36 Business Marketing APPLICATION QUESTIONS 1. Can a customer be clasified as an OEM as well as a user customer? Explain with an example. 2. What distribution strategy should be followed by a company, which is marketing tyres to OEM customers and replacement markets and why? 3. A major electrical equipment (like power transformers and switch-gear) manufacturer tried to have collaborative relationships with high business potential government organisations like state electricity boards. What are the possibility of success of this strategy? Explain the reasons. 4. How should India’s small and medium enterprises (SMEs), which contribute 70 per cent of the cotal industrial pollution, not only create jobs and profits, but also protect natural environment? 5. What are the relevant macroenvironmental factors for a major information technology firm like Infosys? What ‘would happen if the firm stops monitoring these macroenvironmental factors on a continuous basi 6. Discuss: “Why should a business marketer classify industrial products and customers?”. REFERENCE NOTES 1, James C. Anderson and James A. Narus, Business Market Management, Pearson Education, Inc., 2004, pp. 91~ 105; and Sunil Chopra, JL. Kellogg Graduate School of Management, Northwestern University, 1999, a chart 2. CK. Prahalad and Gary Hamel, “The Core Competence of the Corporation”, Harvard Business Review, pp. 79 91, May-June 1990. 3. Ibid. 4. Philip Kotler, Marketing Management, Prentice-Hall of India Private Limited, 2004, pp. 236-37. 5. Ibid. 6. American Association for the Advancement of Science, Science 80, November 1980, p. 11 The Economic Times, Bangalore, news item, April 12, 2007. 8. Paul Hawken, Amory B. Lovins, and L. Hunter Lovins, Natural Capitalism: ‘Creating the Next Industrial Revolution’, Boston: Little, Brown, 1999. 9. The Economic Times, Bangalore, news item, May 11, 2004. 10. The Economic Times, Bangalore, news item, April 19, 2005, HK Electroplating Company Ltd: Environmental Issue (Rev. 1)* SLE sine When HK Electroplating company started the electroplating operations in a residential location in Bangalore in 1989, it received a notice from the Pollution Control Board to install the effluent treatment plant within 15 days, failing which they would seal the plant. * This case was prepared by Prof. Krishna K. Havaldar based on the case data provided by Rasheed Ahmed, Rajeev ‘Samuel, Ranjana, and M. Rajkumar, MBA students of Alliance Business Academy, Bangalore.Understanding Business Markets and Environment 37 The director of the company, collected the information that it would cost about Rs 5,00,000 to buy an effluent treatment plant, an area of about 600 sq. feet to install it over a period of 2~3 months, and tunning cost of about Rs 20,000 per month for the purchase of material like costic soda and others. The effluent contained nickel, synide, cromium, cadminum and zine, which were to be treated seperately using different chemicals. After effluent liquid of about 800 litres per day was treated, the sludge was tobe dried, packed, stored, and dumped in a government notified place. The entire process would not only cost substantial amount, but also would need additional area of about 600-700 sq. feet. The company gathered information that some of the competitors outsourced the effluent treatment to government approved agencies, who collected the effluent liquid from these chemical and electroplating factories, and treated (or neutralized) the chemicals at their effluent treatment plants. These agencies charged Rs 5 to Rs 10 per litre for treatment of effluent liquid, depending on the type of chemicals. The cost of outsourcing was considered much higher compared to in-house effluent treatment plant. However, HK Electroplating company, like many other chemical and electroplating factories did not have additional area for the installation of effluent treatment plant. The director was aware that the liquid waste from the factory would have harmful effects on the surrounding residential area. He also could not violate the Government regulation on environment control. The director had very little time—two weeks—to decide and act. Question 1. If you were the Director of the company, what would you do and why?eS Sigma Telecom Company” In February 1999, the Managing Director of Sigma Telecom was concemed about the downward trend in the net profits of the company. He felt this was because the industry had been passing through a recession since mid-1996 and also because the company was facing an increased ‘competition from large and established companies as well as from new entrants. COMPANY BACKGROUND Sigma Telecom was a public limited company manufacturing marketing and installing telecom equipment in medium and large organisations. It was one of the largest producers of EPABX (Electronic Private Automatic Branch Exchange) systems in India and had developed a reputation for high quality telecom equipment. Sigma Telecom was the market leader with highest