Atlas-Copcos Management of Its Entry Strategy - Assignment Example

Applied channel xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Case Study Analysis: Atlas Copco xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Institution xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecturer xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Q1. How has Atlas-Copco managed its market entry (excellent, average, poor grade) ? Support your position. Atlas-Copco’s management of its entry strategy is average. To begin with, the company transplanted a channel without any modification to a new region. This according to Coughlan et al (2006) is likely to result to failure due to emerging demand supply gaps. The first compressors the company introduced to the U.S. market were designed in accordance to European engineering standards which had not yet been adopted in their new market. Failure to do a market research resulted to the wrong product being introduced in the market. So long as customer needs were not met, the company could not succeed. It overcome the failure resulting to incompatibility of products with customer needs in 1972 when the management embarked on development of a line of compressors which would meet the U.S. market standards. This indicates that though the strategy was wrong at the beginning, Atlas-Copco was able to overcome it with time. Coughlan et al (2006) explains the importance of understanding customer needs and the market environment before implementing a channel to avoid the high cost of switching marketing channels. The company’s ability to identify emerging opportunities contributed to its increased market share from below 1% to 3%. Atlas-Copco took advantage of the promotion of adoption of the rotary screw as air compressors by Sullair Corporation and the strong interests of Atlas-Copco’s parent company interest in machine tools thus easing the burden cause by the first bladder. This strategy was good but it did not also take into consideration the needs of the distributers. Though increased number of distributers is associated with increased customer contact, reduced number of contacts with the company and enhanced customer satisfaction resulting from assortment needs being met (Hill 2005), Atlas-Copco did not consider the distributers need for increased profit margins. The company had the required broad line of compressors but had not yet created awareness and increasing the number of distributers only increased inter-brand competition as distributers competed for the already small market share. This makes the strategy poor. In addition, the idea of streamlining existing distributers by encouraging them to call potential customers in markets such as electronic would mean distributers incurring extra cost. If Atlas-Copco had created a brand name, distributers would take the risk due to perceived increased chances of convincing the customer to switch from existing service providers. Adopting the new compay’s product which were not yet well accepted in the market would result to a loss of profits distributers acquired from assembly of parts in addition to jeopardizing existing relationship with competitors who had a large market share. However, the company was quick to address this and also produced higher quality and precision rotor profiles as compared to competitors. Increased profit margins resulting from the sale of maintenance contracts and profit margins the 15% price margins acted as a motivator (Rangan & Marie 2006). This strategy was effective though it would have been better if a brand image had been created. In overall, the entry strategy management was average resulting to continuous increase in market share. Though Atlas-Copco frequently made the wrong decision, it was quick to rectify its mistakes. A better analysis of these strategies would have saved Atlas-Copco huge costs spent on implementing irrelevant channels. Q2. What the four-level-franchising does for its distributors. Atlas-Copco company passed their goods through distributors which is the second party and ultimately to the customer. The distributors are able to enjoy free education and training. This assists the distributors to adapt to change and manage more complex business models as they are equipped with the necessary skill. Knowledge dissipated to the distributors will assist them to handle the goods and the customers appropriate. However, the distributers are not ready for the policy since it would require them time to adjust. This will mean a great loss especially for those depending on the sale of the easy to sell large compressors. The distributers are also allowed to handle large compressor sales and to operate at much wider territories. However this will be limited to few distributers. This strategy limits entry of new distributers securing the coverage for existing ones. This is based on the idea that a distributer must start at level 1 and build its way up. In addition, support accorded to distributers ensures that the capability to provide services are maintained. According to Coughlan et al (2006), support offered by the manufacturer results to reduced operation cost for the distributer thus increasing the possibility of a satisfying relationship between the manufacturer and the distributer (inter-dependent relationship). Intensified promotions will ensure that the customer need for customer support or information is met. This will eventually build a brand name for the products. The result will be an illusion of popularity thus benefiting the distributers who will benefit through increased sales from consumers who become aware of the products. In addition, this strategy is likely to increase their customer base because as more customers learn about the product, they are likely try it out. There will exist demand side gaps whereby some customers will not have their need for variety met. For instance, where customers have already developed trust in a certain dealer who is in level 1 to scrutinize products for them just to find that accessing such product is not as easy as it were. This will mean that customers will have to move to the next dealer where they can have speedy and adequate services delivered. Though this may act as a motivator to such distributers to invest more on creating awareness and meeting the company goals so as to move to the next level, it is likely to result to conflict where some distributers feel alienated. In addition, though larger compressors are easy to sell, clients will demand warranty which is easily granted by those in level IV without having to consult Holyke Marketing (Rangan & Marie 2006). This will be of advantage to those in level IV who can easily offer timely warranty and post-warranty services. Such dealers will also have power to attract favours from the company as the company dependence on them increases and losing them would mean losing on the overall market share. This may result to conflict