dealer will take away their business.
The dealer has shown that the distributer has done a poor job in development through the region because it is too focused on high margin systems. This would be an issue for Airwide, however the distributer accounts for more than 70 percent of Airwide product sales. Airwide must choose to either give the dealer the higher discount or not. There is a conflict between the master distributer and the local dealer. The local dealer would like to decrease in market share and engage in the competitive industry.
While the dealer would like to partake in the higher discount, he will have to determine if they will be able to support the minimum $3 million inventory cost. Currently, the dealer has $1. 2 million in sales. He forecasts, with the discount, his sales will increase by 25%. As a result, his overall sales for the year will be $1. 5 million within a two year period. This is half of the inventory minimum. If the dealer would like to be considered for the discount, he will have to show a business plan as to how he will support the initial cost to obtain inventory.
The distributer had $9. 7 million in sales of the residential and light commericial units in 2000. An alternative to allowing the local dealer to obtain the higher discount is to do nothing at all. Both parties are contributing well to the company’s success, so like the say, don’t fix what isn’t broken. This may impact the dealer in how they go forward with pushing Airwide business; however the company would not be as impacted on this situation as they would if the distributer were to be upset.
The dealer is successful at selling the smaller units and the distributer is successful at selling the larger units since they have the funds for inventory. If Airwide will not give the dealer the higher discount, but they want to challenge him to see if he can gain sales up to 25%. The solution that best fits the company at this time would be to maintain what is currently the process. The dealer has not proven that they will be able to financially afford the minimum inventory budget. The distributer has a higher overall selling rate than the dealer.