Description
HERE'S MY MKT PROJECT FYR
Final Project Summer Term 2011
STRATEGIC MARKETING MANAGEMENT PLAN FOR MODERN (INT’L) PLANTS & MACHINERIES LIMITED
EXECUTIVE
SUMMARY
We ceased to represent Benninghoven in August 2007 on the ground that things had
changed to our disadvantage after they entered into a joint-ventured agreement with a Xi’an manufacturer (Appendix 1) but in December 2010 they came back to us to seek for cooperation (Appendix 2). Our marketing team has been spending time on feasibilities studies and considers that despite of the keen competition, the Benninghoven brand and growing demand are making it worth pursuing. In the last few years, without the support of Benninghoven, we had sourced local supplies for imported accessories and hydraulic components for asphalt plants. We
had even developed software programs for control systems in replacement of the ones on Benninghoven plants. The new relationship would probably help us in
moving another step ahead, a complete plant supplier instead of a parts and service provider. We aim to import burners from Benninghoven and source local supplies
for hydraulics, steel fabrications etc., we only do the assembling, commissioning, maintenance, monitoring and control. This way our capital investment will not be
heavy and we will not need to increase head counts until we see the actual market response. The good branding will give us an easier start to leap jump for a
manufacturing role and the worse scenario will be heavier workload due to diversification of manpower.
TABLE
OF CONTENTS
II
1. 2.
EXECUTIVE SUMMARY ……………………………. SITUATION ANALYSIS .…………………………..….
Market Situation …………………………………………………. Marketing Segmentation ………………………………….……… Customers’ Needs ………………………………………………… Buying Behaviour ………………………………………………… Products Situation & Price Structure …………………………… SWOT Analysis ..……………………………….…………………. Strengths and Weaknesses of the Company Strengths and Weaknesses of our Products Anticipated Opportunities and Threats Five Forces Analysis …..…………………………………………… Competitive Rivalry within the Industry …………………... Bargaining Power of Suppliers ……………………………… Bargaining Power of Buyers ………………………………… Threat of Substitutes ………………………………………… Threats of New Entrants ……………………………….…….
II 1 1 2 4 5 8 10
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3.
OBJECTIVES ……………………………………………
Market Definition …………………..……………………………… Role Definition …………………..………………………….……… Product Definition and Positioning …..…………………………… Localization ……..……………………………….………………….
19 19 20 21 22 23 24 25 25 26
4.
MARKETING STRATEGY ….…………………………
Competition Assessment …………………………………………… Product Repositioning …....……………..………………….……… Establishment on Synergy Supports ……………………….……. Marketing Mix ……………………………………………………. Product
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Pricing Place Promotion 5.
CONCLUSIONS ………………………………………..
Possible Advantageous Outcome …..…………………………….. Possible Disadvantageous Outcome ……..……………………….
29 29 29 30 30 30
6.
RECOMMENDATIONS ……………………………….
Executions …………………………………………………………. Controls …………………………………………………………….
APPENDICES……………………………………………….. REFERENCES……………………………………………..
A1 A2
IV
SITUATION ANALYSIS
The good old years of acting as distributor for various reputable construction equipment manufacturers from Europe, the United States and Japan in the sales region of China, Hong Kong and Macau have been long gone, we are now concentrating on problem solving and parts support which does not generate much profit for the company but does act as a bridge to keep ourselves connected to the market while helping other subsidiaries within the holding company to build their market in the region (Appendix 3). Customers are still having a lot of confidence
in us and will usually seek our assistance before purchases, sometimes crossed region too (Appendix 4). A lot of them even propose to have their purchases done
in two parts, the equipment to be handled by the asphalt plants producers while we perform the commissioning and maintenance. We do not want to be held
responsible for quality issues, therefore, have never agreed to such proposals. Benninghoven entered into a joint-ventured relationship with their Xi’an partner sometime in 2004, managed to gain their ground as market leader by 2009 but with the sudden pickup on sales and technology at ???? and American burners were found being quoted in Xi’an’s quotation to others, their relationship went sour. Market Situation Ever since the clear cut on tax exemption for all imported asphalt plants, the demand
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on 100% imported plants diminished and replaced by locally assembled equipment. Instead of paying 30% import tax for the complete plant, local manufacturers only need to pay 5% import tax as long as they limit the imported portion within 20% of the total components of a complete plant, that is a lot of savings for the end buyers as VAT tax is calculated with import tax included (Appendix 5). At the time when
this new regulation came out, many of the overseas manufacturers started to hook up with local synergy partners to find more space for their business. But since
business operations within China were very different from the outside world, it took a long time for both parties to build a long term workable team but such relationship was usually supported by mutual benefits alone without mutual trust and understanding. In a lot of cases, partnership did not even survive through the gear At the
in period but technical know how was somehow shared and copied.
moment, the market is filled with locally built asphalt plants with outdated technology and poor service backups. The booming infrastructure projects and road maintenance requirements created a big demand on asphalt plants, from 307 units in 2004 to 961 units in 2010 (Appendix 6). The total sales figure should even be higher if steel supply and price
were more stable and bank loan requirements were not tightened. Market Segmentation
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According to David W. Cravens and Nigel F. Piercy (9th Edition, 2009, P. 83) “Segmenting markets is a foundation for superior performance. Understanding
how buyer’s needs and wants vary is essential in designing effective marketing strategies.” Since all our potential buyers are business corporations and therefore we are serving the organizational markets for their demand on burners as well as complete plants. Burner is like the heart of a human being, if it performs well it can very much guarantee a reliable production capacity and quality. The total market for burners
can be divided by the nature of the industry, like motorcycle; asphalt plant; airplane or any other which requires heat combustion but since Benninghoven only build burners for asphalt plants, therefore, the total market for their burners will only limit to the asphalt plant manufacturers and geographically within the China region in our case. As for complete plant, the total market can be divided into the follow segments: Asphalt Producers who produce and sell asphalt to serve general demand for regular asphalt, like a supermarket, no preordering is required and no special formulated asphalt is available. Chance to move plant to other locations is
rare, therefore, usually will prefer stationary plant. Road Building Contractors who have their own recipe and produce asphalt to
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fulfill job specifications.
Usually move plant to the next job location upon
completion, therefore, usually will prefer mobile or semi-mobile plant.. Aviation Industry which usually produce asphalt for usage on runway building and maintenance, very particular on asphalt specifications and equipment reliability. Plant usually remains in the airport area, stationary plant is their
choice of product. Customers’ Needs For burner buyers, they do business by building asphalt plants and sell to end-users. They usually have different sources to meet their needs on burners, only will buy from us if they need to build outperforming equipment which they can sell at a much higher price. They usually have strong financial background and well planned
production schedule, place orders ahead of time but occasionally will require shorter delivery time to meet unexpected order requests. They are experts in the trade who
do not need much technical backups from our side but sometimes will request extended guarantee period on their stock burners when business does not turn out as good as planned. We will take physical stock check of the burners in question to
ensure that they are unused and being stored in proper condition before providing extension. For plant buyers, they need to have equipment that helps them to make money out of
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producing and selling of asphalt.
They want to have something that works In the asphalt paving field,
effectively and efficiently according to requirements.
