Running head: CASE STUDY ON STRATEGY AND PROFITABILITY OF PEN AND

PENCIL BUSINESS 1

Case Study on

Strategy and Profitability of Pen and Pencil Business

Course: MGT 489 # 1, Summer 2017

Submitted To

Dr. Muslima Zahan

Assistant Professor

Submitted By

Ishtiaque Hossain Khan 1120246030

Palash Biswas 1211003030
Md.Ibna Morsalin 1320708030
Nurul Islam 1321169030
Md Shadik Shahriar 1230649630

School of Business and Economics

North South University

Date of Submission: 30/7/2017

CASE STUDY ON STRATEGY AND PROFITABILITY OF PEN AND PENCIL BUSINESS

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Executive Summary

The objective of this case study is to analyze the existing real life operational and ethical

problems surrounding pen and pencil business of Bangladesh. At the same time, this paper also

tries to explain how such complications can be overcome by implementing proper strategies.

Pen and pencil are used on a wide range of sectors in our everyday life. For more than a century,

these products have been massively used all over the world. Such huge demand for pen and

pencil has created numerous businesses around the world. Similarly in Bangladesh, there are

both large and small scale stationery stores which aim to make profit by selling these fast-

moving consumer goods. In the past, these stores offered Econo Ball pens of GQ Ball Pen

Industries Ltd. and local pencil with few imported products of Staedtler. At present, most stores

sell pen and pencil of Matador Group as the company offers wide variety of products like Ball

pen, Gel pen and Genius HB/2B pencil. To analyze the present complications in pen and pencil

business in an academic way both business and functional level strategies were used.

Furthermore, numerical data collected from stationery stores had been used to measure overall

profitability and profit growth of the business. Lastly, common ethical issues surrounding pen

and pencil business have been evaluated and solved with different business activities. Although

both qualitative and quantitative information was collected accurately, it can be said that not

always the source of information was absolutely reliable. Certain stationery store owners and

employees wanted to preserve valuable business information as they feared that disclosing them

might eventually damage their businesses. With growing emphasis by government to increase

educational activities it can be said that demand for stationery stores selling pen and pencil will

go up. This problem-oriented case study can help both existing and would-be new pen and pencil

business owners combat the complications surrounding the business more effectively.
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Findings

In terms of pencil, most stores sold Matador I-Teen pencils at five taka per piece. They paid

suppliers four taka per piece to purchase these pencils. So, from selling pencils the stores made

one taka profit on per piece. In case of pens, the surveyed stores focused on offering two types of

pens. One is the five taka apiece pens like Matador Orbit and the other one is Matador I-Teen

Premium Gel pen which costs ten taka per piece. Costs of buying these pens for stationery shops

are four and nine taka per piece respectively. Representatives of all stores were satisfied with

profitability from pen and pencil business. They held the view that profit from pen and pencil

segment would increase in the future. Therefore, those stores will see increase in net profit over

time.

The competitive advantage of the surveyed stores in pen and pencil business is the low-cost of

products that they are selling. Also, they sell products that have huge demands. Key to achieving

competitive advantage is developing and implementing functional level strategies (Stead, 2014).

Such strategies can help a company improve its overall effectiveness and create more value for

customers. Some functional level strategies were observed among the surveyed stores like

special booths within stores that only contained different types of pen and pencils. These booths
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had committed salesman looking to respond to any types of customer queries like finding the

desired pen or pencil. They kept blank pages on booths so that any customer can write on it and

check the quality of product before actually buying it. Some stores took initiatives to

demonstrate the quality of the product they are offering. For instance, some stores had banners

showing IQS and IDSQ awards received by Matador pens. One store recently placed a replica

figurine of Staedtler HB pencil in the store which highlighted the reliability and goodwill

associated with the renowned German company. When asked about the complications faced in

pen and pencil business in day to day operations, around half of the stationery store owners were

of the opinion that there weren’t many problems. However, the remaining respondents held the

view that some activities by rival companies create inequality in pen and pencil business. They

maintained that such activities were disrupting the overall market dynamics of pen and pencil

business. These problems are:

Problem no. #1: New competitors in the form of departmental stores

The leading pen and pencil companies in Bangladesh make sure that their products are

available everywhere and to ensure such availability they supply pen not only to stationery stores

but also to general departmental stores selling a variety of goods. Previously, competition for pen

and pencil was limited among stationery stores but currently even general stores spread across

numerous locations are entering pen and pencil business. Although these stores only offer pen

and pencil of local companies, shop owners of stationery stores see them as emerging

competitors. According to the owners of pen and pencil business, such competitors are reducing

their revenues as customers will rarely want to look for a stationery store when they can easily

buy a pen or pencil from a nearby general store.

