XIME/B2B Marketing
Metals Products India Ltd
Case Study I
Metal Products India Limited (MPIL) was one of the leading manufacturers of MS (mild steel) metal
sections widely used in construction, furniture, rolling shutters, and industrial sheds. The factory was
located at Whitefield, on the outskirts of Bangalore.
The market for metal sections was highly regionalized. In and around Bangalore, there were four
manufacturers of metal sections. MPIL was set up in 1987 by its parent company, Madhya Bharath
Metal Sections Ltd. (MBMS), Bhilai, mainly to serve the southern markets. Before this unit was set
up, material was supplied to dealers/customers in South India directly from Bhilai. The advantages
perceived by the promoters in setting up MPIL was substantial savings in freight coupled with better
availability of material. Prior to 1987, there was only one manufacturer of metal sections at
Bangalore, viz. Karnataka Metal Sections (KMS). Between 1993 and 1996 two more manufacturers
set up their units at Bangalore, viz. Adarsh Metals and Mahavir Metal Sections.
The total size of the market for metal sections in South India in 1998 was estimated at 40,000 metric
tons (MT) with an annual growth rate of around 6 per cent.
MPIL had tied up with the existing dealers of MBMS for distributing their products. MBMS had
dealers at all the important locations in the South. However, in Karnataka they had only one dealerBangalore Metal Traders (BMT) based at Bangalore.
Apart from making use of the existing distribution channel of MBMS, MPIL also appointed new
dealers at places like Vijayawada, Calicut, and Erode. Most of the dealers supplied the metal sections
in smaller lots to the customers, who were mostly fabricators and small-scale industries. Apart from
this, some of the dealers also operated through sub-dealers. The price to dealers was decided by the
manufacturers and the dealers usually marked up the prices by seven per cent to eight per cent. The
prices at which dealers operated were not controlled by the manufacturers but were solely at the
discretion of the dealers. Depending on the off-take, dealers got volume discounts from
manufacturers varying from three per cent to seven per cent.
Apart from distributing the products through dealer network, MPIL also sold their products directly
to OEMs (Original Equipment Manufacturers) and Government customers. However, this added up
to only 20 per cent of their total sales. To support the dealers, MPIL had opened depots (i.e.
warehouses) at Chennai, Coimbatore, Ernakulam, and Hyderabad.
Bangalore Metal Traders (BMT) was the largest dealer of metal sections in South India with an offtake of 2,000 MT per annum, which was 20 per cent of the MPIL's production. By virtue of their offtake, they enjoyed the highest slab of volume discount offered by the company. As per the
understanding with BMT, MPIL was not supposed to appoint dealers at other centres in Karnataka.
However, there was no specific written agreement which debarred the company from appointing
dealers at other stations.
Prior to the entry of Adarsh Metals (AM) and Mahavir Metal Sections (MMS), BMT enjoyed more
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than 50 per cent share of the market in Karnataka. In view of the informal agreement with the
company not to appoint dealers at other stations in Karnataka, BMT also did not deal with other
manufacturers and sold exclusively the product of MPIL. KMS also had a dealer at Bangalore by the
name of Kavery Agencies, which had branches at other major centres in Karnataka. Prior to the entry
of AM and MMS, the combined market share of MPIL and KMS in Karnataka was more than 80 per
cent.
AM and MMS found it difficult to compete with BMT and Kavery Agencies, which were wellestablished in the market and had exclusive arrangements with their principals. To penetrate the
market, AM and MMS adopted a different strategy of offering material direct to customers in
Bangalore, though it was not as cost effective as selling through the dealers. In the upcountry
markets, they identified potential dealers dealing with steel and hardware and offered the same
discounts as offered by MPIL and KMS to their respective dealers. The new entrants succeeded in
attracting the hardware dealers at locations like Mysore, Mangalore, Hubli, and Belgaum. Most of
the upcountry hardware dealers were earlier sub-dealers of BMT.
Out of the volume discount of seven per cent offered by the company, BMT used to keep three per
cent for them and pass on the balance four per cent to the sub-dealers. To break the stronghold of
BMT and Kavery Agencies, the new entrants started offering discounts of six per cent to seven per
cent to upcountry sub-dealers who found it more comfortable to deal directly with the
manufactures instead of being sub-dealers of BMT.
The aggressive marketing strategy adopted by the new entrants resulted in the loss of business
volume for MPIL on account of reduced off-take by BMT. As compared to 2,050 MT lifted by BMT in
1996-97, during the first six months of the year 1997-98, their off-take was only 850 MT. Though the
drop in sales volume was noticed by Mr Bhatia, President, during the first quarter itself, in the
quarterly review meeting, Mr Shekhar, Marketing Manager, attributed this to the recessionary
trends prevalent in the market and the poor performance of the economy as a whole. However, this
did not satisfy Mr Bhatia on whose insistence Mr Shekhar undertook an extensive tour of Karnataka
along with the representative of BMT, and found to his dismay that in Hubli and Belgaum they did
not enjoy even 30 per cent of the market share, whereas the new entrants had captured more than
50 per cent of the market. Most of the hardware dealers who were earlier sub-dealers of BMT, had
been appointed as the authorized dealers of AM and MMS. However, they had not stopped dealings
with BMT totally, though the dealings were confined to ordering only those sizes which were not
readily available with AM and MMS. When this was pointed out to Mr Bhatia, he advised Mr Shekhar
to come out with a suitable strategy to recapture the market in north Karnataka. Attempts by Mr
Shekhar and representatives of BMT to get the subdealers back to their fold by emphasizing on the
superior quality of their product compared to the competitors' and offering special incentives
subject to certain guaranteed off-take did not yield the desired results, leaving Mr Shekhar, who had
been given the ultimatum by Mr Bhatia, a frustrated man.
Questions:
1. Identify the root cause of the problem of loss of business for Metal Products of India Limited.
2. What would be your recommendations to Mr. Shekhar to recapture the market in north
Karnataka?
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