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CASE STUDY ZARO GALLERY

Zaro Gallery is a limited liability company that sources and sells a wide variety of African artifacts. The company's gross sales are about $35 million and have increased at a relatively constant rate of20% per year over the last decade. Through its careful verification of the authenticity of these African artifacts, Zaro Gallery developed a national reputation as one of the most respected sources of these types of artifacts.

In 2011, Zaro further expanded its product line to include items that were replicas of authentic artifacts. For example, African fertility gods and masks were made by craftspeople who took great pains to produce these items so that only the truly knowledgeable buyer - a collector - would know that they were replicas. Zaro has long-term contracts with native craftspeople in Africa who produce these items.

Currently, replicas account for only a small portion of total Zaro sales. The company agreed to enter this business only at the prodding of the firm's clients, who desired an expanded line. The replicas have found most favor among gift buyers and individuals looking for decorative items - mass market. The firm's national sales manager attributed the sales increase ofreplicas to the popularity of the company's product line and to the expanded distribution of African artifacts:

Zaro distributes its products through specialty dealers (including selected interior designers and decorators), firm-sponsored showings, and few exclusive department stores such as Bloomingdales. Their limited distribution has been based on the fact that African artifacts are not always easy to get. Zaro is aware that high-quality, authentically made decorative items were also available on the Internet (see, for example, authenticafrica.com or novice.com). The intermediaries perform all of the promotional activities to the consumer market. In addition, Zaro Gallery provides promotional allowances to its distributors.

In recent years, several mass-merchandisers, such as Target and Home Goods, have begun to sell merchandise similar to the ones offered by Zaro. Product quality and reliability were mixed.

Sometimes, 'traditional' art was created in the absence of any tradition. For example, in Kenya, masks made by the Masai people were sold from $50 to $200 but the Masai have never carved masks. In the last 5 years, competition went from 5 major competitors to 11 eroding Zaro's bargaining power and margins. Two of Zaro's major competitors had signed contracts with mass-merchandisers. In addition, some fly-by-night competitors were dumping a bunch of inauthentic junk on the public at exorbitant prices. Such practice gave the industry a bad name and reputation.

In 2017, Zaro Gallery was contacted by a mass-merchandiser interested in carrying a complete line of Zaro products - authentics and replicas. A tentative contract submitted by the chain stated that it would buy at 10 percent below the company's existing prices, and that its initial purchase would be for no less than $750,000. Depending on consumer acceptance, purchases were estimated to be at least $4 million annually. This additional sale would be significant because revenue growth has slowed due to the recession.

In order to satisfy the proposed contract, Zaro would have to triple its replica production, and increase its offer of authentic artifacts. The company's president mentioned that, however the contract presents the company with an opportunity to broaden the firm's position, accepting the contract could have a dramatic effect on Zaro's business definition. What effect will this contract have on Zaro's current dealers and customers?

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4) One can say that Zaro's MAJOR competitive advantage:

a) its product lines

b) its access to craftspeople

c) its trustworthiness

d) its distribution coverage

5) Since Zaro Gallery sells artifacts, more like the company applies a

a) value-added pricing strategy

b) cost-based pricing strategy

c) penetration pricing strategy

d) skimming pricing strategy