between the distributers especially those in lower levels and the suppliers hence threatening their relationship. Lastly, distributers will benefit in that intra-brand competition will be reduced for easy to sell compressors. Dealers at every level have specific commodities they are allowed to trade. The only compulsory products for them to sell is the spare parts. However, the policy may seem to favour the company only resulting to most distributers opting to trade goods from competitors who are doing far much better than then. This calls for Atlas-Copco to apply it informal power to enhance trust through supporting distributers in marketing and motivation whereby they reward the most improved according to their levels. This will reduce the overall channel conflicts likely to occur as a result of intra-brand competition (Coughlan et al 2006). Though the policy may work, Atlas-Copco does not have the necessary power to ensure this success. For instance, Atlas-Copco highly depends on its competitors who have previously stocked products from different distributers. In addition, its competitors are doing far much better and have a well established market. The company should therefore review its strategy and wait for the right timing to ensure success. Q3. What the four-level-franchising does for its customers. The four level franchising policy will benefit customers as customers of new far and wide markets will enjoy better service, product handling and technical support. This is because the distributors were carefully analyzed and examined before they were awarded the task to distribute the compressors. The distributors that are chosen are those that highly focus their resources and time on the compressor business, enhancing its growth. Such focus ensures that the compressors that are put in the hands of the distributors are handled with a higher degree of care than many other distributors. This is enabled by the fact that the personnel employed in the distributions centers undergo constant training and are therefore well equipped with sufficient knowledge and skills on how to handle technical machinery such as compressors (Hill 2005). Additionally, the distributors have modern inbuilt structures that provide favorable conditions for storage of the compressors. The ultimate beneficiaries of these high quality handling standards are the customers as they are sold to efficient compressors that have not lost its value to depreciations and damage. The compressors also have a short shelf life ensuring that the compressors sold are those that are most recent and duly updated. The authorized service-centre program invests largely on providing customers with excellent customer care and after-sale services. Such services include conducting warranty as well as post warranty services on compressors that are sold to the customers. The warranty services allow customers to have their compressors replaced if in situations where they are sold to faulty machines. Additionally, they enjoy free or cheap repair services for their compressors if they get damaged within the first year of use. Another after-sales service that benefit customers are the free installation as well as demonstrated use of compressors where assistance is needed. Customers who do not know how to use the machine therefore do not have to struggle staring it up. More so, spare parts are readily available to the customer market, for instance a 120-day stock of spare parts is held at any one time. This ensures that breakdowns are promptly dealt with without customers having to go through costly delays. Through these services, clients’ need for quality customer service is met(Coughlan et al 2006). However, the clients need for convenience and variety may not be met where a customer is already loyal to a given distributer in level I. this is because the products sold by that distributor will be limited. The consumers of Atlas-Copco compressors also enjoy a wide range of products, that is, different kinds of compressors, regardless of their size. When distributors concentrate on selling spare parts and machinery of small and medium sizes, Atlas-Copco distributors sell the full range of compressors in make. A big shortfall however, is the fact that customers have to wait for six to eight weeks for a larger-than-100-hp compressor to be delivered yet it is frequently purchased. Distributors should put effort in keeping the full range in store to relieve customers from such inconvenience (Rangan & Marie 2006). Another large pitfall facing Atlas-Copco is the fact that their stock of compressors held by distributors is not subjected to stock codes and guidelines. Such regulation is necessary to ensure that compressors are up to standard and that no counterfeit compressors are sold in place of the originals. Without such regulation, customers may fail to enjoy the full value of the money they spend on Atlas-Copco compressors and they may end up with substandard machinery. Q4: What the four-level-franchising does for Atlas-Copco The main aim of the of Atlas-Copco is grow strong in their commodity. Atlas-Copco will benefit from the four-franchise strategy in that is likely to result to distributer loyalty as they compete for the highest franchise position. Those who climb to the top will work hard to maintain their position. The company will utilize its reward power to gain support from the distributers as they seek to climb up the ladder (Coughlan et al 2006). Atlas-Copco will also benefit from increase profit margins from the sales of spare parts as well as other easy to sell devices. Since Atlas-Copco strategy is focused on customer based products and services, more customers will be attracted. As customers become satisfied with services offered, they tend to develop loyalty towards the brand or product. This will mean increased sales for the distributers and thus increased overall sales and distributer retention rate. The company will incur extra cost in developing the distributers in level C and in advertising the company’s products. However, this will be recovered through increased sales of the spare parts. Some dealers may not be satisfied with the new strategy especially those classified in level C and might as a result opt to switch to a competitor such as Sullair, Joy or Ingersoll-Rand. However, the company has an upper hand due to its strong brands which makes is a preferred supplier to the distributers. The company also has employed 12 marketing representatives to assist those desiring to move up the ladder. This way, it reduces the likelihood of distributers switching to selling competitor goods. it will protect the company from losing its distributers in the future due to high cost of switching. Distributers will have to work their way up. Dealers in level IV are likely to attract customers who priority needs includes timely delivery and easy accessibility of post-warranty services. As customers come