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Lancer Gallery Lancer Gallery is a limited Liability company that sources and sells a wide variety of South American and African artifacts. It is also a major source of southwestern Indian-especially Hopi and Navajo-authentic jewelry and pottery. Although the firm's headquarters are in Phoenix, Arizona, there are currently branch offices in Los Angeles, Miami, and Boston. Lancer Gallery originated as a trading post operation near Tucson, Arizona, in the early 1900s. Through a series of judicious decisions, the company established itself as one of the more reputable dealers in authentic southwestern jewelry and pottery. Over the years, Lancer gradually expanded its product line to include Pre-Columbian artifacts from Peru and Venezuela (see Exhibit 1) and tribal and burial artifacts from Africa. Through its careful verification of the authenticity of these South American and African artifacts, Lancer developed a national reputation as one of the most respected sources for these types of artifacts. Exhibit 1 In 2013, Lancer further expanded its product line to include items that were replicas of authentic artifacts. For example, African fertility gods and masks were made by craftspeople who took great pains to produce these items so that only the truly knowledgeable buyer—a collector—would know that they were replicas. Lancer now has long-term contracts with native craftspeople in Central America, South America, Africa, and the southwestern United States who produce these items. Replicas account for about ten percent of total Lancer sales. The company agreed to enter this business only at the prodding of the its clients, who desired an expanded line and something to offer end users who preferred to store originals and display replicas. The replicas have found most favor among gift buyers and individuals looking for decorative items. Replicas are produced in limited quantities and each one has a specific number and certificate of authentic reproduction. The percentage contribution margin (PCM) on replicas is 40 percent as opposed to 80 percent on authentic items. In 2019 company's sales were $100 million and have increased at a relatively constant rate of 20 percent per year over the last decade. Myron Rangard, the firm's national sales manager, attributed the sales increase to the popularity of the company's product line and to the expanded distribution of South American and African artifacts: For some reason, our South American and certainly our African artifacts have been gaining greater acceptance. Two of our department store customers featured examples of our African line in their Christmas catalogs last year. I personally think consumer tastes are changing from the modern and abstract to the more concrete, like our products. Lancer distributes its products exclusively through firm-sponsored showings, specialty dealers (including selected interior designers and decorators), permanent art galleries, and a few exclusive/upscale department stores. Often, the company is the sole supplier to its clients. Rangard recently expressed the reasons for this highly limited distribution: Our limited distribution has been dictated to us because of the nature of our product line. As acceptance grew, we expanded our distribution to specialty dealers and some exclusive department stores. Previously, we had to push our products through our own showings. Furthermore, we just didn't have the product. These South American artifacts aren't always easy to get and the political situation in Africa limits our supply. Our perennial supply problem has become even more critical in recent years for several reasons. Not only must we search harder for new products, but the competition for authentic artifacts has increased tenfold. On top of this, we must now contend with governments not allowing exportation of certain artifacts because of their "national significance." The problem of supply has forced Lancer to add three new buyers in the last two years. Whereas Lancer identified 2 major competitors a decade ago, there are 5 today. "Our bargaining position has eroded a tad," noted David Olsen, director of procurement. "Our fixed costs now total $26 million as we have watched our margins slip a little in recent years due to aggressive competitive bidding by others." "And competition at the retail level has increased also," injected Rangard. "Not only are some of our larger specialty and exclusive department store customers sending out their own buyers to deal directly with some of our Hop and Navajo sources, but also we are often faced with amateurs or fly-by- night competitors. These people move into a city and dump a bunch of inauthentic junk on the public at exorbitant prices. Such antics give the industry a bad name." Rangard acknowledged that reasonably high-quality, authentically made decorative items were also available on the Internet (see, for example, camerontradingpost.com and novica.com). In recent years, several mass-merchandise department store chains have begun to sell merchandise like Lancer’s. Even though product quality was often mixed, and most items were replicas, occasionally an authentic group of items was found in these stores, according to company sales representatives. Subsequent inquiries by both Rangard and Olsen revealed that two competitors had signed purchase contracts with these outlets. Moreover, the items were typically being sold at retail prices below those charged by the company's dealers. In early December 2019, Rangard was contacted by a regular non-exclusive department store chain concerning the possibility of carrying a complete line of Lancer products and particularly a full assortment of authentic items. As part of an effort to cater to more upscale customers, the chain had recently ventured into decorative artifacts. It was currently selling a competitor's items but wished to add a more exclusive product line. A tentative contract submitted by the chain stated that it would buy at 10 percent below the company's existing prices, and that its initial purchase would be for no less than $1 million. Depending on consumer acceptance, purchases were estimated to be at least $20 million annually within a three to five-year horizon. An important clause in the contract dealt with the supply of replicas. Inspection of this clause revealed that at peak sales replicas would consist of 80 percent of the order, meaning that Lancer would have to almost triple its replica production to satisfy the contractual obligation. Soon after Lancer executives began discussing the contract, the company's president, Andrew Smythe, mentioned that accepting the contract could have a dramatic effect on how Lancer defined its business. Smythe added: The contract presents us with an opportunity to broaden our firm's position. The upside is that we have the potential to add $20 million in additional sales over and above our annual growth. This is a plus because revenue growth may be challenging to sustain at the current pace. On the other hand, do we want to commit such a large percent of our business to replicas? ls that the direction that the market is going? What effect will this contract have on our current dealers, and, I might add, our current customers? I want you both (Rangard and Olsen) to consider this contract in light of your respective functions and the company as a whole. Let's meet in a few days to discuss this matter again.

