Case 3.3 Transvaal Nickel Mines
This case was prepared by Professor David L. Blenkhorn, Wilfrid Laurier
University, Waterloo, Ontario, Canada, and David W. Holowack, who, at the time
the case was written, was an MBA student at the University of Western Ontario,
London, Ontario, Canada. The case was written as a basis of class discussion
rather than to illustrate effective or ineffective management practices.
© Copyright 1996 David L. Blenkhorn and David W. Holowack.
Jane Keegan, Marketing Director – Europe for Transvaal Nickel Mines
(TNM) looked at the data on the pages sitting in front of her. Each of her
nickel customers was rated in terms of annual volumes, gross realized rev-
enues and Net Back Premium (NBP).* The year over year data indicated an
erosion in the premium realized from almost all of Jane’s customers; more-
over, the results in Europe were also representative of all of TNM’s other
global markets. The trend was disturbing both from a corporate and from
Keegan’s personal perspective. For TNM, the US$0.02 decline in premium
from 12 cents to 10 cents in the latest 12 months represented a direct reduc-
tion of US$4 million in the company’s profit. For Keegan, the narrowing
premium brought into question the need for, and the viability of, a global
sales and marketing organization within TNM. The reason for this was
simple. As the premium realized by TNM moved closer to zero, it became
more cost efficient for the company to sell its commodity nickel products
directly onto the London Metal Exchange (LME)** rather than incur the
administrative overhead to sell directly to industrial users. Staff in TNM’s
sales and marketing function felt that their contribution to the company
was greater than that indicated solely by the premium, especially in terms
of market recognizance and understanding emerging trends in nickel con-
208 Relationship Marketing
*The NBP equalled the net contribution to TNM after direct marketing, trans-
portation and financing costs less the sales price available on the London Metal
Exchange. For example, if TNM sold a pound of nickel for $4.00 while nickel on the
LME was selling at $3.80 and if it cost 8 cents per pound to transport the product
to that particular customer and if the financing cost related to the pound of nickel
while in transit and to collecting accounts receivable totalled 3 cents, the NBP
would equal:Sales price $4.00
Less:
Cost to transport to customer 0.08
Cost to finance inventory in transit & A/R 0.03
Price available if sold on LME 3.80
Net Back Premium (also referred to as ‘premium’) 0.09