ee OO Metal Products India Limited” “Shekhar, it is high time we did something to arrest the losses in our business in Karnataka” urged Mr Bhatia, President of Metal Products India Limited (MPIL), “Yes Sir, | do appreciate your concern and shall certainly do something before it is too late”, was the pensive reply from Marketing Manager, Mr Shekhar. COMPANY HISTORY AND BACKGROUND MPIL was one of the leading manufacturers of MS (mild steel) metal sections widely used in construction, furniture, rolling shutters, and industrial sheds. The factory was located at Whitefield, ‘on the outskirts of Bangalore, The market for metal sections was highly regionalised. In and around Bangalore, there were four manufacturers of metal sections. MPIL was set up in 1987 by its parent company, Madhya Bharath Metal Sections Ltd. (MBMS), Bhilai, mainly to serve the southem markets. Before this unit was set up, material was supplied to dealers/customers in South India directly from Bhilal ‘The advantages perceived by the promoters in setting up MPIL was substantial savings in freight cost coupled with better availability of material. Prior to 1987, there was only one manufacturer of metal sections at Bangalore, viz. Karnataka Metal Sections (KMS). Between 1993 and 1996 two more manufacturers set up their units at Bangalore, viz. Adarsh Metals and Mahavir Metal Sections. The total size of the market for metal sections in South India in 1998 was estimated at 40,000 metric tons (MT) with an annual growth rate of around 6 per cent. DISTRIBUTION CHANNEL MPIL had tied up with the existing dealers of MBMS for distributing their products. MBMS had dealers at all the important locations in the South. However, in Karnataka they had only one dealer—Bangalore Metal Traders (BMT)—based at Bangalore. ‘Apart from making use of the existing distribution channel of MBMS, MPIL also appointed new dealers at places like Vijayawada. Calicut, and Erode. Most of the dealers supplied the ‘metal sections in smaller lots to the customers, who were mostly fabricators and small-scale industries. Apart from this, some of the dealers also operated through sub-dealers. The price to * “This case was prepared by Mr Shilendra Dasari, General Manager, SPIL, for class discussion. itis reprinted with his permission.dealers were decided by the manufacturers and the dealers usually marked up the prices by Seven per cent to eight per cent. The prices at which dealers operated were not controlled by the manufacturers but were solely at the discretion of the dealers. Depending on the off-take, dealers got volume discounts from manufacturers varying from three per cent to seven per cent. Apart from distributing the products through dealer network, MPIL. also sold their products directly to OEMs (Original Equipment Manufacturers) and Government customers. However, this added up to only 20 per cent of their total sales. ‘To support the dealers, MPIL had opened depots (i.e. warehouses) at Chennai, Coimbatore, Emakulam, and Hyderabad. MARKET STRUCTURE Bangalore Metal Traders (BMT) were the largest dealer of metal sections in South India with an off-take of 2,000 MT per annum, which was 20 per cent of the MPIL's production. By virtue of their off-take, they enjoyed the highest slab of volume discount offered by the company. As per the understanding with BMT, MPIL was not supposed to appoint dealers at other centres in Karnataka, However, there was no specific written agreement which debarred the company from appointing dealers at other stations, Prior to the entry of Adarsh Metals (AM) and Mahavir Metal Sections (MMS), BMT enjoyed ‘more than 50 per cent share of the market in Kamataka. In view of the informal agreement with the company not to appoint dealers at other stations in Kamataka, BMT also did not deal with other manufacturers and sold exclusively the product of MPIL. KMS also had a dealer at Bangalore by the name of Kavery Agencies, which had branches at other major centres in Kamataka. Prior to the entry of AM and MMS, the combined market share of MPIL and KMS. in Kamataka was ‘more than 80 per cent. STRATEGY OF NEW ENTRANTS ‘AM and MMS found it difficult to compete with BMT and Kavery Agencies, which were well- established in the market and had exclusive arrangements with their principals. To penetrate the market, AM and MMS adopted a different strategy, that is, offering material direct to customers in Bangalore, though it was not as cost effective as selling through the dealers. In the upcountry markets, they identified potential dealers dealing with steel and hardware and offered the same Giscounts as offered by MPIL and KMS to their respective dealers. The new entrants succeeded in attracting the hardware dealers at locations like Mysore, Mangalore, Hubli, and Belgaum. Most of the upcountry hardware dealers were earlier sub-dealers of BMT. Out of the volume discount of seven per cent offered by the company, BMT used to keep three per cent for themselves and pass on the balance four per cent to the sub-dealers. To break the stronghold of BMT and Kavery Agencies, the new entrants started offering discounts of six per cent fo seven per cent to upcountry sub-dealers who found it more comfortable to deal directly with the manufactures instead of being sub-dealers of BMT. PRESENT PROBLEM ‘The aggressive marketing strategy adopted by the new entrants resulted in the loss of business volume for MPIL on account of reduced off-take by BMT. As compared to 2,050 MT lifted by BMTin 1996-97, during the first six months of the year 1997-98, their ofttake was only 850 MT. ‘Though the drop in sales volume was noticed by Mr Bhatia during the first quarter itself, in the quarterly review meeting, Mr Shekhar attributed this to the recessionary trends prevalent in the vetlel nnd the poor performance of the economy as a whole. However, this didnot satisfy Mr Bhatia on whose insistence Mr Shekhar undertook an extensive tour of Kamataka alongwith the representative of BMT, and found to his dismay that in Hubli and Belgaum they did not onley feven 20 per cent of the market share, whereas the new entrants had captured more than A) Per corto the market, Most of the hardware dealers who were earlier sub-dealers of BMT, had been appointed as the authorised dealers of AM and MMS. However, they had not stopped dealings So PCMT totally, though the dealings were confined to ordering only those sizes which were no! readily available with AM and MMS. When this was pointed out to Mr Bhatia, Pe advised Mac Shekhar to come out with a suitable strategy to recapture the market in north Kamataka. Attempts by Mr Shekhar and representatives of BMT to get the sub-dealers back to ther fold by femphasising on the superior quality of their product compared to the competitors’ and offering special incentives subject to certain guaranteed oft-take did not yield the desired results, leaving Mr Shekhar, who had been given the ultimatum by Mr Bhatia, a frustrated man. Questions 4. Ifyou were Shekhar, what strategy would you suggest to the president of MPIL to recapture the lost market share? . From the above strategy, develop an action plan for implementation of the strategy.