Proposal of a marketing strategy



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7.6 Marketing Mix Tools

7.6.1 Product


Product portfolio analysis showed that company Styl 2000 is mainly specialized in only one field of construction work – it offers to its customers finishings of walls and floors and concentrates on pensile facades. The other before presented products like mosaics or support construction modules are complementary materials to which is not much attention paid. Product portfolio is mainly taken over from given suppliers. This historical remaining inhibits company in setting up the portfolio according to own needs or better needs of its customers.
We have conducted GE/McKinsey analysis for the four above mentioned product groups. The results can be seen below in TAB. 34 - TAB. 37. For each factor (as mentioned above we count on size of market, demand variability, industry profitability, industry rivalry and global opportunities for market atractiveness and on market share, growth in market share, brand equity, production capacity and profit margins relative to competitors for competitive position) we decided factor value and weighting. A simple multiplication has then been applied and partial score gave a sum between 0 and 1 in order to place analysed product into the nine-square field of GE/McKinsey Matrix.
Some factor values and factor weightings are based on expert opinion of business director of the company who has the experience also from business representant´s practice. Some of them can be supported by above gained results. Factor weightings say how important the factor is for the company, in other words how big is the impact on well-being of the company in the sector. We maintained the same weightings since in all four items the importance may differ only slightly. What differs is always the factor value.
Market size depends on the number of customers. In the building industry mosaics and ceramics can find the less customers since there exist many substitutes, as it can be seen in chapter 6.3, in contrary to supporting constructions and pensile facades. The demand variability is based upon the number of inclinations from basic offer (these can be represented e.g. through additional services or special wishes or number of needed tailored solutions). According to experience of business departement the most profitable are those with higher perceived value added through services (as also confirmed in the theroretical part), in our case pensile facades and supporting constructions. Industry rivalry was set according to a number of competitors in this field (in this work only competitors for pensile facades are stated in TAB. 30 because otherwise this work would be too extensive). Global opportunities show in how far the company can get with this item beyond the limits of a region.
Talking of competitive position market share was accounted from square meters or pieces sold in comparison to the competitors (some data are to be found in TAB. 30), while growth in market share on financial measurements of growth rate in this segment. Production capacity shows where the company is mostly oriented and brand equity says simply how well-known the company in this field is. The most difficult was to set the profit margins relative to competitors where we had scarse information (none of competitors publishes the actual profit margin, only square meters and pieces sold – sometimes – and price lists – sometimes. The calculations where therefor assumed by the business director.

TAB. 34 GE/McKinsey Matrix – Supporting constructions

Supporting constructions

factor value

factor weighting

partial score

Market attractiveness

market size

0,6

0,25

0,15

demand variability

0,3

0,05

0,015

industry profitability

0,5

0,4

0,2

industry rivalry

0,3

0,15

0,045

global opportunities

0,1

0,15

0,015

 

 

 

0,425

market share

0,02

0,4

0,008

Competitive position

growth in market share

0,2

0,05

0,01

brand equity

0,4

0,15

0,06

production capacity

0,5

0,15

0,075

profit margins relative to competitors

0,4

0,25

0,1

 

 

 

0,253

Resource: own calculations based on internal documents
For supporting constructions the market is relatively high, together with low global opportunities and low demand variability it gives surprisingly interesting number for industry profitability, but this is caused mainly by low rivalry. For Styl 2000 the margins are lower compared to others since the company buys more expensive, but qualitatively high products from an austrian company (quite a high brand equity shows that the company is well-known for these products). The question is, why the company was not able to gain more profit from higher quality of offered products. We see the reason in missing marketing strategy.