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Problem no. #2: Lack of differentiation

Pens offered by these stores can be categorized in three sections in terms of the manufacturing

company. These were Matador Group, GQ Ball Pen Industries Ltd. and Cello. Prices of these

products varied from five taka to fifteen taka. In terms of business level strategy, all the stores

followed similar tactics. Such strategies function as a guide for a single business firm as it wades

to the competitive world of business (Orcullo, 2007). All the stores designed their product

offering in such a way that they could meet the demands associated with educational and

administrative activities. Such activities require affordable low-cost pens that can be purchased

at high volumes. The surveyed stores emphasized on selling low-cost similar types of product

over product differentiation. So, it can be said that the surveyed stores followed broad low-cost

strategy that is selling low cost products to a broad level of customers. As a result, the surveyed

stores lacked high-end products of popular brands like Parker, Mont Blanc and Faber-Castell

which shows lack of differentiation strategy. Often there are buyers who love to write with

luxurious pens and want to gift such pens to their dear ones. Unfortunately, these stores did not

pay attention to the demands of that niche customer group.

Problem no. #3: Access to lucrative business contracts

Some well-established and renowned stationery stores use bribes to enter into lucrative

contracts with organizations. The way it works is that some pen and pencil business owners pay

bribes to employees who manage the responsibility of purchasing pen and pencil for

organizations such as schools, private teaching centers and offices. Due to acceptance of bribes,

those employees make sure that whenever their organizations need to purchase pen and pencil in

large quantities, they purchase it exclusively from those stationery store stores that paid them
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bribes. Though such practice may help a certain stationery store to remain profitable, ultimately

it is detrimental to all other competing stationery stores of an area. It is a demoralizing for other

competing pen and pencil businesses particularly to those who lack proper financial strength.

Moreover, this type of questionable practice used by one company can demotivate new pen and

pencil businesses to enter the market.

Problem no. #4: Information manipulation

In the pen and pencil business, the sellers commonly use unfair means to boost their sales.

One of the common ways is information manipulation. They are found to exaggerate,

misinterpret, presenting asymmetric information and even in some scenarios lying completely.

The information that they exploit are mainly regarding product origin, durability, quality,

product to product comparison and company information. These cheap tricks increase sales and

commission and thereby increase overall profitability of the business but only for a short time. In

the long run, there is an adverse effect as they start losing customers. When the customers find

out that they have been cheated, they tend to avoid such shops, which indicate that they are

losing customers.

Problem no. #5: Low quality products

When surveying about the unethical issues in the stationery shops it was discovered that there

are few suppliers who are making counterfeit ball pen and gel pen. There are some sellers are

who also linked with them for making profit by selling these kinds of products. Interestingly,

they are not counterfeiting the local brand ball pen because it is not that much profitable. The

dishonest suppliers are only focusing on some Indian brand like Cello and Montex which can

provide them more profit compared to local brand. It is easier to make the plastic body of the
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pens and reshaping them but the main unethical practice is that they are refilling the ball pen and

gel pen with cheap ink. The poor performance of these kinds of products is also noticeable.

Whereas the original pen lasts for 1 or 1.5 years, the durability of the copied ball pen and gel pen

is between 6 to 8 months.

Discussion

After analyzing various pen and pencil business, ranging from small to large, in different

locations around Dhaka city, it became clear that the retail stores are experiencing varieties of

issues regarding their strategies and ethics, and it is gradually affecting growth and overall

profitability of the stores, both in short and long run. This market is very competitive and these

issues of inefficiency have negative impact on the business, causing them to lose customers,

goodwill and money over the course time. Each of these retail shops has good amount of capital

invested and has potential to reach a much higher level if some of these problems like low

quality goods, new competitors, information manipulation, bribery and lack of differentiation can

be solved with simple, affordable and executable measures that can be followed and maintained

during the upcoming days.