market share in the EPABX market in India. The company’s major task was to develop and implement an effective marketing plan so as to maintain and strengthen their market leadership position in the face of growing competition in the higher and middle end of the market Strategic Alliances/Joint Ventures ‘Sigma Telecom had technical collaboration with MIKI of Japan in manufacturing EPABX systems. Ithad a joint venture with Alfa Communication Technologies for providing business communication systems, key telephone systems, multimedia messaging, and response systems. The company had also collaborated with a Japanese company for transmission products such as point-to-point digital radios. Thus, Sigma telecom was an established supplier of a broad range of telecom products and services. Manufacturing and R&D The company had two modern manufacturing units, one each at Mumbai and Bangalore. Its manufacturing unit at Mumbai was fully equipped with modern manufacturing and test facilities for advanced automated electronic assembly. This unit was ISO 9001 certified. The other manufacturing unit at Bangalore was also ISO 9002 certified and handled the mass production of * This case was prepared by Prot. Krishna K. Havaldar, based on the case study data provided by MBIA students, Ms Manjari Sinha and Mr Vibhu Kapoor of IFIM, Bangalore.443 equipment and mini EPABXs. This plant was also equipped with advanced manufacturing for producing world class telephones. a Telecom had invested heavily in infrastructure and manpower for Research and it (R&D). The R&D activities included hamessing the foreign technologies to make able for the Indian environment, plug-on feature development, new product design, and hing software development. ion Channel any sold its products through its sales force. It had four regional offices in the four (Delhi, Calcutta, Mumbai, and Chennai) which covered north, east, west, and south of India, respectively. With the company growth, each of the regional offices had several offices and service centres for a wider and faster reach to the customers. Sigma Telecom branch offices and service centres across length and breadth of India manned by trained enced engineers. This well-spread network of offices and service centres ensured pt customer service. It had several service packages to offer to customers and included 24- ‘service, atter-office hour service, and remote maintenance. These service centres took care ales and post-sales services. e company invested heavily on the in-house training infrastructure and had its own residential centre near Mumbai. notion promotional activities were planned at the company's corporate office at Mumbai. The al elements included advertising, trade shows, and exhibition, apart from personal through the company’s sales force. A central advertising agency was contracted to evolve le advertising message and to release advertisements in selected business magazines. de journals. Segmentation total market size for EPABX systems was estimated at Rs 220 crore (or Rs 2200 million), |equipment of six lakh (6,00,000) lines in 1998-99 in India. The total market was segmented io low-end, medium-end, and high-end markets. The description of these market segments is ibelow: nd Market Segment This segment had products (or equipment) with less than configuration. It was a low-priced, low-technology, and high volume market. The market was estimated at Rs 40 crore (Rs 400 million). Sigma Telecom was not a player in this ket. Companies like Accord, Syntel, L&T, Ruchi, and Star targeted this segment. ddle-end Market Segment This segment consisted of products in the 48-100-line ation. Digital and ISDN (Integrated Satellite Digital Network) technologies were prevalent products. The customer group included medium and large business firms. The prices jdepending upon the configurations and applications. The key players were Siemens, Accord,444 Business Markeing — Alcatel, BPL Telecom, and Sigma Telecom. The suppliers in low-end market segments were planning to enter this market segment whose size was estimated at Rs 80 crore (Rs 800 milion) High-end Market Segment Products above 100-line configuration formed this market segment whose size was the highest of the three market segments at Rs 100 crore (Rs 1000 million). The customers in this segment were demanding in nature in terms of product features, applications, and after-sales service support. The customers like five-star hotels, multi-national companies (MNCs) and call centres demanded quick service support from the suppliers of EPABX equipment The applications such as video conferencing, voice mail, and interactive voice response were the drivers of this market segment. The products supplied were customised in line with the requirements of the customers. The major players were Siemens, BPL Telecom, and Sigma Telecom. Alcatel and Usha Electronics were the late entrants. COMPETITION Apart from slowdown in economy, the other problem faced by Sigma