Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/eBack Matter Cases © The McGraw−Hill
Companies, 2002a special cutting tool may make a machine and/or worker
much more productive, perhaps eliminating several steps with
time-consuming setups. This is the area that the research com-
pany sees as potentially attractive.
Next, Ben had the sales manager hire two technically
oriented market researchers (at a total cost of $60,000 each
per year, including travel expenses) to maintain continuous
contact with potential cutting-tool customers. The researchers
were supposed to identify any present or future needs that
might exist in enough cases to make it possible to profitably
produce a specialized product. The researchers were not to
take orders or sell PCT’s products to the potential customers.
Ben felt that only through this policy could these researchers
talk to the right people.
The initial feedback from the market researchers was most
encouraging. Many firms (large and small) had special needs—
although it often was necessary to talk to the shop foreman or
individual machine operators to find these needs. Most opera-
tors were making do with the tools available. Either they didn’t
know customizing was possible or doubted that their supervi-
sors would do anything about it if they suggested that a more
specialized tool would increase productivity. But these opera-
tors were encouraging because they said that it would be easier
to persuade supervisors to order specialized tools if the tools
were already produced and in stock than if they had to be
custom made. So Ben decided to continually add high-quality
products to meet the ever-changing, specialized needs of users
of cutting tools and edges.
PCT’s potential customers for specialized tools are located
all over the United States. The average sale per customer is
likely to be less than $500, but the sale will be repeated several
times within a year. Because of the widespread market and the
small order size, Ben doesn’t think that selling direct—as is
done by small custom shops—is practical. At the present time,
PCT sells 90 percent of its regular output through a large in-
dustrial wholesaler—National Mill Supplies, Inc.—which
serves the area east of the Mississippi River and carries a very
complete line of industrial supplies (to “meet every industrial
need”). National Mill Supplies carries over 10,000 items.
Some sales come from customers who know exactly what they
want and just place orders directly by fax or at the firm’s Inter-
net website. But most of the selling is by National’s sales reps,
who work from an electronic catalog on a laptop computer.
National Mill Supplies, although very large and well known, is
having trouble moving cutting tools. National is losing sales of
cutting tools in some cities to newer wholesalers specializing
in the cutting-tool industry. The new wholesalers are able to
give more technical help to potential customers and therefore
better service. National’s president is convinced that the
newer, less-experienced concerns will either realize that a sub-
stantial profit margin can’t be maintained along with their
aggressive strategies, or they will eventually go broke trying to
overspecialize.
From Ben’s standpoint, the present wholesaler has a good
reputation and has served PCT well in the past. National Mill
Supplies has been of great help in holding down Ben’s inven-
tory costs—by increasing the inventory in National’s 35
branch locations. Although Ben has received several com-
plaints about the lack of technical assistance given by
National’s sales reps—as well as their lack of knowledge about
PCT’s new special products—he feels that the present whole-
saler is providing the best service it can. All its sales reps have
been told about the new products at a special training session,
and a new page has been added to the catalog they carry with
them. So regarding the complaints, Ben says: “The usual
things you hear when you’re in business.”
Ben thinks there are more urgent problems than a few com-
plaints. Profits are declining, and sales of the new cutting tools
are not nearly as high as forecast—even though all research
reports indicate that the company’s new products meet the
intended markets’ needs perfectly. The high costs involved in
producing small quantities of special products and in adding
the market research team—together with lower-than-
expected sales—have significantly reduced PCT’s profits. Ben
is wondering whether it is wise to continue to try to cater to
the needs of many specific target markets when the results are
this discouraging. He also is considering increasing advertising
expenditures in the hope that customers will pull the new
products through the channel.
Evaluate PCT’s situation and Ben Colavito’s present strategy.
What should he do now?Metal Works, Inc.Victor Carrington, marketing manager for Metal Works,
Inc., is trying to figure out how to explain to his boss why a
proposed new product line doesn’t make sense for them. Vic-
tor is sure it’s wrong for Metal Works, Inc., but isn’t able to
explain why.
Metal Works, Inc., is a producer of malleable iron castings
for automobile and aircraft manufacturers and a variety of
other users of castings. Last year’s sales of castings amounted to
over $70 million.
Metal Works also produces about 30 percent of all the orig-
inal equipment bumper jacks installed in new U.S.-made
automobiles each year. This is a very price-competitive busi-
ness, but Metal Works has been able to obtain its large market
share with frequent personal contact between the company’s
executives and its customers—supported by very close cooper-
ation between the company’s engineering department and its
customers’ buyers. This has been extremely important because
the wide variety of models and model changes frequently re-
quires alterations in the specifications of the bumper jacks. All
of Metal Works’ bumper jacks are sold directly to the automo-
bile manufacturers. No attempt has been made to sell bumper
jacks to final consumers through hardware and automotive
channels—although they are available through the manufac-
turers’ automobile dealers.
Tom Gaines, Metal Works’ production manager, now wants
to begin producing hydraulic garage jacks for sale through
automobile-parts wholesalers to retail auto parts stores. Gaines
saw a variety of hydraulic garage jacks at a recent automotive
show and knew immediately that his plant could produce
these products. This especially interested him because of
the possibility of using excess capacity. Further, he says “jacks
are jacks,” and the company would merely be broadening its
product line by introducing hydraulic garage jacks. (Note:29738 Cases