Shift of Customer Focus from Original Equipment Producers to Maintenance, Repair and Over Haulers - Case Study Example

3M Industrial business division 1. Opportunities and challenges in changing from OEM to MRO customer focus The Company’s industrial business division produces products that mainly serve two classes of clients i.e. production firms and servicing companies giving rise to two groups of customers groups namely the original equipment producers (manufacturers)- OEMs) as well as maintenance, repair and over haulers (MROs). The Division (IBD) however, mainly concentrates on the OEM sector. Faced with the challenged of improving the divisions performance from the current one of 3 to 5 percent to 12 to 15 percent growth rate ,the management sees changing focus from OEMs segment to MROs segment as the only alternative that could lead to achievement of this target. However, the change of focus would have some opportunities as well as challenges as explained below. Shifting the centre of attention to MRO segment would help the IBD grow in its performance and hence achieve its growth target. The OEM segment on which the division has concentrated on has already matured and has little prospects for expansion. Changing focus to MRO therefore presents an opportunity for the division to grow. Although the MRO segment is fragmented and lacks brand royalty, it is growing. Large players in the segment some of which include Mega corporations are growing at very high rates (Richard, 2006). In fact, they are said to be growing at double digit rates. This meant that their demand for IBD products wills also growing at equal rates. In fact, the division has already undertaken market research and established ten corporations with which it intends to establish trade relations. For this reason changing focus to this segment would be the right alternative for IBD to achieve its growth targets within the targeted time frame as opposed to seeking other alternatives such as new product launches or attracting new customers. Focusing on MRO would also provide the division with the opportunity to stay in business. This is because the OEMs segment on which the division had been focusing on is negatively affected by a decline in Canadian manufacturing. The decline is as a result of downsizing, plant closures and layoffs. This implies a declining market if the division should continue relying on the segment and hence the need to change. Therefore changing the focus to MRO would be a sure way of increasing its customer base and hence achieving its growth targets. In other words, changing focus to the MRO segment would provide the chance for increasing market share for the IBD since it the sector has a large market whose size is projected to be 14 billion Canadian dollars, the huge distributors in the segment are growing at a faster scale than the companies in the industry, there are opportunities inmost production lines yet to be filled while private labels offer an opening with prospective of both revenue and profits. Changing the division’s focus from OEMs to MROs faces some challenges. Although the MROs segment is experiencing rapid growth, it is fragmented with little brand royalty. The IBD is therefore faced with the challenge of creating brand royalty for its products within the segment before it could achieve any success in the segment. It therefore has to come up with ways of creating acceptance as well as royalty for its products within the segment. In addition, the division also faces the challenge of establishing relationship with more distributors from the current two percent as well as the challenge of restructuring its current sales model so as to effectively serve the new MRO model. This is because establishing relationship with more distributors would imply more sales for the division and hence improved performance owing to the fact that in the MRO sector, it is the distributors who control the market and not the suppliers. This serves as psychosomatic barrier to entry for suppliers like 3M who are brand driven. 3M faces more challenges by changing focus to MRO owing to the fact that products are not specific, there is little brand royalty while price is an important business driver (Keith, 2007). Several of the division’s market offerings are also being gradually pushed into the MRO sector owing to commoditization. IBD is also faced with the challenge of changing focus from special and niche dealers to large national dealers if it has to succeed in the new segment. There is also the challenge of changing its current sales model where products are premium priced to the one of pricing products for the low market end and establishing a well curved out business outlook which would provide the customer with a common face of the company as well as management of a distribution channel dynamics. The change therefore provided a challenge of putting in place an effective supply chain process, as well as provision of technical back-up to the end user. 2. How OEM customers sales relationship differ from MRO customers. The division’s products have two types of end users and customers who included original equipment manufacturers as well as maintenance, repair and over haulers (OEMs and MROs). OEM customers usually buy high value items that become part of finished goods such as furniture adhesives while MRO customers’ centers on low value consumables like masking tapes. Customers in the OEMs sector are characterized with brand royalty and a close relationship with the supplier. In addition sales to the OEMs segment highly depend on the happenings at the Canadian manufacturing market. The down sizing and closures in the market are resulting in declining sales for the OEMs market. In addition, the business customer in the OEMs segment is also the end user and hence tracking of the customer’s needs is easy in the OEMs segment. This explains why the market was characterized by high brand loyalty. On the other hand, the MROs market is characterized by lack of brand loyalty unlike the OEMs segment. Here, customers are not the end users and this makes tracking of customers needs within the segment to be a difficult task. This explains the low level of brand loyalty within the segment. The MROs market is controlled by distributors implying that customers are not the end users in the segment. It is hence difficult to gain brand royalty in the segment for brand driven suppliers like 3M Canada. Products can not be specified and the customers are price sensitive in the segment unlike in the EMOs segment (Michael, 2008). Unlike the EMOs segment MROs customers comprise of large corporations of the same individuals. For this reason, it is easier for a supplier to obtain brand loyalty as well as a good customer relationship with the end user within the EMOs segment as opposed to the MROs segment. This is due to the fact that in the EMOs segment, suppliers like 3M are able to deal with their customers/ end users directly without having to pass through the distributors unlike the MROs segment where one has to pass through distributors. This explains the high level of brand loyalty in the EMOs segment as opposed to the MROs segment. 