Telecom was an increase in competition in the middle and higher ends of the market. There were two types of competitors. The existing competitors like Siemens, BPL Telecom, and Alcatel, and new competitors like ‘Accord in middle-end market segment and Alcatel and Usha Electronics in the high-end market ‘segment. All the major competitors had absorbed the technologies from their foreign collaborators. Siemens and Alcatel had their own technologies. Superior technologies, which gave value-added features, were the key success factors in the high-end segment. For example, when Siemens introduced ISDN technology, customers started preferring Siemens EPABX system. Another factor that influenced the buying decisions was the after-sales-service support system. The added advantage to the EPABX supplier was the steady income generated due to service contracts from customers. Sigma telecom decided to focus on its service support system. The competitors targeted different industry segments, depending upon their strengths. For instance, Siemens concentrated on MNCs and hospitals. Usha Electricals focused on paging industry, medium size corporates, small hotels, and government organisations. Sigma Telecom targeted hospitality industry (five-star hotels), MNCs, defence, energy, and Government. RECESSIONARY TRENDS IN THE INDUSTRY ‘The EPABX industry had been passing through a recession due to slowdown of the Indian economy since 1996-97. Foreseeing development in the telecom, energy, financial, and hospitality sectors, EPBAX industry had forecasted a growth rate of 25 per cent per annum but the actual growth rate was around 16 per cent. This trend led to an aggressive price competition to gain a new customer or to make an entry into a new market segment. Inadequate telecom infrastructure, that is, inability of Department of Telecommunication (DOT) and private basic service providers to release as many Direct Electronic Lines (DELs) as expected, affected the growth of EPABX market. This was particularly true for the low-end and middle-end market segments. It was expected that the value added features would play its own part in the growth of EPABX market. The Indian national elections in 1996 did not provide any clear mandate to any single political party. This led to the formation of a coalition government. This factor, coupled with the imposition of financial sanctions by the US (as a result of Pokhran nuclear tests) had resulted in reduction ament plans for India. With this background, the value of Indian rupee was continuously These environmental factors affected the profitability of Sigma Telecom as shown in NDUSTRY BACKGROUND development of EPABX came about as a result of increasing needs for telephones, demand {reducing the logistics cost associated with adding new telephone lines. In telecom technology, BX is designated as customer premise equipment and has been designated to simplify the is of providing communication access from the desk. The EPBAX enables organisations to the available telephone lines between a number of users. It provides for operator services. | EPABX system offers basic services, such as handling internal and outside calls, call Jing and transfer, conference calls, and auto call back. In addition, modem EPABX system facilities like auto-dial, cost call calculations in rupees, computer connectivity, fax homing, forwarding, voice guided direct inward station access, ISDN compatibility, and inter-party nferencing, Over the years the EPABX market has undergone many changes. In the early years, partment of Telecommunication (DOT), a Government of India undertaking, supplied ITI (Indian phone Industries) made small exchanges to users. Then came the boards, based on C- s (Centre for Development of Telematics) low-cost, path breaking, switchboard designs in ation with international suppliers. With the liberalisation of Indian economy since 1991, new brands came into market. Small local players served low capacity needs at low cost ‘Telephone Systems (KTS) from major international suppliers such as Siemens and Panasonic, competing with low-end EPABX systems to meet the emerging needs of the market, position of Market Segments total market in 1998 for EPABX was segmented into four segments, as shown in Exhibit 2. ers” included paging industry, networking, and cali centres. Experts from the industry predicted the composition shown in Exhibit 2 was expected to change in a period of two to three The corporate sector (i. private sector) and “others” segments would have larger market al than government and public sector units. Hospitality industry, which included 5-star is, would maintain its position. ors Influencing Consumer Buying ‘major factors that influenced the industrial buyers of EPABX, based on a marketing research dy (see Exhibit 3), were technology and performance. After-sales service support was becoming astrong influencing factor, overshadowing pricing factor. This was not the case about two years . The changes