contractors are usually subject to heavy penalty and/or disqualification if they are unable to finish their job at an upto standard level within the time frame. The
warranty period for their paving job is usually 2 to 5 years and 2 - 5% of the contract amount is being held as performance bond during the period. In general cases, jobs
usually start almost immediately after tenders have been awarded and therefore, short delivery time or even prompt delivery is a basic request despite the fact that the production lead time for an asphalt plant is at the least 8 weeks. Also buyers
will want something affordable; reliable with high capacity and low downtime. Today, with the high fuel costs and strict environmental protection requirements, fuel consumption and waste disposal are also something buyers look very closely into at the time of purchase. Given a choice, they will prefer something
maintenance free, otherwise timely service backups and something mobile to give them flexibility on transportation. Buying Behaviour According to Etzel/Walker/Staton (14th Edition, 2007, P. 127) “Business buying behavior, like consumer buying behavior, is initiated when an aroused need (a motive) is recognized. This leads to goal-oriented activity designed to satisfy the
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needs.” For burner buyers, they will only buy from us if they want to promote an image of a quality supplier or the end-users particularly specified in their specifications. The
majority of the local manufacturers are very price conscious, they use locally made burners and if they want something slightly better on quality, they will buy the Italian made ones which are still 30% cheaper than ours. For this market, buyers
will always want to lower their costs as much as possible and there is really not much we can do to change it since we cannot lower our price to get close to what our competitors are offering, but if their endusers request to have a Benninghoven burner, then they will have no choice. Complete plant buyers behave differently according to the requirements of their target markets. But generally speaking, if they can afford it, most of them will buy
plants with the highest available capacity in the market because for them investing on asphalt plant is quite a big decision to make and they always want to equip better for the future. plant are: Other reasons to support the purchase of a bigger than necessary
this is another way to reflect their social status in the industry; to cushion
themselves in case the plant’s output does not reach its specified capacity due to high elevation, high humidity, lack of routine maintenance or inefficiency of the burner, therefore, the most popular model being sold in the last five years range
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from 300 to 400 tons per hour which is very different from the well developed worldwide market. Users usually jump on the supplier whenever there is a
machine failure and they expect to be served right away before even perform a preliminary check on their own. Users in different industry have their own sets of attitude and perception. For the
asphalt producers, they do not have strict control on their recipe because their buyers are usually road maintenance crew or small road contractors in non urban areas. They usually have their plants put up away from each other so that they do not create direct competitions among themselves, everyone operates within his own territories. The reasons behind are the strict regulations of the government, they
cannot put up a plant wherever and whenever they want, they will need approval from both the urban and environmental protection divisions. The high costs of
transportation and heat loss during transportation also limit their buyers’ choice. Their lack of competition is giving them higher bargaining power. They do not
have a strict quality control, to keep their plant in full operations, they will make huge silos for storage and their plants are usually not well maintained. For road building contractors, they usually work on highway projects which have strict requirements on weather proved asphalt recipe; finished road surfacing; durability and time frame. If it is a contract for crossed country first class highway,
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all the requirements are spelt out clearly on the tender and they have to stick to it 100%. Projects usually last for 12 to 18 months, sometimes even longer, so the
chance for contractors to buy a new plant for individual project is very common. Buyers in this category usually will inquire about new plants way before the actual tender submission, they put reputable brand on their equipment list with the hope to gain better chance for themselves. Since the cost of a good plant takes up only a
little portion of the complete project and does reflect a better chance to come up with a trouble free finished job, they will want to invest a little bit more for something more reliable. But there are also deceiving contractors, former buyers
of reputable equipment that would put reputable brand logos on their locally purchased equipment with the same paint and outlook to fake their way through the process. As long as they perform as expected, nobody will say anything or dares to
say anything. For the aviation industry, they have their own laboratory to test asphalt recipe and they know exactly what can help them to achieve required results. They are
willing to invest on their equipment and even help plant manufacturer to build what they want but expect suppliers to attend service calls at time of need with little tolerance. Product Situation and Price Structure
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German made burners and complete plants have a very high recognition in the China market, being considered as sophisticated but expensive. They share a good
reputation for their efficiency, professional after sales service and slim outlook which the American products are of no comparison. Italian burners and asphalt
plants are considered to be second best, very flexible with their price, we sometimes are of the opinion that they occasionally are selling their products below costs just to conclude deals but their after sales service is way below requirements. The locally built burners and complete plants are basically a copy of the German or Italian products on the outside but the actual performance is unstable with hardly any service backups, sometimes not even parts support as they buy parts from different suppliers and end up buying dead stock which is no longer in production, therefore unable to find replacement for users in case of need. Burners and asphalt plants are categorized as engineering products, final price for each individual equipment depends on the interior design and components within and therefore can hardly be compared by its production capacity. Price is
structured very much on the specifications and the kind of job customers want to accomplish. Burners create combustion to facilitate the appropriate environment With its help asphalt plant can produce
for different kinds of finished products.
finished material that can meet different standard of requirements on water soakage;
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antiskid; heat and cold resistant etc.
Price therefore is determined basically on a We are of the
value for money basis and not on the production capacity alone.
opinion that all manufacturers if given the same scope of delivery, should come up with a final price for the equipment within 10% difference if they are really going to produce faithfully according to the specification instead of taking chances. The
price of the equipment also covers backup service, warranty parts and one year full maintenance, if stick closely to the commitment, this again will probably come to another 10 - 15% of the contract amount. A quotation for a burner usually consists
of 5 – 6 pages of specifications while the complete plant is at least 15, so there are spaces for some competitors to mess around with the fine lines and they have ways to keep the users happily quiet until something disastrous takes place, then they will start pulling each other’s legs. SWOT Analysis According to Etzel/Walker/Staton (14th Edition, 2007, P. 564) As part of a situation analysis, many organizations perform a SWOT assessment. In this activity, a firm identifies and evaluates its most significant strengths, weaknesses, opportunities, and threats. To fulfill its mission, an organization need to capitalize on its key strengths, overcome or alleviate its major weaknesses, avoid significant threats, and take advantage of promising opportunities. Based on our situations, we come up with the analysis below which would enable us to know ourselves better and help us in finding ways to avoid the unchangeable and unfavourable while further strengthening factors which are to our advantages.
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We
evaluate our company and its environment, internally we focus on our strengths and weaknesses, externally we look at the opportunities and threats we encounter. Strengths and Weaknesses of the Company Our strengths are our long history; our good reputation; our experience; our network coverage; our synergy support; our loyal team members; our strong financial status and our readiness to start. We have been in the infrastructure field since our
establishment in 1979, we were the one introducing the advanced road building technology into China when no one had seen or experienced anything like that. Our long commitment to attend service calls within 48 hours and willingness to go to places like Afghanistan, Africa, Bangladesh etc. for China based contractors have gained us a more superior and trustworthy image. We had been in the trading and
servicing business for burners and asphalt plants for over 10 years before we ceased to represent Benninghoven, so we are very familiar with the equipment, the industry and the market. We have a joint-ventured production facility for steel pipe
scaffolding and formworks in Kaiping with another one in progress, expecting to start trial production in September 2011, therefore we do have experience in production and raw material purchases. We are well acquainted and have actual
working experience with quality steel fabricators and know exactly what they are capable of doing. Our good relationship with the highway bureaus; research
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institutes; end-users and their operators; finance companies are giving us advantages and first hand reliable information at no costs. Our production facilities,
overhauling depot and rental fleet in different parts of China are our strongest synergy support which, in turn helps our customers out in various occasions and build a strong bond between us. Our sales and servicing teams have been with us
faithfully through ups and downs; helping us in sourcing local supplies and developing programs for control systems to enable us to continue to serve customer’s needs without the support from our principle suppliers. They turned down job offers continuously and willing to take up and fulfill all job assignments to customers’ satisfaction. Apart from their usual duties, our team also participates in
activities of other subsidiaries within the holding company to conclude deals within China. The entire Modern group generates a record high profit for the Year
2009/2010 and paid over HK$17,000,000.00 on profit tax alone (Appendix 7, 8 & 9). This year’s account has not come out yet but we expect it to be something close. If
we are going to work together with Benninghoven, we only need to specify clearly with them responsibilities and authorities, our existing manpower and facilities will be able to cover the needs at the beginning stage until we see the market response. Benninghoven has committed to produce regularly an export version of burner for the China market and the price will be slightly cheaper with the same quality.
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Our weaknesses are: the lack of actual working experience in asphalt plant assembling; the high operating costs and high sales price. Our experience in the
production of steel pipe and formworks does give us some kind of basic knowledge, but when it comes to asphalt plant, we have to rely on the support of other fabricators in much heavier steel works industry to provide steel parts according to our drawings before we can do the assembling. Putting all the components
together can be easy but to do it error free, we have to rely on the fabricators to label each individual connecting parts clearly. Experienced assemblers will be able to
tell if certain parts are wrongly labeled but for us, we will need some time to get used to the process. Most of our staff has been working for us for more than 10
years and our company does have a generous commission and bonus scheme. When it comes to a partnership relationship, a lot of things might not be our decision to make, therefore we need to spell everything clearly at the time of discussion with Benninghoven or come up with another package for such calculation. Our high Unlike
price sometimes made us lose a deal without a chance for negotiation.
other suppliers, we only will accept payment by Letters of Credit or payment in advance which sometimes is making customers hard to accept. Anticipated Opportunities and Threats Unlike the United States and Europe, China’s economy is still going strong and the
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government has big reserve for infrastructure projects, especially on road building because most of the express roads are toll roads which are profit making projects instead of government funding utilities. means a bigger pie for all the players. The market is a growing market which According to reports, at least 13 crossed
country highways, all together 2050 kilometres and 14 railway tracks will be built in the next 5 years which creates a big demand on asphalt and there are still the suburban side tracks to be built to link the major road to surrounding area. The
heavy weight from buses, trucks and container trucks as well as heavy rainfall and floods are said to be the cause of frequent road damages to very many so-called first class highways being built in the last 5 years, therefore the government is putting pressure on the control of road building quality on tender requirements, which actually gives us more space for survival as premium product supplier. The RMB
is in an upward trend against other currencies that will be a definite advantage to both Benninghoven and Modern as we will be quoting in local currency. Our threats are from the unstableness of government regulations; steel price; steel supply; increasing labour and land costs. The government is tightening on environmental regulations, even if we can fully comply they still will hold up applications for final verifications, a very slow process. Import tax is usually Steel price and
reviewed every year but sometimes enforced without prior notice.
