Applied Channel Systems - Assignment Example

Applied Channel Systems Q1. Evaluate the opportunities and challenges that 3M’s Industrial Business Division faces from changing the customer focus from OEM to MRO. Opportunities 3M Company founded in 1902 had significantly grown by becoming a global enterprise with over 69,000 employees located in about 60 countries. The aim of the business was to manufacture mineral deposits. The company decided to change its investment priorities for example it moved from aiming at meeting production increase and cost saving and set its focus on developing its market and increasing promotions for its products. Arikan (2008) describes that this strategy involves incorporation of various elements such as growing the entire business, aiming at developing business opportunities, being involved in acquisitions and finally increases in investment especially in the emerging markets. Rosenbloom (2004) describes that in order to achieve the above goals, the company would use certain guidelines which include selling its products to large markets as well as having a relative position the smaller markets. According to Baker and Hart (2008) customisation of products and management of customer retention would be another way of achieving the growth of the business. In this, IBD gets an opportunity of driving scale and increased market share which is more at MRO. The reason for this is that MRO has a bigger market especially in Canada. The other opportunity that IBD acquirers by using MRO is that large distributors are growing faster in the market as compared to the rate of MRO growth. There are also vacant spaces in various product lines showing that IBD will have a competitive position in the market by filling the vacant places. Private labeling also contributes as a better opportunity for IBD in improving its revenue and profit margins. Some of the opportunities that 3M’s IDB face include being the second largest in sales in Canada and that it sold its products to customers. IDB had two major customer groups which include original equipment manufacturers (OEMs) and maintenance, repair and over haulers (MROs). The two customer groups were different in their way of sale for example OEM concentrated on selling high value items and mostly they were finished products while MRO was selling low value products which were mostly consumables. IBD had concentrated on distributing to OEM segment and its growth had stated deteriorating since the segment had reached it maturity stage and therefore expansion would be difficult. MRO segment on the other hand was fragmented and there was lack of brand loyalty though it was significantly growing. IBD came to a conclusion that the two major ways of attaining its target would be to find new customers for the present products and the other method would be to introduce new products to the market which will be aimed at targeting new customers in the market. Other opportunities included improved technology platform and having potential in growth. One of the faced by changing customer focus from OEM to MRO was that IBD would get additional sales within the targeted time frame. This means that the time taken in delivering products from the manufacturer to the customer will be shortened. This is because IDB had been distributing to retailers and not concentrating with the customers. Challenges One of the major challenges with 3M’S industrial Business Division is that it has stood the test of times and had not changed in terms of product applications, service delivery mechanisms, customer expectations and logistics requirements. The other challenge facing IBD was its counterparts at 3M’s subsidiaries for example those situated in the mature markets such as United States and Western Europe. Q2: How does the sales relationship with OEM customers differ from that of MRO customers? Why? The sales relationship in OEM and that of MRO differed in the sense that OEM was a focused on the industry and aimed at buying from the manufacturers of the products. However, due to the decline in Canadian manufacturing, OEM started downsizing, closing some of its plants and laying off some of its employees. The major cause of this was the rise of the Canadian dollar where manufacturers incurred high expenses. OEM sales relationship was that it was easy for them to track customer needs since they aimed at building relationships with their customers. They are also able to work with their customers in order to reduce costs of operations. MRO on the other hand the distributors of the customer group controlled the market more than the suppliers. This caused a major challenge to 3M since it created a psychological entry barrier to the company. In MRO products were not specified and there was lack of brand loyalty. Customers were driven by price of the product. In MRO, the national distributors were significantly growing and therefore it was easy for them to get large contracts. Selling high volumes was crucial to them as it brought in profitability as their fixed costs were also high. The MRO national distributors also supplied to OEM. Q3: How will IBD’s current sales model have to be changed to effectively reach national distributors? Why? The three major issues facing 3M included its sales model, logistics and marketing programs. In order for 3M IDB to survive in moving to MRO, it had to replace its sales model for example by replacing the question of what to sell to that of how to sell. The company has to change the current division centric model to one that concentrates on the needs of the customers such as the customer centric model. This will be well achieved through involving more salespeople in Western Canada, Ontario and Quebec. The sales people should be capable of cultivating and building good relationships with the national players in the market. The other model that would improve IBD’s sales model