Rainbow Steel PDF Print E-mail

anie Bothma did not hear Martin Shaw enter his office. Standing with his back to his Sales Director and long time friend, Bothma was staring out of his office window in the direction of the construction site across the road. It was pretty obvious by the expression on his face that he was deep in thought, but thoughts that depicted a worried man. As Divisional Director of the Stainless Steel division, Bothma had overall responsibility for his division's performance within Rainbow Steel. A privately owned company, with an annual turnover well in excess of one hundred million Rand, and whose sole shareholder was an aged and eccentric Italian millionaire, Rainbow Steel served primarily the food and beverage, dairy, confectionery and wine industries. Its three divisions, (namely, Stainless Steel, Process Flow and Process Wholesale) had enjoyed a good relationship for over forty years with customers such as South African Breweries, Robertson's, Cadburys, Nestle and all the major dairy and wine producers. Supplying everything from stainless steel products such as butterfly valves and piping, to project management for the construction of dairies, and wineries, Rainbow Steel had built up a solid reputation as a reliable one-stop shop.

However, since 1997, the stainless steel division, with branches in Johannesburg, Cape Town, Port Elizabeth and Durban, had been experiencing severe problems, as customers started to seek cheaper alternatives to Rainbow's high quality but expensive product range. Since its inception, Rainbow had followed the strategy of marketing only the highest quality, but most expensive products. The personalised service which supported this strategy had previously instilled customer confidence in Rainbow to such an extent that competitors simply could not compete, thereby enabling Rainbow to retain a grip over a small but lucrative number of customers. This is the way company had conducted it affairs for forty years, and every one of its sixty or so employees had heard war stories from the ? good old days' when Luigi Carrino had first started the company with a promise to provide the best possible service in the industry. That dictum which had become firmly entrenched as part of the company's culture, saw Rainbow never query returned goods, hold stock of low turnover but expensive items, deliver where and when the customer required and provide a free call out service anytime of the day or night. Moreover, in support of its strategy, Rainbow had entered into long term distributor agreements with manufacturers in Denmark, Germany, The United Kingdom, Italy and Austria, whose products were amongst the highest quality to be found anywhere in the world. However, Malcolm MacDonald, Rainbow's Managing Director (into whose hands Se ? or Carrino had left the entire running of Rainbow), had felt that Bothma, who had been in the job for two years, had not kept in touch with what was happening in his customers' businesses, and as a result of that, the division had been caught flat footed. MacDonald who was a Chartered Accountant by profession and an ex Anglo man, had himself been in the top position for about four years, and had tried to institute management ideas to which he had been exposed during his days at Anglo American. To get a better perspective on the situation, he had called in a marketing consultant to examine the way the division was operating. The consultant's report had already been submitted to MacDonald and copied to Bothma.

? Danie, I need to talk with you about the quotation for the Breweries' extension at Prospecton. I have heard that they are talking seriously to City Steel and we may need to sharpen our pencil if we want to be in with a shout.? Bothma turned round somewhat startled by the intrusion, sat down at his desk, put his head in his hands and sighed heavily.

? Danie, what's the matter with you?? asked a concerned Shaw.

? Martin, I am a failure, that's what's wrong. I feel as though I have made a mess of things. Just take a look at the consultant's report.

Shaw picked up the report and slowly started to flick through it. It was sixty pages in length, but the salient points had been highlighted. Essentially, the consultant found that the division's marketing efforts and specifically its marketing objectives were not coherent, well communicated or reviewed. It also stated that no attention was ever paid to the specific differences inherent in the needs and buying practices of each of the customer industries. Furthermore, the division was criticised for being too product and sales driven and the consultant felt that Bothma had not made a successful transition from being divisional sales director to the head of the division. But perhaps the main criticism was that the division had failed to apply the principle of derived demand which is an integral part of understanding the industrial marketing environment. As a result of this, the consultant concluded, Bothma had failed to see and anticipate the changes that were taking place in customer companies, particularly as regards their usage and attitude towards stainless steel. Moreover, this lack of proper planning had manifested itself in a number of other ways.

