I. Situation Analysis
The situation of the firm as of the end of the reading (dated 1983), is that Ryko Manufacturing Company has terminated a distribution contract it held with Eden Servicer. This is because Eden was consistently violating many of the terms that the two companies entered in a 1977 agreement. According to the termination letter sent by Ryko to Eden, “… you have failed to perform pursuant to the terms of the contract in that you have consistently taken positions against the company, have interfered with contractual relationships, have attempted to interfere with the other distributors’ relationship with the company and are selling products and equipment of direct competitors of the company,” (646).
The problems arising at Ryko started to happen when Fred Eden took over distribution of Ryko products in 1977 in the District of Columbia, northern Virginia and Maryland, after Nick Keenan retired. There was much contention in the northern Virginia area, because the territory was already designated to Woodbridge. However, Eden approached Woodbridge and came to an arrangement that Eden would act as an agent for Woodbridge and pay a portion of the profits in the territory to the company. However, in 1980, Ryko terminated the contract with Woodbridge because the distributor wasn’t meeting quotas. Eden still wanted the area, as it was a major metropolitan area and it was in close proximity to Eden’s base. When Eden contacted Ryko’s East Coast factory representative to request the agreement with Woodbridge be continued, Eden said he was told it would. However, Ryko’s owner, Larry Klein, said Eden was only allowed to perform sales in northern Virginia on an as-needed basis. This was the launching point of the contention between Eden and Ryko, as Eden – despite being told that the sales were only to be completed in northern Virginia on an as-needed basis – made two sales.
Problems intensified, as Eden wanted to negotiate the terms of their distribution agreement. Other distributors had signed the document about three years after it was issued, but the Edens wanted several changes, and they still wanted to distribute to northern Virginia. At a meeting in 1982, where the Edens wanted to discuss with Ryko the terms of the contract and distribution in northern Virginia, Eden indicated it was in talks with five companies about purchasing the equipment, but the distributor wouldn’t disclose which companies talks were with. This is because of the difficult business relations between Ryko and Eden.
Later, Eden accused Ryko of intentionally cutting the company off by adopting a special usage account. Other distributors took issue with this account that was took several major operations out of distributors’ regular rates. Instead, sales to these operators was to only garner $1,500 commission plus the installation charges. The assessor sales wouldn’t generate additional commission. After the distributors opposed, Ryko generated a new special usage account that would lower commission less drastically.
The business is involved in selling car washes. The customers are primarily oil companies, rental car fleets and convenience store chains. The company is meeting the needs of the gas stations, though details about whether the gas stations are happy with the car washes wasn’t discussed in the case study. The mission statement doesn’t need to be revised.
Ryko’s production capacity can meet the demand of the market. Generally, large oil companies have driven much of the company’s sales. Ryko’s financial capacity was not discussed in the case study. However, the company is able to finance the installation of the car washes and provide oil companies with free trials. The marketing capacity of the firm was challenged by Eden because the distributor began selling its own products or products that weren’t of the Ryko name. This affected Ryko’s ability to market itself.
C. Competitive Environment
The competitive environment was essentially limited to the companies that were approved by oil companies. This was an exclusive list to which Ryko was able to become a part of.
D. Strategy Criterion
The company’s strategy is to distribute its product through its distributors and to pay those distributors a commission.
E. Business Decision
Larry Klein, president of Ryko Manufacturing Company, decided to terminate relations with Eden because the distributor was in violation of several terms of the contract.
The main indicator that there was a problem at hand, was when Eden refused to disclose the five potential buyers in northern Virginia. This shows that the company was not happy with the way relations were going with Ryko.
II. Marketing Problem
A major problem that occurred is in relation to the 1982 meeting between Eden and Ryko when Eden told the company that they weren’t disclosing who they are in talks with about selling equipment. According to Eden, there were five companies interested in buying the equipment. However, Eden not disclosing who they are is a sign that the company didn’t trust Ryko. This is a sign that the two companies were having problems working together and there is a lack of trust on the part of Eden.
