Improving price management in washing machine business segment at company a

LIST OF TABLES Table 1: Dealer's Complaint Table 2: Cost for alternative solution 2 Table 3: Cost for alternative solution 3 Table 4: Action Plan Author synthesis LIST OF FIGURES Fi

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-VO THI MY TRANG

IMPROVING PRICE MANAGEMENT

IN WASHING MACHINE BUSINESS

SEGMENT AT COMPANY A

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2020

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-VO THI MY TRANG

IMPROVING PRICE MANAGEMENT

IN WASHING MACHINE BUSINESS

SEGMENT AT COMPANY A

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Dr NGUYEN PHONG NGUYEN

TABLE OF CONTENT Executive Summary

1 Introduction 4

1.1 Company background 4

1.2 Problem finding process 6

2 Symptoms 6

2.1 Consolidated operating income (C.O.I) decrease 7

2.2 The immense situation of price dumping of WM products 9

2.3 The high rate of dealer’s complaint in WM price in the same distribution channel.10 3 Problem analysis 11

3.1 Problem identification 11

3.1.1 Initial cause and effect map 12

3.1.2 Potential problems 13

3.1.2.1 Lack of Price Management 13

3.1.2.2 High Growth Requirement 15

3.1.2.3 Competitive Market 17

3.1.2.4 Weak Marketing Strategy for WM 18

3.1.3 Updated cause and effect map 19

3.1.4 Updated possible problems 20

3.1.4.1 Lack of Price Management 20

3.1.4.2 High Growth Requirement 21

3.1.4.3 Competitive Market 21

3.1.4.4 Weak Marketing Strategy for WM 22

3.2 Problem validation 23

4 Problem justification 29

4.1 Main problem definition 29

4.2 Problem existence 29

4.3 Problem importance (consequences) 30

5 Cause analysis 31

5.1 Potential Cause 31

5.1.1 Delegating Price Decision 32

5.1.2 Dynamic price promotion 34

5.1.3 Lack of price management process and procedure 36

5.2 Cause Validation 39

6 Alternative solutions 41

6.1 Alternative solution 1: Redesign the price process 43

6.2 Alternative solution 2: Keep the organization to implement process 46

6.3 Alternative solution 3: Re-organization structure and establish Price Team to implement process 48

6.4 Solution Justification 49

7 Change plan design 50

7.1 Objectives 50

7.2 Target outcomes 50

7.3 Action plan implementation 51

8 Conclusion 52

9 Supporting Information 54

9.1 Methodology 54

9.2 Transcripts 54

10 Appendix 61

11 Reference 62

LIST OF TABLES

Table 1: Dealer's Complaint

Table 2: Cost for alternative solution 2

Table 3: Cost for alternative solution 3

Table 4: Action Plan (Author synthesis)

LIST OF FIGURES

Figure 1: Company structure of Company A

Figure 2: Sales Performance of WM division

Figure 3: Detail Sales Performance of WM division and Consolidated Operating Income Figure 4: Initial Cause and effect map

Figure 5: Target Requirement of WM Business Segment

Figure 6: Updated Cause and effect map

Figure 7: The portion of the direct support scheme

Figure 8: The pocket price waterfall for example model

Figure 9: The contribution and investment ratio for seven typical dealers

Figure 10: The margin leakage for one model

Figure 11: Correlation between Retail sales and Net Sales

Figure 12: Fishbone diagram of main cause in company A (Author synthesis)

Figure 13: The net sales ratio of the typical model in company A

Figure 14: The net sales ratio range of the typical model in company A

Figure 15: The general analysis process for WM division (Author synthesis)

Figure 16: Final cause and effect map (Author synthesis)

Figure 17: Redesign price management process (Author synthesis)

Figure 18: Price control analysis tools

List of Abbreviations

C.O.I Consolidated operating income

BOD: Board of Directors

WM: Washing Machine

Through the interview of company A’s employees, using the figures and data from the organization, relevant literature, and advice from the Operational Head, the main problem was determined as lack of price management In the direction of lacking price management, three possible causes have been discovered are delegating pricing decisions, dynamic price promotion, and lack of price management process and procedure Following investigating and in-depth interviews, the key cause is identified to solve is lack of price management process and procedure This study focuses on identifying the main problem and finding the key cause, whereby proposing

solutions to help company A improve the business results

1 Introduction

1.1 Company Background

Company A operates in the electronics industry in Vietnam is part of the Asia manufacturer company with approximately 1,000 employees In Vietnam, it comprises four business units: Home Entertainment, Mobile Communications, Home Appliances & Air Solutions, Laptop, Monitor, and Beauty Care Product Its’ headquarter is located in Hanoi and four nationwide offices in HCMC,

Da Nang, Nha Trang, and Quang Ninh Company A’s headquarter have many subsidiaries in all primary market worldwide, and company A is in charge of Vietnamese customers

The company is structured by the business segment such as Home Entertainment (HE), Home Appliances (HA), Air conditioner (AC), Laptop-Monitor (ITP), ect… The Home Appliance (HA)

is the most critical business in Company A, accounts for the second-largest share of sales, contributed 31.4% sales performance in 2019 In the Home Appliance business, the Washing