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supply have been a big concern for manufacturers in the last couple of years, instead of confirming orders with a fixed price, suppliers will put a clause allowing a plus or minus 5% on price and delivery quantity. If plan turns out smoothly, we will have
to establish a separate team and workshops for this project, increasing labour and land costs is a matter of concern. Even though we focus on more quality
demanding customers but the keen competition on road building is making customers more price conscious and the quality of the locally built burners and plants are improving as manufacturers are getting better control of the production process. Five Forces Analysis According to Marketingteacher.com:
Five forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. the market for Business For example, Dell would analyse
Computers,
i.e.
one
of
its
SBUs.
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To get an all around aspect of our standing position against competition, we evaluate through the use of Porter’s Five Forces Analysis.
Competitive Rivalry within the Industry The high end burners market is very much concentrated. Benninghoven has the
highest ranking for their long history and continuous advancement, they have basically dominated the market for burners used on recycling machine connected to asphalt plants. Their price is higher than competition and a lot of times orders were In the German
lost due to that but competing on price is never their strategy.
market, in order for contractors to win a tender, they are required by law to commit using at least 40% recycling material, the portion is going higher every year, but still contractors will prefer to have a recycling unit and an asphalt plant separately as this will give them more flexibility when they have more than one job in operation and to reduce capital investment too. Such measure will even be greater when it comes
to sales region like China, there is no request for the usage of recycling material, customers use it for the sole purpose of lowering costs. regulations, there are always ways to go around it. Even if there are rules and
Benninghoven has never sold
one single burner or asphalt plant to the United States as they do not want to face the unnecessary hassle of the US legal system and even believe that the Americans do not know what good equipment and road paving is all about.
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Bernd Benninghoven,
CEO of Benninghoven, did express his concern in the very fast shrinkage of the European market (Appendix 10) but said he would now spent more time in product development to equip better for the future. No sign of price compromising. If
their Xi’an partner could make their way to the market leader position in 2009 with the Benninghoven burner (Appendix 11), we believe we should be able to do the same if not better. Since we are only going to make use of our existing facilities,
connections and manpower plus outsourcing to facilitate this project, there should be no or limited exit barriers on our part. There are altogether around 20 players targeting at the same market segment for their asphalt plants and the Benninghoven brand has gained quite a good reputation on quality, we should be able to gain some ground on this growing market. We
will have to rely on synergy supporters to make plans work out the way we want and quality is our path to success and we rely on this ground to build our future. Bargaining Power of Suppliers Benninghoven is our partner and major supplier, they control the technology and supply of burners. They can easily switch to others but after going through the
experience with Xi’an, they are of the opinion that we are more trustworthy as a partner and our good experience and reputation will help them to pickup what they have lost.
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Our other suppliers will be the local steel fabricators in China, quite a number of them are actually in the asphalt plant business after gaining experience in steel fabrication for the product. But they can only do straight copies and have little
knowledge for product advancement, research & development, therefore unable to serve customers with special requirement for a special application. burner suppliers to come up a complete plant. They rely on
We should find a way to work
comfortably together with them instead of competing against each other. Threats of Substitutes There is basically nothing to replace the usage of an asphalt plant if asphalt is required for road paving and burner is its major component, so there is no substitute for it. Of course, if the government decides to go back to concrete paving, then it is
a totally different story and a backward move, this perception is being felt more in depth in China. For the Benninghoven brand, substitutes will mean any other brand in competition at a lower price but it is believed that Benninghoven will have to compromise on quality if they want to lower their price, vice versa, if competitors want something better, the costs will definitely be higher, so it is a different market segment with different sets of customers and job requirements. Threats of New Entrants New entrants are usually steel fabricators whose influence is already reflected in
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bargaining power of suppliers.
For Benninghoven, all the competitive For
manufacturers serving the same market segment are already in the game.
totally new comers, the high startup capital investment with very many patent rights still valid; the high opportunity costs and the concentrated market usually will make their return on investment not as attractive.
OBJECTIVES
We need to identify precisely our aim and the kind of role we want to play and make it clear to Benninghoven, to ensure that both of us arrive a distinct mutual understanding of what to do and what to expect. Market Definition Our target market will be buyers for burners and asphalt plants from the whole of China, whoever is willing to pay the price we ask for. Between Benninghoven and Modern, we have arrived a mutual understanding and agreement to that and we aim to sell 100 burners in the year of 2012, either through direct sales to asphalt plant manufacturers or being installed in the asphalt plants we sell. We know a lot of the asphalt sellers are still looking for cheaper locally made products but with the ever increasing price on asphalt, in time they might need to sharpen their gear in order to be able to create some kind product development moves to facilitate market development plans to secure orders. Benninghoven
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want to sell the China made products to other markets, like:
Poland, Bulgaria,
Australia or even back to Europe because that is exactly what their No. 1 competitor, Ammann, has been doing but not getting positive word of mouth (Appendix 12). Benninghoven is confident that outperforming them is within reach. We have
made it clear during various occasions that we are only interested in the China market at this stage, any further market development will fall out of our region and too distant for us and therefore will be Benninghoven’s decision to make and responsibility to take. We simply do not want to commit something which we are
in no position to fulfill to our own satisfaction. Role Definition A company will be set up with Benninghoven and Modern as 49/51 share holding partners, costs to be shared in the same proportion. Benninghoven’s role is to make
ready all the drawings for filler solos; storage silos and all other steel fabrications and send them to Modern’s Hong Kong office by 30 September 2011. They are
responsible to provide 10 burners with their existing standard of quality, on consignment basis, as stock units at the start. They will also come up with a new
version of burner for the China market without the sophisticated features that are not required in the local market and produce it on a regular basis latest by the end of 2011. They will also provide one mechanic, one electrician and one electronic
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engineer for 6 months to assist and monitor the assembly of the prototype plants from 1 March 2012 and to do training programs for Modern’s staff and customers. Benninghoven would also bear all the costs for the drawings including packing and shipping into China; all the costs for packing and shipping of the burners and all the salaries, allowances and fringe benefits for their staff including plane tickets to and from Germany to China. Modern is responsible for providing an address as
registered office for the newly set up company and appoints someone to be the legal representative. Modern is also responsible to pay on behalf of the new company all
the import tax/transportation costs and place order for steel fabrications according to the drawings from Benninghoven for 5 units of asphalt plants which will only be reimbursed from revenue generated from the sales of equipment. Modern should
also appoint its staff to carry out sales, promotion, assembling duties at their costs during the 6 months from 1 March 2012. Benninghoven is responsible for quality
issues arise from burners and technical supports and Modern is responsible for quality issues arise from assembly, contract negotiation, commissioning and after sales services. Product Definition and Positioning Product means the sale of burners and/or complete asphalt plants plus all the services behind such activities. We position our products as high end quality
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products that could help customers to solve all jobs requirements.