A secondary marketing problem, and one that likely spawned the tensions between the two companies, was the refusal by Ryko to allow Eden to exclusively distribute to northern Virginia. This is an area that was very deer to the hearts of the Eden owners and they took issue with not being able to distribute in this area. That refusal was a sign of things to come.
III. Alternative Solutions
(1) The solution to satisfy the contention that was occurring between the two firms was to give Eden northern Virginia. This would have likely satisfied the company and the two firms could be most likely be able to work together again.
(2) Alternatively, Ryko could have not set up the special usage account. All that account did was damage relations further, as Ryko got greedy and wanted to limit the commissions of distributors.
(3) Also, Ryko could have made some concessions to the distributors’ contract. As the case study explains, all of the distributors took issue with the contract and were reluctant to sign it. This caused further tension between the distributors and Ryko, and it was a topic of discussion at a meeting in 1982 between Eden and Ryko.
IV. Evaluation of Alternative Solutions
(1) If Ryko gave Eden northern Virginia, the gesture would have essentially been in good faith and there wouldn’t likely have been many of the issues that came along with the two companies doing business later. Good business relations is the main advantage of giving northern Virginia to Eden. Ryko would still make some money from the area, it just wouldn’t be a district distributor. A disadvantage to doing this would be the obvious decrease in the amount of money that Ryko would earn off of the area if it were to continue to use a middleperson to do business in the area.
(2) The special usage account could have been eliminated or never proposed. This would have prevented some of the issues with the distributors and the company. Ryko was, again, getting greedy and not implementing this plan would have not abandoned the distributors’ financial interests. A disadvantage to axing the plan is the fact that it was imposed to lower company expenses, and by not doing so, expenses would remain at the same level and that might not have been sustainable for the company.
(3) Right off the bat with the distributors’ contract, Ryko could have worked more closely with distributors to come to a better arrangement. Not doing so set up bad relations from the start. However, a downside to conceding with the distributors would be that Ryko would be giving some control to the distributors, and that might be a bad place to start relations. Furthermore, the distributors may have been asking for too much.
The best alternative to dealing with the Eden situation specifically would be to give the company northern Virginia. This is a good-faith move that would strengthen relations moving forward. If this decision were made from the very beginning, there would likely have been considerably less tensions between the two companies and Ryko would likely have not had the types of issues with Eden breaking several contractual provisions such as selling the competition’s equipment. Furthermore, if Ryko had allowed Eden to distribute in northern Virginia, it would be showing to the other distributors that Ryko is willing to work with the distributors, and this would have improved relations across the board. Ryko likely spent more money going through the process of exterminating the contract between the two companies, hiring lawyers for advice, and finding a new distributor in the two areas that Eden did cover, than it would have lost by allowing Eden to distribute to the area of northern Virginia.
The implementation of allowing Eden to distribute to northern Virginia wouldn’t be much of a problem. The main issue is going back on the letter that was already sent to Eden about the termination of the contract between the two companies. The best course of action would have been to initially respect the former arrangement that Eden had in northern Virginia with Woodbridge. However, that can’t be done at this point and now there is a lot of back-stepping that needs to take place in order for the companies to work together again.
Ryko might not be able to completely trust Eden anymore, but if the two parties are able to sit down to come to a compromise, then this could be the best solution for Ryko. The company has continually shown that it has little regard for the well-being of its distributors, and this is where the company is bound for failure.
Ryko will need to pay for a lawyer to draft a new contract, and there will likely be many revisions. Ryko will then have to meet with Eden to talk about how the two companies can work together in the future. At this time, Ryko can make certain demands from Eden so that the company doesn’t start selling other companies’ merchandise in the future. In order to have the companies effectively work together again, Ryko will need to do regular checks on Eden until trust is regained.
Ryko also needs to establish the cost benefit of working with Eden again. While there will be a loss of revenue from the loss of being able to directly distribute to northern Virginia, costs will be saved by not having to find a new distributor to the area. Furthermore, there could be a loss of sales if Eden isn’t the distributor, because the company could have those 5 interested buyers as it previously indicated. Furthermore, it is already familiar with the area and business.