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

Exercise 26

Creative Aluminum Products, Inc. (CAP)*
*Adapted from a case written by Professor Hardy, University of Western Ontario, Canada.
Jose Cruz, newly hired VP of marketing for Creative Aluminum Products, Inc. (CAP), is reviewing the firm's international distribution arrangements because they don't seem to be very well thought out. He is not sure if anything is wrong, but he feels that the company should follow a global strategy rather than continuing its current policies.
CAP is based in Atlanta, Georgia, and produces finished aluminum products, such as aluminum ladders, umbrella-type clothes racks, scaffolding, and patio tables and chairs that fold flat. Sales in 2010 reached $25 million, primarily to U.S. customers.
In 2006, CAP decided to try selling in select foreign markets. The sales manager, Teresa Davenport, believed the growing affluence of European workers would help the company's products gain market acceptance quickly.
Teresa's first step in investigating foreign markets was to join a trade mission to Europe, a tour organized by the U.S. Department of Commerce. This trade mission visited Italy, Germany, Denmark, Holland, France, and England. During this trip, Teresa was officially introduced to leading buyers for department store chains, import houses, wholesalers, and buying groups. The two-week trip convinced Teresa that there was ample buying power to make exporting a profitable opportunity.
On her return to Atlanta, Teresa's next step was to obtain credit references for the firms she considered potential distributors. To those who were judged creditworthy, she sent letters expressing interest and samples, brochures, prices, and other relevant information.
The first orders were from a French wholesaler. Sales in this market totaled $70,000 in 2007. Similar success was achieved in Germany and England. Italy, on the other hand, did not produce any sales. Teresa felt the semiluxury nature of the company's products and the lower incomes in Italy encouraged a "making do" attitude rather than purchase of goods and services that would make life easier.
In the United States, CAP distributes through fairly aggressive and well-organized merchant hardware distributors and buying groups, such as cooperative and voluntary hardware chains, which have taken over much of the strategy planning for cooperating producers and retailers. In its foreign markets, however, there is no recognizable pattern. Channel systems vary from country to country. To avoid channel conflict, CAP has only one account in each country. The chosen distributor is the exclusive distributor.
In France, CAP distributes through a wholesaler based in Paris. This wholesaler has five salespeople covering the country. The firm specializes in small housewares and has contacts with leading buying groups, wholesalers, and department stores. Teresa is impressed with the firm's aggressiveness and knowledge of merchandising techniques.
In Germany, CAP sells to a Hamburg-based buying group for hardware wholesalers throughout the country. Teresa felt this group would provide excellent coverage of the market because of its extensive distribution network.
In Denmark, CAP's line is sold to a buying group representing a chain of hardware retailers. This group recently expanded to include retailers in Sweden, Finland, and Norway.
Together this group purchases goods for about 500 hardware retailers. The buying power of Scandinavians is quite high, and it is expected that CAP's products will prove very successful there.
In the United Kingdom, CAP uses an importer-distributor, who both buys on his own account and acts as a sales agent. The distributor approached CAP after finding the company from an online search. This firm sells to department stores and hardware wholesalers. This firm has not done very well overall, but it has done very well with CAP's line of patio tables and chairs.
Australia is handled by an importer that operates a chain of discount houses. It heard about CAP from a U.K. contact. After extensive e-mailing, this firm discovered it could land aluminum patio furniture in Melbourne at prices competitive with Chinese imports. So it started ordering because it wanted to cut prices in a high-priced garden furniture market. The Argentina market is handled by an American who lives in Buenos Aires but came to the United States in search of new lines. CAP attributes success in Argentina to the efforts of this aggressive and capable agent. He has built a sizable trade in aluminum ladders.
In Trinidad and Jamaica, CAP's products are handled by traders who carry such diversified lines as insurance, apples, plums, and fish. They have been successful in selling aluminum ladders. This business grew out of inquiries sent to the U.S. Department of Commerce and in researching its Web site (www.commerce.gov), which Teresa followed up by phone.
Teresa's export policies for CAP are as follows:
1. Product: No product modifications will be made in selling to foreign customers. This may be considered later after a substantial sales volume develops.
2. Place: New distributors will be contacted through foreign trade shows. Teresa considers large distributors desirable. She feels, however, that they are not as receptive as smaller distributors to a new, unestablished product line. Therefore, she prefers to appoint small distributors. Larger distributors may be appointed after the company has gained a strong consumer franchise in a country.
3. Promotion: The firm does no advertising in foreign markets. Brochures and sales literature already being used in the United States are supplied to foreign distributors, who are encouraged to adapt them or create new materials as required. CAP will continue to promote its products by participating in overseas trade shows. These are handled by the sales manager. All inquiries are forwarded to the firm's distributor in that country.
4. Price: The company does not publish suggested list prices. Distributors add their own markup to their landed costs. Supply prices will be kept as low as possible. This is accomplished by ( a ) removing advertising expenses and other strictly domestic overhead charges from price calculations, ( b ) finding the most economical packages for shipping (smallest volume per unit), and ( c ) bargaining with carriers to obtain the lowest shipping rates possible.
5. Financing: CAP sees no need to provide financial help to distributors. The company views its major contribution as providing good products at the lowest possible prices.
6. Marketing and planning assistance: Teresa feels that foreign distributors know their own markets best. Therefore, they are best equipped to plan for themselves.
7. Selection of foreign markets: The evaluation of foreign market opportunities for the company's products is based primarily on disposable income and lifestyle patterns. For example, Teresa fails to see any market in North Africa for CAP's products, which she thinks are of a semiluxury nature. She thinks that cheaper products such as wood ladders (often homemade) are preferred to prefabricated aluminum ladders in regions such as North Africa and Southern Europe. Argentina, on the other hand, she thinks is a more highly industrialized market with luxury tastes. Thus, Teresa sees CAP's products as better suited for more highly industrialized and affluent societies.
Evaluate CAP's present foreign markets strategies. Should it develop a global strategy? What strategy or strategies should Jose Cruz (the new VP of marketing) develop? Explain.