for this services, the total sales for spare parts will increase and hence their overall sales. In addition, these distributers are likely to capture customers from other competitors of the company as well as other distributer in the same company. This is owed to increase efficiency in after-sale services and trust. The company will have reduced channel flow costs since customers are in a position to receive relevant information before purchasing a product (Coughlan, 2006). Rangan & Marie 2006 Lastly inter-dependent relationships will develop between the distributers and the supplier based on each perceiving the other as important in meeting their goals. Since distributer have a firsthand experience with consumers, improved relationship will result to information sharing whereby the company is able receive feedback from the distributers. This will ensure that instead of distributers switching to competitors of Atlas Copco, they will inform the company to take appropriate step. This means that the company’s risk of losing distributer or customers to competitors will be reduced. In addition, the company will save the cost that would have otherwise being applied in market audits as distributers submit inventories (Jay 2007). Atlas-Copco is underestimating its past though this may have impact on its future if not addressed. First, the distributers have seen the company grow and its failures in the past. Attaching its current policy to the past, distributers may be unsure of its success in future. Though they may work had to get to level IV, they may be reluctant on investing on building a name for Atlas-Copco. This implies that the success of Atlas-Copco to a greater extent depends on the distributers support. To succeed, the company will invest a lot in marketing its products, motivating its distributers and giving information and material support. The fact that the distributers are not being treated the same may result to un-satisfaction and frustration because they cannot access all the products. The success of Atlas-Copco therefore depends on trust that can result to assurance that distributers will benefit from their investments. This can be achieved through the application of reward power where the best performing in each level is rewarded. Q5. What would you do differently in terms of gaining and building distribution channels to ensure a gain in market share for Atlas Copco? Support your position To gain a market share for Atlas-Copco, I would establish a continuous replenishment program (CRP). This would be enhanced through encouraging partners to share stocking and inventory information. This way, the right products will be shipped to replenish the stocks and ensure to prevent demand and supply side gaps caused by under-stocking and over-stocking respectively. At the moment, a customer has to wait for eight weeks for a larger-than-100-hp compressor to be delivered though on high demand. The CRP would result to higher turnaround and lower inventories in the system hence increasing channel profitability. This will boost the morale of distributers in combination to the reward power already in application. However, this will be done with caution to ensure that such information is not shared with competitors. This would be enhanced through contractual agreement with distributers in level III and IV with who confidential information will be shared. The contract would prohibit distributers from trading any goods from competitors and a fine which would be incurred in case they bridge the contract. As Atlas-Copco secures a market for its distributers by exercising direct distribution at minimal, distributers must also protect the company from competitors. This means that good working relations must be established by application of appropriate powers. In addition, I would first work on the relationship between the distributers and the company before introducing the policy. At the moment, their relationship is at phase three which involves expansion. It would have been best to introduce the policy in phase 4 where the focus is on commitment. Secondly, I would advice Atlas-Copco to invest more in online advertisement and referring such customers to the distributers. This way, the company will increase product awareness to the benefit of the entire supply chain. As awareness level increases, customer intention to purchase a product increases (Coughlan et al, 2006). This would be through the application of informal power where distributers are made to view their relationship as being that of partners. Partnership will result to commitment and trust being developed. In addition, possibility of channel conflict would be reduced as Atlas-Copco will only serve those customers whose needs cannot be satisfied by the distributers. Atlas-Copco should also understand that it cannot achieve the success needed without the support from its distributers who ensure a wide coverage of its products. Atlas-Copco should also encourage distributer development by offering mentoring and training. The training would include teachings on their product qualities especially the spare parts. Such information can is important for distributers when encouraging a client to purchase a particular product. Atlas-Copco can also gain a market share by concentrating on building brand image for products offered including spare parts. As indicated in the case study, her competitors have been doing well in the sale of spare parts and accessory (Rangan 1987). The company can thus represent its products as two separate physical possession activities. While their suppliers are encouraged to sell spare parts and accessories which they have not paid much attention to previously, Atlas-Copco should encourage third-party logistics firm to distribute the spare parts. The dealers can therefore order for the spare parts through the logistics firm by placing orders online. Since one customer need in purchasing spare parts is quick delivery, this method will enhance customer demand-satisfaction. This way, customer frustrations which would result to customers option to purchase spare parts elsewhere will be solved (Jay 2007). Atlas-Copco can also seek for opportunities for acquisition of the smaller companies to increase its shares. A combination of these methods would ultimately result to better result. References Coughlan, AT, Anderson, E, Stern, LW & El-Ansary, AI 2006, Marketing channels, 7e, Prentice Hall, Upper Saddle River, NJ. Hill, C, 2005, International Business: Competing in the Global Marketplace. 5thedition. McGraw Hill Jay, B 2007, Gaining and sustaining competitive advantage, 3rd edition. New Yolk: Pearson Prentice Hall Rangan, K., and Marie, B 2006, Transforming Your Go-to-Market Strategy: The Three Disciplines of Channel Management. Boston, Mass.: Harvard Business School Press. Rangan, V, 1987, Atlas Copco (A): gaining and building distribution channels. Harvard business school cases. Read More