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VALUE SELLING AT SKF SERVICE (A) Case Solution & Answer

VALUE SELLING AT SKF SERVICE (A) Case Solution

Introduction

In the competitive bearing market; SKF is strongest with 51 percent shares in Europe and 19 percent shares in Asia. SKF has a unique offering, and market rivals are not able to match its portfolio. The company has also deployed a computer-based sales tool, called DSP (Documented Solutions Program). The internal bearing market is about 40 billion dollars and it changes in pace with growth in GDP of world and business cycles. The usage of bearing is based on various factors, such as:reducing friction, improving the efficiency as well as preventing the product failures.

The senior management of SKF is considering a response to invitation of Steelcorp, which is supported by the company’s distributor but opposed by those inside the company who have committed to the total cost pricing and value selling.(Officials, 2010).

Should SKF, as some argue, participate in the reverse auction by making an “extraordinary exception” to the value-based strategy?

SKF is one of the leading and valuable brands with estimated 2 million customers all around the globe. The company has been operating in the bearing industry, which is facing economic downturns due to various trends emerging in the market, such as: a growing concentration of distributors and end users because of merger and acquisition, customer’s choice to opt for high quality products at affordable rates, gradually losing power due to the robust market competition, the increasing needs for aftermarket replacement and repair sales of 30 percent of global demand and large discounts from distributors who are incommoding everything.

In the competitive market, the end user – Steelcorp is facing negative effects of the economic downturn and has never contacted with SKF directly as all the interactions are made through ITC distributor. After being faced with the commodification of its core aftermarket business for industrial bearing and growing competition; SKFdeveloped a sales tool in order to document, measure as well as guarantee the financial benefits of customers from the use of its replacement products & the associated services. Such approach is based on premium unit’sprices that lead towards the reduction ofthe total cost,with an inclusion ofan attractive ROI for the customers. Though, such strategy would not impress Steelcorp – the end user of bearing buying upwards of 12 million dollars on yearly basis. The new procurement VP is asking bearing suppliers comprising SKF, to submit an online reverse auction where the reduced unit’s pricewould possibly win the big orders.

In addition to this, rather than participating in the reverse auction by making extraordinary exceptions to the vale based strategy; the company is suggested to stick to the current strategy and capabilities that it has; and to not seek business from customers for whom the price is the only making criteria. Additionally, there would be no damage to the value of SKF and solution selling strategy and it would not fall into the commodity trap………….

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