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Caz 1 Precision Electronics Corporation
Caz 1 Precision Electronics Corporation
Background
States.
vices: First,
it
so. The first firm, a manufacturer of industrial equipment, lacked experience in the component business;
hence it was not able to reach the appropriate targer markets. The exclusive sales agreement SDK had negotiated
with the firm was therefore terminated within a year. The
second manufacturer, a famous maker of military and
aviation-related conrpoucrrt-s, r'clcgated SDI( relays to a
minor supplementary role in its product line rather than
that of a featured product that would receive intensive
sales effort, After two years of such neglect, sales were
much lower than had been projected.
Having attained little success marketing its new ielay
component through manufacturers that paid little attention to the product, SDK decided to become much more
Establishment of Precision
Electronics Corporation and tts
Distribution Goats
Precision Electronics Corporation was established in
Morristown, NewJersey, on October 1,1974, as a wholly
owned subsidiary of SDK Japan. PEC began its marketing activity for relays with seven employees consisring
of four Americans (executive \?, national sales manager, secretary, and clerk) and threeJapanese (planning
manager, accounting manager, and product control
supervisor).
PEC's distribution goal for the relays was to penetrate the U.S. market and attain a sales volume of $50 mitlion (a 10% market share) through its own distribution
network within ten years.
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560
Case
Jf]
Precision Electronics Corporation
Therefore, he continued, reps can be the ideal sales channel for a company such as PEC that seeks to enter the national market in a short time span without making a huge
investment in setting up its own distribution network.
Tetsuo Yamaguchi finally entered the discussion by arguing that manufacturers' representatives often have good
technical knowledge and complementary product lines
that can be very helpful to the manufacturer. The debate
over the merits of the manufacturer's own sales force versus manufacturers' representatives continued for another
hour or so untilJohn Slager put his hand on his head in a
gesture suggestive of 'How can we all be so dumb?' 'Why
are we only debating the merits of our own salespeople
versus manufacturers' representatives?" he practically
screamed. 'INe are missing another very important and
possibly highly feasible alternative for distributing our relayin the U.S. market-industrial distributors." The other
executives in the room with noticeable embarrassment at
their apparent oversight, nodded their heads in agreement. The discussion then moved to include industrial
distributors. Tetsuo Yamaguchi who had experience
workingwith U.S. industrial distributois in a previousjob,
led off the discussion by pointing out some kel' ad','an
tages of using this type of intermediary: First, they offer
complete sales and distribution operations to the manufacturer by purchasing their stor:k in bulk quanrities, raking title from manufacturers, and reselling to many different kinds of customers because of their broad market
coverage. Also,
have
DiscussionQuestions b61
untilJohn
Discussion Questions
1.
2,
Develop an argument for the use of manufacturers' representatives to distribute the relay.
Develop an argument for the use of industrial
distributors.
3.
Could a combination of manufactrrrers' represen" tatives ancl irrdustrial distributors be used in the
channel design? l-
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