Sorzal Case

Case Summary

Sorzal is an importer and distributor of artifacts mainly from South America and South Africa, and of jewellery/pottery mainly from South-western India. The company has developed a reputation of being one of the most respected importers of these rare and authentic items. The company's annual sales are $12 million and have been increasing at a constant rate of 20 percent per year over the last ten years. However, due to high levels of increased competition, gross margins have been deteriorating. Distribution is limited, as most of it is done by Sorzal itself in the form of firm-sponsored showings, and some specialty shops and exclusive department stores. Sorzal acts as a middle man, insofar as it imports from suppliers and distributes to dealers. Dealers are beginning to alter their purchasing strategy and have begun buying directly from suppliers, removing Sorzal from the process. Sorzal has been offered a contract by a mass-merchandise department store that obligates Sorzal to triple replica production, but would result in add an estimated $1 million in sales. The dilemma is whether to accept the offer, considering external competitive factors in the market and any potential negative effect on Sorzal's reputation.

Decision Areas

Symptoms Causes Decision

Limited distribution Nature of product line and supply shortages Whether or not to expand current distribution to mass-market stores with replicas and/or authentic items

Limited supply Political situation in Africa, more competition, government and nationalistic views towards artifacts Determine whether more emphasis needs to be placed on products other than difficult to acquire authentic line in order to hedge risks

Increasing Sales Higher demand and acceptance for expanded distribution of South American and African artifacts Decide whether to increase market penetration for high end department stores to purchase Sorzal's South American and African Artifacts, as the end purchaser, the consumer who shops at department stores, demands such products.

Increasing presence of inauthentic and replica artifacts at retail store level (some claim this gives the industry a bad name). Apparent demand for such items, more players tapping into the replica market Decide whether to stay in authentic business, already have the reputation, sales increases are due to higher demand for authentic south American and African artifacts, or to enter the replica market since market may be moving that way (but may be risking authentic image).

Problem Statement

After analysing the decision areas the major problem that Sorzal needs to address is that it must adapt to changing market conditions and increase its presence in the replica market, while maintaining its current reputation to its high end customers.

SWOT Analysis

In order to diagnose Sorzal's current situation and determine the decision criteria of this case, it is essential to perform a SWOT analysis. This will allow us to evaluate both the internal and external environment of the organization and provide a recommendation that will enable Sorzal to capitalize on its opportunities and minimize threats.

Strengths

A company's strengths can be considered the controllable elements that influence how well the organization operates as a whole. Sorzal's strengths lie within their products, as the company prides itself in providing its customers with authentic artifacts and replicas that are produced meticulously in order to ensure that only an expert buyer, such as a collector, would be able to recognize their in-authenticity. Sorzal is able to produce such high-quality products through their talented craftspeople, who obviously have a great degree of technical skills and talent. The company's products have recently gained greater acceptance in the market, allowing Sorzal to expand their distribution to specialty shops and exclusive department stores. The company's commitment to quality and its emphasis on providing unique and authentic products has granted them a sound corporate reputation and a strong customer base that has great brand loyalty. A company strength that is linked to the fact that Sorzal has become known for its authentic products is brand recognition. Customers have come to expect only the finest products from Sorzal and continue to come back for authenticity. Additional strengths include the company's strong financial position, with gross sales growing at a constant rate over the last decade and the company's establishment of a stable delivery channel.

Weaknesses

Although much of the company's success in the past can largely be attributed to their authentic products, the company's upper echelon has begun to observe that the market may be beginning to move in a different direction toward replicas. Sorzal's weakness is its inability to accept this rise in the replica market and its obduracy to follow this trend and expand into this new market. Management's attitude towards this change suggests that they are stuck in their ways and are inflexible in terms of shifting their operational focus in any way. With competition rising, Sorzal's products are beginning to lose some of their appeal, as competitors are pricing similar, albeit mostly replicated, products at a much lower price. Sorzal's stubbornness to lower prices and expand into the replica market has already caused their gross margin to slip and may continue to if action is not taken. Another weakness is the fact the company's authentic products, which account for most of the sales, are limited in supply, as they cannot simply be produced or manufactured. This is an even larger problem at the moment, as the political situation in Africa is diminishing the company's supply. Continued political turmoil will stunt growth of the company and may even result in an increase in prices, as when supplies are limited and rare, prices tend to rise.

Opportunities

There are various opportunities that Sorzal can capitalize on in order to promote future growth in the company. One such opportunity would be expanding its line of replicas by taking advantage of the strong market demand generated mainly by gift buyers and individuals looking for novelty items. Since the replica business currently represents only a small portion of the company's sales, the company has the opportunity to expand on that specific line. This market development would allow the organization to profit from their current authentic artifacts as well as the newly emphasised replicas.

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