OFFICE DISTRIBUTORS, INC. (ODI)

Tiffany Lui, marketing manager for Office Distributors, Inc. (ODI) must decide whether she should permit her largest customer to buy some of ODI’s commonly used file folders under the customer’s brand rather than ODI’s own FILEX brand. She is afraid that if she refuses, this customer—Business Center, Inc.—will go to another file folder producer and ODI will lose this business.

Business Center, Inc. is a major distributor of office supplies and has already managed to put its own brand on more than 45 high-sales-volume office supply products. It distributes these products—as well as the branded products of many manufacturers—through its nationwide distribution network, which includes 150 retail stores. Now Rick Mann, vice president of marketing for Business Center, is seeking a line of file folders similar in quality to ODI’s FILEX brand, which now has over 60 percent of the market.

This is not the first time that Business Center has asked ODI to produce a file folder line for Business Center. On both previous occasions, Tiffany Lui turned down the requests and Business Center continued to buy. In fact, Business Center not only continued to buy the file folders but also the rest of ODI’s product lines. And total sales continued to grow as Business Center built new stores. Business Center accounts for about 30 percent of Tiffany Lui’s business. And FILEX brand file folders account for about 35 percent of this volume.

In the past ODI consistently refused such dealer-branding requests as a matter of corporate policy. This policy was set some years ago because of a desire (1) to avoid excessive dependence on any one customer and (2) to sell its own brands so that its success is dependent on the quality of its products rather than just a low price. The policy developed from a concern that if it started making products under other customers’ brands, those customers could shop around for a low price and the business would be very fickle. At the time the policy was set, Tiffany Lui realized that it might cost ODI some business. But it was felt wise nevertheless, to be better able to control the firm’s future.

ODI has been in business 28 years and now has a sales volume of $40 million. Its primary products are file folders, file markers and labels, and a variety of indexing systems. ODI offers such a wide range of size, color, and type that no competition can match it in its part of the market. About 40 percent of ODI’s file folder business is in specialized lines such as files for oversized blueprint and engineer drawings; see-through files for medical markets; and greaseproof and waterproof files for marine, oil field, and other hazardous environmental markets. ODI’s competitors are mostly small paper converters. But excess capacity in the industry is substantial, and these converters are always hungry for orders and willing to cut price. Further, the raw materials for the FILEX line of file folders are readily available.

ODI’s distribution system consists of 10 regional stationery suppliers (40 percent of total sales), Business Center, Inc. (30 percent), and more than 40 local stationers who have whole-sale and retail operations (30 percent). The 10 regional stationers each have about six branches, while the local stationers each have one wholesale and three or four retail locations. The regional suppliers sell directly to large corporations and to some retailers. In contrast, Business Center’s main volume comes from sales to local businesses and walk-in customers at its 150 retail stores.