This case study examines the marketing challenges facing Arrow Electronics, Inc. in response to the emergence of the Express internet parts distribution system. The paper analyzes how Arrow creates value for its customers through long-term relationships and personalized service, and explores the risks that a digital bulletin-board pricing model poses to that strategy. It considers two primary scenarios — customers using Express to demand lower prices or bypassing Arrow entirely — and recommends a trial-based approach with selected customers, alongside potential collaboration with Express, to integrate the new system while preserving Arrow's competitive advantages and existing client relationships.
The purpose of this paper is to develop an understanding of the current and future marketing issues facing Arrow Electronics, Inc. and to explore possible responses and probable outcomes of the choices that need to be made. Arrow prides itself on giving customers the best value for their money. One of the ways it does this is by maintaining long-term relationships with full-service customers — always knowing what they need in order to continue providing it — and by continually researching current market trends. There comes a time when a new trend appears on the horizon that cannot be ignored and that may need to be incorporated into the business model in order to stay on the cutting edge, and more importantly, to prevent the loss of both current and future customers.
The core issues are: how does Arrow create "value-added" for its customers that justifies its prices; how is that value different from what suppliers can provide directly; and whether firms like Express can offer the same value — or more — for lower prices.
Express is a system that will appeal to the "do-it-yourself" customer who has the time and the desire to control how they spend their money. Arrow's approach, by contrast, is to take transactional customers — those who simply want to "book-and-ship" — and work toward building long-term relationships with them. Long-term relationships generate trust, and trust allows Arrow to know its customers and their needs, to anticipate those needs, and to respond quickly when contacted. In other words, Arrow takes some of the burden off customers' shoulders, and when it does this well, customers feel the service is worth paying for.
Customers with whom this type of relationship has been established will entrust Arrow with an entire list of items for quoting. This personal touch can also generate a high percentage of word-of-mouth referrals. The more customers trust Arrow, the more they depend on it for value, which leads them to recommend the company to others — ultimately bringing in new customers. This is why it is important for Arrow to be ready and willing to modify its business strategy in order to maintain current customers and develop new ones. When a new system enters the marketplace, Arrow must be especially vigilant about the services that system can offer and how those services might undermine its current way of doing business.
It has come to Arrow's attention that a new internet-based parts distribution service has entered the market. The Express system would allow distributors to post inventories and prices on a digital bulletin board, giving customers of all sizes the opportunity to shop for the prices they want to pay. As Arrow sees it, there is a twofold risk. First, current customers could use the Express system to demand lower prices from Arrow. Second, those customers could circumvent Arrow entirely, dealing directly with suppliers — which could also damage Arrow's supplier relationships. If Arrow ignores Express altogether, it risks losing customers to the new platform.
On the other hand, if Arrow embraces the Express system and incorporates it into its business model, it runs the risk of alienating some long-term customers who value the existing service relationship. This risk must be counter-balanced against the possibility of gaining new customers by participating in the platform. Either path carries consequences, making careful, deliberate strategy essential.
Arrow's recommendation is to run a trial program with a specially selected group of customers — specifically those most likely to adopt the Express system once they become aware of it. By leveraging existing close relationships, Arrow can identify the strengths and weaknesses of the new system firsthand. The best-case scenario is to embrace as much of the Express model as necessary to take advantage of the new business environment while achieving the highest positive outcome.
"Trial program and collaboration as strategic responses"
"Maintaining value while adapting to market change"
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