Page 94 - DMGT507_SALES AND PROMOTIONS MANAGEMENT

Sales and Promotions Management

Notes
as proprietary or partnership concerns. The sales had in the past proved to be seasonal,
with peak sales being recorded in the period January to July.
One year back the company had expanded its production capacity from 3,000 to 8,000 MT
per annum. However, the actual production in the financial year just ended was restricted
to 5,000 MT, mainly on account of lock of orders. The Cost Statement for the year indicated
the following:
Rs/MT
Raw Materials 1,500
Direct Labour and Supervision 700
Indirect Materials, Fuel, etc. 400
Depreciation, Insurance, etc. 1,700
Factory Cost of Production 5,500
Administrative, Selling and Interest Charges 400
Selling Price per MT (exclusive of all discounts, allowance for Freight, etc.) 6,000

The Managing Director was not satisfied by the under utilization of installed capacity and
its effect on the profitability of the company. He called his senior managers to discuss the
situation and means of improving the profitability of the concern. The Sales Manager, on
whom the pressure was really on, tried to attribute the limitation of sales to norms for
grant of credit followed by the company. He argued that under the strict norms for grant
of credit followed by the company, only the larger public limited companies among the
customers were put on the cash and carry list. This he maintained, led to an over dependence
on the larger customers and an almost complete neglect of a section by offering them
consisting of the small manufacturers came to this company only if the market was starved
of the product. The Sales Manager pleaded for a more liberal credit policy which would
also help increase the sales volume. He ruled out the possibility of procuring additional
volume of business from the big customers who had already evolved a scheme sharing
out their business among the different suppliers. Any attempt to obtain more business by
offering discount to the bigger firms, the Sales Manager argued, will only lead to a
retaliatory action by competitors and ultimately escalate into a price war which will only
prove disastrous for the company. On the other hand, granting credit to the smaller
customers will bring the company’s policy in the line with competitors and will actually
stimulate growth in the consuming industry with beneficial effects to the company.
The Managing Director, obviously undecided about the wisdom of extending credit to the
smaller customers to boost sales volume, called for a detailed note from both the Sales
Manager and the Credit Manager. He, however, pointed out that any such change of credit
policy, even to boost sales. The Sales Manager, at this point, conveyed to the Managing
Director, an offer he had just received from the Shoe Plast Limited, one of the receivables
that this transaction would entail and reckoning interest at 18 percent per transaction
would involve an interest burden of 1,54,150 whereas the profits from Shoe Plast Limited
would pay for these additional supplies to be effected in the next three months, in the
seventh month from date. It was, however, unwilling to pay any Limited ranked high in
the ratings by the Credit Department and therefore, there should be no hesitation in
accepting this offer for additional business.
The customer company was carrying out an expansion scheme at that time using partly its
current resources to finance the same and was, therefore, finding itself in a difficult liquid
situation. It however, expected this to be only temporary and anticipated that the position
would improve considerably after six months. Shoe Plast Limited had and above the
regular off-take if Plastic Products Limited agreed to give special credit among the smaller
Contd...

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