Southwestern Ohio Steel Limited Partnership (SOSLP) was a supplier of steel to many large and small organisations. It had approximately 500 customers and its top 25 customers constituted two – third of the company’s sales. SOSLP customers had a long standing relationship with its customers which was established through mutual respect, loyalty and good business understanding. Matworks was one of the important customer of SOSLP which had a long standing relationship and assured business with SOSLP every year. But however from past few years Matworks number is declining in SOSLP’s top customer list. Also their order quantity is also declining Y-o-Y. Recently Dan Wilson, Vice President of SOSLP received a letter from Mathworks with a strange request of SOSLP’s participation in sponsoring a portion of Matworks annual sales meeting. SOSLP has never promoted in such a way nor do they have any budget allocation for such kind of promotion. But however Mathworks being one of the key customer it was not so easy for SOSLP to turn down its request as the decision taken now would determine the future relationship between SOSLP and Mathworks.
Promotional activities of SOSLP:
SOSLP believed in long term relationships through loyalty, honesty, integrity and open, cooperative practices hence their spending on additional advertising and promotions were less than 1 percent of sales. Few activities carried out informally were gifting mugs, specialty advertising pieces, an occasional lunch or tickets to a Cincinnati reds baseball game. Although on one occasion golf outing, snacks and drinks was organised but it was not in the planned itinerary of SOSLP. Following is our Letter of transmittal to Dan Wilson.
Subject: Decision report on letter from Matworks which requests sponsorship Please find attached the decision report on Matworks. We have prepared a detailed report outlining the implications for each possible course of action. We have tried to address both the short term & long term problem. This is followed by recommendations based on the evaluation of options. We are submitting this report for your consideration and necessary action. We hope you find the report satisfactory & in tune with your requirements.
Alternatives Available with SOSLP:
1. Accept the request from Mathworks and participate in sponsoring a portion of Mathworks annual sales meeting 2. Reject the request from Matworks for sponsoring in the annual sales meeting Analysis of Alternatives:
Learning about competitors – Through interactions the following information can be gained in regards to SOSLP’s competitors – 1.The products and technology they are offering 2.Their selling strategy (risky or conservative) 3.Their customers 4.Their budget and promotions New business opportunities – Valuable insights about Matworks competitors who can be potential customers Relationship building – Further relations can be solidified and may be fruitful in the future when the salespeople move to other organizations. Improve corporate image – This type of promotion and
advertising might be the new marketing trend in the industry to build corporate image and hence SOSLP will keep u with it by going ahead with the 1st alternative Up-to-date research- Through such events information can be collected about trends in the industry and latest innovations and offerings thus providing a platform for up to date market research.
Money – The amount of sponsorship requested is considerable even for a part of the event. Consider SOSLP’s 3 % profit margin on Matworks sales of $672,000 which equals to $20,160 thus even considering the lowest amount $5000 will amount to nearly 25% of profits. Changing the budget – After the govt. imposed omnibus trade act such activities had to be reported and hence the budget had to be accordingly changed for accounting, taxation purposes and future such occurrences. Restructure the marketing strategy – The existing strategy although did not explicitly prohibit such promotions but also was oriented more towards service quality and open co-operations rather than promoting through giving customers various gifts and additional incentives.
Hence this needed to be changed in order to accommodate such promotional activities. Decrease the profit margin – Hence recalculating the profit margin that is profits will be to the tune of $15,160 on sales of $672,000 which turns out to be 2.25 % will be cause of concern for SOSLP especially when they maintain their price rigorously. Prices will rise after the promotion adjustment – In order to accommodate such promotional activities in the future SOSLP will have to increase prices to maintain same level of profit thereby losing out the value for proposition advantage it holds over its competitors. Alternative 2:
Save money – At least $5000 will be saved by not sponsoring any part of the Matworks annual sales meeting. Stay within budget – As customer sponsorship has not been done in such a scale before hence there is no budget allocated for it and thus partaking to such an activity would lead to going overboard with the budget. Follow company strategy – As stated earlier the company policy has always been to maintain long term relationships through service quality, honesty, integrity and open cooperative practices. Thus keeping in line with this strategy will lead to the 2nd alternative. Avoid future sponsorship requests – This may be a onetime request but accepting it would lead to approval of entertaining such requests either from Matworks or any other customer in the future. Avoid displeasing other customers – In the past such requests from other customers might have been turned down or it may also occur in the future and hence such rejection will lead to displeasure if 1st alternative is exercised.
Loss of business opportunities – The event will host the top sales persons and Executive Management staff of Matworks who are high potential sources of information in regards to industry trends, competitors, new leads and new business development. Decline of corporate image – Such a promotional activity will help build the corporate image of SOSLP which might be one of the new advertising campaigns moving forward .Hence if not capitalized SOSLP might lose its corporate image. Possible loss of sales – Exercising 2nd alternative might ultimately result in complete loss of the Matworks account for SOSLP. Indicating a loss of $672,000 per year. Not supporting Matwork’s morale – Matworks have been hit hard with the recession and reduction in military spending and hence are losing out business. Thus if their morale is not boosted they will lose more sales and hence directly impacting their annual purchase from SOSLP.
Our Recommendation is to go ahead with second alternative based on the following observations – Localised Market – Weight of steel makes cost of shipping over 200 miles prohibitive hence leading to a localised market where SOSLP has had a presence over the last fifty years thus leading to very limited loss of business opportunities. Moreover such longstanding presence has ensured thorough knowledge of the competitors and their developments. Market Leaders – SOSLP has already established themselves in the market with their superior service quality and trusted customer base providing revenue of $250 mn annually hence decline of corporate image will be minimal and can be improved through other activities such as providing cost effective solutions of maintaining inventory for customers.
Long Standing Relationships – Through their Business Strategy they have developed long standing relationships with their clients and hence they can further continue to build fruitful relationships through this strategy rather than going for a complete overhaul they can incorporate certain cosmetic changes such as providing additional benefits with bulk buying to keep up with the industry trends. Market diversification – SOSLP’s strategy of 4 subsidiaries has ensured minimum impact from losses of losing an account such as Matworks (.2688% of total revenue) Plus Matworks itself is on a declining path hence it would be better idea to save money and invest somewhere else to get better market research. Other methods such as performing different customer feedback survey can be conducted to have up-to-date research.