Case Study: Major Oil Inc. (INDIVIDUAL STUDY 17 MARKS)

Tim Christensen sells industrial lubricants to manufacturing plants. The lubricants are used for the plants machinery. He is calling on Petar Balogh, a purchasing agent for Acme Manufacturing Company. Petar currently buys Tims Hydraulic Oil 65 in drums. Tims sales call objective is to persuade Petar to switch from purchasing his oil in drums to a bulk oil system. The secretary has just admitted him to Petars office.

Salesperson: Hello, Petar.

Customer: Well, if it isnt Tim Christensen, my lube oil salesperson! How is everything over at Major Oil these days?

Salesperson: Fine! Were adding to our warehouse, so we wont be quite as crowded. Say, I know you like to fly. I was just reading in a magazine about the old Piper Tri-Pacer.

Customer: Yeah! I do enjoy flying and fooling with old airplanes. I just got back this weekend from a fly-in over at Hamilton.

Salesperson: You dont say! What types of planes did they have?

Customer: They had a bunch of homebuilts. You know, many pilots spend from 5 to 15 years just building their own planes.

Salesperson: Would you like to build your own plane someday?

Customer: Yes, I would. But you know, this job takes so much timeand with my schedule here and some travel, I dont know if Ill ever get time to start on a plane, much less finish one.

Salesperson: Well, I dont know that I can save you that much time, but I can save the people in the plant time and reduce your cost of Hydraulic Oil 65. Also, I may even save your office some time and expense by not having to place so many orders. You know, we talked a couple of weeks ago about the possibility of Acme buying Hydraulic Oil 65 in bulk and thus reducing the cost per litre by buying larger quantities each time you order. In addition, you will save tying your money up in the $20 drum deposit or even losing the deposit by losing or damaging the empty drum.

Customer: Sounds like this is going to cost us some money.

Salesperson: Well, we might have to spend a little money to save a larger amount, plus make it easier and quicker in the plant. Do you know exactly what you are paying for Hydraulic Oil 65 now? Customer: I think its about $1.40 a litre.

Salesperson: Thats close. Your delivery cost is $1.39 per litre, not counting drum deposit. You used

approximately 20,000 litres of Hydraulic Oil 65 last year at a total cost of $27,800.

Customer: Between what I pay at the gas station and what we pay here, I see why Major Oil is getting bigger and richer all the time. How much money can you save us?

Salesperson: Well, we try to get by and make ends meet. However, I can save your company more than $2,800 per year on oil costs alone.

Customer: That sounds awful big. How are you going to do that?

Salesperson: I am going to show you how you can purchase oil in bulk, save 14 per litre on each litre you buy [14 times 20,000 litres equals $2,800], and eliminate handling those drums and having your money tied up in deposits. Last year, you purchased about 364 drumsand Ill bet you did not return all the drums to us.

Customer: I know we damaged some drums, and I imagine we ended up with some expensive trash barrels for our employees. I wonder how much of a total deposit we pay?

Salesperson: The total deposit on those drums was $7,280. Are you and your company totally satisfied with the performance of Hydraulic Oil 65?

Customer: It seems so. I have heard nothing to the contrary; and our bearing supplier, Timken, says

that the oil is doing a first-class job. You know, this savings sounds good in theory, but will it really work? Besides, where will we put a big bulk system?

Salesperson: Petar, Ive already thoroughly checked into what the total equipment and installation will cost. Heres a picture of the installation we made over at the Foundry and Machine Shop. We put the installation above ground to save the expense of digging holes for the tanks. The cover shown here in the picture protects the pump and motor from the weather, and the pipe into the shop goes underground. Theres a control switch for the pump motor mounted ins ide the building next to the

nozzle outlet. It looks good, doesnt it?

Customer: It certainly does, Tim, but what about the cost?

Salesperson: We can get two new 3,000-litre tanks delivered here for a cost of $1,700 from our tank supplier. This is about $120 less than what you could buy them for. Our quantity purchases of tanks

give us a little better priceand well be glad to pass these savings on to you. I have checked with Pump Supply Company, and they have in stock the pump and motor with flexible coupling and built-in pump relief valve, just what we need for handling this oil. The cost is $475. The control switch, pipe, pipe fittings, inside hose, and nozzle come to $120, and the person who does our installation work has given me a commitment to do all the installation work for $500, including furnishing the blocks to make the tank supports. This totals $2,795, so lets round off to $2,800. And at a savings of 14 per litre, based on your present usage of 20,000 litres per year, this would be paid off in about 12 months, during which time youd pay $1.25 per litre for your oil rather than the $1.39 you now pay. How does that sound to you, Petar?

Customer: That sounds pretty good to me, Tim. Didnt you have an article about this in a recent issue of your company magazine?

Salesperson: We sure did. It was in the March issue. Here it is, right here. The situation was a little

different, but the basic idea is the same. Our company has used this idea to considerable advantage and over the past three years I have set up six installations of this type. Do you have any questions regarding the plan Ive outlined?

Customer: Just one thingyou know were short on space behind the warehouse. Have you thought about where we might locate an installation of this type?

Salesperson: Yes, I have, Petar. Recall one of our earlier conversations where you told me about your plans to clean up that old scrap pile near the corner of the warehouse? That would be an ideal location. We could then locate the control switch, filling hose, and nozzle right on the inside at the end of the assembly line so the units could have their initial oil fi ll just before they come off the assembly line. How would that fit into your plans?

Customer: Thats a good idea, Tim. That way we can get that junk pile cleaned up, replace it with a decent looking installation, and then make our initial oil fill the last step in our assembly procedure. Salesperson: Do you have any other questions, Petar?

Customer: No, I believe Ive got the whole picture now.

Salesperson: Good. Now, to sum up our thinking, Petar, the total cost of installation will be about $3,000. Immediately on completion

of the installation, and when you receive your first transport truckload shipment of Hydraulic Oil 65, instead of being billed at $1.39 per litre, as you are now paying for barrel deliveries, you will be billed $1.25 per litre. Ill work with Bill Smith, the plant superintendent, and Ill handle all the outside contacts so that we can make the installation with little turmoil.

Customer: That sounds good to me. When can we start the installation?

Salesperson: Tomorrow. Ill bring a contract for you to have your people sign. It should take about three to four weeks after the contract is signed.

Customer: Good. What do I need to do right now?

Salesperson: If youll arrange to clean the junk out of the corner, then well be ready. Ill order the equipment and have it moving so that we can be ready in about four weeks. What would be the best time to see you tomorrow?

Customer: Any time will be okay with me, Tim.

Salesperson: Swell, Petar. Thanks for your help. I know you will be pleased with this new installation and also save money. See you tomorrow.

Questions

1. Evaluate Tims sales presentation. Include in your answer comments on his approach, presentation, use of trial closes, handling of objections, and his close. (10 marks 2 marks for each part of the

presentation)

2. How would you develop visual materials to illustrate Tims sales presentation, including the arithmetic? (5 marks 2.5 marks for the description of the visuals which will be used and 2.5 marks for the arithmetic)

3. Now that Tim has sold to Petar, what should Tim do next? (2 marks provide at least two

things that Tim should do nex