Capacity will be We target to
from 300 to 500 tons in 5 different categories in 50 tons intervals.
reenter into the market as a solution provider, to reinstate Benninghoven and Modern’s high quality, reliable image while promoting something more compatible, competitive and practical, a value for price solution. Localization Localization is very much like a must nowadays because a plant with capacity of 300 tons, we used to pay around EUR200,000 on transportation from Germany to China alone and this is the kind of cost customers want to eliminate as much as possible. The availability of quality steel and the improving workmanship have
gained ground for the locally produced steel fabrications which are very much preferred by buyers for their comparatively low price in the last 5 years. There are
a lot of quality suppliers in the Wuxi area because of its location and good workmanship, we already have business connections with a few and have agreed to work closely with them for a long term cooperation for mutual benefits. Besides
steel works, Modern is responsible for the development of supportive software to tailor fit customer’s needs. That way we make ourselves more competitive on
price while widening our target market to cover local manufacturers, new equipment buyers and existing plant users.
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MARKETING STRATEGY
Our marketing strategy is the single biggest factor which determines our success or failure of our business. Our chance for success relies very much on the
effectiveness of our plan and its execution, therefore, we should have precise marketing strategy that supports and corresponds with our objectives. Our
marketing strategy emphasizes strongly on relationship building even before an enquiry takes place because we consider this a long term investment which will result in successful sales and profit when need arises. The provision of quality
products and services is also one of our priorities, which enables us to create a strong and positive image of ourselves as well as our partner, a long term investment. It is also our strategy to maintain a strong price structure by providing better value in return. We have been very successful in locating top of the line products; building
up good relationship with customers and maintaining a strong culture within the group. All these efforts together have made it possible for us to survive through But with the new partnership arrangement with
difficulties better than competitors.
Benninghoven and change of business nature, we will have to reevaluate and make adjustment to better fit into the situation. Competition Assessment
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In a fast moving market like China, things change quite rapidly, one can be in a leading and profit making position at one moment and totally collapsed in the next, we, therefore, need to know exactly where we stand, who we compete against, plan well and act fast. Record shows that in 2010, asphalt plants sold to road building
contractors were from 20 different manufacturers (Appendix 13), market share ranged from 2 to 13%. ???? was in the leading position with 13% market
share, their plants were originated from the Italian Bernardi brand, they used the Italian technology and burners at the start but now they have developed their own. ???? came second with 9% market share, they were the Xi’an partner of Benninghoven but now they are producing without the support from Germany and putting American burners on their plant. ???? is a local company, represented 5% of the market share, using the Italian Marini drawings to produce plants with 100% local parts. ?? is a French company, sold 4% of the total volume, acquired the Italian Marini asphalt plants technical knowhow and producing on their own in China. ???? is a German manufacturer, owned 3% of the market share, the strongest competitor of Benninghoven worldwide while ? ? is a Japanese manufacturer, owned 2% of the market share, a working partner of Benninghoven in Japan and Germany, each holds 30% share of each other’s shares. The rest of the
players are local manufacturers and 6 of them are actually steel fabricators from
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Wuxi.
Among all these competitors, we do see very high possibility to work our
way up to market leadership with the golden branding of Benninghoven; their ever advancing technology; our good reputation in backup services and our good connections. We just need to focus on quality and build our products that can help
customers to make money surely and securely. Product Repositioning Physical products like burners and asphalt plants can be copied and reproduced easier than services. Benninghoven and Modern are being recognized as quality
products/services providers but this time we are not only positioning ourselves as suppliers, we are going to reposition ourselves as solution providers, we will take the initiative to study how we can come up with compatible parts to help users upgrade their existing equipment which does not necessarily need to be a Benninghoven plant and to achieve the kind of result they want to achieve on their finished products. We will also help them to find solutions for asphalt recipe in
high demanding jobs, with Benninghoven’s good relationship with petroleum companies like: British Petroleum, Shell etc. and our close relationship with Design and Research Institute in China and Asphalt Committee, this is something we can handle well. Establishment of Synergy Supports
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To put our plans in operations, we need to hook up with different parties and some of them are even competing with us in certain ways. Besides replacement units for
existing plants, the rest of our burner buyers are asphalt plant manufacturers who will buy from us if they are being requested by their endusers or if they need something to meet a higher standard on requirements. We just need to prove to
these producers that we are a fair game player; our higher price on asphalt plant is actually giving them an easier path to outperform us on price; we should try to work together to win over the rest of the game players instead of biting each other. For
those that start out as steel fabricators, we even have more reasons to work closer together to create a win-win conclusion because they supply us with steel fabrications today and we might one day supply them with burners. effort in handling these relationships tactfully. We need to put
Our other synergy supporters are
petroleum companies, road building experts, government authorities, asphalt committee etc., there is no competition involved, so we just need to socialize and stay in touch. Marketing Mix Marketing decisions generally fall into four controllable categories, used to satisfy the needs of our target market and at the same time, achieve our marketing objectives.
26
Products The tangible, physical products we are going to put in the market are burners and asphalt plants, together with them are the Benninghoven and Modern good brands representing good quality; reliability; value for price packaging services on repairs and support, accessories and services for the benefits of the users and the environment. Pricing Price is very much related to quality, since we are not going to compromise on quality, our price will end up higher than competition. Benninghoven is going to
come up with a new version of burner which is going to be slightly cheaper, not as sophisticated as the ones they have been selling but good enough for the China market though. We have asked one of our customers to get a quotation from Xi’an
for their 320 tons plant (Appendix 14), even though they are no longer working with Benninghoven, they still purposely put a Benninghoven logo on their diagram (Appendix 15) which is deceiving. The price quoted is about 20% more than what If a plant
we would have quoted, therefore the situation does not look that bad.
from a local manufacturer with an American burner can be sold at US$1.54 million, we do stand a very good chance to be competitive because this 20% does not really reflect much on an asphalt paving project which, in most cases, is a billion RMB
27
contract. Place – Distribution As soon as we make ourselves known as a burner and asphalt plant seller, reentering into the market, people will start coming back to us with enquiries, even those with no intention to buy. Prompt delivery is something we need to put more stress on because time of need is the time when buyers are less price conscious. Paving season closes latest by the end of October and re-opens after the Chinese New Year. We should make use of this period of time to prepare ourselves on warehousing, order processing, inventory management etc. to make sure that when there is a demand, we are able to supply. Promotion Just like before, we are not going to promote ourselves through advertising in papers or magazines, we will just participate in exhibitions, holding seminars in universities, attending asphalt summits, arranging symposium between petroleum company and road builders etc. to promote an image as an expert in the asphalt producing industry. We always arrange training programs for operators around Chinese New Year, from now on we will include personnel from asphalt plant manufacturers and plant operators, to equip them with more information on asphalt production, day to day operations and regular maintenance so that they will use their equipment properly to
28
avoid downtime and able to diagnose problem or even do slight problem shooting in case of need. Good words of mouth is the best promotion and we should spare no
effort in bringing our name out; selling the best value for price; assisting users to get the best out of their purchases and to help them to get to know the equipment and its usage better. In time, they will prefer us more than others.
CONCLUSIONS
Pairing up with Benninghoven to sell burners and to build asphalt plants is considered to be a positive move in this growing market. To make this step ahead
does not cost us much financially and Benninghoven is one of the best we should choose to work together with, so no doubt we should give this project our best effort. Now that we have the green light but we also need to watch out for the red light at the same time as there are always two sides to view a situation. Possible Advantages Outcome If everything happens as planned then we will be able to sell our first five plants by June 2012 and many more afterwards. We will be able to build a more solid
ground for our future business growth in China. Possible Disadvantages Outcome If things do not work out as planned, we might be stuck with some burners and steel fabrications in stock; quality issues; delivery issues; claims etc. These are things
29
that we do not want to encounter therefore, we need to be cautious.
We can afford
to lose an order or even our total investment but not the liability of fault.
RECOMMENDATIONS
We have come up with a plan that looks promising and workable but unless and until we put them in action, it is still a proposal on paper. To make the best out of our
plan, we need to proceed in time and stay alert during the process. Executions We now have a plan and we need to put it in operation. The top management
should set up time tables; clear reporting systems; delegate responsibility and monitor the progress of the plan from different aspects to ensure everything is processing smoothly according to schedule. All participants should stick closely to their work schedule, act according to responsibilities and authorities being assigned for and report irregularities immediately. Controls Even the best plan would not be able to cover every aspect in its presumption and would fail if it were not being closely monitored. Big and uncontrollable problems
usually start from minor manageable ones, therefore, besides supervision and guidance, there should always be check points to make sure things are going the way they should. If something unforeseen pops up during executions, direct reporting
30
system should be in force and adjustments need to be discussed and put into full effect for remedy.