Questions:

1. Who is our customer?

2. Who are our collaborators?

3. What does our customer value?/What is our Customer value proposition? 4

. Who are our competitors

5. How can we provide better value to our customers than our competitors?

6. Which segments are being targeted?

7. What is our Positioning/Positioning Statement?

8. Where are we on the Product/Market matrix

9. Is our marketing strategy viable / profitable / successful?

Answer 1

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The organisation in case sells authentic artifcats from South America and Africa and has established its reputation of being one of the trusted place to buy suvh items. Since the authentic artifcats are costly, the market for replica of these items is also developing and growing rapidly. The company also started to manufacture replica of original itmes, but to smaller extent. Now, as the competition has intensified and the similar type of items are sold at mass merchandise stores, the company is faced with an option to decide if it is ready to increase the share of replica in its total production, by threefold.

The biggest constraint in the sale of authentic artifact business is that it is a niche market, where only the true connoisseurs of art who are also capable to pay its price are company's customers. THis market is not going to grow at lightening speed at which the mass market is capable of. Other constraint is the supply of artifacts which is certainly limited, and company can expand at a restricted pace in future. Another issue is that the recession has slowed down the market, especially of expensive articles that can be postponed to a later occasion, though it is a temporary effect, but affecting the organisation's business.

The success measures are the sustainability of business not only in terms of financial viabiity and profitability but also maintaining an image indentity through ethical practices and winning and sustaining people's trust.

Company is faced with two alternatives. One, it can go ahead to grab the market opportunity that is not only available at the moment and capable of increasing the business of replicas by threefold, but also has a pormising future. Two, it can retain its brand identity of a seller of top class authentic artifacts which does not deal in replicas however lucrative the prospects are.

The first alternative seems lucrative at the first sight but it will seriously compromise its position as a genuine dealer that can be trusted with. As a maker of replicas, its hard earned reputation will be lost soon and its loyal customers will start looking for alternatives. Soon the company will find itself among the mass market fake producers that abound these days. Further, the fakes have no bottom limit to which they can descend, thus in future the company may be forced to compete with manufacturers of low grade fakes that sell for $2 and like, and be counted among those.

In my opinion, the company should stick to its business of genuine artifacts and consolidate it further without getting distracted by the replica business, which has not only low margins, but has also the potential to hamper its brand value seriously.