TAB. 35 GE/McKinsey Matrix - Ceramics



Ceramics

factor value

factor weighting

partial score

Market attractiveness

market size

0,4

0,25

0,1

demand variability

0,2

0,05

0,01

industry profitability

0,3

0,4

0,12

industry rivalry

0,4

0,15

0,06

global opportunities

0,02

0,15

0,003

 

 

 

0,293

market share

0,01

0,4

0,004

Competitive position

growth in market share

0,1

0,05

0,005

brand equity

0,3

0,15

0,045

production capacity

0,4

0,15

0,06

profit margins relative to competitors

0,3

0,25

0,075

 

 

 

0,189

Resource: own calculations based on internal documents
Ceramics is widely spread material and so both industry profitability and global opportunities are low and market size as well. With low demand variability, this product portfolio item is rather convenient for market penetration through lower prices in comparison to competition. We do not expect high growth in market share or in profit margins. The brand equity is also low due to many brands operating on this market.

TAB. 36 GE/McKinsey Matrix - Mosaics

Mosaics

factor value

factor weighting

partial score

Market attractiveness

market size

0,1

0,25

0,025

demand variability

0,4

0,05

0,02

industry profitability

0,2

0,4

0,08

industry rivalry

0,2

0,15

0,03

global opportunities

0,1

0,15

0,015

 

 

 

0,17

market share

0,01

0,4

0,004

Competitive position

growth in market share

0,1

0,05

0,005

brand equity

0,1

0,15

0,015

production capacity

0,1

0,15

0,015

profit margins relative to competitors

0,1

0,25

0,025

 

 

 

0,064

Resource: own calculations based on internal documents
Mosaics is highly specific product, it is more of a trendy thing which shows higher instability of market size and profitability, that´s why also not many compenies want to compete in this field, the industry rivalry is quite low. Out of above mentioned table it can be assumed that mosaics is more or less an additional product and represents neither high growth, nor high brand equity, nor profit margins.

TAB. 37 GE/McKinsey Matrix - Pensile Facades



Pensile Facades

factor value

factor weighting

partial score

Market attractiveness

market size

0,8

0,25

0,2

demand variability

0,55

0,05

0,0275

industry profitability

0,75

0,4

0,3

industry rivalry

0,6

0,15

0,09

global opportunities

0,25

0,15

0,0375

 

 

 

0,655

market share

0,25

0,4

0,1

Competitive position

growth in market share

0,1

0,05

0,005

brand equity

0,9

0,15

0,135

production capacity

0,6

0,15

0,09

profit margins relative to competitors

0,7

0,25

0,175

 

 

 

0,505

Resource: own calculations based on internal documents
Pensile facades have high score in most fields except for global opportunities. To extend beyond regional limits is difficult because there is high industry rivalry not only within the Czech Republic, but also in the countries around. However, based on internal calculations Styl 2000 posses high level of brand equity, market share and profit margin which however can be increased as we can see the factor value 0,75 as for the whole industry profitability and 0,7 for Styl 2000. This shows the direction which the company should go in marketing strategy proposal.
Through Balanced Scorecard analysis the starting position can be set. Lifecycle of a product would be difficult to state because of large variety of offered products but also because of not sufficient information from supplier. The same is true for product series since there are always series new to the business and series which slowly disappear from product offer.

FIG. 11 GE/McKinsey Matrix for Product Portfolio of Styl 2000


1




1 O


Resource: own calculations based on internal materials
The size of the circles represents the Market Size and the size of the pies represents the Market Share of the SBU. As we can see the best position with highest market share of Styl 2000 has the realisation unit Pensile Facades. According to the above suggested reasons for the numbers representing the size of the market we can see that mosaics are the smallest with value of only 0,1, ceramics with 0,4, supporting constructions with 0,6 and pensile facades with 0,8. The pie charts representing different items show that Styl 2000 has 1% share in the market of mosaics and ceramics, 2% in supporting constructions and full 25% in pensile facades. The higher the pie chart in the table and the more to the left, the better is its position as for market attractiveness or competitive position. The results then show that the worst position has business product mosaics, while pensile facades are far the best. According to my opinion it is best to concentrate attention and whole marketing strategy for the following three years onto this product of business portfolio and use both potential and good position.

