Materials for Skyscrapers, Ships, Bridges, Power Plants and Pipelines

Welding Industry and Supplies - $1.6 Billion Industry Over 70% of sales through Distributors Important Purchasing Criteria:

Product Quality Demand Creation Communication with Factory Price

Consumable Welding Electrodes – 5 Basic Product Group:1. Flux Cored Wire Electrodes: Growth Rate expected 2%2. Low Hydrogen Coated Stick Electrode: No Growth expected3. Stainless Steel Electrodes: Growth Rate expected 2%, Sold in 3

forms4. Mild Steel Coated Stick (for SMAW)5. Mild Steel Solid Wire Electrodes (for GMAW): Growth Rate expected

1%

3 types of welding processes:1. Shielded Metal Arc Welding2. Gas Metal Arc Welding3. Flux Cored Arc Welding

Gas Shielded Self Shielded

Choice of Electrodes in Large Companies Electrode Brand Product Quality Line Breadth Delivery Availability

Cost Breakdown for a welding Job – Power and Equipment (2 – 5%), Electrodes (8 – 15%), and remaining Labor and Overhead (80 – 85%)

PRIMARY BUSINESS PURPOSE: High Quality, High Tech Welding filler Develop Manufacture Market

Emphasis on Sales via Distributors and Retailers SECONDARY BUSINESS PURPOSE: Sale of Product and/or

Manufacturing Technology via Technical Assistance Trademark License Joint Venture Agreements

Leader in Product Quality Technical Qualities Product Innovativeness

In 1985, Major Company in Industry – Manufacturing only Welding Electrodes

Prices ↑ than Competitors, Alloy charged for freight while competitors absorbed freights Promotions – Distributors (Major Sales)

Independent Welding Supply Distributors – 75% Sales (Direct 13%, Independent Wholesalers 41%, Company Wholesalers 21%)

Estimate: Top 50 distributors – 80% of Company sales, Of the top 50 – 20 sold to Lincoln

Sales force: Called both Distributors and End Users Field Sales (21) – Distributor Relations, Direct

Accounts, and Account Development

World’s Largest – Manufacturers (Welding Electrodes and Equipment)

60% of Sales – End Users Sales force – More than 200 Size and Aggressiveness - Distributors Name Recognition and Good Reputation “Outer Shield” – Compete directly with

Alloy’s Dual Shield Wide Range of Diameters, Priced 25% ↓

Dual Shield

Market Trends: 1982 -1983 – Economic Recession, Industry

sales - ↓ 30% End Users and Major Welding Users moved

operations Abroad ( due to Cost Advantage)

Materials Efficiency of Wires Increased ( Industry Dynamics Changing, Buyer Power

High, Level of Competition increased

Customers –Welding Electrodes End Users (Ranged from One Person Mechanical Contracting Shop to Major Steel Fabricators)

Product Loyalty varied Distribution – Easier with bulk orders rather than

customized Buying Process –

Small/ Medium Size Companies: Owner, Plant, Welder Large Companies – Welding Engineers More of Technical Specifications in Case of Large

Companies while More of Relationship based selling in Small

Both differ drastically and thus, handling customers differs which is very essential for handling competition

• Direct Salesperson (21 field salespeople):– Maintaining Distributor Relationship– Handling direct accounts– Developing new accounts

• Wholesalers (1 company owned + 3 independent):– Buying from Alloy at discount and then reselling to

authorized distributors– Taking orders, shipping products and billing

distributors• Distributors (500 independent welding supply

distributor):– Performing product demonstrations for customers– Supplying to the end-users the required product

Type of Product

Annual Sales

Channel Network and Pricing

Lincoln Electric Co.

Welding electrodes and equipment(average quality)

$ 365 mn Trained engineers, lower price range, max 5% discount to distributors

Hobart Electrodes, welding and Generators (average quality)

$ 120 Mn Salesperson & company-owned stores; inconsistent pricing

Airco Industrial gases, medical equip, welding equip and stick electrodes

NA Independent distributors

McKay Strongest stainless steel electrodes and low-hydrogen & gas-shielded flux-cored electrodes

$ 30 Mn Distributors

Tri-Mark Highest-quality flux-cored electrodes

$ 16 mn Independent distributors

Direct Salespeople (200 trained engineer graduates): Approaching the customer, understanding

his needs and telling a better way to do it Distributors (1000):

Buy from Lincoln at discount (5%) and sell to the end users

• New product:– Wide range of diameters– 25% lesser price than “ Dual Sheild” prices

• Threat or not?– Vertically integrated electrode supplier– Electrode form only 8% to 15% of total welding

cost– Welding engineers not like to shift the process– Selling direct to the end-users– Lack of consistency of product quality– Maximum discount offered to distributor is 7%

compared to 28%

Distributors: Order takers Low switching cost Long sales cycle

In the distributor survey 1980 Alloy was rated poorly on factors like Communication, sales representation and training

. Flux Low Hyd Stainless Mild steel coated + solid

Industry Sales 100 72 51 204

Market Share 23% 22% 13% 11%

Alloy Sales 23 15.84 6.63 22.44

Price to Dist 0.771 0.498 2.38 0.537

Margin lost 0.11565 0.0747 0.357 0.08055

Sales in pound 29.83139 31.8072289 2.78571429 41.7877095

Loss 3.45 2.376 0.9945 3.366

. Direct Sales Indirect Sales

Percentage of Sales 15% 85%Actual Sales 9.75 55.25Number 21 500Productivity 0.464 0.1105Cost 7.833 10.1865

Bring into play more direct salespeople for major accounts and distributors for small companies: Fulfill the gap between company & end

users Help compete with Lincoln sales force However it can disturb the current

distributors More focus on Field training seminars

Use higher margin given to distributor as factor for pushing them to develop accounts: try and create artificial scarcity for Lincoln product

Impart training to distributors to make them technically sound to understand the customers needs better