Machine (WM) segment plays an important role, account for 25% sales performance in 2019 Therefore, the WM business will be the focus of this research

Figure 1: Company structure of Company A

Five types of dealers:

Key Account Management: Dealer G, the principal account dealer with the direction of coverage expansion and penetration The vital purpose of this kind of dealer is to obtain the No.1 market share

North Traditional: Responsibility of selling a product to one wholesaler and then distribute to a small shop in the rural area in North and Middle

North Modern: In charge of the dealer, which has a large number of stores in the market, which can deliver the products efficiently to some provinces The chain of stores of this kind of dealer helps company A distribute products to regions and thus provide the consumer information, which

is useful for identifying customer needs

South Traditional: Responsibility of selling a product to one wholesaler and then distribute to a small shop in the rural area in the South

South Modern: In charge of the dealer, which has a large number of stores in the market, which can deliver the products quickly to some province The chain of stores of this kind of dealer helps

company A distribute products to regions, and this provides the consumer information which is useful for identifying customer needs

1.2 Problem finding process

To find out the main problem at company A with Washing Machine business segment, the author implemented the below steps:

- Based on the symptoms of the initial report, “sales profit” and “support rate” from the Sales Department

- Conducted an in-depth interview with Sales Manager, Product Manager, Salesperson, and key customers in company A to clarify the symptoms and explore potential problems

- Referred to the literature to verify and update the cause-effect relationship between potential problems, variables, and symptoms Furthermore, I rechecked the actual situation

at company A to fully understand what has driven

- Conducted an in-depth interview again to validate the existence of the main problem

- Referred the literature to understand the consequences of the main problem (the essence of solving that problem) and continue using the in-depth interview to validate the practical importance of addressing it

2 Symptoms

At the meetings with President, Operational Head, Sales Department Team, Cost and Profitability Management Team, the WM business segment was not good profitability from 2018 up to present Secondary data and primary data will be analyzed and verify the existence of company A’s symptoms and find out negative symptoms There are many symptoms for the problem that the company is confronting include the consolidated operating income (C.O.I) decrease, the immense situation of price dumping of WM products, the high rate of dealer’s complaint in WM price

2.1 Consolidated operating income (C.O.I) decrease

As the data of primary sales from the Cost and Profitability Management Team and Operational Head, we can see the general overview of the WM’s business from 2017 to 2019 in Figure 2 and Figure 3

Figure 2: Sales Performance of WM division

Washing Machine The year 2017 The year 2018 The year 2019

Figure 3: Detail Sales Performance of WM division and Consolidated Operating Income

The retail sales volume indicates the total amount of sales with the list price in case of without deduction for sales Meanwhile, net sales are the actual revenue that the company gains after reduced by incentive support to customers (Net Sales = Retail Sales – Sales Support Promotion) Company A records the actual performance based on the net sales figures

50.000 100.000 150.000 200.000 250.000

-Year 2017 Year 2018 Year 2019

Sales Performance of WM Division

Retail Sales Net Sales Operating Income

The retail sales indicate the total revenue of product earned by sales The net sales are the yield that the company earns after support promotion to customers The support promotion is used by company A to stimulate selling activities that reduce retail sales Therefore, the support rate indicates the total support in percentage with retail sales

WM's retail sales performance has been a good trend in growth from the year 2017 to 2019, even though the growth rate was lower in 2019 compared to 2018 In detail, the growth rate of 34% in

2018 compared to 2017, and sales in 2019 increased by 16% compared with the year 2018 While retail sales were growing in 2019, net sales decreased significantly Furthermore, the consolidated operating income was declined in 2019 That reveals the matter that the development in sales performance did not accompany by profit growth

The fact is the retail sales were inversely proportioned with the operating income One of the factors influencing profit decline when the high-level raise in sales is the enlargement in support budget for company A's retail chains year by year, especially the last three years from 2017 to 2019 The growth in support budgets for the WM business segment is considered to be of the most worry in the Vietnam subsidiary The data is pointed out that the significant increase in the support budget for company A's retail chain In 2017, the support level was 42.6%; in 2018, the support level decreased little to 42.4% and in 2019 reached 53.3%

In general, in the WM market situation; currently, no brand has left the market due to the slump and saturation market In other words, the market still has room for many manufactures could increase the product However, the growth rate was not as strong as in previous years Furthermore, the penetration of the new brand AQUA and the most development is that one more factory established for WM product in Vietnam in Jul 2019 Besides, According to market analysts' estimates, the shift in consumer demand from top-load washing machines to front-load WM due to developed by technology that has shown the high demand from end-users

In summary, the growth rate in sales of WM products each year is a good signal for the growing company However, the accompanying is a remarkable increase in the support budget for retailers Furthermore, the rate of the support budgets is going out of control in 2018 ~ 2019 and reaching the highest level of the headquarter corporation break-even point of 50% In other words, the more

business of company A has, the lower the profit obtained This negative ratio is a symbol that the business of this WM industry was not effective

To conclude the first symptom from the Operational Information and Cost/Profitability Management Team, the primary data showed that the WM segment was not positive in 2019

