Product details

After six years of negative net profitability, Officenet Staples (ON), Argentina’s leading office supply vendor, started to post profits. However, ON’s performance still lagged far behind the profit target set by STAPLES, the global industry leader that had recently acquired ON. In mid 2005, Leo Piccioli took over as ON’s General Manager, knowing full well that his key challenge lay in driving ON to reach Staples’ profitability requirements. He was also aware of the fact that one of the reasons for ON’s low profitability rested with the company’s sales force. Free to set prices for specific quotes, sales reps used to grant significant discounts to their customers. Typically, 40 percent of the items in a purchase order were priced below their regular prices. In a highly competitive market and with an increasingly commoditized offering, Piccioli needed to revise the company’s pricing policy. Should ON change the pricing delegation practices that were so deeply embedded in its organizational culture? If so, what kind of price policy should ON pursue to improve its profitability while keeping its sales reps motivated? The case describes this scenario, inviting class participants to delve into topics associated with pricing strategies. The decision faced by ON’s top executives could certainly be resolved using quantitative analysis (ie, recommending the option that would generate the highest profit.) However, this case attempts to describe a commonplace situation, especially in emerging markets, where managers are forced to make wise choices on the basis of partial -at best- information.