7.6.2 Price


Pricing strategy being used in Styl 2000 has sofar been counted on the cost-plus pricing basis. Price list is modified every year following pricelists launched by suppliers. This way is rather inconvenient since every single item is given the same margin not taking into account customer preferences, wishes and needs. It however enables reduce administrative cost since there is one price list being used by all. The company probably does not have any substitute to keep the administrative cost low, but enable pricing strategy based on differentiation. An interesting solution for this problem could be the CRM software, since it offers high variability when maintaining low cost.
Also not respecting employed price strategy of suppliers (in the terms of seasonal or exclusion sales prices) contributes to the weakness mentioned above – the famous expensiveness. Price discounts are also an inconsistent tool for retaining or also winning new customers. During each order process company starts dealing with customer from the very beginning not respecting customer´s history. Based on price lists the discounts are adjusted according to not very clear rules so that the customer does not know which aspects caused that the goods was discounted cannot adjust his strategy. That is probably also the reason why no consistent height of operational profit is to be expected with this way of pricing.

7.6.3 Place


Products of Styl 2000 are offered through three main channels. As it is a small company it ensures placement of products itself – through business representants. Second channel are showrooms in the headquater of company and in Prague´s office. However, the rooms are rather insufficient because statistically too few customers visit them (see TAB. 42). Brno´s showroom is in a good place (Koliště, 10 minutes from the downtown), but somehow not attractive for customers (see TAB. 43).
Third place the company promotes itself is in webpages. They serve not only the purpose of letting customers know who company is, but they also offer the possibility of ordering per internet or choosing the right product and services. Their usefullness is supported by English localisation as many customers (multinational companies or also architects and planning studios) do not speak Czech yet and welcome this opportunity to learn more about offered product portfolio.
Styl 2000 cannot (because of its size and type of products sold) use intermediaries – the intermediaries are usually too expensive and product portfolio is easily substitutable since floor tiles or wall cladding can be bought at any hobby-market, construction materials shops or directly from producer. The only thing which cannot be substituted are pensile facade, these however are impossible to be sold through more-step channels since no such distribution net exists.

7.6.4 Promotion


Promotion as well as the whole marketing strategy has been dependent on decisions of top management only – without their present there would no promotional activity become true. This way of not having clear rules for promotion has set the company into a strictly conservative position with sudden activities without beforehand planning. Financial analysis shows significant problems in the area of increasing cost and instable profit (see TAB. 32 and TAB. 33) and further we will also prove how financially intensive the promotional activities are (TAB. 38). In such a situation the company cannot afford to spent high amount irreasonably and a strategy supporting this must be applied
There are four main ways of promotion. Advertising is proceeded through magazines adverts mainly in connection with specific events in building industry (such as tradefairs or special issues aimed at facades). Company is very strong in awarding sponzorship means – these activities do not influence business achievement of Styl 2000 since their recepient recruit mostly from sports activities (obviously those done by top management) and in some cases also from architectonical area (such as sponzorship of books).
Third ones are promo activities such as clients experience meetings (with go-carts, wine degustation or trips abroad) which are very popular. There is however no plan to meet and also customer are usually invited without following a scheme or pattern ensuring broad influence on those 20 percent of customers bringing 80 percent of income. The idea of streghtening interpersonal relationship between company´s representatives, be it top management or business representatives, and customer´s representatives is though very good.

FIG. 12 General Overview of Marketing Promotion Activites in 2007


Attendees
Invitees


Resource: internal documents
FIG. 13 Financial Intensity of Marketing Promotion Activities


Total sum

Per participant




Resource: internal documents

Research on last year´s activities has however shown that successfulness, i.e. the ratio of attendees to invitees, is lower than 20 percent in average, with one exception of Promo 3 which was a trip to Spain for together 4 architects and investors with their partners where the sucessfulness at addressing was at 80 percent.


