HUNTER BUSINESS GROUP : TBA ANALYSIS OF THE CASE Brief Background of the Case Star Oil a gasoline services

company started TBA (Tyres, Batteries and Accessories), a complementary business which added value to the core business of gasoline sales. The TBA business initial appeared successful as there was a strong correlation between petroleum sales and the auxiliary business but the profits of TBA started showing a progressive decline before turning into a loss making proposition. Star Oil decided to outsource the entire management to HBS (Hunter Business Group) who had a proven track record in turning around businesses dealing in the same domain. As a part of the turnaround strategy, HBC implemented a number of steps. It started the Gold Accounts concept which identified potential customers contributing to a major chunk of the sales of TBA. HBG reduced the operational costs of marketing by adopting a matrix consisting of three types of channels, i.e. Direct Mail, Telephone Sales and Field Sales. The customer Contact Matrix was further sub-divided into AA, A, B, C & D categories depending on the sales revenue generated from them and the product mix of sales. The Problems The first year of implementation of the turnaround strategy was successful. Though the overall sales revenue declined as compared with the reported sales of the previous year, the business started generating profits. However, there were a number of problems that were facing the TBA business. They were as follows:1. Decrease in projected revenues and hence profits for the current year.

2. Low growth in the Gold Accounts which were contributing substantially towards both top and bottom lines. 3. Reduction in the number of successful service centres/Franchisees due to their conversion into convenience stores by Star Oil. 4. Reduction of funds available for Operational costs and Marketing The Issues 1. What is the way forward for the TBA business? 2. How does HBG maintain the bottom line? 3. Where does HBG implement the Cost cuts? Options Available One obvious Strategy would be to reduce the Field Sales and/or the fixed costs. Another would be reduction of employees in TBA, but both options contain tradeoffs that can have an adverse bearing on the future prospects of TBA. HBA considers three options which are as follows:-

Option I 1. Keep Fixed Cost constant at $1.5 million. 2. Reduce marketing and sales cost to $1.34 million. 3. No need to abandon any territories, shutdown any facilities, scaleback operations. 4. Eliminate field sales entirely (cost cut $1.4 million). Option II
1. Maintain the fixed component of operating expenses at 40-45% of revenue. 2. Fixed costs frozen at $1.28 million.

3. Sales and marketing Costs kept at $1.56 million. 4. Implement Job cuts. Option III (Hybrid) (Selected Option) This option will be exercised by performing the following actions:1. 2. 3. 4.

Reduce both fixed and sales + marketing cost by 20%. Wholesale changes to frequency of contacts. Try to increase no of gold accounts. Boost sales volumes among highest performers, reducing C and D

Adverse Impact. This course action may have the following adverse impacts and hence we propose to have a review mechanism to be in place for fine-tuning and adjustments based on a quarterly review. The adverse impacts foreseen at this stage are as follows:(a) Reducing contacts may cause decline in revenue. (b) Reduction in dealer base. Some Questions 1. Would reducing the contacts hasten the decline? 2. Was it possible for team TBA to improve effectiveness by increasing Gold accounts with revised criteria? 3. Will we be able to persuade these dealers to stock and sell a composite mix of TBA products? 4. Is it time for us to consider changes in the Sales Compensation structure, viz, the balance between the fixed and variable components? Issues which HBG Needs to Ponder over 1. Is there an emerging conflict of interest between Star Oil and HBG on the future of TBA business? 2. Do we need to reestablish a correlation between the Core Sales of Star Oil and well run Franchisees of TBA to renegotiate the terms between HBG and Standard Oil? 3. Is maximising TBA sales and profits adding value to Star Oil? 4. Is this business model viable in the long term?