31
doc_476739085.pdf
HERE'S MY MKT PROJECT FYR
Final Project Summer Term 2011
STRATEGIC MARKETING MANAGEMENT PLAN FOR MODERN (INT’L) PLANTS & MACHINERIES LIMITED
EXECUTIVE
SUMMARY
We ceased to represent Benninghoven in August 2007 on the ground that things had
changed to our disadvantage after they entered into a joint-ventured agreement with a Xi’an manufacturer (Appendix 1) but in December 2010 they came back to us to seek for cooperation (Appendix 2). Our marketing team has been spending time on feasibilities studies and considers that despite of the keen competition, the Benninghoven brand and growing demand are making it worth pursuing. In the last few years, without the support of Benninghoven, we had sourced local supplies for imported accessories and hydraulic components for asphalt plants. We
had even developed software programs for control systems in replacement of the ones on Benninghoven plants. The new relationship would probably help us in
moving another step ahead, a complete plant supplier instead of a parts and service provider. We aim to import burners from Benninghoven and source local supplies
for hydraulics, steel fabrications etc., we only do the assembling, commissioning, maintenance, monitoring and control. This way our capital investment will not be
heavy and we will not need to increase head counts until we see the actual market response. The good branding will give us an easier start to leap jump for a
manufacturing role and the worse scenario will be heavier workload due to diversification of manpower.
TABLE
OF CONTENTS
II
1. 2.
EXECUTIVE SUMMARY ……………………………. SITUATION ANALYSIS .…………………………..….
Market Situation …………………………………………………. Marketing Segmentation ………………………………….……… Customers’ Needs ………………………………………………… Buying Behaviour ………………………………………………… Products Situation & Price Structure …………………………… SWOT Analysis ..……………………………….…………………. Strengths and Weaknesses of the Company Strengths and Weaknesses of our Products Anticipated Opportunities and Threats Five Forces Analysis …..…………………………………………… Competitive Rivalry within the Industry …………………... Bargaining Power of Suppliers ……………………………… Bargaining Power of Buyers ………………………………… Threat of Substitutes ………………………………………… Threats of New Entrants ……………………………….…….
II 1 1 2 4 5 8 10
15
3.
OBJECTIVES ……………………………………………
Market Definition …………………..……………………………… Role Definition …………………..………………………….……… Product Definition and Positioning …..…………………………… Localization ……..……………………………….………………….
19 19 20 21 22 23 24 25 25 26
4.
MARKETING STRATEGY ….…………………………
Competition Assessment …………………………………………… Product Repositioning …....……………..………………….……… Establishment on Synergy Supports ……………………….……. Marketing Mix ……………………………………………………. Product
III
Pricing Place Promotion 5.
CONCLUSIONS ………………………………………..
Possible Advantageous Outcome …..…………………………….. Possible Disadvantageous Outcome ……..……………………….
29 29 29 30 30 30
6.
RECOMMENDATIONS ……………………………….
Executions …………………………………………………………. Controls …………………………………………………………….
APPENDICES……………………………………………….. REFERENCES……………………………………………..
A1 A2
IV
SITUATION ANALYSIS
The good old years of acting as distributor for various reputable construction equipment manufacturers from Europe, the United States and Japan in the sales region of China, Hong Kong and Macau have been long gone, we are now concentrating on problem solving and parts support which does not generate much profit for the company but does act as a bridge to keep ourselves connected to the market while helping other subsidiaries within the holding company to build their market in the region (Appendix 3). Customers are still having a lot of confidence
in us and will usually seek our assistance before purchases, sometimes crossed region too (Appendix 4). A lot of them even propose to have their purchases done
in two parts, the equipment to be handled by the asphalt plants producers while we perform the commissioning and maintenance. We do not want to be held
responsible for quality issues, therefore, have never agreed to such proposals. Benninghoven entered into a joint-ventured relationship with their Xi’an partner sometime in 2004, managed to gain their ground as market leader by 2009 but with the sudden pickup on sales and technology at ???? and American burners were found being quoted in Xi’an’s quotation to others, their relationship went sour. Market Situation Ever since the clear cut on tax exemption for all imported asphalt plants, the demand
1
on 100% imported plants diminished and replaced by locally assembled equipment. Instead of paying 30% import tax for the complete plant, local manufacturers only need to pay 5% import tax as long as they limit the imported portion within 20% of the total components of a complete plant, that is a lot of savings for the end buyers as VAT tax is calculated with import tax included (Appendix 5). At the time when
this new regulation came out, many of the overseas manufacturers started to hook up with local synergy partners to find more space for their business. But since
business operations within China were very different from the outside world, it took a long time for both parties to build a long term workable team but such relationship was usually supported by mutual benefits alone without mutual trust and understanding. In a lot of cases, partnership did not even survive through the gear At the
in period but technical know how was somehow shared and copied.
moment, the market is filled with locally built asphalt plants with outdated technology and poor service backups. The booming infrastructure projects and road maintenance requirements created a big demand on asphalt plants, from 307 units in 2004 to 961 units in 2010 (Appendix 6). The total sales figure should even be higher if steel supply and price
were more stable and bank loan requirements were not tightened. Market Segmentation
2
According to David W. Cravens and Nigel F. Piercy (9th Edition, 2009, P. 83) “Segmenting markets is a foundation for superior performance. Understanding
how buyer’s needs and wants vary is essential in designing effective marketing strategies.” Since all our potential buyers are business corporations and therefore we are serving the organizational markets for their demand on burners as well as complete plants. Burner is like the heart of a human being, if it performs well it can very much guarantee a reliable production capacity and quality. The total market for burners
can be divided by the nature of the industry, like motorcycle; asphalt plant; airplane or any other which requires heat combustion but since Benninghoven only build burners for asphalt plants, therefore, the total market for their burners will only limit to the asphalt plant manufacturers and geographically within the China region in our case. As for complete plant, the total market can be divided into the follow segments: Asphalt Producers who produce and sell asphalt to serve general demand for regular asphalt, like a supermarket, no preordering is required and no special formulated asphalt is available. Chance to move plant to other locations is
rare, therefore, usually will prefer stationary plant. Road Building Contractors who have their own recipe and produce asphalt to
3
fulfill job specifications.
Usually move plant to the next job location upon
completion, therefore, usually will prefer mobile or semi-mobile plant.. Aviation Industry which usually produce asphalt for usage on runway building and maintenance, very particular on asphalt specifications and equipment reliability. Plant usually remains in the airport area, stationary plant is their
choice of product. Customers’ Needs For burner buyers, they do business by building asphalt plants and sell to end-users. They usually have different sources to meet their needs on burners, only will buy from us if they need to build outperforming equipment which they can sell at a much higher price. They usually have strong financial background and well planned
production schedule, place orders ahead of time but occasionally will require shorter delivery time to meet unexpected order requests. They are experts in the trade who
do not need much technical backups from our side but sometimes will request extended guarantee period on their stock burners when business does not turn out as good as planned. We will take physical stock check of the burners in question to
ensure that they are unused and being stored in proper condition before providing extension. For plant buyers, they need to have equipment that helps them to make money out of
4
producing and selling of asphalt.
They want to have something that works In the asphalt paving field,
effectively and efficiently according to requirements.