to reach national distributors is by outsourcing sales. IBD should form a team that will be responsible for forming a good relationship with sales agents and manufacturers’ representatives. This will be formed for example for specific products such as adhesives. The manufacturing representatives at IBD will be responsible for making their own sales where they will be paid a commission for example 3 percent will be given for any existing business and five percent will be offered for an additional sale made by the representative. Agents at IBD will take product lines but not have more than one supplier. However, through outsourcing, IBD might another boundary to its customers which may see reduction of sales. Private labels may also improve growth of volumes as in MRO the generation of private labels was low. In order to increase their power, national distributors wanted to increase their private label which would build good equity. The other source of concern in reaching national distributors was conflict with the channels of distributions. This had been reducing sales force therefore reducing productivity and thus profits. This is for example where a distributor would ask for price reduction from 3M for products that had been negotiated with OEM. Channel conflicts should therefore be avoided in order for 3M to effectively reach national distributors. Q4: Develop a plan of action for IBD, addressing these and related issues: Should IBD target national distributors? If so, what changes in the sales model and supporting marketing strategy should IBD pursue? To develop a plan of action for IBD, it is important to understand the importance of end users and in this case we find that IBD was not concentrating on the end users but on retailers who were few in the market. The company should not only concentrate on what the end users are buying but how they want to buy and also why they want to purchase. The company should focus on how to sell and the element of how the products are brought to the consumers. There are several ways of ensuring that this is achieved and these include through sales promotions and direct marketing. Sales promotion involves activities, materials and techniques used to supplement the various advertising and marketing efforts. Kaiser and Song (2009) describes that sales promotion helps marketers to coordinate advertising and personal selling effort examples of sales promotions include special display, coupons, promotional discounts and gifts. The diagram below shows how IBD can use both direct and indirect method of reaching the end users/ customers. According to Marder (1997) there are various reasons that would make a marketer introduce sales promotion. One of the reasons is due to increased competition. Competition in the market may lead to the introduction of sales promotion in any organisation. This is because the activities carried out in the process facilitate development of new strategies for beating competitors. The second reason is to gain market share for example in IBD. An organisation that aims at increasing market share may use gives to attract more customers. The third reason is to penetrate a new market or even in existing businesses. Hoffman (2003) describes that sales promotion is also used to effectively eliminate old items in stock for example through free gifts. Direct marketing on the other hand is a form of advertising that involves communication with targeted group of consumers. Information about products reaches consumers through various channels of advertising such as news papers, TV or radio. Hoffman (2003) puts it that others include using fliers, promotional letters or street advertising. This process helps marketers to build a profitable customer relationship and therefore enabling business to attain set objectives. The reasons for using direct marketing one are to generate new business leads and sales. The other reason is to increase sales from the existing customers. Third, direct marketing re establishes a business relationship with dormant customers in the market therefore influencing them to purchase goods. It also increases customer loyalty since different customers want a product in different forms. Bulk breaking could be used which the ability of customers to purchase a product is according to their desired number of units and size (Wisner et al. 2009). Should IBD target national distributors? IBD should target national distributors since they were among the trends in MRO and had significantly grown in number in Canada. The national distributors also had a huge sales infrastructure as it had many branches, delivery centers and sales force around the region. These factors made it possible for MRO to secure much profitability from the supplies. National distributors also has a good position in the market since special and niche stores had started losing their competitive position due to reasons such as competition from large players in the market who built up a domain of expertise by acquiring various skills which enabled them to target their niche players’ customers. The other reason that made special and niche store lose their competitive position is the increase in technologies which made manufacturing be open to all (Kaiser and Song 2009). To be competitive in the national distributors IBD had to make several changes in the sales model and supporting marketing strategy. These changes include getting closer to the end users of MRO supplies and connecting with them to find out their needs and preferences. Sales people located in various locations such as Western Canada, Quebec and Ontario had to be increased in number and had to be well trained on customer specialisation rather than product specialisation. IBD should also form strategies retaining its customers since most of its customers were ongoing. IBD had to change in such a way that it would sell products at low end