2.2 The immense situation of price dumping of WM products

Vietnam subsidiary has a market price management policy, control the minimum price that dealers will apply following with company A's requirements The minimum price was used to enforce a dealer to buy a product to end-user Regardless of how much company A supports dealers, the dealers must keep the market price of the product to stabilize the price The purpose is to eliminate the price difference and unfair competition on WM product prices However, the listing prices of

WM products on the market are very different between the retail chains This difference happened

in a short time in each retailer stores, about 2-3 days, or in cases one week Nowadays, with the high level of information transparent, it is not difficult for customers to know the prices of retailers

On the other hand, comparing prices is much more comfortable, because retailers want to publish the prices and support programs to attract customers The difference in price at retailers will lead

to consumer purchasing decisions To attract consumers, dealers are implementing lower price policies than competitors to sell out The same situation in many retailers system for all WM product of company A, the WM products was effected to the decrease in price over time, making the price at retail dealers lower than the minimum price as company demand

For instance, Dealer A had the golden week promotion to end-users, the price of WM product reduces significantly to attract consumers Normally, the price reduced by 5%-10% per WM product The negotiation between company A and dealer A about the market price failed The result

of that promotion is to affect other dealers, and company A receives a complaint from the rest of dealers, or the dumping price situation happened in all the markets

The mechanism of price-setting between company A and dealers is in the contract that is the rule for both parties to implement and obligated to follow the commitment However, not all

commitments are carried out seriously and appropriately Price terms have broken during selling execution, due to factors from dealers

2.3 The high rate of dealer’s complaint in WM price in the same distribution channel

Based on information from the Sales Department, there are some issues from customer feedback and complaint To collect the secondary data, the author interviews with Mr TV, the Sales Manager who has the experience and worked for company A in 3 years and state that:

“Normally, we receive a huge number of dealer’s complaints about the price from other dealers Comparing

to the previous year, we realize that we are facing more feedback from dealers and the dealer forces us to balance the price in the market I will give you some data that you have an overview of a dealer complaint” (Mr TV 45 years old)

To collect more clue, the author conducts an interview with Mr VT, the KAM Sales Manager who has the experience and worked for company A in 7 years and state that:

“The situation of complaints of dealers in the market has increased, complaints take place weekly, with an average density every week receiving complaints from retail chains Complaints from retailers are made by the evidence of special customer support programs, to provide customers with preferential prices, to attract customers by the low price policy The dumping from dealers only takes a few days to sell out The problem

of dumping is problematic for electronics firms because the consequences bring suppliers challenging to solve”

Based on the secondary data as displayed in Table 1, it can see that some main complaint from dealers as below:

1 Unbalance scheme to dealers

2 Complicated promotion

3 Unstable sales program to dealer

4 Not control price in the market

1

5-Dec-19

Dealer E - Buyer leader Contribution 14%

I concern about the sales program of company A, due to the complication in organizing them We are facing short term promotion that makes us modify the scheme and price in the store

No Date Complaint Made By Written Statement

2

6-Dec-19

Dealer D - Buyer leader Contribution 10%

We usually compare our prices with other dealers to modify and adjust the same We will find it hard if the gap in price with the other dealers If we do not change, the consequences that we will lose customers

I am worried about product price instability in the market because

we feel we will lose our advantage of being the biggest retailer in Vietnam Our customers already know the brands of washing machines They trust in reputable brands, including company A.,

so every time customers come to the stores, they need us to give a little advice about the product, and their specific concern is the price Moreover, of course, in the Ho Chi Minh market, when there are many retailers, the end-users will compare prices That leads us

to the business need to pay special attention to company A's policies and the correlation between other retailers in the same market

Table 1: Dealer's Complaint

3 Problem analysis

3.1 Problem identification

Due to the limit of time and cost of the problem-solving project, this study identifies four possible problems leading to COI decrease in company A's washing machine segment, then suggests solutions and proves them an efficient way to applying to the company to solve problems After all

of the above information, we determine the issue that occurs in the Sales Department and Product Management Department Therefore, to find out four possible problems, the author uses the qualitative approach research includes the official business result reports of the cost and profitability analysis from Operational Head and Cost/Profitability Department and in-depth interviews from different groups of respondents working at the company such as Sales Managers, Salesperson, Product Manager, Operational Head, Business Analysis and key account customers

We employ in-depth interviews to verify the potential causes of the “Consolidated Operating Income Decrease of WM Department.” The discussion focuses on five people who are related to the symptoms and are insightful of the symptoms at company A as below:

- Mr CN – Operational Head, has been working in Company A for 15 years

- Mr DK – Product Manager, has been working in Company A in Head Quarter for 15 years, one year in company A, responsible for WM business, develop WM division, and in charge

of revenue and profit of business segment

- Mr TV – Sales Manager, has been working for three years He is responsible for the WM Segment Department He is leading the growth of WM products and business leaders that drive the development of Modern Key Account customers He controls and be in charge

of sustainable market share advancement

- Mr VT – Key account Sales Manager, has been working in Company A for seven years, leader of top 1 key account customer (Dealer G), in charge of growth in the business result and develop market share, responsible for gaining market share

- Mr QH – Sales Manager, has been working in company A for over one year, leading the wholesales team, selling WM products