contractors are usually subject to heavy penalty and/or disqualification if they are unable to finish their job at an upto standard level within the time frame. The
warranty period for their paving job is usually 2 to 5 years and 2 - 5% of the contract amount is being held as performance bond during the period. In general cases, jobs
usually start almost immediately after tenders have been awarded and therefore, short delivery time or even prompt delivery is a basic request despite the fact that the production lead time for an asphalt plant is at the least 8 weeks. Also buyers
will want something affordable; reliable with high capacity and low downtime. Today, with the high fuel costs and strict environmental protection requirements, fuel consumption and waste disposal are also something buyers look very closely into at the time of purchase. Given a choice, they will prefer something
maintenance free, otherwise timely service backups and something mobile to give them flexibility on transportation. Buying Behaviour According to Etzel/Walker/Staton (14th Edition, 2007, P. 127) “Business buying behavior, like consumer buying behavior, is initiated when an aroused need (a motive) is recognized. This leads to goal-oriented activity designed to satisfy the
5
needs.” For burner buyers, they will only buy from us if they want to promote an image of a quality supplier or the end-users particularly specified in their specifications. The
majority of the local manufacturers are very price conscious, they use locally made burners and if they want something slightly better on quality, they will buy the Italian made ones which are still 30% cheaper than ours. For this market, buyers
will always want to lower their costs as much as possible and there is really not much we can do to change it since we cannot lower our price to get close to what our competitors are offering, but if their endusers request to have a Benninghoven burner, then they will have no choice. Complete plant buyers behave differently according to the requirements of their target markets. But generally speaking, if they can afford it, most of them will buy
plants with the highest available capacity in the market because for them investing on asphalt plant is quite a big decision to make and they always want to equip better for the future. plant are: Other reasons to support the purchase of a bigger than necessary
this is another way to reflect their social status in the industry; to cushion
themselves in case the plant’s output does not reach its specified capacity due to high elevation, high humidity, lack of routine maintenance or inefficiency of the burner, therefore, the most popular model being sold in the last five years range
6
from 300 to 400 tons per hour which is very different from the well developed worldwide market. Users usually jump on the supplier whenever there is a
machine failure and they expect to be served right away before even perform a preliminary check on their own. Users in different industry have their own sets of attitude and perception. For the
asphalt producers, they do not have strict control on their recipe because their buyers are usually road maintenance crew or small road contractors in non urban areas. They usually have their plants put up away from each other so that they do not create direct competitions among themselves, everyone operates within his own territories. The reasons behind are the strict regulations of the government, they
cannot put up a plant wherever and whenever they want, they will need approval from both the urban and environmental protection divisions. The high costs of
transportation and heat loss during transportation also limit their buyers’ choice. Their lack of competition is giving them higher bargaining power. They do not
have a strict quality control, to keep their plant in full operations, they will make huge silos for storage and their plants are usually not well maintained. For road building contractors, they usually work on highway projects which have strict requirements on weather proved asphalt recipe; finished road surfacing; durability and time frame. If it is a contract for crossed country first class highway,
7
all the requirements are spelt out clearly on the tender and they have to stick to it 100%. Projects usually last for 12 to 18 months, sometimes even longer, so the
chance for contractors to buy a new plant for individual project is very common. Buyers in this category usually will inquire about new plants way before the actual tender submission, they put reputable brand on their equipment list with the hope to gain better chance for themselves. Since the cost of a good plant takes up only a
little portion of the complete project and does reflect a better chance to come up with a trouble free finished job, they will want to invest a little bit more for something more reliable. But there are also deceiving contractors, former buyers
of reputable equipment that would put reputable brand logos on their locally purchased equipment with the same paint and outlook to fake their way through the process. As long as they perform as expected, nobody will say anything or dares to
say anything. For the aviation industry, they have their own laboratory to test asphalt recipe and they know exactly what can help them to achieve required results. They are
willing to invest on their equipment and even help plant manufacturer to build what they want but expect suppliers to attend service calls at time of need with little tolerance. Product Situation and Price Structure
8
German made burners and complete plants have a very high recognition in the China market, being considered as sophisticated but expensive. They share a good
reputation for their efficiency, professional after sales service and slim outlook which the American products are of no comparison. Italian burners and asphalt
plants are considered to be second best, very flexible with their price, we sometimes are of the opinion that they occasionally are selling their products below costs just to conclude deals but their after sales service is way below requirements. The locally built burners and complete plants are basically a copy of the German or Italian products on the outside but the actual performance is unstable with hardly any service backups, sometimes not even parts support as they buy parts from different suppliers and end up buying dead stock which is no longer in production, therefore unable to find replacement for users in case of need. Burners and asphalt plants are categorized as engineering products, final price for each individual equipment depends on the interior design and components within and therefore can hardly be compared by its production capacity. Price is
structured very much on the specifications and the kind of job customers want to accomplish. Burners create combustion to facilitate the appropriate environment With its help asphalt plant can produce
for different kinds of finished products.
finished material that can meet different standard of requirements on water soakage;
9
antiskid; heat and cold resistant etc.
Price therefore is determined basically on a We are of the
value for money basis and not on the production capacity alone.
opinion that all manufacturers if given the same scope of delivery, should come up with a final price for the equipment within 10% difference if they are really going to produce faithfully according to the specification instead of taking chances. The
price of the equipment also covers backup service, warranty parts and one year full maintenance, if stick closely to the commitment, this again will probably come to another 10 - 15% of the contract amount. A quotation for a burner usually consists
of 5 – 6 pages of specifications while the complete plant is at least 15, so there are spaces for some competitors to mess around with the fine lines and they have ways to keep the users happily quiet until something disastrous takes place, then they will start pulling each other’s legs. SWOT Analysis According to Etzel/Walker/Staton (14th Edition, 2007, P. 564) As part of a situation analysis, many organizations perform a SWOT assessment. In this activity, a firm identifies and evaluates its most significant strengths, weaknesses, opportunities, and threats. To fulfill its mission, an organization need to capitalize on its key strengths, overcome or alleviate its major weaknesses, avoid significant threats, and take advantage of promising opportunities. Based on our situations, we come up with the analysis below which would enable us to know ourselves better and help us in finding ways to avoid the unchangeable and unfavourable while further strengthening factors which are to our advantages.
10
We
evaluate our company and its environment, internally we focus on our strengths and weaknesses, externally we look at the opportunities and threats we encounter. Strengths and Weaknesses of the Company Our strengths are our long history; our good reputation; our experience; our network coverage; our synergy support; our loyal team members; our strong financial status and our readiness to start. We have been in the infrastructure field since our
establishment in 1979, we were the one introducing the advanced road building technology into China when no one had seen or experienced anything like that. Our long commitment to attend service calls within 48 hours and willingness to go to places like Afghanistan, Africa, Bangladesh etc. for China based contractors have gained us a more superior and trustworthy image. We had been in the trading and
servicing business for burners and asphalt plants for over 10 years before we ceased to represent Benninghoven, so we are very familiar with the equipment, the industry and the market. We have a joint-ventured production facility for steel pipe
scaffolding and formworks in Kaiping with another one in progress, expecting to start trial production in September 2011, therefore we do have experience in production and raw material purchases. We are well acquainted and have actual
working experience with quality steel fabricators and know exactly what they are capable of doing. Our good relationship with the highway bureaus; research
11
institutes; end-users and their operators; finance companies are giving us advantages and first hand reliable information at no costs. Our production facilities,
overhauling depot and rental fleet in different parts of China are our strongest synergy support which, in turn helps our customers out in various occasions and build a strong bond between us. Our sales and servicing teams have been with us
faithfully through ups and downs; helping us in sourcing local supplies and developing programs for control systems to enable us to continue to serve customer’s needs without the support from our principle suppliers. They turned down job offers continuously and willing to take up and fulfill all job assignments to customers’ satisfaction. Apart from their usual duties, our team also participates in
activities of other subsidiaries within the holding company to conclude deals within China. The entire Modern group generates a record high profit for the Year
2009/2010 and paid over HK$17,000,000.00 on profit tax alone (Appendix 7, 8 & 9). This year’s account has not come out yet but we expect it to be something close. If
we are going to work together with Benninghoven, we only need to specify clearly with them responsibilities and authorities, our existing manpower and facilities will be able to cover the needs at the beginning stage until we see the market response. Benninghoven has committed to produce regularly an export version of burner for the China market and the price will be slightly cheaper with the same quality.
12
Our weaknesses are: the lack of actual working experience in asphalt plant assembling; the high operating costs and high sales price. Our experience in the
production of steel pipe and formworks does give us some kind of basic knowledge, but when it comes to asphalt plant, we have to rely on the support of other fabricators in much heavier steel works industry to provide steel parts according to our drawings before we can do the assembling. Putting all the components
together can be easy but to do it error free, we have to rely on the fabricators to label each individual connecting parts clearly. Experienced assemblers will be able to
tell if certain parts are wrongly labeled but for us, we will need some time to get used to the process. Most of our staff has been working for us for more than 10
years and our company does have a generous commission and bonus scheme. When it comes to a partnership relationship, a lot of things might not be our decision to make, therefore we need to spell everything clearly at the time of discussion with Benninghoven or come up with another package for such calculation. Our high Unlike
price sometimes made us lose a deal without a chance for negotiation.
other suppliers, we only will accept payment by Letters of Credit or payment in advance which sometimes is making customers hard to accept. Anticipated Opportunities and Threats Unlike the United States and Europe, China’s economy is still going strong and the
13
government has big reserve for infrastructure projects, especially on road building because most of the express roads are toll roads which are profit making projects instead of government funding utilities. means a bigger pie for all the players. The market is a growing market which According to reports, at least 13 crossed
country highways, all together 2050 kilometres and 14 railway tracks will be built in the next 5 years which creates a big demand on asphalt and there are still the suburban side tracks to be built to link the major road to surrounding area. The
heavy weight from buses, trucks and container trucks as well as heavy rainfall and floods are said to be the cause of frequent road damages to very many so-called first class highways being built in the last 5 years, therefore the government is putting pressure on the control of road building quality on tender requirements, which actually gives us more space for survival as premium product supplier. The RMB
is in an upward trend against other currencies that will be a definite advantage to both Benninghoven and Modern as we will be quoting in local currency. Our threats are from the unstableness of government regulations; steel price; steel supply; increasing labour and land costs. The government is tightening on environmental regulations, even if we can fully comply they still will hold up applications for final verifications, a very slow process. Import tax is usually Steel price and
reviewed every year but sometimes enforced without prior notice.
