introduction In July of 1985 the managers of Alloy Rods find that their competitor has introduced a new product

clearly aimed at Alloy's most profitable market segment the Flux cored product. Alloy Rods competed in the three major welding processes and five major product groups. In 1985, welding equipment & supplies was a $1.6 billion industry in the United States. In 1984, Alloy domestic operations had sales of approximately $65 million with an after-tax profit of between $1 to $2 million. Flux-cored wire accounted for nearly 40% of sales & lowhydrogen coated for 15%. Alloy was ranked first among electrodes suppliers in product quality, technical capabilities, & product innovativeness. In 1984, Alloy spent about $ 500,000 on advertising, product literature and sales promotions which was quite less than its competitors. It also paid advertising and promotional allowances to its distributors which were not offered by its competitors. In 1985, Alloy rods used about 500 independent distributors & their top 50 distributors accounted for 80% of the companys sales. They employed 21 fiel ...

Alloy rods in Pakistan

 Important facts of the case :( Supporting to the recommendations made)  Welding Industry  Welding equipment and supplies was a $1.6 billion industry in United States  In welding supplies and equipment industry, over 70% sales were made through distributors. Product quality, creation of demand, communication with the factory and price are some of the important purchasing criteria.  In large companies, electrode brand, product quality, line breadth, and delivery/availability are some of the important criteria for choice of electrodes.  On a typical welding job, the total cost was power and equipment, 8% to 15% was electrodes and the remaining 80%to 85% labor and overhead.

Three types of welding processes are:

 Shielded metal arc welding  Gas metal arc welding  lux cored arc welding. Gas-shielded and self-shielded.

 Welding electrodes end-user ranged from one-person mechanical contracting shops to major steel fabricators who used millions of pounds of electrodes annually.

Alloy rods
 The primary business purpose of alloy rods is to develop, manufacture, and market high quality, high-technology welding filler metal products on a worldwide basis, with emphasis on sales by distributors and wholesale channels.  Leader in product quality. Technical qualities and product innovativeness.  In 1985, alloy was an only major industry to manufacture only welding electrodes.  Alloy rods prices were generally higher than those of its competitors in part because alloy charge for freight while competitors absorbed freight expenses.  Most of alloy prompt ion was guard towards distributors as major sales of alloy are through them.  75% sales through independent welding supply distributors-13% directly to them, 41% through independent wholesalers, and 21% through company wholesalers.  Alloy rods managers estimated that their top 50 distributors accounted for 805 of the companys sales to distributors. OF distributors 20 also sold products manufactured by Lincoln.  13% sales were made direct to end users. Remainder is made to export, private-label, and government markets.  The companys field sales force both on distributors and end-users.  Alloy rods employed 21 field sales people responsible for distributors relations, direct accounts, and account development.

Major issues:
 Should alloy rods attempt to larger proportion of its business, if so, how could this be accomplished with minimal disruption of its existing distributor relation? How could alloy rods motivate its distributors to do account development work?  How to revaluate its marketing program in response to Lincolns new gas shielded product.

 Whether to continue producing its line of low margin, low value-added products like mild steel solid wire and other electrodes or provide distributors full line of electrodes.  Product Analysis: If we analyze purchase process and product characteristics for a customer it can fall under any of the four categories:  Product relating purchasing process:

RISK
HIGH
 Bottle neck strategic product (Gas shielded electrode)  Low high cost  Routine product leverage product

LOW
 Based on above matrix we can say that gas shield electrode is a bottle neck product which involves medium risk and low cost for customer. For such product customer seeks reliable product in terms of quality and standards.  If we analyze Gas shield product; selling approach requires certain things as given below:  Numerous specifications and procedures  Training of welders  Operating skills of customers  To achieve these things customer need high level of consolation. It can be derived through direct sales force.

Distribution channel analysis:

Analysis of current distribution channel and direct sales agent:  Total sales: $65 million direct retailers

ontributions by channels 15%, 85%.

 No. of channel partners 21 200  Revenue generated $9.75 million, $55.25 million

 Productivity per channel member $0.46 million, $0.0025 million

ost $37,000 per annum

 f we see above the table we can say that the productivity of sales person is much higher than the distribution channel members.  Other issues associated with distributors are:  Order taker: They are just order takers. They have not been able to generate any new account their own.  Pool Loyalty: They have little swimming cost. They have loyalty towards current inventory only after that they can switch to other suppliers.  Poor customer training: The product requires high customer training, and alloy Rods Corporation have been rated poor on these since distributors were not able to provide training to the customer.  Long sales cycle: The sales cycle is generally range from 6 -18 months; so in most of the cases distributors lose focus. So there by they sell to mechanical contractors who are mainly retail customer. Exhibit 9: From this exhibit we can see that there is decline in the sale by welding suppliers in 1980. They account for 46% of sales but it declines to the level of 12.8% in year. The sale through independent and company owned wholesaler shown an increasing trend and they are having more than 10% growth rate.

Recommendations:
Alloy should use:  Direct sales force for large accounts, companies and major steel fabricators.  Distributors for mechanical contractors and small companies.  There by we recommend that alloy need to take larger proportion of its business direct with minimal disruption to existing distributor relation.  Direct sales force will be able to build brand, give customized service and locking in customers.

 For this we recommend alloy needs to increase its direct sales force.  Alloy should continue with distributors salespeople with training and target technically oriented promotions at them. Distributors should be encouraged and given incentives to invest time and resources in this area.  Distributors should be pushed to do account development work as they are paid higher margins by alloys compared to other competitors. For this Alloy can also go for exclusive distribution agreements.