3.1.1 Initial cause and effect map

Based on an in-depth interview with five people, the summary of the initial cause and effect map

is showed as follows Four potential problems lead to the symptom “Consolidated operating income decrease at WM segment”: lack of price management, high growth requirement, competitive market, and weak marketing

Figure 4: Initial Cause and effect map

3.1.2 Potential problems

3.1.2.1 Lack of price management

As the response of Mr CN about the issue leading to C.O.I reduced in 2019, and he states that:

- The sales promotion and the price for dealers are complex and were short-term and seasonal responses with the market Furthermore, I know that PM is lacked control price and sales promotion which provide benefits to dealers

- We have five sales team in charge of 5 kinds of dealers, the price structure of these dealers is different and not unified, leading to price conflict and uncontrollable sales program The consequences are increasing customer complaints of price, and then they require compensation

According to the responses of Mr CN, he explained more about that situation Sales Team and Product Manager has followed the seasonal scheme for dealers, which has been fluctuated twice per week or month to react with competitors On the other hand, they have struggled with the complaint of dealers of price dumping of any dealer They modify the price and support dealers into balancing the price of 5 kinds of dealers It is complicated in comparing the price of each model and the total support rate

According to the survey, Mr DK deeply explained that:

- We lack control and deeply analyze the sales promotion and price structure of our dealers We apply the different policies for each dealer, and sometimes we could not control all, and we act the support scheme case by case Furthermore, we have depended on the sales team, which has knowledge and experience in the market The fact is that the sales team makes market research and then we follow the price in the market Besides, we feel confused and challenging to manage market price and price positioning

Similarly, PM has the same viewpoint in difficulty to balance selling price and control support rate to dealers While the company has many schemes and different levels of support, we still have to respond to continuous changes in the market, and with the dealers as well This difficulty leads to the situation of not consider promotion carefully

With the same opinion, from the conversation with Mr TV, he stated that:

- Furthermore, our company is lacking in the control price and sales program We provide a budget to customers differently, which makes the gap between them The higher the gap, the higher the level the customers complain We encountered when dealing with the fact of instability price in the market For example, for the same product, we apply a selling price to our dealers that is higher than the prices of other dealers in the same market They responded to us that they had the price list of that product; they also asked

us for the new price list, and more importantly, when the new price applied, we had to protect their inventory

At that time, we must use more budget for those factors if this happens many times a year, the decline of C.O.I will be inevitable

On the other hand, from the in-depth interview with Mr VT, he shared that:

- PM gives sales promotion in the short-term period and changes them frequently, lead too hard to control the price and establish the strategy for customers

- I give you an example of a lack of management of sales promotion and balance dealers' support scheme

PM focuses on monthly achievement and supports special promotion to one customer for maybe one or two models The consequence is that customers reduce the price to sell out those products Our customer raises the complaint to me and requires compensation for their inventory I need to solve the problem and response part of their demand to keep the relationship

What is more in the in-depth interview with Mr QH, he stated that:

- One of the reasons I can mention that our company has a fluctuation scheme for selling products We can imagine something changes quickly in selling price As I know that many brands have the scheme or sales promotion and price structure each quarter, we have a sales program for months Sometimes, we could not manage the price in the market and could not follow the changes in our company

In terms of lack of price management, company A managed the C.O.I according to the business segment, lack of managing by each customer and by-products Overall, they controlled revenue and expense based on the business segment These factors allowed us to use the budget for sales which transfer from this customer to the others Also, the problem of lacking price management happened due to not control each customer line and each product level The term of lack of price management showed in point that company A focused on overall sales budget for the whole division without particularly analyzing and allocating budget for each customer and lacked price management in an individual product The process of allocating and orienting for each customer plays an important role in balancing and directing for long-term development, however, there wasn’t any documentation for this part While some complaints from customers came, company A tended to follow the dealers Without the management of selling expenses on each customer will make dealing with dealers difficult In other words, with the absence of price management, company A does not have the means or clear evidence, tools to respond to the claims from the dealers Consequently, problems occurred such as price erosion, losing control of prices by losing control of market prices, the situation of unbalance between dealers within the same distribution

channel

From the analysis of the possible problem above, the issue of lack of price management and sales promotion look after the price conflict with many dealers, the fluctuation in the scheme, the over dealer margin rate, and is the higher rate of customers complaint and compensation It is one of the factors that impact significantly on the high level of support budget used to the customer and directly leads to the C.O.I reduce

3.1.2.2 High growth requirement

As the response of the leader of the WM division, they admitted that due to the high growth requirement of the company, it slowly results in their reaction to achieve the target The requirement of Company A for the growth was 135% in 2019 The target was set up based on the

growth rate in 2018, which had significantly increased by 134% compared to 2017 The year 2017 was a period of the tremendous growth of numbers of retailers, especially the dealer G increased coverage on over province in Vietnam This was the most important reason for the expansion of the manufacturer brand However, the growth of the product will be slowed down when the system

of stores has been fully covered, the peak development period was over

Figure 5: Target Requirement of WM Business Segment

Elaborating further, the leader of the WM division shared that, in case of the fail target in some customers, they have the pressure of achievement the whole segment, and they have to decide on the coverage of other customers This situation still leads to the exchange of support promotion to the target accomplishment