Solutions to problem no. #1: New competitors in the form of departmental stores

Solutions ●Offering better quality products. ●Selling at a slightly lower price.

Can drive these new competitors out of

Advantage Ability to attract customers. the market.

May lose customers once price is

Disadvantage Increase in overall cost structure. restored to normal state.

Solutions to problem no. #2: Lack of differentiation

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Solutions ●Using broad differentiation strategy. ●Using focus differentiation strategy.

Products will be appealing to every Business can become attractive to the

Advantage type of customers. minority luxurious buyers.

Disadvantage Extremely costly operation to May lose the previous customer base
maintain. completely.

Solutions to problem no. #3: Access to lucrative business contracts

●Owners assessing the risk associated ●Avoiding organizations whose

Solutions with bribes in long term. employees look for bribes.

Owners will realize that using bribes If all pen and pencil businesses of an area
is not a long term solution as stores avoid employees of organizations that
would stop improving sales effort and want bribes then such practice may
Advantage rely only on bribes to boost sales. inevitably get eliminated.

Disadvantage Some narrow minded owners may not Some stationery store owners will see
be able to relate to it. their profitability going down.

Solutions to problem no. #4: Information manipulation

●Conducting awareness training for ●Emphasizing the religious

sales employees so that they can importance of staying truthful to
understand the harmful consequences customers.
of manipulating information to
Solutions customers.

Such programs can completely Can massively improve the overall

eradicate all types of mischievous transparency and ethical standards of
Advantage sales tricks used by sales employees. the entire business.

May be difficult to implement where Such level of honesty may reduce

Disadvantage sales employees are paid extra overall profitability.
commission for boosting sales.
Solutions to problem no. #5: Low quality products

●Focusing only on selling authentic ●Establishing strict punishment policy

local products only instead of in the entire pen and pencil business
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Solutions counterfeit imported products. for selling counterfeit low quality
products.
Advantage Can make pen and pencil businesses Such initiative can increase the quality
more reliable in the eyes of customers. of goods offered by the pen and pencil
businesses.
Disadvantage May end up losing customers who It may be difficult to bring small scale
prefer to write with imported pens. pen and pencil businesses under this
perspective.

Recommendations

These practices should be avoided or the growth and profitability of the businesses can

become stagnant. Such practices risk the continuity of these businesses and may lead to closure

of business due to loss and legal obstruction. Solutions to these problems can help customers

regaining back their loyalty. Moreover, it will boost future sales even further due to the positive

word of mouth among current customers and the potential ones. Proper solutions will act out to

create a distinctive value in the customers mind for pen and pencil businesses.

Firstly, to combat the new competitors in the form of general stores existing pen and pencil

businesses must improve its product offerings. Although this may increase the overall cost

structure in the long run, this solution will be more be more beneficial. Store owners must realize

that they need to spend money to survive in this increasingly competitive business world. A

conscious customer can always differentiate between products. The use of predatory pricing

strategy that is driving competitors out of the market by lowering product prices is financially

risky. Moreover, such practice is also considered anti-competitive (Baumol & Blinder, 2008).

Secondly, the existing pen and pencil businesses should adopt broad differentiation strategy.

Most of the surveyed stores were large scale businesses selling a diverse range of products
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besides pen and pencil. So, they should rearrange their capital structure in such a way that they

can offer different products to different customers. It is evident that due to the increasing

globalization, customers are now aware of many renowned pen brands like Parker. Selling

imported luxury pen alongside local pens can strengthen the strategic position of businesses.

Using a focus differentiation strategy may not be a viable option as it would limit the target

customer in pen and pencil business. Thirdly, all pen and pencil business owners must realize the

impact of bribery on their long term performances. A company that uses bribes to generate sales

may become demotivated to differentiate its product offering. Furthermore, it may become less

enthusiastic regarding the use of marketing strategy to boost sales. It is possible to ignore

dishonest buyers looking for bribes but there are so many stationery stores around us that those

dishonest buyers will ultimately find a desperate seller. Rather, pen and pencil business owners

must realize that bribery is just a shortsighted solution to inefficiencies in sales effort and

strategy. Fourthly, to solve the problem of information manipulation store owners may use

religious teachings regarding businesses to stay honest in all situations. Apparently, such

religious theories may be difficult to maintain all the time due to the increasing competition and

deteriorating moral standards. To solve this problem, owners can use awareness training program

surrounding ethical issues in business. It is true that some salespeople manipulate information to

sell a product but most of the time they are unaware about the potential consequences of such

dishonesty. Selling a pen by lying about its feature may help boost sales for only one time but

such action results in loss of customer faith and confidence in one particular stationery store for

good. Owners should help their sales employees become familiarize with such consequences.

