Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

20. Managing Marketing’s
    Link with Other Functional
    Areas

Text © The McGraw−Hill

Companies, 2002

589

grease cutting, grit, and the like. After starting this program, ChemStation’s profit

margins doubled.^12

Baldor Electric Gets Wired for Worldwide Profits

Baldor Electric Company produces and markets

electric motors. While sales in recent times have

been depressed by a weak economy, Baldor has

weathered bad markets in the past. One of the

worst times was about 15 years ago. Back then,

demand for electric motors was in a slump. Worse,

producers in Asia were pumping out low-cost com-

modity-type motors from automated factories. The

market was so tough that Westinghouse, the origi-

nal developer of the electric motor, got out of the

business altogether. Yet Baldor’s sales have

increased five times over since that time, and its

profits have been on an upward trend. So how has

Baldor, an old company in a mature market,

achieved profitable growth?

Rather than trying to compete with motors like

those available from many suppliers, Baldor focused

on specific target markets. It came out with special

motors, like the one to run heart pumps in hospitals or

the 500-horsepower unit for rolling steel. The R&D

group also added computer controllers to motors to

improve their value to the customer and to work with

factory automation systems that are replacing old

approaches. In fact, Baldor’s innovations recently

earned a “Product of the Year” Gold Award from a

major trade magazine. That kind of publicity brings in

inquiries and gives Baldor’s knowledgeable sales reps

the chance to work with individual customers to help

them increase their productivity. For example, in a

recent sale Baldor’s drive doubled the output from the

equipment in a customer’s factory. Individually, these

specialized motors are not big sellers. Rather, Baldor’s

strategy takes advantage of flexible production to

focus on getting higher margins on each motor.

Baldor also expanded distribution into 55

countries. And to make it easy for customers world-

wide to get information, Baldor supplements its

website (www.baldor.com) with an electronic catalog

on a CD. Its CD includes CAD drawings, performance

data, and installation manuals for over 2,500 Baldor

motors. Product designers in customer-firms use it to

pick the right motor, and it also helps the customer-

firm train its employees. All of these innovations mean

that Baldor can command a premium price.^11

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Batched production

requires inventories

Where products are

produced matters

Internet

Internet Exercise Nike offers an online service in which customers can

design their own shoes. Go to the Nike website (www.nike.com), select USA,

then select Nike iD,and check out this feature. What do you think are the

major (1) strengths and (2) weaknesses of Nike’s service?

If it is expensive for a firm to switch from producing one product (or product

line) to another, it may have no alternative but to produce in large batches and

maintain large inventories. Then it can supply demand from inventory while it is

producing some other product. However, a firm that must pay the costs of carrying

extra inventory to avoid stock-outs may not be able to compete with a firm that

has more flexible production.

Excess inventory that can’t be sold using the firm’s normal strategy can become

a big problem. In some industries there are specialized middlemen whose primary

job is to buy and liquidate excess inventories. There has been a significant

increase in the buying and selling of excess, surplus, or obsolete inventory dur-

ing the past few years, mainly because the Internet makes it possible for buyers

to locate sellers and vice versa. Sometimes the inventory is sold with an online

auction. The selling price may be high or low, depending on demand at that

particular time.

A marketing manager also needs to carefully consider the marketing implica-

tions of where products are produced. It often does make sense for a firm to

produce where it can produce most economically, if the cost of transporting and

storing products to match demand doesn’t offset the savings. On the other hand,

production in areas distant from customers can make the distribution job much

more complicated.