Reka Enterprises
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Situation Analysis
M/s Ramson & Co., a firm dealing in chemicals, started cement paint manufacturing business in February 1985 under the firm name M/s Reka Enterprises. It was a small scale organisation employing 8 workers with an initial investment of Rs. 1,50,000. The installed capacity of the plant on a single shift basis was 100 tons pa. The production started in April.
The paint was both decorative and durable. It had to be applied within one hour of mixing and required constant stirring during use. It was marketed under the brand name Rekacem. The product was to be sold only in Tamil Nadu, Kerala and Andhra Pradesh.
In June 1985, product was launched for sale with a few dealers in Madras and as a promotional offer; coins worth Rs. 2.50, notes for Rs.5 and Rs. 10 were placed in packings of 1.5kg, 5kg and 25kg respectively.
By the end of October 1985, the volume of sales was 15 tons. The details of the sales are:
Packing
Volume Sold
Units Sold (Col.2/Col.1)
Sales Value (appx)
Discount Offered
Amount spent on discount (appx)
1.5 kg
10000 kg
6667@ Rs. 18.75
1,25,000
12.5%
15,625
4000 kg
800@ Rs. 70.00
56,000
20.0%
11,200
25 kg
1000 kg
40@ Rs. 315.00
12,600
20.0%
2,520
—–
15000 kg
—–
1,93,600
—–
29,345
The two partners, Mr Babu and Mr. Raju figured that there was stiff competition from Newcem and Supracem brands that together had a market share of over 70% in all the given 3 states and the dealers found selling Rekacem un-remunerating as the consumers were not ready to accept an unknown brand.
Hence the firm hired a Research Team in November 1985 to study the situation.
It was found that:
The substitutes available for cement paint were Distemper and Lime-wash whose costs (material cost + service charge for two coats on a 100 sq. feet surface) were Rs. 27.50 and Rs. 10 respectively where as for Cement paint it was Rs. 70. Though Cement paint was long lasting.
The distribution system for cement paint of leading manufacturers was almost streamlined. There was an exclusive wholesale distributor either for the country or for a specified region, who was offered a discount of 17.5%-20% off list. This distributor, in his area of operations had a few retailers, known as Ðstockists. They were entitled to a commission on sales which was usually 7.5%-10% off-list.
The performance of cement paint depended largely on the right mixing and proper application of the paint.
The post study recommendations were, firstly to appoint a sole distributor who could both promote the sales and run programs to educate the consumer about the correct use of the material (as done by the competitors). The second recommendation was to discontinue the placing of coins/currency notes in the packing as the common view suggested that the consumer were more concerned about the quality than these small monetary incentives.
Mr. Babu accepted the recommendations and as he wished to build the business over time. Mr Raju on the other hand found the argument illogical as he wished to make maximum profits and use the resources at full capacity. His motive was to get maximum returns in minimum time.
Problem Statement
To decide on the suitable course of action for M/s Reka Enterprises in order to grow amidst the competition.
Options
The following are the options available to Reka Enterprises
To continue with the existing strategy with some modifications and taking some initiative to educate consumers about the application of the paint.
To come up with an extensive marketing plan to create brand awareness and capture market share.
Criteria for evaluation
A higher market share
Return on investment
Optimum utilization of resources
Evaluation of Options
To continue with the existing strategy