of the market and should have a well rounded business perspective in order to face the customers. Distribution channel dynamics had to be managed effectively to by putting up supply chain processes. What other recommendations do you have that would assist IBD in meeting the aggressive revenue growth mandate they face from their new CEO? In order for IBD to meet the aggressive revenue growth, they should carry out a market research that will enable them to discover the needs of their customers who are a greatest asset in business. This market research will involve gathering of information about markets and analysing the needs of customers. Bradley (2010) shows market research form a significant part of the business strategy that shows an organisation which direction to take in order to attain a competitive advantage against the competitors. My first objective for carrying out the above market research is to examine the importance of marketing research in achieving organisational goals. The other objective is to outline the contents of research brief and proposal. The final objective is to explain how the information is to help the organisation. The marketing research was carried out to identify directions, discover new business models and web distribution models. These will enable the hotel to set strategies for the future. IBD should also analyse internet marketing research showed that will benefit the company in promotions and should ensure that they maximise their potential by increasing the benefits of these products (Roberts 2008). IBD however should not rely on information got from a marketing research since it does not guarantee success neither does it make business decisions. Final decisions are made by the marketing managers and therefore are necessary for them to obtain research report showing the courses of action. Market research therefore analyses the marketing needs, the size of the market and the scope of competition. Bradley (2010) puts it that market research information is important as managers are in a better position to determine the needs of their service delivery. It is also clear on the likelihood to sell, and how to formulate strategies for target market demographics. The information will benefit all the departments in the firm for example the finance department of the Company will be capable of keeping resources of developing its other departments. The marketing managers will also be able to formulate new strategies that will be necessary to meet the needs of consumers and to attain a competitive position in the market environment. According to Kotler and Armstrong (2007) some of these challenges can be grouped into several levels such as the organisational level, the group level and the individual level. The challenges facing the organisational level include productivity where low productivity affects every individual in the entire organisation. The other challenge at the organisational level includes lack of effective employees. Global competition is also included at the organisational level and finally is the management strategies The challenges facing the group level include individuals who have problems while working with their colleagues. This challenge can be minimised through encouraging interpersonal relationships within the organisation. Workforce diversity also affects individuals as employees have various cultures and values thus would be difficult to adjust to the organisational culture and beliefs. The final level includes the individual level which includes those factors that would hinder an individual from effectively performing their duties. Some of these factors are lack of job satisfaction, lack of individual empowerment and finally the individual ethical behaviors (Best 2009). I think the new IBD CEO should analyse the organisation behavior which helps the employees to adjust to their current environment. This improves corporate culture as well as the financial performance of the organisation. The hospitality industry enables the actors to achieve human relations thus making them successful in their day to day living due to their quality behaviors. However the hospitality industry has some disadvantages caused to the mangers. Some of this includes the lack of necessary training materials for the leaders and the staff members. Managers in this organisation focus on improving the organisational behavior through ensuring job satisfaction, provision of good working conditions, reducing absenteeism and turnover (Mayo-Smith 2008). References Arikan, A 2008, Multichannel marketing: Metrics and methods for on and offline success, Indianapolis, Ind.: Wiley Technology Pub. Baker, M & Hart, S 2008, The marketing book, Oxford: Butterworth-Heinemann. Best, R 2009, Market-based management: Strategies for growing customer value and Profitability, Upper Saddle River, N.J.: Pearson/Prentice Hall. Bradley, N 2010, Marketing research, tools and techniques, Oxford University Press, Oxford. Hoffman, K 2003, Marketing: Best practices, Mason, Ohio: Thomson/South-Western. Kaiser, U & Song, M 2009, Do media consumers really dislike advertising? An empirical assessment of the role of advertising in print media markets, International Journal of Industrial Organization vol. 27, no. 2, pp. 292–301. Kotler, P & Armstrong, G 2007, Principles of marketing, Pearson: Prentice Hall, New Jersey. Marder, E 1997, The laws of choice, Predicting customer behavior, The Free Press division of Simon and Schuster. Mayo-Smith, D 2008, Marketing in today's wired world, Rosedale, N.Z.: Penguin Books. Roberts, M 2008, Internet marketing: integrating online and offline strategies, Southbank. Rosenbloom, B 2004, Marketing channels: A management view, Mason, Ohio: Thomson/South-Western. Wisner, J, Tan, K, & Leong, C 2009, Principles of supply chain management: A balanced approach, Mason, OH: South-Western Cengage Learning. Read More