In addition to the Mr PM above, he agrees with the challenge in gaining the target in the market with many competitors, and somehow company will depend significantly on some key dealers,

especially dealer G, as well as accept their condition, as Mr CN sharing:

We have the biggest dealer (dealer G) with the crucial role of gaining high growth and the No.1 market share,

so we almost depend on this key dealer to push products to market and follow them to support the sales program

In addition to the interview with Mr VT below:

Y2017 Actual Sales Sales vs PY Actual vs PY vs Target Sales % Actual vs PY vs Target

- On the other hand, we depend on the most extensive dealer to push the product to the end-user To overtake the rivals, the relationship and corporation with them are necessary In some cases, we depend on them and accept their rule to achieve our target

Besides that, Mr TV point of view is that:

Our company focuses on one dealer to gain market share, which leads to the budget we spend so high The bigger the dealer is, the higher the requirement they need, particularly, dealer G We become dependent on them too much

All things considered above, one of a potential problem can be defined as a high growth requirement that influences the higher support rate to the customer and makes the C.O.I reduced in

2019

3.1.2.3 Competitive Market

According to the survey, Mr JY deeply explained that:

- In the competitive market, we would instead focus on a competitive price strategy To be honest, our product has many advantages benefits However, we positioned price not equivalent because we are afraid of losing end-users

Through sharing from the leader of the WM division, we are facing fierce competitors such as Electrolux, Sharp, Toshiba, LG and Samsung The difference in benefits is not too much Therefore, it is hard for a customer to realize the key attribute of each brand name Due to that reason, the action of our company refers to set up a competitive price

to attract customers and establish brand awareness in the consumer mind As a consequence, we have received a lower income that affects our results in the last two years, especially in 2019

On the other hand, from the in-depth interview with Mr VT, he shared that:

- On the other hand, we depend on the largest dealer to push the product to the end-user To overtake the rivals, the relationship and corporation with them are necessary Besides the relations, we also use many methods to push sell out, sometimes, setting the price lower than competitors to attract end-users

The same opinion, collected the information from the in-depth interview with Mr QH, he mentioned that:

Besides, as you know, in case we could not build up the awareness of the product to the customer mind, and

we need to increase the target pushing product to a competitive market to gain No.1 market share, we need

to make the price lower than competitors Besides, we can gain and achieve the No.1 market share, a part of the reason for our competitive quotation in the market

For all the information collected in the in-depth interview, the problem of the competitive market and lower price definition are the part of reason impact on the C.O.I reduce

3.1.2.4 Weak Marketing Strategy for WM

According to the responses of Mr VT, he said that:

- Another point is that we have a weak marketing strategy and low brand awareness of WM products We can see the advertisement for WM products, and our company does not focus on that As you know, we have an advertisement on television broadcast for a TV segment and the KOL for TV, but we do not see it for the WM division in some public communication Our relationship directly to end-user is the Facebook advertisement, and it targets to the high-class product such as high-end WM or Twin-wash, not mention the value of premium

or basic products which contributes majority to sales performance Therefore, weak marketing and low brand positioning also cause sales less favorable, and we could not set up the right market price

- With the advertisement, we choose another way to do by ourselves in supporting the dealer to do it for us to promote our products and our campaign to end-users Besides, one disadvantage is that dealer does it for us, but they would instead focus on their brand, not prioritize our product or sales promotion In other words,

we give them to budget more than we receive, that is the truth Comparing with competitors, they do it by themselves and less rely much on dealers.

Regarding the response of Mr QH, he shared that:

- With the WM division, we do not have a proper concentration for this kind of product while we have many benefits for customers The benefits which cannot be conveyed to the consumer for gaining awareness of the company product line In other words, we do not position our product well For example, we have many advertisements for the Tivi division on the media, rich media such as ads in Television broadcast in golden time, whereas we do not have any social media ads like that, we have billboards or Facebook only Furthermore, we focus on premium products such as high-end WM with the highest price and adapt so little consumer needs When I interview our customers, I think that we have not reminded our customers of our products by remembering our advantages benefits In my channel, I have to set up any ads by supporting small stores to display our products in their space frequently

According to the response of two managers, they expected the company to have a good direction

of advertising methods to increase the awareness of customers of our products It impacts on their business because they realize the effect of social media marketing activities to customers to build

up brand awareness Furthermore, social media marketing can affect, firstly, consumers have minded our product brands, and the customers can share with other consumers The weakness in marketing is the reason that leads to our low product position and low selling price, the complicated problems to our reduced C.O.I

Overall, the author collects general information from an in-depth interview with many interviewers related to the situation of the company which was presented in the initial cause and effect map, and there are four potential problems following: lack of price management, high growth requirement, competitive market, and weak marketing These factors not only lower the company’s performance but also influence the reputation of the company’s business segments Therefore, in the next stage, the author will be explored intensely by reviewing the literature And then, the main problem will

be considered to choose among those potential problems

3.1.3 Updated cause and effect map

The summary for the updated cause and effect map is drawn as below:

