Read the case and identify and explain three (3) key marketing issues facing Paper Products Corporation and its business decisions regarding the situation and request from Natcom. Think of the marketing mix/the 4Ps and related other considerations.

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If you were Mary Miller what would you do? Why?

Mary Miller, marketing manager for Paper Produces Cor- poration, must decide whether she should permit her larges; customer to buy some of Paper Products' com- monly used file folders uncle, the customer's brand rather than Paper Produces' own FILEX brand. She is afraid that if she refuses, this cuscomer-Naccom, lnc.-will go to another file folder producer and Paper Products will lose this business. Adapt~d from 2 case wrirren Cy Professor Hardy, Univcn1r; of Wesrern Ontario, Canada. Natcorn, lnc., is a major distributor of office supplies and has already managed to put its own brand on more than 45 large-selling office supply produces. Ir distributes , these products-as well as the branded products of rnanv manufaccurers-through its nationwide distribution net- work, which includes 150 retail stores. Now Torn Lupe, vice president of marketing for Natcorn, is seeking 2 line of file folders similar in quality co Paper Products' F!LE:x: brand, which now has over 60 percent of the market. This is not the first time that Natcorn has asked Paper Products co produce a file folder line for Natcorn. On both previous occasions, Mary Miller turned down the requests ancl Natcorn continued to buy. In fact, Natcorn not only continued co buy the ftle folders bur also the rest of Paper Produces' lines. And coca! sale~ contin- ued ro grow. Natcorn accounts for about 30 percent of Mary Miller's business. And FlLEX brand file fulders account for about 35 percent of this volume. Paper Produces has consistently re.fused such cleale.r- branding requests-as a matter of corporate policy. Thi; policy was set some years ago because of a desire ( l) co avoid excessive dependence on any one cuscomer and (Z) co seH its own brands so that its success is dependent on the qualiry of its products rather than just a low price. The policy developed from a concern chat if it s;,med making products under other customers' brands, those customers could shop around for a low price and the business would be very fickle. At the time the policy w~ set:, Mary Miller realized that it might cost Paper Products sorne business. Bur it ;;;as fdt wise neverrhe iess-w be better able to comrol the firm's future. Paper Products Corporation has been in business 28 years and now has a sales volume of $40 million. !ts primary produces are file folders, file markers and labels, and a variety of indexing systems. Paper Products offers such a wide range of size, color, and type th;:it no competition can match it in its pare of the market. Abuuc 40 percent of Paper Products' file folder business is in specialized lines such as files for oversized blueprint and engineer drawings; see-through files for medical markets; and gnaseproof and waterproof files for marine, oil field, and other hazardous eiwironmenral markers. Paper Prod- ucts' competitors are mostly small paper conveners. Bur excess capacity in the industry is subcantial, and these converten are always hungry for orde!s and willing to cut price. Further, the raw materials for che F1LEX line of file folders are readily available. Paper Products' distribution sysi:em co11Sists of l 0 regional stationery suppliers ( 40 percent of total sales), Natcom, Inc. (JO percent), and more than 40 local staciorn:rs who have wholesale and retail operations (30 percent). The 10 regio11al stationers each have about six branches, while the local stationers i:ach have one whole- sale and three or four retail locations. The regional suppliers sell direcdy to large corporations and to some retailers. ln contrast, Narcom's main volume comes from retail sales m small businesses and walk-in customers in i ts 150 retail stores. Miiry Miller has a real concern about che future of the local stationers' business. Some are seriously discuss- . ing the formation of buying groups to obtain volume discounts from vendors and thus compete man: effec- tively with Narcorn's 150 retail scores, the large regionals, an.d the: superstore chains, which are spreading rapidly. These chalns-s-e.g., Staples, Office World, Office: Max, and Office Square-operare scores of 16,C}.__'\: co 20,000 square feet (i.e., large scores compared to the usual office supply stores) and ler customers wheel through high- stacked shelves to supermarkedih checkout counters. These chains generate $5 million to S15 million in annual business--srressing convenience, wide selection, and much lower prices than the rypical office supply retailers. They buy directly from manufacturers such as Paper Produces, bypassing wholesalers like Narcom, le is likely that growing pressure &om these chains is causing Narcorn to renew its proposal co buy a file line with its own name. None of Mary's other accounts is nearly as effective in retailing as Natcom-which has developed a good reputation in every major ciry in the country. Natccrn's profits have been the highest in the industry. Further, its brands are almost as well known as those of some key producers-and its expansion plans are aggressive. And now, these plans are being pressured by the fast-growing supersrores=-which are already knocking cut many local stationers. Mary is sure that Paper Products' brands are well entrenched in the market, despite the fact that most available money has been devoted to new-produce development rather than promotion of existing brands. Bur: Mary is concerned chat if Narcom brands its own file folders it will sell them at a discount and rnav even bring the whole market price level down. Across all the lines of file folders, Mary is averaging a 35 percent gross margin, bur the commonly used file folders sought by Natcorn are averaging only a 20 percent gross margin. And curring this margin further does nor look very attractive to Mary. Mary is not sure whether Natcorn will continue to sell Paper Produces' FILE< brand of folders along wirh Narcorn's own file folders if Narcorn is able to find a source of supply. Narcorn 's history has been co sell its own brand and a major brand side by side, especially if the major brand offers high quality and has strong brand recognition. Mary is having a really hard time deciding what ro do about the existing branding policy. Parer Prod um h2~ excess capaciry and could easily handle the Narcom business. And she fears chat if she t:'..,;::7'.5 down this business, Narcom will just go elsewhere and i:; own brand will cur into Paper Products' existing sales at Natcorn scores. Further, what makes Narcom's offer especially attractive is chat Paper Produces' variable manufacruring costs would be quire low b relarion to any price chargtJ to Narcom-that is, there are subsr:amial economies of scale, so che "extra" business could be very profmble-if Mary doesn't consider the possible impact on che tlLEX line. This Naccom business will be easy w get, but it will require a major change in policy, which Mary will have to sell co Bob Butcher, Paper Products' president. This may not be easy. Bob is primarily interested in developtng new and bener products so the company . ca.ri avoid the "commodity end of the business."