Club Co., a warehouse club retailer, has asked Deloitte to assess options for offering members mobile phones, service and accessories.
Business situation
Our client, Club Co., is a warehouse club retailer with revenues of $10 billion in the latest fiscal year. Club Co. operates 200 warehouse clubs in 15 eastern and midwestern states and currently services 10 million members who pay for access to Club Co. stores. Club Co.’s value proposition is offering high quality, brand name products at the lowest possible price; they also focus on selection, offering almost twice as many products as competing warehouse clubs.
Based on a recent strategic review of their electronics category, Club Co. has prioritized offering members mobile phones, service, and accessories. Club Co. will partner with a third party who will manage the wireless business inside each of Club Co.’s 200 stores. The third party will occupy a kiosk in Club Co.’s electronics space and sell wireless products, services, and accessories to Club Co.’s members. The partner will manage all staff inside the kiosk and own the relationships with the wireless carriers.
Club Co. and the third party have identified two business models:
Model A would entail offering one wireless carrier’s products and services
Model B would entail offering three carriers
In both models, Club Co. would earn a set commission for every phone sold with a two-year activation as well as a percentage commission on every wireless accessory sold (e.g., cases, Bluetooth headsets, etc.).
Problem statement
Club Co. has asked Deloitte to help assess each option and determine how lucrative each would be.
Question 1
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Your Answer
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A great answer would include a framework that identifies the advantages across three distinct areas – Club Co., its employees, and its supply chain.
Club Co.
Allows Club Co. to focus on its core competency as a warehouse retailer
Avoids paying for high startup costs (i.e. fixtures, point of sale systems, employee hiring and training)
Doesn’t require Club Co. to develop an expertise in telecommunications
Employees
Current Club Co. staff may not have the right skills to sell wireless plans and phones, which requires different sales skills than traditional retail selling. Mobile sales are time consuming (can take 15-45 minutes to shop, purchase, and activate a phone)
Doesn’t require hiring additional employees for each store to do installation of the kiosks
Cross-training of employees isn’t necessary
Supply chain
Outside vendors are specialists in their fields and have done this for prior customers, so they should be able to launch and execute the solution more efficiently and expeditiously. They are more equipped to understand:
Wireless product short life spans due to continuous product innovation
Inventory/assortment planning and market analysis – making sure the right phones and carriers are being offered
How to enter into, and manage, challenging contractual relationships with carriers
The next three questions will ask you to review data and draw conclusions based on what is provided. Please reference the data sheet as you determine your answers for these questions.
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