Figure 6: Updated Cause and effect map

After identifying four possible problems as mention, such as lack of price management, high growth requirement, competitive market, and weak marketing The authors used literature to explore more aspects of the problem and the recheck the match between theory and interview in the company, therefore we can point out the related factors connected to the company’s issue Next part, the author will verify in detail about possible problems updated with literature

3.1.4 Updated possible problems

3.1.4.1 Lack of price management

The author has emphasized that price management has influenced heavily on company profitability [1]; in other words, ineffective price controls can seriously affect company income and even the continuance of the division business of company A [2] Company A is the second-largest industry brand not only in the Vietnam area but also in Asia, its effects on the Vietnam subsidiary as well

as the Asia area Therefore, price management is primarily considered for the profitability of companies in the consumer products industry Besides, in the B2B marketplace, price sensitiveness

is high due to market competitiveness and saturation Hence, it is a high risk of reducing operating income due to the price lost control situation [3]

Dealer theory is concerned in this thesis due to the reason for price management needed in the organization Any dealer is considered as a private organization who is freedom in business, opportunist individual and maximizes their benefits in the relationship with the manufacturer According to the research [4], the objective of the manufacturer and the dealer can differ; for that reason, their goals could not unbalance apparently That also means dealers will require benefits or will not implement the deal in the strongest desire of manufactures As a result of the endangerment that manufacturers could not achieve the target

In B2B price management in Company A, price realization is assigned from management to the Sales Dept which set up a connection in which management is the company and sales force is the kind of dealers [1] The company establishes the prices, but the salesperson carries out and makes

a deal with dealers The company has the issue that it cannot wonder whether the salesperson implements the best benefits for the company due to its imbalance situation [3] Hence, there is a

problem in the B2B price controlling process, and it exists the dealer matter that happens within the company B2B price controlling process leading to the profitability lost

Furthermore, the situation of Company A is the shortcomings goal in the management, such as the issue of increasing support level to the dealer to attain monthly target and focus of individual sales promotion to each dealer In such circumstances, shortcoming aims will head up to a loss in profitability [5] and receive considerable harmful results, while the price is implemented by the salesperson who follows the dealers [3]

3.1.4.1 High Growth Requirement

The author attempts to find out relationships between the biggest dealer and company A that link

to the benefits and the power of this dealer The purpose is to verify if the problem does exist in this organization Besides, the results cited some literature to support that there is an upper hand in negotiation between dealers and manufacturers The power has shifted from the manufacturer to the retailers, particularly leading dealers The "guaranteed profit margins" [6] is the kind of proof that the dealers have a higher level in a transaction with the manufacturer

The power of the dealer comes from the intensive competition among many manufacturers in the marketplace [7] The development of the dealer brand, especially the high-quality reputation, has helped the dealer attain some advantages in the interaction with company A According to research [8], the dealers’ ability to control the market power instead of manufacturers and customers prefer

to dealer concentration, the speedy growth in stores and coverage distribution systems, increase productivity and sales performance When power gives the mean of the context of profitability, it has a higher portion of the profit paralleled with a higher position in negotiation, and the conflicted viewpoint will occur This conflict viewpoint impacts on the manufacturers’ profitability in the long-run as long as the strength of dealers

3.1.4.3 Competitive Market

Company A’s actual situation of frequent support promotion for dealers and push the product to the marketplace The range of price war happens in the WM market Its consequences can distinguish them from the period of intense price promotions [9] and slow-selling prices in the

market To attain the market share while the distribution channel, in this case, is dealer could not afford to lose As a result, Company A suffers a considerable part of its loss in margin due to reducing consumer price as well as lower power and lack of cost leadership in the long-run period [10]

Also, the result of applying lower prices than competitors is that many products are sold nearly cost, it has a significant negative impact on the bottom line Furthermore, as the research analyses, the price war is not only estimated competitive action but also considered the effect of the price war on product inventory The compensation for the dealer is needed to implement Hence it influences this division profit margin and the business results [11]

3.1.4.4 Weak Marketing Strategy for WM

A useful marketing process is to build up insight, such as implementation in an organizational context Many ways of conceptualizing processes for these purposes, such as the process of their purposes – value-defining, value-developing, and value-delivering processes [12] However, Company A's marketing support programs focus on dealers’ support to implement marketing product and give the discount programs to customers These costs of supporting dealers are not full support to promote products, actually used to the purpose of implementation of an ambitious campaign on prices Therefore, the nature of the marketing programs of company A is not for product value position and not for raising consumers' awareness of products of company A It also considers that major dealers utilize the trade promotion into the way to grow their profitability, unlike pass the funds to consumers [13] Precisely, these marketing expenses are also employed to contribute to the healthy growth and popularity of dealers' brands rather than the products of Company A

Besides, most advertising budgets are aimed at customers to attain the outcome of the goals in improvement in consumer attitudes [14] Pursuing in building a strong position in the market, marketing support a company to head up a higher price for its products, therefore, increase net income In other words, the marketing strategy of company A follows the competitive price in the marketplace, which leads to unanticipated negative consequences Moreover, the previous studies conclude that too much expense for trade promotion decreases brand loyalty, escalates price

sensitivity, and reduces sales for a brand [15, 16] These studies notice to the potentially harmful consequences of trade promotion to profits, consumer attitudes, and brand value

