Cedric McElroy examined sales results for the year that just ended. His company, McElroy & Lavidge, had just completed the best year ever in terms of total sales, but profits as a percent of sales had actually decreased. McElroy & Lavidge represents sev- eral electronics manufacturers, selling switches, transistors, semiconductors, and other electronic parts made by six companies in the Pacific Rim to telecommunications and computer companies in Texas. McElroy & Lavidge employs six salespeople who work on straight commission based on total sales. As he reviewed sales by manufacturer, he realized that the biggest drain on profits was sales of SonPan products. SonPan is a Korean company that makes transistors. In- tense competition for that business, combined with a lack of new products from Son- Pan, drove prices and margins down during the year. As McElroy looked at his figures, he thought back to one of his own sales, a $700,000 order that included about $100,000 of SonPan products. He had to discount the SonPan products by 18 percent in order to compete with the new Hibachi transistor. But without a transistor, he probably would have lost the sale entirely. At the same time, however, McElroy realized that the new Kinetec line of electronic switches was a potential bright spot. Introduced only three months ago, already the line accounted for 60 percent of McElroy & Lavidge's switch sales, which were just over 10 percent of McElroy & Lavidge total sales. Profits were not great on the line, however, because McElroy had to discount it to get people to try it. 1. What factors should McElroy take into account when considering whether to drop the SonPan line of transistors? 2. What stage of the PLC is the Kinetec line? What can McElroy do to speed ac- ceptance of the product without discounting the price? What will signal to McElroy sufficient acceptance that discounting is no longer needed to get the sale? 3. McElroy & Lavidge is a distributor. What does this mean in terms of new prod- uct development? What role should they play in identifying and building rela- tionships with lead users?