in the buying behaviour of industrial customers were due to the high rate of ration of more features-led middle-end and high-end products. The basic problem facing the industry was that of economic slowdown. The market size of ge communication products, including the three product categories of communications, viz. BX, fax and modem, was Rs 610 crore (or Rs 6100 million) in 1998. While each product egory had distinct features and market dynamism, only modem could live upto the expectations. ‘other two categories performed badly. The EPABX (including KTS) industry witnessed a446 Busines Marketing growth rate of 16 per cent from Rs 2660 million (in 1997) to Rs 3100 million (in 1998), as against the expected growth of 25 per cent. Out of Rs 3100 million, EPABX market size was Rs 2200 million and the balance was for Key Telephone Systems (KTS). 'y of Sigma Telecom Year Profit before tax (Rs in milton) 1994-95 22.40 1995-96 50.20 1996-97 25.60 1997-98 12.20 1998-99 7.50 Exhibit 2 Market Segment Composition of EPABX in 1998 Market segments Percentage of total market = Government and public sector 38 = Corporate (private) sector 27 = Hospitality industry 20 = Others 15 Exhibit 3 The Influencing Factors for Buyers of EPABX Influencing factors Respondents (percentage) Technology 74.8 Performance 23.3 Service support 55.8 Pricing 30.0 Advertising/marketing 19.3 Others 0.5 Note: Total number of respondents = 1896.Questions 1. What steps would you suggest to the company management for reversing the downward trend in the profits? 2. Which segments should the company target and what kind of target market strategy should it follow to maintain its leadership position?e—- _- ____________e IMS Company Ltd Sunil Kumar, Business Analyst, IMS Company, was concemed that the business for managed services, which included mainly “IT (Information Technology) infrastructure outsourcing” was not increasing up to the expectations of the top management. Whatever decisions and actions that were taken by the company in the past one year had not yielded desired results. COMPANY BACKGROUND IMS Company started its operations in November 2005 at Pune, in India. The company had two areas of operations—viz. managed services and professional services. Managed Services mainly consisted of IT infrastructure outsourcing or remote IT infrastructure management. The company had a unique model, that was cost-effective and user friendly. Professional Services included providing training to get ITIL (Information Technology Infrastructure Library) certification and implementing ISO 20000 certification. The company was doing reasonably well in this area of business with customers like Infosys, Sun Microsystems, and Wep. INDUSTRY ANALYSIS IT remote infrastructure global market size was estimated at $130 billion, growing at about 6-8 per cent per annum. It was interesting to note that the Indian companies, which started satisfying the needs of remote IT infrastructure market in recent years, were growing at 30-40 per cent per year, perhaps due to smaller base of business in the initial years. The domestic market for infrastructure management service was growing at a very low rate of about 1 per cent per annum. The reasons for this might be due to lack of awareness about availability of such services and lack of systematic approach towards management of information technology by most firms. TARGET MARKET SEGMENTS Based on internal discussions and knowledge of the market, IMS Company decided to target the market segments (or verticals, as often referred to in IT industry) such as banking, insurance, retailing, financial services, educational institutes, and BPOs. The company thought that in this technology driven market, there could be many organizations interested in outsourcing their IT infrastructure, not only abroad but also in India.490 Business Marketing PROMOTION The company participated in the IT trade-show and conference held in Bangalore in October, 2006. This, Sunil Kumar thought, created a good awareness about the company and its services among target customers, IT companies, and general public. The trade-show generated about 180 sales leads from those individuals who had visited the company stall and had made efforts to enter details of their addresses and contact numbers in the register kept at the stall. In addition, the promotion included sending personalized e-mails to the prospective business customers, informing them about the company and its services. The response for personalized e-mails was far better at about 18-20 per cent, compared to that of generalized e-mails sent to about 7000 prospects, which was about 2 per cent only. As a start up company, it could not spend more on promotion due to financial constraints. COMPETITIVE ADVANTAGES ‘Sunil Kumar, who completed a management programme from a reputed management institute in Pune, India, discussed with his seniors in the company about the competitive advantages it could offer to the prospective