In the current market, a famous brand is Samsung They are not only the type of product business, but they also trade on the names and brands they set up The brand image brings consumer awareness and also brings loyalty and commitment to long-term use with the brand The investment into the brand image brings the result to a product rather than reduces the price as the current method of company A Company A used its budget to invest into dealers and marketing for company A’s products The marketing method is to combine the brand name of the dealer and the brand name of company A The direction is single marketing for single products As a result, brand name awareness has not improved

Regarding the potential problem lack of price management, the interviewee reported that the

pricing has list prices; however, invoice prices are calculated individually, which considers costs and market price for price setting, using a support scheme for different dealers Furthermore, the

WM business has pocket price could not be calculated due to the fluctuation in support scheme for dealers Therefore, company A has just estimated the expense used for supporting dealers monthly

by each dealer, not focus on the impact of each model and the discount of each model In connection with a list price system, the pricing literature usually mentions price-waterfall analysis as an essential instrument for price management [17] In contrast, in company A’s process, it does not require price structures and lacks that process and which is necessary for price management discussed in the literature [17]

The portion of the short-term support scheme indicates the fluctuation in supporting leading the difficulty in price management and impact on price conflicts as well

Figure 7: The portion of the direct support scheme

The analysis of the pocket price waterfall of WM indicates the nearly bottom line as the chart below Dealer list price – Direct discount (long-term discount) – Competitive discount (Short-term discount) = Invoice price

Invoice price – Long-term direction discount – Short-term direction discount = Pocket price (the actual realized price or the final price)

The portion of the direction support scheme

Long-term direction support Short-term direction support

Figure 8: The pocket price waterfall for example model

The objective of the water-fall analysis is to achieve the best net realized price for each order or transaction The chart used to examine the total price components and the ratio of these elements applied to customers By exhibiting these elements that were deducted from the list price to get the final price and provides management a comprehensive and detailed overview of the final price was constructed The aim is to provide management of understanding of profit leakage occurred and to implement corrective actions The starting point is the dealer list price or the company list price applied for all dealers After the list price which is subtracted by the direct discount and competitive discount to get to invoice price In the case of company A, the invoice price does not display the true transaction amount When the company subtracts the income from invoice price to these elements of incentive policy such as long-term direction discount and short-term direction discount, what is left is called the pocket price as the actual result of the transaction Pocket price, not invoice price, is the appropriate measure of the actual price of a transaction Currently, Company A fails

to manage the full range of factors that contribute to the final transaction price

In 2019, Company A offered a series of discounts of 35% directly in an invoice that effected its invoice price of 65% of the list price The ratio of long-term direction accounted for 13% and the short-term direct discount was 22% Furthermore, the electronics company gave dealers a 4% long-term discount such as payment terms discount if they paid an invoice within 30 days, yearly and quarterly incentive based on dealer’s total purchases Together, dealers received a 9% short-term discount The final or pocket price was 53% off the list price, in the other words, the investment ratio for selling was 47% off list price As mentioned above, the contribution of short-term direction was increased that made the fluctuation of price, the difficulty in a price controlling, and effecting the other price setting in the market place in a short period as the customer's complaint In summary, the intuition action in price was employed based on the market place price trend, then company A did not actively manage the entire pocket price waterfall

The unbalance price policy in different dealers show that the incongruence in dealer margin

Figure 9: The contribution and investment ratio for seven typical dealers

The margin leakage - The gap between the selling price and market price for a typical model

The contribution and Investment ratio

Contribution Investment Ratio

Figure 10: The margin leakage for one model

For all the evidence, document, and in-depth interviews of four interviewees, it clearly to identify that this potential problem is considered to be the main problem to be solved in company A after analyzing the other potential problems

In terms of the potential problem of high growth requirements, currently, with the requirement

of company A is to achieve the target with a high growth rate as well as the requirement to maintain the market share position is inevitable Although dealers have developed and grown over time, the B2B relationship between manufacture and dealers is also strategic According to previous studies, some cases happen in which manufacturers shift the profits to dealers due to their higher power in negotiation with manufacturers [6] However, in other cases, there is no clear-cut profit shift from manufacturers to dealers [18] Hence, whether dealers with higher channel power over manufactures, it depends on the way that manufacture define them and react by using the profitability based definition [19], and the higher dealer power is unstable On the other hand,

according to many in-depth interviews, the author found that the influence of higher dealer power was not a significant impact on company issues Hence, this potential is eliminated

With the competitive market, researchers emphasized the particular consequences of the price

war or the intensive price promotion, the warning from the research [9] The necessity of stopping the price war as the first-mover, and it may attain an advantage in price image improvement The leader of the WM division admitted that the competition in price made the company lost in profits, especially 2019 results Although the manufacturers gain the benefit from the price war when we advertise the high discount rate, for that increase the consumers focus on their image, and more customers come to stores and make the purchase However, we found that the frequency of sales promotion and low level of the price leads to comparing prices in the long run, and its effects on the customer do not focus on unfavorable price image In the interview, the PM believed that in the upcoming year, it would be modified in the way of competitiveness and contribute to improving the brand image in the marketplace Therefore, this potential problem is eliminated

