BBMK

Southwestern Ohio
Steel Company LP
The Matworks Decision
Group 48

Name
Vijayeta Bhatia
Abhimanyu Dev
Saurabh Doshi
Kumar Abhishek

Roll no
15S755
15F601
15S639
15F527

Problem Statement
What should be the consideration aspects for Dan Wilson to make his decision on
investment in Annual Sales Meeting of Matworks, Inc.
Industry and competitors

The steel industry is oligopoly as competitors are from geographical location

only ( Due to high transportation costs)
Steel industry supplies products/ services based on requirements of buyer
company in terms of product
Long term relationships were maintained as it helped companies reduce their
cost and charge a premium to manufacturers( clients)
Average profit margin was only three percent in the industry making it
necessary for steel companies to maintain costs under limits to keep them
profitable
The relationship maintaining way had changed in the past two decades in the
industry from throwing lavish party and giving gifts to occasional lunches and
reporting of such lunches.
Governmental regulations had made the industry change the way they
maintained their relationships and Buying business through gifts is no longer
continued

SOSLP

SOSLP started in 1945 and currently (in 1994) has around 500 clients, annual
turnover of $250 million and annual shipments of around 400,000 tons.
One of the two strengths of the company are its value added processing
which is to provide specific type of products according to requirements.
The other strength is good demand forecast leading to cost saving by
purchasing at best quotes, having minimum inventory and efficient
transportation system
SOSLP has believed in having long term relationships with customers by
giving competitive prices, good service and healthy negotiations.
SOSLP didnt spend on advertising and didnt believe in lavish dinners and
gifts to maintain relationships. Rather they believed in proper timely and
required communication and holding the line on process for clients in tough
times to help them not to run into losses due to supply side problems.
They spent less than one-hundredth of percent of sales was allotted to
advertising and promotions
The extent of SOSLP spending on advertising and promotions was usually an
occasional lunch or if possible tickets of a baseball game.

The Current Situation

Matworks, Inc had been the biggest customer for SOSLP initially but then the
sales were slow for Matworks due to recession and with time they dropped
out of the biggest customers list of SOSLP. In 1990 they had been 29, in 1993
they were 90th. From $2 million they had dropped to $0.672 million. The
relationship was positive but it was no more the top 25 customer. The top 25
customers bought in two third of the business to SOSLP.
Matworks had sent a letter asking SOSLP to participate as a sponsor in their
annual sales meeting in Hilton Hill, Carolina. The donation started from $5000
and went till $30,000. SOSLP spent less than one-hundredth of percent of
sales was allotted to advertising and promotions and didnt believe in
advertising. Dan wanted to carefully tackle the situation as this could affect
their sales and relationship with Matworks.

Factors/Aspects to consider while making the decision

Company policy and stand on advertisements and promotions
The company spent less than one hundredth percent of sales on advertising
and promotions as they believed in offering competitive prices and services
rather than promotions. They maintained long term relationships and not
focus on gift buying. This is because their products are good and healthy
relationships are maintained. So in this context, it is saving for the company
not to invest in promotions.
An aspect to consider is that for 54 years, SOSLP has survived without
advertising on great scale and still has grown great to generate an annual
turnover of $250 million. Hence, a sudden change in policy without any
strategic changes in business is not a wise decision as this will lead to huge
cost investment. Secondly, it may not get management buy-in as their no
strategic change in the company or there is no sales dip for them to change
their policy. There is no problem leading to an investment of such an amount
except for maintaining relationship with Matworks as it was.

Return of Investment and Exposure for business opportunities

The minimum amount they would have to spend is $5000 and there is no
guarantee on ROI of this money to come back in the form of business.
Though such meetings/ gathering usually relate to high business
opportunities and great visibility to big fish in the pond but without any
numerical data it is difficult to say that the investment will generate sales
lead.

Industry stand and trends on advertisement spending

Industry standards have shifted from gift buying behavior to non gifting
( formal) relationships behavior.

Average profit margin in industry is 3% and using price promotions to bag

business may lead to a cut in the small profit margin making the situation
grave for steel companies.

Competitors moves on their decision and its effect on their business

Competitors may bag this opportunity to poach customer( Matworks) by
coming into account by taking this investment opportunity. It is not very likely
that MAtworks would approach SOSLPs competitors as the event is for the
suppliers Matworks works with and mostly it purchases from SOSLP. This can
be a threat but considering the years of relationship with SOSLP , it seems
unlikely of Matworks to go with competitors by shunning completely with
SOSLP. And in worst scenario, only a fraction of revenue ( 0.6/250 million
=0.24%) comes from Matworks. So this amount of business can be expected
to have an investment of $5000 for promotions.

Relationship with Matworks

The relationship with Matworks is warm and the negotiations are smooth.
There is no tension
between them and Matworks is aware of the way SOSLP
functions and what are SOSLPs believes and budget to advertising and
promotions. Matworks wanted to invite all the good and big suppliers for this
event and SOSLP being the biggest supplier, Matworks has sent the same
opportunity letter.

The decision
Without turning relationships sour, SOSLP can inform Matworks about the policy of
not investing into promotions as a conscious decision as it is not their style of doing
business. This move when executed with proper communication ( face 2 face) and
logical manner will not affect the business relationship as

Matworks are already aware of the policy of SOSLP on advertising

It is highly unlikely for Matworks to turn down years of relationship for an
investment a supplier is expected to make. ( The annual sales function
shouldnt be an investment for a supplier)
Matworks buys mainly from SOSLP since more than three decades and hence,
there is very thin chance that they would go with a competitor for not getting
investment from SOSLP

Why should SOSLP not make this investment?

There is no emergency to change their policy on advertisement as the

industry trend is different from Matworks proposal and Management buyin would be tough
There is no sales decline for SOSLP or strategic change to increase
promotions budget

Minimum spending ($5000) 20% ( $5000 out of total promotions budget of

$25000 i.e. 1/100 percent of sales) of total promotions budget on a client
which brings 0.24% ($0.6 million)of revenue is not a wise decision to
make.
There is no information available on the ROI or the business opportunity
by this investment

They should not invest and inform Matworks in a Face to face meeting owing to their
company policy on advertisements.