Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e
Back Matter Cases © The McGraw−Hill
Companies, 2002million level. His new strategy will try to increase the propri-
etary sales volume from $800,000 to $2 million a year. Nora
Hall is expected to be a big help here because of her sales ex-
perience. This will bring the firm up to about capacity
level—but it will mean adding additional employees and
costs. The major advantage of expanding sales will be spread-
ing overhead.
Some of the products proposed by Steve Burton for ex-
panding proprietary sales are listed below.
New products for consideration:
Safety helmets for cyclists.
Water bottles for cyclists and in-line skaters.
School lunch boxes.
Toolboxes.
Closet organizer/storage boxes for toys.
Short legs for furniture.
Step-on garbage cans without liners.
Outside house shutters and siding.
Importing and distributing foreign housewares.Plastic Master faces heavy competition from many other
similar companies. Further, most retailers expect a wide mar-
gin—sometimes 50 to 60 percent of retail selling price. Even
so, manufacturing costs are low enough so Plastic Master can
spend some money for promotion while still keeping the price
competitive. Apparently, many customers are willing to pay
for novel new products—if they see them in stores. And Hall
isn’t worried too much by tough competition. She sees plenty
of that in her present job. And she does like the idea of being
an “owner and sales manager.”
Evaluate Plastic Master’s situation and Steve Burton’s strategy.
What should Nora Hall do? Why?PCT, Inc.Ben Colavito, president and marketing manager of Prime
Cutting Tools, Inc., is deciding what strategy, or strategies, to
pursue.28Prime Cutting Tools (PCT) is a manufacturer of industrial
cutting tools. These tools include such items as lathe blades,
drill press bits, and various other cutting edges used in the
operation of large metal cutting, boring, or stamping ma-
chines. Ben Colavito takes great pride in the fact that his
company—whose $5,200,000 sales in 2001 is small by indus-
try standards—is recognized as a producer of a top-quality line
of cutting tools.
Competition in the cutting-tool industry is intense. PCT
competes not only with the original machine manufacturers,
but also with many other larger domestic and foreign manu-
facturers offering cutting tools as one of their many different
product lines. This has had the effect, over the years, of stan-
dardizing the price, specifications, and, in turn, the quality of
the competing products of all manufacturers. It has also led to
fairly low prices on standard items.
About a year ago, Ben was tiring of the financial pressure of
competing with larger companies enjoying economies of scale.
At the same time, he noted that more and more potential cut-
ting-tool customers were turning to small tool-and-die shops
that used computer-controlled equipment to meet specialized
needs that could not be met by the mass production firms. Ben
thought perhaps he should consider some basic strategy
changes. Although he was unwilling to become strictly a cus-
tom producer, he thought that the recent trend toward buying
customized cutting edges suggested new markets might be de-
veloping—markets too small for the large, multiproduct-line
companies to serve profitably but large enough to earn a good
profit for a flexible company of PCT’s size.
Ben hired a marketing research company, Fennell Associ-
ates, to study the feasibility of serving these markets. The
initial results were encouraging. It was estimated that PCT
might increase sales by 65 percent and profits by 90 percent by
serving the emerging markets. This research showed that there
are many large users of standard cutting tools who buy directly
from large cutting-tool manufacturers (domestic or foreign) or
wholesalers who represent these manufacturers. This is the
bulk of the cutting-tool business (in terms of units sold and
sales dollars). But there are also many smaller users all over the
United States who buy in small but regular quantities. And
some of these needs are becoming more specialized. That is,Cases 737Table 1 Plastic Master, Inc., Statement of Financial Conditions, December 31, 200xAssets Liabilities and Net WorthCash.............. $ 13,000 Liabilities:
Accounts receivable.... 55,000 Accounts payable................. $ 70,000
Building............ $225,000 Notes payable—7 years (machinery).... 194,000
Less: depreciation... 75,000
150,000
Machinery.......... 1,400,000 Net worth:
Less: depreciation... 450,000 Capital stock.................... 900,000
950,000 Retained earnings................. 4,000
Total assets......... $1,168,000 Total liabilities and net worth........... $1,168,000