customers, as compared to its competitors like Hewlett-Packard (HP), Tata Consultancy Services (TCS), and Wipro. IMS company executives came up with three areas of competitive advantages in remote IT infrastructure management services. These were: First, Selective Sourcing Model, as compared to Total Sourcing Model offered by most competitors. In selective sourcing, the customer was given a choice of selecting the hardware and software, if the customer had any particular preference. Thus, the customer's specific needs of infrastructure were considered when the offer was prepared by IMS company. Flexibility during negotiation and final agreement, keeping in mind interests of both the buyer and seller, was the second advantage provided by the company. The third benefit was being economical, in terms of penetration pricing strategy, compared to many large competitors. There were about 15-16 firms in India who were offering services in remote IT infrastructure market. Sunil Kumar thought that:this service was in growth phase of its life-cycle, and wondered why the sales were not up to the management's expectations despite good economic conditions and certain advantages the company had over its competitors. Questions 1. How is the company's approach to segmenting, targeting, and positioning? 2. Are the promotional efforts of the company adequate? 3. What strategy and actions would you suggest to the company to improve the sales performance substantially?Segmenting, Targeting and Positioning in Business Marketing 163 Govind Doors Pvt. Ltd.: STP Strategies (Rev. 2)* ‘Arun Kumar, Director, Govind Doors Pvt. Ltd., was not sure what kind of target market and positioning strategies he should use in order to achieve the company goals on sales and profitability. ‘Arun Kumar joined the family business in 2006, after completing graduation in Electronic Engineering and MBA from a reputed management institute in India. The company manufactured and marketed GTEX brand PVC (Poly Vinyl Chloride) and FRP (Fiber Reinforced Plastics) doors suitable for bed fooms, bath rooms, office rooms, balcony, etc. These non-wood based doors can be used for residential houses, institutions like hospitals and schools, as well as commercial establishments like shopping malls and multiplexes. ‘The company had segmented its market into the following segments: (a) government organisations lke CPWD (Central Public Works Department), MES (Military Engineering Services), and Railways; (b) residential complexes built by builders; (¢) commercial organisations and institutions; (d) individual house owners, replacement market, and (e) fabricators. “We have targeted all the above market segments for PVC and FRP doors, excepting those customers who want wooden and special (or customised) doors” said Arun Kumar. He further added, “Our sales people regularly contact contractors who get business from government organisations, ‘where lowest prices and good after-sales-service are the key buying factors. However, when our sales people call on builders for residential and commercial complexes for getting orders, superior product | quality and service are the important factors they have to keep in mind. For a large number of individual | house owners, small volume replacement market, and fabricators, we use indirect channel of dealers, | who mostly look for low prices and delivery service (or availability)”. The company had established three sub-brands under GTEX brand. Solidex brand was suitable for government firms, institutions, individual houses with medium quality and medium to low prices. Fibrex brand with high quality and high price was appropriate for builders and a few individual house owners. Lightex brand offered lower quality and low prices for replacement market and a few individual house ‘owners. Fabricators were offered the required raw material from all the three sub-brands. There were tree major players, including Govind Doors, with almost equal market share of 20-25 per cent. The balance market was shared by many small players and also by fabricators. The company had not considered which target market strategy it should use. Arun Kumar was also not sure what should be the positioning strategy for its brand GTEX. It was important to decide these strategies, since the market for PVC and FRP doors was growing extremely well at 34 to 64 per ‘ent per year between 2002 and 2006. And the competition from small players was slowly catching up with the three major players. Questions 1. Do you think it was a right decision of the company to target all the segments? 