Alto Chemicals Europe

Company
ACEs headquarters organization was by product group. 5 directors (responsible for 1 or more products) reported to the President. The subsidiaries were organized by function. The headquarters-subsidiary interaction could be described as a Matrix Relationship. The Dual Boss Syatem

Product
Stabilizers were a category of chemicals used to make plastic products. Experienced an annual growth rate averaging less than 3%. Market was expected to remain stagnant, for the coming decade. Decline in consumption by 15%.

Early Strategy
ACE entered the market with Barium (most commonly used in Europe), however their long term strategy was to switch to Tin. Initial discounts of 2-3% below barium price were deemed necessary to switch to Tin ,as conversion required changes in process and machinery. But with Tin they promised better product performance and quality.

Account classification

Base Regular Polytab customers

Strategic currently using Barium , Trendsetters in the industry

Swing Price oriented

The Sales Force

The sales force was assisted by the technical team at Geneva. Management believed their specialized sales force and competent technical Service , to be unique in the industry. The Sales force was aware of the importance of price in making sales. A salesman had typically 10-25 accounts. The performance of sales manager was jointly evaluated by the subsidiary MD and headquarters Marketing Manager. By company policy, all ACE execs, and members of the sales organization were compensated by a fixed salary.

The new Strategy

The company wanted to move from Volumebased strategy to margins based strategy. This was because the price variations among the subsidiaries were huge. Some clients bought their products at lower prices at one subsidiary and used it in the other (where it was available at higher prices). The company wanted to move to centralised pricing system.

Contd.
The company wanted to leverage its expertese in technical know-how and experienced sales force. They wanted to aim at newer accounts. Graaff was projecting a doubling of contribution margin to $80 per ton.

The problem
The sales force thought the proposition of the company to revise the prices upward was Absurd. They emphasized that the company cannot focus on both Price and volume at the sake time. They were skeptic about concentrating on smaller (new) accounts as they would take the same amount of time to convert as larger ones with lesser returns. The sales forces also expressed concerns over the relationships with the clients. They were against rigid rules from the headquarters.

Recommendations
Graaff should try and explain to the sales executives the long term strategy of the company and the losses they were incurring due to differential pricing. The sales force should also be educated about the strategy of the company from moving from local level to a more company level decision making. The strategy of moving from few large customers to large number of medium to small customers should be implemented. The performance of the sales team should be linked to the % of margins achieved. ( This depends upon territory potential ). A part of the performance should also be based upon, the number of new accounts converted by the sales force. The sales force should be clearly made aware of their Expert power and they should be made to realize the competencies they possess (experience and support from technical team.)