14
supply have been a big concern for manufacturers in the last couple of years, instead of confirming orders with a fixed price, suppliers will put a clause allowing a plus or minus 5% on price and delivery quantity. If plan turns out smoothly, we will have
to establish a separate team and workshops for this project, increasing labour and land costs is a matter of concern. Even though we focus on more quality
demanding customers but the keen competition on road building is making customers more price conscious and the quality of the locally built burners and plants are improving as manufacturers are getting better control of the production process. Five Forces Analysis According to Marketingteacher.com:
Five forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. the market for Business For example, Dell would analyse
Computers,
i.e.
one
of
its
SBUs.
15
To get an all around aspect of our standing position against competition, we evaluate through the use of Porter’s Five Forces Analysis.
Competitive Rivalry within the Industry The high end burners market is very much concentrated. Benninghoven has the
highest ranking for their long history and continuous advancement, they have basically dominated the market for burners used on recycling machine connected to asphalt plants. Their price is higher than competition and a lot of times orders were In the German
lost due to that but competing on price is never their strategy.
market, in order for contractors to win a tender, they are required by law to commit using at least 40% recycling material, the portion is going higher every year, but still contractors will prefer to have a recycling unit and an asphalt plant separately as this will give them more flexibility when they have more than one job in operation and to reduce capital investment too. Such measure will even be greater when it comes
to sales region like China, there is no request for the usage of recycling material, customers use it for the sole purpose of lowering costs. regulations, there are always ways to go around it. Even if there are rules and
Benninghoven has never sold
one single burner or asphalt plant to the United States as they do not want to face the unnecessary hassle of the US legal system and even believe that the Americans do not know what good equipment and road paving is all about.
16
Bernd Benninghoven,
CEO of Benninghoven, did express his concern in the very fast shrinkage of the European market (Appendix 10) but said he would now spent more time in product development to equip better for the future. No sign of price compromising. If
their Xi’an partner could make their way to the market leader position in 2009 with the Benninghoven burner (Appendix 11), we believe we should be able to do the same if not better. Since we are only going to make use of our existing facilities,
connections and manpower plus outsourcing to facilitate this project, there should be no or limited exit barriers on our part. There are altogether around 20 players targeting at the same market segment for their asphalt plants and the Benninghoven brand has gained quite a good reputation on quality, we should be able to gain some ground on this growing market. We
will have to rely on synergy supporters to make plans work out the way we want and quality is our path to success and we rely on this ground to build our future. Bargaining Power of Suppliers Benninghoven is our partner and major supplier, they control the technology and supply of burners. They can easily switch to others but after going through the
experience with Xi’an, they are of the opinion that we are more trustworthy as a partner and our good experience and reputation will help them to pickup what they have lost.
17
Our other suppliers will be the local steel fabricators in China, quite a number of them are actually in the asphalt plant business after gaining experience in steel fabrication for the product. But they can only do straight copies and have little
knowledge for product advancement, research & development, therefore unable to serve customers with special requirement for a special application. burner suppliers to come up a complete plant. They rely on
We should find a way to work
comfortably together with them instead of competing against each other. Threats of Substitutes There is basically nothing to replace the usage of an asphalt plant if asphalt is required for road paving and burner is its major component, so there is no substitute for it. Of course, if the government decides to go back to concrete paving, then it is
a totally different story and a backward move, this perception is being felt more in depth in China. For the Benninghoven brand, substitutes will mean any other brand in competition at a lower price but it is believed that Benninghoven will have to compromise on quality if they want to lower their price, vice versa, if competitors want something better, the costs will definitely be higher, so it is a different market segment with different sets of customers and job requirements. Threats of New Entrants New entrants are usually steel fabricators whose influence is already reflected in
18
bargaining power of suppliers.
For Benninghoven, all the competitive For
manufacturers serving the same market segment are already in the game.
totally new comers, the high startup capital investment with very many patent rights still valid; the high opportunity costs and the concentrated market usually will make their return on investment not as attractive.
OBJECTIVES
We need to identify precisely our aim and the kind of role we want to play and make it clear to Benninghoven, to ensure that both of us arrive a distinct mutual understanding of what to do and what to expect. Market Definition Our target market will be buyers for burners and asphalt plants from the whole of China, whoever is willing to pay the price we ask for. Between Benninghoven and Modern, we have arrived a mutual understanding and agreement to that and we aim to sell 100 burners in the year of 2012, either through direct sales to asphalt plant manufacturers or being installed in the asphalt plants we sell. We know a lot of the asphalt sellers are still looking for cheaper locally made products but with the ever increasing price on asphalt, in time they might need to sharpen their gear in order to be able to create some kind product development moves to facilitate market development plans to secure orders. Benninghoven
19
want to sell the China made products to other markets, like:
Poland, Bulgaria,
Australia or even back to Europe because that is exactly what their No. 1 competitor, Ammann, has been doing but not getting positive word of mouth (Appendix 12). Benninghoven is confident that outperforming them is within reach. We have
made it clear during various occasions that we are only interested in the China market at this stage, any further market development will fall out of our region and too distant for us and therefore will be Benninghoven’s decision to make and responsibility to take. We simply do not want to commit something which we are
in no position to fulfill to our own satisfaction. Role Definition A company will be set up with Benninghoven and Modern as 49/51 share holding partners, costs to be shared in the same proportion. Benninghoven’s role is to make
ready all the drawings for filler solos; storage silos and all other steel fabrications and send them to Modern’s Hong Kong office by 30 September 2011. They are
responsible to provide 10 burners with their existing standard of quality, on consignment basis, as stock units at the start. They will also come up with a new
version of burner for the China market without the sophisticated features that are not required in the local market and produce it on a regular basis latest by the end of 2011. They will also provide one mechanic, one electrician and one electronic
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engineer for 6 months to assist and monitor the assembly of the prototype plants from 1 March 2012 and to do training programs for Modern’s staff and customers. Benninghoven would also bear all the costs for the drawings including packing and shipping into China; all the costs for packing and shipping of the burners and all the salaries, allowances and fringe benefits for their staff including plane tickets to and from Germany to China. Modern is responsible for providing an address as
registered office for the newly set up company and appoints someone to be the legal representative. Modern is also responsible to pay on behalf of the new company all
the import tax/transportation costs and place order for steel fabrications according to the drawings from Benninghoven for 5 units of asphalt plants which will only be reimbursed from revenue generated from the sales of equipment. Modern should
also appoint its staff to carry out sales, promotion, assembling duties at their costs during the 6 months from 1 March 2012. Benninghoven is responsible for quality
issues arise from burners and technical supports and Modern is responsible for quality issues arise from assembly, contract negotiation, commissioning and after sales services. Product Definition and Positioning Product means the sale of burners and/or complete asphalt plants plus all the services behind such activities. We position our products as high end quality
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products that could help customers to solve all jobs requirements.
