Question

During 2009, Solar Power Inc. entered into an arrangement with Solutions Co to distribute its RHP-1 product in all of Solutions retail stores. The contract specifies the following: a) Solutions Co will have some product on hand for demonstration purposes, which will be given at no cost; b) once the customer decides to make a purchase, Solutions will be required to remit to Solar Power Inc. on the date of invoice 85% of the sales proceeds, it may retain 15%. Solar Panel Inc. will ship the product directly to the customer's home and install the product., If requested by the customer.

What are the issues and recommendation for this?

Answer 1

Issues:

• Solar Power Inc. will not be able to get in contact with the customers directly. Therefore there is no way to build loyal customer relationship.
• The Solutions Co. may not feel responsible for the products as there is no risk for the company even the sales are not made. So this is one of the major issues regarding the arrangement.
• The cost of transportation increases due to door delivery facility of the product to the customer if any requested.
• The cost of training will be incurred as it is required to train the selling agents gain knowledge about the product in making aware customers about the product.
• Profit margin ratio also decrease due to sale made through retail stores because the retail stores may differentiate the product price.
• The products used for demonstration will not generate any income to the Solar Power Inc. so these products are loss to the entity.
• The cost of installation of the product also increases due to the arrangement. So it is observed that the indirect costs of the product increases.
• If the sales are not made there is no way to cover up expenses with the revenue and may lead to product downfall.
• Markets also play an important role in selling the product. So if there is a strong market the product may not make more sales and end up with shortage of revenue.

Recommendations:

• It is recommended that to increase the sales of the product, it is very essential to know the customers and maintain customer relationship with the customer somehow.
• Solutions Co. should be placed with some conditions like giving some targets to achieve the target sales for a certain period. This helps in issuing responsibility to the company.
• To reduce indirect expenses that are linked with the product it is advisable to cut costs which are avoidable.
• To assure the transparency of the sale price, Solar Power Inc. shall make an arrangement with the company that the products are to be sold at a price fixed by them only.
• The arrangement should be made in such a way that the entity shall not make losses even if it doesn't make profits hugely.