2. What target market strategy would you suggest and why? 3. How would you develop a positioning strategy for GTEX brand of the company including its subbrands? * This case was prepared by Prot. Krishna K. Havaldar based on the case data provided by S. Sesha Sai, Dhananjay, ‘Shashirekha and Apama, MBA students of Alliance Business Academy, Bangalore.183 . Goyal, Director, Vastu Cement Blocks (VCB) Pvt. Ltd., was seriously considering the proposal de by the company's marketing head, Pradeep Chatterjee, to make a change in the product strategy, to solve the problem of declining profitability. VCB was one of the largest manufacturers of cement blocks, which were used by the construction dustry. VCB was started in 2004, as a part of vertical integration, to support their businesses in the struction industry and the dealership of cement from Asbestos Cement Company (ACC) Ltd VCB was known for its superior quality, compared to its competitors. The raw materials required the production of cement blocks included gravel, sand, cement, and dust. VCB had three production with the objective of minimizing transportation costs. The production cycle was 5 days from the ‘of purchase of raw materials, and included the processes of mixing, moulding, and drying. The company's profitability was affected due to rising cement prices as well as price war on blocks, with increase in competition. According to Pradeep Chatterjee, cement block was ed as a commodity and customers purchased the product based on two key factors—price nd relationship. Pradeep recommended to L.C. Goyal that the company should change the product pricing strategies from “high quality and high price” to “medium quality and competitive prices”. Wwas reluctant to change the “high-quality image” of the company, due to the company's use of ‘grade cement instead of low-priced ‘B and ‘C’ grade cements used by competitors. Goyal was also Station 12 (currently Xantic)—Branding in B2B Services* 4s the satellite communications division of Dutch telecommunications company KPN, Station 12 ‘ailionally offered various Inmarsat services, mainly to the maritime sector, the military (or peacekeeping) f aid organisations and governments. These services included analogue and digital voice, telex data services. With its own Land Earth Station (LES) at Burum in the Netherlands, and a partnership KD of Japan for the use of its LES, Station 12 was able to provide worldwide access through geo- aly satellites, which retain a fixed position in relation to a place on earth. These satellites orbit ‘Alew hundred kilometres over the Equator. Station 12 was primarily known for the reliability of its LES, ‘fich isa function of operational dependability, speed of connections, voice quality and few interruptions, ‘name, Station 12, was derived from the numerical position of its LES on the dial of Inmarsat telite terminals: 12. * Taken from Xantic press release, March 19, 2001.Organisational Buying and Buying Behaviour 61 India Textiles Ltd.: Fulfilling Purchasing Objectives (Rev. 2)* Mahindra Parikh, Senior Manager—Commercial, India Textiles Ltd., felt doubtful on bringing down the delivery time from 60 days to 45 days, demanded by some international buyers of garments. The ‘company's manufacturing unit at Bangalore produced garments like shirts, trousers, skirts and blouses for domestic as well as international customers, including Walmart, J.C. Penny, and Gap. The production process included various operations like dyeing of yam, weaving, and processing. ‘The production was organised on three shift basis. The company had outsourced some of the operations like processing because it did not have facility to do the processing, although it had adequate space. Mahindra asked the market research manager to get the information about the competitors’ delivery time for the garments. The market research manager informed him that only four out of about 100 garment (or apparel) manufacturing units were in a position to fulfill the important purchasing objectives of 45 days delivery time and consistent product quality. Mahindra applied a lot of pressure on the existing processing firms to bring down the delivery time. However, he did not receive any positive commitments from them. Mahindra felt that it was very important to satisfy the delivery and quality objectives of the garment buying firms, in order to achieve the company’s sales and profitability goals. Question 1. Ifyou were Mahindra Parikh, what would you do? * This case was prepared by Prof. Krishna K. Havaldar, based on the case data provided by Pooja Jain, Prakash Inani, Prithvi Hegde, and Sangeetha, MBA students of Alliance Business Academy, Bangalore.iness Marketing SL Business Systems (India) Limited: Pricing a High Quality Product (Rev. 2)* ing manager of SL Business Systems (India) Limited wondered why the sales of the printer achieved the sales target for the first quarter of the financial year 2006-07. The company had the pricing strategy of pricing its printer at Rs 1,50,000, which was double the prices of its ‘competitors like HP and Canon, who had priced their printer at is 75,000. Business Systems (India) Limited was a joint venture company between a leading Japanese tion and a well-known Indian engineering corporation. The marketing manager of the company that the customers knew about the superior quality of their printer as compared to