Capacity will be We target to
from 300 to 500 tons in 5 different categories in 50 tons intervals.
reenter into the market as a solution provider, to reinstate Benninghoven and Modern’s high quality, reliable image while promoting something more compatible, competitive and practical, a value for price solution. Localization Localization is very much like a must nowadays because a plant with capacity of 300 tons, we used to pay around EUR200,000 on transportation from Germany to China alone and this is the kind of cost customers want to eliminate as much as possible. The availability of quality steel and the improving workmanship have
gained ground for the locally produced steel fabrications which are very much preferred by buyers for their comparatively low price in the last 5 years. There are
a lot of quality suppliers in the Wuxi area because of its location and good workmanship, we already have business connections with a few and have agreed to work closely with them for a long term cooperation for mutual benefits. Besides
steel works, Modern is responsible for the development of supportive software to tailor fit customer’s needs. That way we make ourselves more competitive on
price while widening our target market to cover local manufacturers, new equipment buyers and existing plant users.
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MARKETING STRATEGY
Our marketing strategy is the single biggest factor which determines our success or failure of our business. Our chance for success relies very much on the
effectiveness of our plan and its execution, therefore, we should have precise marketing strategy that supports and corresponds with our objectives. Our
marketing strategy emphasizes strongly on relationship building even before an enquiry takes place because we consider this a long term investment which will result in successful sales and profit when need arises. The provision of quality
products and services is also one of our priorities, which enables us to create a strong and positive image of ourselves as well as our partner, a long term investment. It is also our strategy to maintain a strong price structure by providing better value in return. We have been very successful in locating top of the line products; building
up good relationship with customers and maintaining a strong culture within the group. All these efforts together have made it possible for us to survive through But with the new partnership arrangement with
difficulties better than competitors.
Benninghoven and change of business nature, we will have to reevaluate and make adjustment to better fit into the situation. Competition Assessment
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In a fast moving market like China, things change quite rapidly, one can be in a leading and profit making position at one moment and totally collapsed in the next, we, therefore, need to know exactly where we stand, who we compete against, plan well and act fast. Record shows that in 2010, asphalt plants sold to road building
contractors were from 20 different manufacturers (Appendix 13), market share ranged from 2 to 13%. ???? was in the leading position with 13% market
share, their plants were originated from the Italian Bernardi brand, they used the Italian technology and burners at the start but now they have developed their own. ???? came second with 9% market share, they were the Xi’an partner of Benninghoven but now they are producing without the support from Germany and putting American burners on their plant. ???? is a local company, represented 5% of the market share, using the Italian Marini drawings to produce plants with 100% local parts. ?? is a French company, sold 4% of the total volume, acquired the Italian Marini asphalt plants technical knowhow and producing on their own in China. ???? is a German manufacturer, owned 3% of the market share, the strongest competitor of Benninghoven worldwide while ? ? is a Japanese manufacturer, owned 2% of the market share, a working partner of Benninghoven in Japan and Germany, each holds 30% share of each other’s shares. The rest of the
players are local manufacturers and 6 of them are actually steel fabricators from
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Wuxi.
Among all these competitors, we do see very high possibility to work our
way up to market leadership with the golden branding of Benninghoven; their ever advancing technology; our good reputation in backup services and our good connections. We just need to focus on quality and build our products that can help
customers to make money surely and securely. Product Repositioning Physical products like burners and asphalt plants can be copied and reproduced easier than services. Benninghoven and Modern are being recognized as quality
products/services providers but this time we are not only positioning ourselves as suppliers, we are going to reposition ourselves as solution providers, we will take the initiative to study how we can come up with compatible parts to help users upgrade their existing equipment which does not necessarily need to be a Benninghoven plant and to achieve the kind of result they want to achieve on their finished products. We will also help them to find solutions for asphalt recipe in
high demanding jobs, with Benninghoven’s good relationship with petroleum companies like: British Petroleum, Shell etc. and our close relationship with Design and Research Institute in China and Asphalt Committee, this is something we can handle well. Establishment of Synergy Supports
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To put our plans in operations, we need to hook up with different parties and some of them are even competing with us in certain ways. Besides replacement units for
existing plants, the rest of our burner buyers are asphalt plant manufacturers who will buy from us if they are being requested by their endusers or if they need something to meet a higher standard on requirements. We just need to prove to
these producers that we are a fair game player; our higher price on asphalt plant is actually giving them an easier path to outperform us on price; we should try to work together to win over the rest of the game players instead of biting each other. For
those that start out as steel fabricators, we even have more reasons to work closer together to create a win-win conclusion because they supply us with steel fabrications today and we might one day supply them with burners. effort in handling these relationships tactfully. We need to put
Our other synergy supporters are
petroleum companies, road building experts, government authorities, asphalt committee etc., there is no competition involved, so we just need to socialize and stay in touch. Marketing Mix Marketing decisions generally fall into four controllable categories, used to satisfy the needs of our target market and at the same time, achieve our marketing objectives.
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Products The tangible, physical products we are going to put in the market are burners and asphalt plants, together with them are the Benninghoven and Modern good brands representing good quality; reliability; value for price packaging services on repairs and support, accessories and services for the benefits of the users and the environment. Pricing Price is very much related to quality, since we are not going to compromise on quality, our price will end up higher than competition. Benninghoven is going to
come up with a new version of burner which is going to be slightly cheaper, not as sophisticated as the ones they have been selling but good enough for the China market though. We have asked one of our customers to get a quotation from Xi’an
for their 320 tons plant (Appendix 14), even though they are no longer working with Benninghoven, they still purposely put a Benninghoven logo on their diagram (Appendix 15) which is deceiving. The price quoted is about 20% more than what If a plant
we would have quoted, therefore the situation does not look that bad.
from a local manufacturer with an American burner can be sold at US$1.54 million, we do stand a very good chance to be competitive because this 20% does not really reflect much on an asphalt paving project which, in most cases, is a billion RMB
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contract. Place – Distribution As soon as we make ourselves known as a burner and asphalt plant seller, reentering into the market, people will start coming back to us with enquiries, even those with no intention to buy. Prompt delivery is something we need to put more stress on because time of need is the time when buyers are less price conscious. Paving season closes latest by the end of October and re-opens after the Chinese New Year. We should make use of this period of time to prepare ourselves on warehousing, order processing, inventory management etc. to make sure that when there is a demand, we are able to supply. Promotion Just like before, we are not going to promote ourselves through advertising in papers or magazines, we will just participate in exhibitions, holding seminars in universities, attending asphalt summits, arranging symposium between petroleum company and road builders etc. to promote an image as an expert in the asphalt producing industry. We always arrange training programs for operators around Chinese New Year, from now on we will include personnel from asphalt plant manufacturers and plant operators, to equip them with more information on asphalt production, day to day operations and regular maintenance so that they will use their equipment properly to
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avoid downtime and able to diagnose problem or even do slight problem shooting in case of need. Good words of mouth is the best promotion and we should spare no
effort in bringing our name out; selling the best value for price; assisting users to get the best out of their purchases and to help them to get to know the equipment and its usage better. In time, they will prefer us more than others.
CONCLUSIONS
Pairing up with Benninghoven to sell burners and to build asphalt plants is considered to be a positive move in this growing market. To make this step ahead
does not cost us much financially and Benninghoven is one of the best we should choose to work together with, so no doubt we should give this project our best effort. Now that we have the green light but we also need to watch out for the red light at the same time as there are always two sides to view a situation. Possible Advantages Outcome If everything happens as planned then we will be able to sell our first five plants by June 2012 and many more afterwards. We will be able to build a more solid
ground for our future business growth in China. Possible Disadvantages Outcome If things do not work out as planned, we might be stuck with some burners and steel fabrications in stock; quality issues; delivery issues; claims etc. These are things
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that we do not want to encounter therefore, we need to be cautious.
We can afford
to lose an order or even our total investment but not the liability of fault.
RECOMMENDATIONS
We have come up with a plan that looks promising and workable but unless and until we put them in action, it is still a proposal on paper. To make the best out of our
plan, we need to proceed in time and stay alert during the process. Executions We now have a plan and we need to put it in operation. The top management
should set up time tables; clear reporting systems; delegate responsibility and monitor the progress of the plan from different aspects to ensure everything is processing smoothly according to schedule. All participants should stick closely to their work schedule, act according to responsibilities and authorities being assigned for and report irregularities immediately. Controls Even the best plan would not be able to cover every aspect in its presumption and would fail if it were not being closely monitored. Big and uncontrollable problems
usually start from minor manageable ones, therefore, besides supervision and guidance, there should always be check points to make sure things are going the way they should. If something unforeseen pops up during executions, direct reporting
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system should be in force and adjustments need to be discussed and put into full effect for remedy.
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doc_476739085.pdf