TAB. 38 Cost of Marketing Promotional Activities 2007




 

Total

Per Participant

Divergence Total

Divergence Per Participant

Promo 1

64 801,00 CZK

4 050,06 CZK

12 298,50 CZK

440,78 CZK

Promo 2

61 563,00 CZK

3 078,15 CZK

9 060,50 CZK

-531,13 CZK

Promo 3

71 220,00 CZK

17 805,00 CZK




 

Promo 4

35 465,00 CZK

2 728,08 CZK

-17 037,50 CZK

-881,20 CZK

Promo 5

67 811,00 CZK

4 843,64 CZK

15 308,50 CZK

1 234,36 CZK

Promo 6

21 670,00 CZK

2 708,75 CZK

-30 832,50 CZK

-900,53 CZK

Promo 7

63 705,00 CZK

4 247,00 CZK

11 202,50 CZK

637,72 CZK

Average

52 502,50 CZK

3 609,28 CZK

 

 
Resource: Internal documentation
Individual promotional activities are titled as Promo 1-7. They took place during the whole year 2007 and brought with them different cost and different outcomes as it will be discussed later. Financial intensity of these actions is rather high as it can be observed in TAB. 39 and TAB. 38, in average it is CZK 52.502,50. We have excluded Promo 3 since it is high above the average and would wipe the clarity off. This activity was oriented at people who were at that moment designing facades with materials being produced in Spain so company expected high investment return, but finally only 2 projects were executed. Return on investment of 50 percent is however far more the best result of all marketing activities. In TAB. 39we displayed the ratios of companies attending promotional activities (once, twice or three times), number of facades which can be attributed to a company belonging to tripple, double or single attendance group and therefore cost to 1 facade in this group. We got the cost as total cost in CZK divided by total attendance of companies (e.g. five companies being present three times are counted as 15 etc.) and possibly divided by number of facades gained in this group. Cost to profit ratio is in this table included to show that repeated invitations and repeatedly spent cost do not bring directly proportional growth of facades sold. The case of Promo 3 activitiy should further show that correctly chosen invitees (80 percent of them became attendees and full 50 percent of these brought profit) are for increase of profit far more important. Quality of choice wins over quantity.

TAB. 39 Responsiveness and Effectivity of Promotional Activities 2007



 

Attendance of firms

Repeated attendance

Total cost (in CZK)

No. of sold facades

Cost to 1 facade (in CZK)

Profit of 1 facade (in CZK)64

Cost/profit ratio

Tripple attendance

5

3

315015

1

75004

227 500

33%

Double attendance

12

2

1

120006

227 500

53%

Single attendance

24

1

4

30001

227 500

13%

Promo 3

4

1

71220

2

35610

227 500

16%

Totals (except for Promo 3)

63

1

315015

6

52503

227 500

23%

Resource: own calculations based on internal materials
In conclusion to marketing promotion activities can be asserted following: Despite high financial intensity and low successfulness in effected invitations and disputable effectivity there has not been employed any research yet on the actual profits or incomes of individual activities except for Promo 1. This is partly caused by not existing marketing strategy and no marketing planning, partly by lack of information on which this strategy could be based and created. We will therefore in our new marketing strategy proposal insist on having more extensive research enabled by CRM software and higher concentration on these data.
Last but not least promotional way is personal selling. This is the promotional part company should be interested in most. Good business representatives are able to bring profit enough, but being charismatic and being let with customers without clearly stated rules does not at first offer enough means for controlling and then does not support consistency of behavious should the previous business representant be substituted. High threath is therefore possed on company´s management because of possible leaving of business representants. This is not the only reason increasing both cost and risk. Presents given to customers at different occasions are identically planlessly distributed. Without documentation who has been given what and when can the customer get the same things which in the best case increases only cost, but in the worst makes customer believe there are no records being kept well, which could furtheron lead to departure of customer expecting high quality not only in the outcome but also in processes.


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