other 8’ printers and hence, the existing and prospective customers would pay for the higher price. He felt that there was no time to carry out a market survey as that would have taken about ‘months, which would have delayed the introduction of the printer in the market. The company realized the importance of communicating to the current and potential customers the superior quality of the company's printer and the long-term monetary benefits of the printer ther printers. The cost per print out copy of the company's printer (including consumables like developers, drums, etc.) was Rs 0.35, and that of other printers was Rs 1.00. ‘The distribution channels included personal selling through the company's ten branches established industrial cities, online marketing, as well as authorized distributors to sell and service to customers and household consumers all over India. The marketing manager was not sure if the sales would pick-up in case the company made an ‘communication to its present and prospective customers about its superior quality and higher, price of the printer. were the marketing manager wat would you do and why? * This case was prepared by Prof. Krishna K. Havaidar, based on the case data provided by Navdeep Kaur Grewal, ‘Niloy Rajpangshi, and Nitanshi Gupta, MBA students of Alliance Business Academy, Bangalore.eo Saragam Aluminium Limited" Mr Krishna Kumar, Vice-President, Marketing, of Saragam Aluminium Limited was considering the type of pricing strategy and policy that would be effective for the new aluminium extruded products that were to be launched in the Indian market in December 1991. THE COMPANY Saragam Aluminium Limited (SAL) had invested Rs 10 crore (Rs 100 million) for manufacturing and marketing of aluminium extruded products. The factory was located at Hosur in Tamil Nadu, and the marketing head-office was located 38 km away from factory at Bangalore. The managing director (MD) of the company had visited various countries in the early 1990s for selection of the extrusion press and its accessories, which were critical equipment for the manufacture of aluminium extrusions. The order was finally placed with a French supplier for the supply and installation of the press and accessories at a cost of Rs four crore. The MD had earlier recruited the works manager, design engineer, materials executive, financial controller, and personnel manager—all ‘of whom were reporting to the MD directly. In August 1991, Mr Krishna Kumar, Vice-President (Marketing) was recruited, reporting directly to the MD. MARKET SURVEY Mr Krishna Kumar felt it necessary to carry out a market survey to understand consumer buying behaviour, market potential and competitors’ analysis to make more effective marketing decisions. Aluminium extrusion was a new industry for Mr Krishna Kumar, who was basically an electrical engineer and a management graduate with 15 years of experience in electrical, air-conditioning and refrigeration industries. He decided to carry out the market survey in southern and western regions of India, where he decided to focus the company's marketing efforts initially. The two marketing executives, who were recruited by the company, were involved in carrying out the field work of data collection, under the guidance of Mr Krishna Kumar. The major findings of the market survey, carried out in-house, are outlined below: Customer and Demand Analysis The Customer (Market) segments, who require aluminium extruded products were household consumers, commercial enterprises, government organisations, and institutional customers. * This case is prepared by Prot. Krishna K. Havaldar for class discussion.Ge 11 471 Industrial buyers considered aluminium extrusion products as “capital items”, where they were used as door, window, and partition frames, However, extrusions were also used as “component parts” in the manufacture of electrical contro! panels, water purification equipment, computers and electronic equipments (as heat sinks). The household consumers, who used aluminium extruded products mainly for window and door frames, were extremely price-sensitive. Aluminium frames for doors and windows, although costlier compared to wooden and steel frames, were more elegant looking, rust-free, but less strong than steel. The industrial customers like commercial enterprises and institutional customers were less sensitive to prices. However, government organisations had a policy of purchasing from the lowest priced suppliers. The market potential of various market segments as a percentage of total market demand is shown in Exhibit 1 Exhibit 1. Market Segments, Market Potential and Price Sensitiveness for Aluminium extruded products in Southern and Western Regions Market Segments Market Potential (%) Price Sensitiveness Household consumers 50 High Commercial enterprises 20 Medium Institutions 10 Medium Government organisations 15 High Cooperative societies 05 Medium 100 Competitive Analysis There were seven players, manufacturing