BASIC MARKETING 18th Edition by Jerome McCarthy William Perreault, Joseph Cannon

Exercise 6

Custom Castings, Inc.
Molly Danek, marketing manager for Custom Castings, Inc., is trying to figure out how to explain to her boss why a proposed new product line doesn't make sense for them. Molly is sure it's wrong for Custom Castings, but isn't able to explain why.
Custom Castings, 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.
Custom Castings also produces about 30 percent of all the original equipment bumper jacks installed in new U.S.-made automobiles each year. This is a very price-competitive business, but Custom Castings 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 cooperation 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 requires alterations in the specifications of the bumper jacks. All of Custom Castings' bumper jacks are sold directly to the automobile manufacturers. No attempt has been made to sell bumper jacks to final consumers through hardware and automotive channels-although they are available through the manufacturers' automobile dealers.
Tim Deepak, Custom Castings' production manager, now wants to begin producing hydraulic garage jacks for sale through auto-parts wholesalers to auto-parts retailers. Tim 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: Hydraulic garage jacks are larger than bumper jacks and are intended for use in or around a garage. They are too big to carry in a car's trunk.)
As Tim became more enthusiastic about the idea, he found that Custom Castings' engineering department already had a patented design that appeared to be at least comparable to the products now offered on the market. Further, Tim says that the company would be able to produce a product that is better made than the competitive products (i.e., smoother castings)- although he agrees that most customers probably wouldn't notice the difference. The production department estimates that the cost of producing a hydraulic garage jack comparable to those currently offered by competitors would be about $48 per unit.
Molly has just received an e-mail from Jesse Shuping, the company president, explaining the production department's enthusiasm for broadening Custom Castings' present jack line into hydraulic jacks. Jesse seems enthusiastic about the idea too, noting that it would be a way to make fuller use of the company's resources and increase its sales. Jesse's e-mail asks for Molly's reaction, but Jesse already seems sold on the idea.
Given Jesse's enthusiasm, Molly isn't sure how to respond. She's trying to develop a good explanation of why she isn't excited about the proposal. The firm's six sales reps are already overworked with their current accounts. And Molly couldn't possibly promote this new line herself-she's already helping other reps make calls and serving as sales manager. So it would be necessary to hire someone to promote the line. And this sales manager would probably have to recruit manufacturers' agents (who probably will want 10 to 15 percent commission on sales) to sell to automotive wholesalers who would stock the jack and sell to the auto-parts retailers. The wholesalers will probably expect trade discounts of about 20 percent, trade show exhibits, some national advertising, and sales promotion help (catalog sheets, mailers, and point-of-purchase displays). Further, Molly sees that Custom Castings' billing and collection system will have to be expanded because many more customers will be involved. It will also be necessary to keep track of agent commissions and accounts receivable.
Auto-parts retailers are currently selling similar hydraulic garage jacks for about $99. Molly has learned that such retailers typically expect a trade discount of about 35 percent off of the suggested list price for their auto parts.
All things considered, Molly feels that the proposed hydraulic jack line is not very closely related to the company's present emphasis. She has already indicated her lack of enthusiasm to Tim, but this made little difference in Tim's thinking. Now it's clear that Molly will have to convince the president or she will soon be responsible for selling hydraulic jacks.
Contrast Custom Castings, Inc.'s current strategy and the proposed strategy. What should Molly Danek say to Jesse Shuping to persuade him to change his mind? Or should she just plan to sell hydraulic jacks? Explain.