DATE: October 15, 2024
TO: Aron West, Elzra Corp.
FROM: Logan Levesque
RE: Distribution Strategy Review and Recommendations for Elzra Corp.
Thank you for the opportunity to assess Elzra Corp.’s distribution strategy. Based on my review, I have analyzed your current approach, specifically your relationship with Impressions and the potential to move toward direct partnerships with more prominent distributors. My analysis has yielded the following conclusions:
- Margin Loss with Impressions: Elzra is giving up almost half of its potential margin by working with Impressions, resulting in a significant loss of revenue.
- Direct Distribution Provides a Growth Opportunity: Working with more prominent distributors like Alliance could increase Elzra’s control and profitability while expanding market reach.
- Increased Responsibility in Distribution Management: Shifting away from Impressions would require additional resources and infrastructure within Elzra to directly manage logistics, fulfillment, and distributor relationships.
I recommend that Elzra transition from using Impressions to distributing its products directly to customers. This will allow Elzra to increase its profitability while gaining total control over its distribution network.
Distribution Strategy Analysis
Impressions Partnership
Elzra has partnered with Impressions since launching its successful third edition of Catacombs. Impressions acts as a distributor, taking 18% of the MSRP for distribution to retailers. While this partnership has helped Elzra expand its reach, the cost is significant. As the table below shows, Impressions’ fees reduce Elzra’s margin from 40% to 22% on each unit sold, a considerable cut for a small company. Given the increasing success of Catacombs and its additional campaigns, this margin reduction is now limiting Elzra’s potential profitability.
Managing Increased Resource Requirements
Transitioning away from Impressions will place additional burdens on Elzra’s internal operations. Shipping games directly from China to distributors without Impressions’ handling will require expanding the company’s logistics capacity, hiring extra staff, or increasing automation to manage orders efficiently. However, with proper planning and resource allocation, Elzra could manage these responsibilities without significantly increasing overhead as sales grow.
Alternative Distribution Strategies
As Elzra has grown, alternative approaches to distribution have become more viable. The company could consider:
Direct Sales to Retailers: By bypassing Impressions, Elzra could increase margins by selling directly to retailers.
- Pros: higher margins and more control.
- Cons: increased operational costs and challenges in managing distribution channels.
Partnering with Mega Distributors: Elzra could explore partnerships with other distributors, such as Brave New World in Germany or regional distributors in the UK or Australia, to gain regional expertise and better service for specific markets.
- Pros: Regional expertise and potentially better terms.
- Cons: Lack of cohesive global reach and additional overhead for managing multiple partners.
Self-Management: Elzra could take complete control of distribution, handling warehousing, logistics, and sales internally, with the help of dedicated staff and modern warehouse infrastructure.
- Pros: Total control over all aspects of distribution and potentially higher margins. Elzra also did well on the Kickstarter platform before they started working with Impressions.
- Cons: Significant increase in operational complexity and costs, particularly as Elzra would need to handle logistics, inventory management, and accounts payable/receivable without Impressions’ support.
Conclusion and Recommendation
Elzra is at a critical decision point regarding its relationship with Impressions. While the convenience and existing global reach offered by Impressions are valuable, the cost structure, inflexibility, and strained relationship are increasingly problematic. Given the company’s growing capabilities and the increasing margins that could be achieved through self-management or alternative distributors, it may be worth exploring more flexible options.
- Short-Term: Proceed with the current partnership for the immediate future (e.g., for the following order of 10,000 units) to avoid disruption in the short term. This will allow the company to fulfill its obligations with Impressions while preparing for future changes.
- Medium-Term: Continue to explore alternative distributors or self-management strategies, keeping a close eye on operational costs, profit margins, and customer satisfaction. Managing specific markets independently (e.g., Canada or Europe) could help smooth the transition.
- Long-Term: Evaluate the complete in-house management of distribution or partnerships with region-specific distributors if growth and operational capability allow for it. Prepare for a potential split with Impressions when Elzra Corp. can sustain the operational demands of direct distribution.
This plan will allow Elzra Corp. to continue relations with Impressions while they gather the resources to fully self-manage their distribution.
| Distribution Method | MSRP | Elzra Corp. Margin(percentage) | Elzra Corp. Margin (per unit) |
| Impressions | $64.99 | 22% | $14.2978 |
| No Distributor | $64.99 | 50% | $32.495 |
| Mega Distributor | $64.99 | 35% | $22.7465 |
| Self Management | $64.99 | 100% | $64.99 |