Besides, if salespeople are paid based on their individual performances, then considerable

attention should be given on how salespeople are selling pen and pencil. Fifthly, there should be
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strict punishment for businesses that are selling counterfeit pen and pencil. Moreover, selling

such low quality products will also involve monetary penalties. Pen and pencil businesses of a

particular area need to maintain strict disciplinary codes in selling imported pen and pencils. No

matter how big or small the stationery store is if it gets caught selling low quality products then it

will be severely punished. Another solution to this problem is only selling good quality local

products but such strategy would not be valid given the demand for imported pen and pencil in

the market.

Implementation

Implementation is the culmination of all the work in solving a problem and requires careful

attention to detail. In order to solve the operational and ethical problems surrounding pen and

pencil business the previously discussed solutions can be implemented in the following ways:

Implementing solutions to problem no. #1: New competitors in the form of departmental stores

● Reorganizing capital structures in such a way that maximum investment can be allocated to

pen and pencil business.

● Offering newly produced pen in a variety of different colors like red, blue and black instead of

only selling black ink pens. The stationery stores should frequently change inventory with new

products.

● Improve the overall structure, customer service, promotional offer and quality of salespeople

so that customers prefer going to stationery stores over general stores for pens.

Implementing solutions to problem no. #2: Lack of differentiation

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● Satisfy the demands of customers looking for luxurious products by including high-end

products of Parker and Montblac in the product offering but at the same time also satisfying the

needs of regular pen users.

● Use marketing techniques properly to make luxurious pen and its features attractive in the

minds of customers.

Implementing solutions to problem no. #3: Access to lucrative business contracts

● Owners must understand the negative impacts of bribery by analyzing real life collapse of

businesses due to corruption.

● Constant improvement of sales efforts and strategies so that there is no need of using bribes to

boost sales.

● Emphasizing the importance of maintaining a free market in pen and pencil business so that

demand and supply can move freely to set up the appropriate price.

Implementing solutions to problem no. #4: Information manipulation

● Arranging awareness training program once a year so that both existing and newly appointed

salespeople remain truthful. If required hire appropriate personnel who can help less educated

and even uneducated salespeople familiarize with these theories.

● Highlighting the importance of managing honesty when selling pen and pencil to customers.

Salespeople should be trained in such a way that they don’t manipulate information when they

are paid extra commission on the basis of individual performances.

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● Making salespeople aware of all the details and benefits of each type of pen and pencil.

Through this technique salespeople won’t even need to lie to customer as they will be able to

represent the true value of products in an effective way and increase sales.

Implementing solutions to problem no. #5: Low quality products

● Completely banning counterfeit goods of pen, pencil or any other stationery goods in the store.

If the business lacks adequate financial ability to sell imported pen then it should only focus on

selling local products.

● Collaborating with other stationery stores of one particular area to ensure appropriate legal

action and monetary penalty against businesses that sell low quality counterfeit goods at orginal

imported product price.

Conclusion

Businesses based on pen and pencils are very common around us. These products will

continue to have huge demands no matter how technologically advanced the society becomes.

With increasing level of educational and administrative activities in Bangladesh one can easily

predict that demand for these products will only go up in the future. At present, the overall

profitability from pen and pencil business is acceptable but it can increase if businesses become

more ambitious with their strategies like adding certain level of differentiation to the existing

broad low-cost strategy. Such a shift does not mean expanding product offering massively to

appeal to more customers but it can help businesses adopt the best-cost strategy. Like all other

business, pen and pencil business has its own share of problems both operational and ethical. But
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careful implementation of strategic solutions can eliminate the complications and ultimately

make pen and pencil one of the most successful businesses in our country.

References
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Baumol, W., & Blinder A. (2008). Economics: principles and policy. Boston: Cengage Learning.

Orcullo, N. (2007). Fundamentals of strategic management. Manila, Manila: Rex Bookstore, Inc.

Stead, W.E. (2014). Business and economics. Abington, Great Britain: Routledge.