8-3 Madison Products Madison Products is a manufacturer of plastic packaging products with plants located throughout North America and customers worldwide. Madison has experienced excellent sales growth in recent years, except a small decline in total sales and profits in the prior year. Management is planning a marketing and manufacturing strategy to return the company to its former sales growth and profitability. PRIOR MARKETING STRATEGY During the past ten years Madison Products has successfully developed a line of high quality plastic bags that are commonly used in grocery stores and other retail applications. The plastic bags manufactured by Madison are produced in several sizes, different colors, and may have multicolor printed designs on one or both sides to meet the specification of a particular customer. The company concentrated its efforts in selling to the top twenty grocery market chains in North America. By limiting its marketing efforts to a relatively few, very large multioutlet grocery chains, the company achieved relatively large customer order sizes and thus relatively low overall order filling cost per unit. The company has been successful because of the reliability of its product and its willingness to meet the specific requirements of each of the large chains. In recent years, Madison's success in the grocery chain market has attracted an increasing number of competitors into the market. While the company had been very successful in bringing out a series of new products, the competitors have been able to develop similar products at the same or lower prices. The result has been a decline in Madison's sales growth, a substantial reduction in Madison's prices, and a major decline in the firms' profit margin. The company faces an increasingly competitive market characterized by significant excess producer capacity throughout the industry, including at Madison. NEW MARKETING STRATEGY As a result of the increased competition in the large grocery chain market, the company is considering a focus on the small independent grocery stores that purchase bags from large wholesale distributors. The potential sales for this wholesale segment is about the same as for the grocery chain market (30 billion bags per year versus 35 billion bags per year), but includes a much larger number of independent stores dispersed over a large geographical area. The pilot marketing studies run last year by Madison indicate that the customer order sizes for the wholesale segment tend to be relatively small, and that the number of different product variations (in terms for example of print color, film color, and print type) tend to be relatively large in comparison with the large grocery chain market. These studies also indicate that prices (and corresponding profit margins) are much higher than in the large grocery chain market. MANUFACTURING To support domestic and export sales, the company has located a number of plants throughout North American and Europe to best support the geographical spread of the business. The rapid growth in sales during the past ten years has contributed to this relatively high plant capacity because of the upward trend in demand. Investments in manufacturing had been to support two principal objectives; to increase capacity and to reduce costs. The cost reduction initiatives principally concerned reducing materials costs and reduced processing times. Over the years the company has chosen to invest in machines which are similar to existing equipment in order to capitalize on the fact that the process is relatively simple and that products can, with relatively few exceptions, be processed on any machine in the plant. The only major restriction is the number of colors which a machine can accommodate on a single pass. Future investment proposals now being considered are based on this rationale. Table 1 provides a schedule of orders for which is representative of the operations for the company plants. Required 1 Discuss briefly Madison's competitive position and strategy. What are the implications of the marketing and manufacturing initiatives undertaken by Madison? 2. 3. How does Madison's strategy deal effectively with global competition in its business? How should it? 4. Using the data in Table 1 and appropriate methods of analysis such as regression, analyze the effect of order size and product variety on the productivity and cost structure of Madison's plants. 83