and marketing aluminium extrusions in India. None of them was an MNC, but the market leader was Jindal Aluminium, with its manufacturing unit located at Bangalore. Jindal Aluminium was a national player serving all the markets in India Other large scale national players were primary aluminium manufacturers of ingots and billets, like Hindustan Aluminium Ltd. (Hindalco), National Aluminium Company (NALCO), and Bharat Aluminium Company (BALCO), who also manufactured small quantities of aluminium extruded products. However, their major concentration was on primary products like ingots and billets. The secondary manufacturers (i.e. manufacturers of secondary products like aluminium extrusions) were four, out of which only Jindal Aluminium was a national player and others were local players. The findings of the market survey indicated that based on consumers’ perceptions, Jindal ‘Aluminium ranked first in product quality, followed by Hindalco and Nalco. On delivery/availability, the rankings were as shown in Exhibit 2. However, there was a difference in the pricing, based on total cost of various suppliers.472 Business Marketing Exhibit 2. Competitive Analysis Competitors Primary/ Quality Delivery/ Relative Secondary Ranking Availabilty Price Manufacturer Ranking Comparison 1, Jindal Aluminium Secondary 1 1 110 2. Hindalco Primary 2 5 105 3. Nalco Primary. 3 6 105 4. Balco Primary 4 7 105 5. Man. Aluminium Secondary 4 2 107 6. Bangla Aluminium Secondary 5 4 107 7. MP Aluminium Secondary 5 3 107 The Secondary manufacturers focused more on household consumers with thinner (less thickness of 0.8, 0.9 and 1 mm) aluminium sections, which were purchased on weight basis of Rs 80,000/- per ton by the dealers, but sold on rupees per meter basis. Industrial buyers preferred thicker aluminium sections as these were considered as stronger and superior in quality. Primary manufacturers mainly concentrated their marketing efforts with commercial enterprises, and government organisations. However, the company’s France made extrusions could not produce thinner sizes below 1.2mm thickness. Cost Analysis The basic problem of all the secondary manufacturers was higher cost of aluminium billets (i.e. ‘small aluminium bars as basic material used for extrusion), which was purchased from the primary manufacturers, who were also their competitors. The minimum difference in the cost of aluminium billet between primary and secondary manufacturers was six to seven per cent (i.e four per cent CST + two to three per cent transportation and handling costs) The fixed costs (overheads) of primary manufacturers were considered to be higher than secondary manufacturers, and hence, the difference in prices, as shown in Exhibit 2, was much less as compared to the difference in the cost of aluminium billets. The information on other costs like marketing, direct labour, factory supplies, etc. of various extrusion manufacturers was not available. Pricing Objectives Saragam Aluminium pricing objectives were derived from the corporate and marketing objectives, which included (a) achieving long-term profits and (b) maximising sales volume and market share respectively. The pricing objective as stated by Mr Krishna Kumar, was to achieve market penetration through low initial price strategy. He justified a low initial pricing strategy to the management by pointing out market survey findings and these included: (i) various market (customer) segments were medium to high levels of price sensitive; (ii) competition was severeCase 11 473 {rom primary and secondary manufacturers; and (ii) as the production and sales volume increase, the unit cost will come down leading to achievement of long-term corporate and marketing objectives. ‘On receiving the recommendation from Mr Krishna Kumar, the managing director called a meeting of key executives like works manager and financial controller to decide on the pricing strategy. In the meeting, the financial controller argued in favour of “skimming strategy” through high intial price, which would give advantage of recovering the investment sooner by generating larger profits. The works manager said that the workers and production supervisors were new to the extrusion technology and the concept of experience (or learning) curve will be applicable, in terms of decline in cost per unit, after accumulated experience of production over a period of six to 12 months. ‘The finance manager pointed out that the break-even volume was estimated at 350 tons of production and sales per month, and wanted to know when would it be achieved. The managing director intervened to observe that all these points were important, but it was necessary to take a decision on the company's pricing strategy and policy immediately to enable Mr Krishna Kumar to plan marketing efforts. Questions 1. Which market segments should be targeted by the company? What should be the target market strategy? 2. What should be the pricing strategy and policy of the company?