For instance, a usage gap in terms of under usage of the industry market potential had been identified. For some time now, managers at the Johannesburg and Port Elizabeth branches had been lobbying Shaw to look for ways of improving the sales and market coverage instead of sticking with traditional customers. Moreover the manager of the PE branch had written a memo to Shaw suggesting that the time had come for the division to increase its product range and to consider diversification to better accommodate the requirements of the PE market. The other branch managers had supported this, claiming that their regions displayed certain industrial profile differences from one another and that these differences had to be considered in the company's sales and marketing effort. Shaw had dismissed this claiming that it would take Rainbow away from its core competencies. The consultant had also pointed out that whilst segmentation had traditionally been along industry type, it needed to be coupled with an appropriate element such as geographic location and industry buying patterns to give greater meaning to the company's target marketing efforts. It had also been noted that divisional management never involved their staff in the running of the division, nor had their opinions ever been solicited for the development of divisional business plans. On conducting a cursory opinion analysis amongst branch managers and sales and warehousing staff across all the branches, the consultant noted the following deficiencies:

Cape Town
Port Elizabeth
  • Not a comprehensive product range.
  • Rainbow buying practices are poor.
  • Rainbow is incorrectly focused.
  • There exists a high level of bad debt.
  • No major technological changes in the product range over the past few years.
  • Over reliance on current suppliers.
  • Although sales have increased the invoice amount has decreased. i.e. Doing smaller sales.
  • Improved buying efficiency needed.
  • Buying practices are weak.
  • Lack of trained internal sales staff.
  • Poor stock controls.
  • Sales and marketing is low key.
  • Sales efficiency is poor.
  • Poor buying practices.
  • Over reliance on current suppliers.
  • Loss of key employees owing to dissatisfaction.

?I don't understand why you are allowing this to upset you,? said Shaw. ? You know what consultants are like, and besides you have not had the time to step back and look objectively at the division. I bet you the report does not even mention the good work you did in saving the last Nestle job or when you saved the day when Clover got hacked off over the problem with that last delivery of heat exchangers.?

? You are missing the point Martin,? said Bothma. ? I am not a marketing man. I am a salesman at heart. I am sorry I ever accepted this position. Now MacDonald is gunning for me and he has the report of a reputable consultant as ammunition. I am due to see him in about ten minutes. However, before I go I want to bounce some ideas off you that I think may placate MacDonald, and buy me some time. Tell me what you think of this strategy.?

?Okay, lets take a look.?

The two friends sat down at Bothma's desk. Shaw listened attentively as Bothma outlined his ideas for his presentation.

? Firstly, we need to get in and penetrate the position of our main opposition? began Bothma. ? I think we need to go toe to toe with them. Secondly, I want to expand sales and distribution coverage. Put simply, we need to get out there and find new customers. If not in South Africa then elsewhere. I have been thinking about the pharmaceutical industry for some time now and I genuinely believe we could penetrate that segment. Thirdly, we have to increase usage amongst our existing customer base. Now, I know this is going to be difficult, but if we embark on an aggressive sales drive, and get the sales guys out of their comfort zone I am sure our figures in that department would improve. Lastly, I want to embark upon a relationship marketing campaign to protect our existing customers. Of course how we implement all of this is another matter and I obviously have a lot of sums to do. I mean a rugby box does not come cheap. So what do you think??

Shaw was a bit apprehensive. ? You know Danie, I am not much of a marketing man, but don't you think this smacks of desperation? I mean look here on page fifty of this report. The consultant believes a properly structured strategic marketing plan is what we need. Hell man, we have never had as much as a structured sales plan before. This is a whole new ball game, and maybe this consultant knows a thing or two. Maybe its time we changed from being order takers to proactive marketers.?

Just then Bothma's telephone rang. It was Cynthia Mthiya, Malcolm MacDonald's secretary to say that Malcolm was now ready to meet with Danie. Bothma grimaced at Shaw as he left his office.

?Good luck? thought Martin Shaw to himself. ?You are going to need it.?

Meet Paul Dorrian
Principal Consultant

Paul has over twenty years experience as a management consultant, and has directed many projects in the fields of strategy, marketing and organisational effectiveness. His expertise has assisted many of South Africa's leading companies across numerous industries and national backgrounds....
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