3. How IBDs current sales model will have to be changed to effectively reach national distributors The change of focus from EMOs segment to that of concentrating on MROs segment is aimed at helping the company achieve its targeted performance improvement. However, this may not be achieved with the current sales model since the company may be unable to reach national distributors. In order to achieve maximum sales, the division needs to change focus from special and niche dealers to large national dealers in addition to coming up with strategies aimed at getting closing the gap between the company and the end users of MRO supplies since the customers are not the end users in the segment. The company’s traditional sales model is characterized by selling at the premium market end; its sales group has merchandise specialization and excels in affiliation building. However, this would have to be replaced by the one of pricing products for the low market end and establishing a well curved out business outlook which would provide the customer with a common face of the company as well as management of a distribution channel dynamics (Graham and John, 2009). In addition, the Company has to implement an effective supply chain process and come up with ways of providing technical end users support. The traditional sales model of concentrating on the products sold has to be replaced with the one of how the products are sold. There has to be a shift from product division centric model to consumer oriented model without forfeiting the division’s product expertise. This is to be done by building a cadre of channel experts to strengthen the product experts at the division. This will develop employees who are well rounded business persons representing a common face to the new channel. Sales outsourcing should also be introduced into the new sales model where the division would use independent sales men and manufacturers for special categories of products. The sales people would be required to have their own sales groups and would be paid on a commission basis. The agents would be required to specialize in complementary products while not dealing with more than one supplier in a given category. In order to achieve growth in sales volumes, the company would have to introduce private labels in its sales model. Although the private label penetration in the new segment is still low at about 1 to 2 sales percentage, the national dealers wish to expand their private labeling business with an aim of increasing their influence on producers as well as establishing their own in the business (Orville, 2008). For the company, the private label business is a way of moving the tonnage in the market but it does not it would not enhance the company’s brand since it doesn’t possess the 3M label. 4. A plan of action for IBD IBD needs to come up with a plan of action that will enable it reach its performance target within the targeted time frame. As such, the company first of all needs to undertake market research on the suitability of the MRO segment in its effort to hit the performance target. Owing to its little exposure to distributors, IBD should undertake enough market research regarding the identified distributors so as to make an informed decision on which distributors the division will establish trade relations with. The company will then need to train its sales force on the company’s new marketing strategy. This is because initially they used to doing business with store managers directly in the special niche category whereas in the MRO segment, they will have to do business with big corporations consisting of networks , protocol as well as procedures. Therefore, the training will help the staff to better serve the customers in the segment (Subhash, 2009). The company then needs to decide on the new sales model to apply in the new segment. This is because the alternative models have their own pros and cons. The company needs to shift from the product centric sales model to customer centered sales model devoid of forfeiting its expertise in product production. The IBD will then decide whether to introduce outsourcing in its sales model or to use product labeling as an entry strategy into the new segment. Having made the decision, the company should then design a new marketing program for its products within the MROs segment. After the marketing program has been designed tested, then it needs to be implemented. The company will then identify specific distributors with which to establish trade relations with in the new segment. After this, the company can gradually introduce its presence in the new MRO segment by introducing its products. However, the company should be careful not to abandon the EMOs segment before it succeeds in the new MROs segment. The company should actually target national distributors. This is because the distributors are growing at very high rates of double digits as opposed to special and niche distributors who are loosing their established competitive edge. The national distributors have immense sales infrastructure as far as branch networks and sales force are concerned. In addition, they buy in bulk. Therefore targeting national distributors would provide a good opportunity for the IBD to improve its performance due to increased sales to the distributors. For the company to succeed in targeting the national distributors, it would need to undertake changes in its sales model (David, 2007). The changes would include introduction of private labels in its sales model. Although the private labeling penetration is generally low, the national distributors wish to use it in increasing their clout over manufacturers and in building their own equity in the business. For IBD therefore, the private labeling business would be a way of increasing sales though without enhancing the 3M label. Other recommendations that would help IBD in meeting the aggressive revenue growth mandate from their new CEO. Apart from changing their focus from EMOs to MROs segment, IBD ought to also come up with new strategies aimed at improving sales. The division needs to come up with a more aggressive marketing strategy that will see its products become the choice of most customers within its current segment. Part of this would include increased advertisement efforts by the company as well as changing their sales model from that of product focus to that of customer focus (John, 2004). The company should also try introducing their products to the national distributors within the EMOs segment so as to boost sales. Increase in the number of customers should be considered as a way of increasing sales volume. In addition, the IBD should develop new products for the existing customers. This will ensure that the division has an added advantage over its competitors. Finally, the company should target both the segments with its products. This will be a sure way of increasing its sales volume and hence a sure strategy of meeting the target by the new CEO. References: Richard, L2006, Corporate strategy, London: University of California press. Keith, J2007, Canadian marketing in action, London: Routledge. Michael, D2008, Marketing strategy, Newyork: Oxford University press. Graham, J & John, A2009, Marketing strategy and competitive positioning, International marketing journal, 13 (24), 115-120. Orville, C2008, Marketing strategy, a decision focused approach, Avebury: Aldershot. Subhash, C2009, marketing planning and strategy, MacMillan, Melbourne. David, L2007, Marketing management, text and cases, California, Prentice Hall. John, G2004, Marketing, the revolutionary new way to increase sales, New York, Oxford University press. Read More