Concerning the potential problem of the weak marketing strategy for WM, it is well known

that the brand managers last year had allocated the larger portion of the expense to sales promotion than the marketing budget Many research showed that the potential risk of focusing on sales promotion expenses would occur [15] In the in-depth interview, the PM leader of the WM segment stated that, in 2019, the decision of PM had made trade-offs in focusing deeply on sales promotion, concentrate on putting the budget on these short-term activities and the consequence of non-control situation with his business The PM had shared that he will consider reducing their sales promotion expenses and change them into other kinds of advertisement Furthermore, he also takes part in making an effort to find out the best way to allocate marketing communication resources into the stage of the product life due to annual launching new products as well as divide a part of the budget for sales promotion [20] Hence, this potential problem is eliminated

Overall, the potential problem was analyzed above, and the author defines the main problem for

the case of company A is the lack of price management It would be found out the key cause leads

to that problem in the next part

4 Problem justification

4.1 Main problem definition

According to research [21], the author indicates that price management is the activities that are so important for B2B companies to keep profitable, as well as, it was seen as a significant impact on the profitability of a company In other words, ineffective price management can threaten the profit and the existence of organizations The definition in common [22] that price management consist

of strategic and operational decision related to price and various activities that regard to price setting and price execution The price management is the system of controlling and preventing variances from happening that helps organizations avoid the negative consequences It can be concluded that price management is particularly important for the profitability of all companies, and in this case, it also affects the electronics industry Therefore, it leads to improving the WM business in company A but also to other business segments

4.2 Problem existence

As the in-depth interview with Mr CN, he indicated that the shortage of control in company A The organization has only reviewed control after execution, it also means that the company could not control for the prediction of price mistakes before implementation Furthermore, the feed-forward function was not undertaken and be verified by the functional department Organizationally, company A is structured as follows The President has management responsibility for all activities, responsibility for Product Manager for each business segment The Product Manager has management responsible for controlling five sales managers who in charge

of five groups of customers Each sales manager and their group are responsible for direct sales to existing customers, and they have their target independently The administration, such as financial accounting, and sales controlling, business planning, and demand planning, have belonged to the CFO The fundamental task of the sales controlling department is budgeting, and internal reporting after sales performance is carried out

According to the structured as above, the company has five groups of sales team under the Product Manager, in the situation, the price scheme of each group did not balance, leading to the conflict among sales groups The problem of price erosion happened not only in dealers in the market but

also in the sales team in charge of different dealers There are many compensate cases for price comparison, which be implemented by sales groups towards the desire of the customer or whether the prices have been offered to make easy sales [3] The Product Manager has full responsibility and power to approve the price However, the orientation is that short-term success is an aim and using pricing shortcomings

The figure below shows that the problem exists in this business segment, which is reflected in the rations of Net Sales and Retail Sales in 2019 The ratio fluctuates greatly in months, especially the lowest rate from May to Jul This fluctuation means company A spent more budget, lack of control

of sales promotion and budget plan Also, in Jan 2019, the top Retail sales achieved, but net revenue gained just over 52%

Figure 11: Correlation between Retail sales and Net Sales

4.3 Problem importance (consequences)

For internal consequences when the problem last for long-time is that VN subsidiary takes the business results of the other products to cover as well as put pressure on other products Besides, the decisions from headquarter to minimize the losses by cutting off the business of that category The consequence is such a scenario can be applied by a demand to cut costs or by choice for greater strategic focus on core activities; otherwise, the fate of the segment business, therefore, may be closure [23]

Correlation between Retail Sales and Net Sales

Retail Sales Net Sales Net Sales/Retail Sales (%)

Also, the weakness in price management in a continuous-time leads to negative impacts on the distribution conflicts, impact on purchasing decisions, and the actions of dealers For products with

a massive price collapse due to weak price management, dealers will not desire to keep considerable inventories to sell out to consumers The reason is that it is not known how much the manufacturer will compensate for the inventories On the other hand, dealers to increase profits and safety for business process, dealers will not prioritize their business plans for that kind of precarious products This fact has led to a negative impact on sales and reduced the penetration of products into the market [24]

Besides, once company A in poor price management prioritizes one dealer as the key account, with priority sales policy, special prices This support will lead to significant growth of that dealer compared to other retailers in the same channel These dealers have a more competitive advantage and dominate the retail market; the consequence is that they will put pressure back on the manufacturer to gain more benefits from tremendous sales performance, also to control company

A [25]

5 Cause analysis

First of all, the author studies the research of Agency theory The agency theory related to this thesis because it can explain the reason for not applying pricing policy in B2B company and how

to minimize the risk In B2B company, the relationship between the manufacturer and dealers based

on a contract The goals of the manufacturer and dealer are different [4] Moreover, the dealers possess more information than the manufacturer The problem caused by goal inconsistencies and information asymmetry is called agency problem, that agency may not perform the task in the beneficial to the manufacturer Thus, there is a risk that the manufacturer’s goals may not be achieved [29]

5.1 Potential causes

Based on the information gathered in an in-depth interview, the author summarized these ideas into the following fishbone diagram