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Case I: CHEMCO CASE

Case II: NAKAMURA LACQUER COMPANY

Case I: CHEMCO CASE

Started in 1965, ChemCo is a leading manufacturer of car batteries in the U.K. market. Since
then, it has been under the charge of Mr. Jones, the founder-owner of the firm. In 1999, the
company decided to go for a diversification by expanding the product line. The new product
was batteries for fork-lift trucks. At the same time, Mr. Marek was appointed the Senior Vice
President of marketing in the company. However, soon after its successful diversification into
fork-lift batteries, the sales in this segment began dropping steadily. Mr. Marek wanted to
introduce some radical changes in the advertising and branding of the new business but the
proposal was turned down by the old-fashioned Mr. Jones.
At this juncture in 2002, the firm is losing heavily in the fork-lift batteries business and its
market share in car batteries is also on a decline. Mr. Jones has asked Mr. Marek to show a
turnaround in the company within a year. What steps should Mr. Marek take to take the
company out of its troubles?

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Some of the facts on the case are:

ChemCo is a quality leader in the U.K. car batteries market.

Customer battery purchases in the automobile market are highly seasonal.

The fork-lift business was added to utilize idle capacity during periods of inactivity.

This is a low-growth industry (1% annual growth over the last two years)

Large customers are sophisticated and buy based on price and quality. Smaller
customers buy solely on price.

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Company

Established player in car batteries

Losing heavily in fork-lift truck batteries

Old fashioned owner resistance to change

Competition

Low priced competitors

Foreign competitors gaining market share

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Customers

High quality product, but low end customers care more about price than quality

Problem Definition:

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Criteria for evaluation of alternatives:

Establishing the firm's quality image

Increase in market share

Increase in sales

Cost of the product

Evaluation of Alternatives:

Alternative 1

Protect firm's quality image in the automobile industry

Redesigned product to reduce the cost of manufacture

Low price to enable it to compete with Spanish producer

Alternative 2

Make use of the quality leadership in car batteries market

Offer reliability testing, extended warranties etc. to promote quality image

Set higher prices to extract surplus from these advantages

Alternative 3 and 4

A passive strategy, not proactive

Recommendations:
Alternative 1 is recommended in this case. Since the firm operates in an industry which
has low growth, hence it can expand market share and sales only by taking the
customers from other players. Hence, it needs to tackle the Spanish competitor head-on

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Case II: NAKAMURA LACQUER COMPANY

The Nakamura Lacquer Company (NLC) of Kyoto, Japan, employed several thousand men
and produced 500,000 pieces of lacquer tableware annually, with its Chrysanthmum brand
becoming Japan's best known and bestselling brand. The annual profit from operations was
$250,000.
The market for lacquerware in Japan seemed to have matured, with the production steady at
500,000 pieces a year. NLC did practically no business outside Japan.
In May 2000, (much to your chagrin!) the ambitious and dynamic, Mr. Nakamura (Chairman,
NLC) received two offers from American companies wishing to sell lacquer ware in America.
The first offer was from the National China Company. It was the largest manufacturer of
good quality dinnerware in the U.S., with their “Rose and Crown” brand accounting for almost
30% of total sales. They were willing to give a firm order for three years for annual purchases
of 400,000 sets of lacquer dinnerware, delivered in Japan and at 5% more than what the
Japanese jobbers paid. However, Nakamura would have to forego the Chrysanthemum
trademark to “Rose and Crown” and also undertake not to sell lacquer ware to anyone else in
the U.S.
The second offer was from Sammelback, Sammelback and Whittacker (henceforth SSW),
Chicago, the largest supplier of hotel and restaurant supplies in the U.S. They perceived a
U.S. market of 600,000 sets a year, expecting it to go up to 2 million in around 5 years. Since

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later, when the Occupation Army left in 1952, Nakamura employed several thousand
men, and produced 500,000 pieces of lacquers tableware each year for the Japanese
mass consumer market. The profit from operations was $250,000.

The Brand: Nakamura named his brand “Chrysanthemum” after the national flower of
Japan, which showed his patriotic fervor. The brand became Japan's best known and
best selling brand, being synonymous with good quality, middle class and dependability.

The Market: The market for lacquerware in Japan seems to have matured, with the
production steady at 500,000 pieces a year. Nakamura did practically no business
outside of Japan. However, early in 1960, when the American interest in Japanese
products began to grow, Nakamura received two offers

The Rose and Crown offer: The first offer was from Mr. Phil Rose, V.P Marketing at the
National China Company. They were the largest manufacturer of good quality dinnerware
in the U.S., with their “Rose and Crown” brand accounting for almost 30% of total sales.
They were willing to give a firm order for three eyes for annual purchases of 400,000 sets
of lacquer dinnerware, delivered in Japan and at 5% more than what the Japanese
jobbers paid. However, Nakamura would have to forego the Chrysanthemum trademark
to “Rose and Crown” and also undertaken to sell lacquer ware to anyone else the U.S.
The offer promised returns of $720,000 over three years (with net returns of $83,000),

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To expand into the U.S. market.

To maintain and build upon their reputation of the “Chrysanthemum” brand

Long term:

To increase profit volumes by tapping the U.S. market and as a result, increasing scale of
operations.

To increase its share in the U.S. lacquerware market.

Criteria: (In descending order of priority):

Profit Maximization criterion: The most important criterion in the long run is profit
maximization.

Risk criterion: Since the demand in the U.S. market is not as much as in Japan.

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the domestic market over three years without adversely affecting operations there. At the
end of three years, Nakamura would have little bargaining power with RC as it would
have an excess capacity of 275,000 pieces and excess labor which it would want to
utilize. In this sense the offer is risky. Further, the offer is not flexible. Long-term profit
maximization is uncertain in this case a condition that can be controlled in the SSW
offer. Hence, this offer is rejected.

Accept SSW offer: The SSW offer does not assure a firm order or any returns for the
period of contract. Although, in its present form the offer is risky if the market in the U.S.
does not pick up as expected, the offer is flexible. If Nakamura were to exhibit caution

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