Long Chain marketing

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Information about Long Chain marketing
Business & Mgmt

Published on February 25, 2014

Author: PPonty

Source: slideshare.net


Challenges and succes factors in marketing through long market access chains - the example of construction materials

Zoom LONG CHAIN MARKETING DEVELOPING SUCCESSFUL MARKETING STRATEGIES THROUGH LONG AND COMPLEX MARKET ACCESS CHANNELS April 2009 FACING LONG CHAINS Many industrial companies reach their final markets through “Long Chains”. Construction Materials Supply Chain Chain This is the case, for example, of most materials producers : what they sell is not used by their direct customers, those who pay their invoices. Instead, their production is re-sold or incorporated into their customer’s production, and only one or several steps further are their products finally bought, used, appreciated by final users. Construction materials is definitely a “long-chain” sector, with perhaps one of the most complex set of participants to the market access chain channel. The scheme on the right is inspired from the case of steel construction products. Several levels and types of distribution chains are involved (steel service centers, stockists, local steel retailers, general construction materials distribution, HVAC distribution, etc.), as well as steel processors and product Standards, manufacturers. This upstream Regulations, part of the chain in turn sells norms to the building trade : builders and their subcontractors. Developers and non-occupying owners form the next part of the chain, which... does not even end with actual users of the building, since recycling / reuse of construction materials is now an issue to be dealt with from the start. Selling through Long Chains raises specific issues and challenges for efficient marketing & sales strategies. Too often, marketing and commercial departments limit their scope of vision, and hence Material Supplier Distribution Processing Product Manufacturing Secondary distribution Assembly Mounting Builder Developper User Recycle/reuse Prescription Design Engineering

the effectiveness of their efforts, to the very first steps of the chain. But in our experience , looking beyond your customers to understand your true markets is a must – and it is worth the effort. The construction industry example is self-explanatory. Even beyond the chain of buy and sell market transactions, it is governed – as any other industry – by standards, regulations and norms. It also includes participants with strong influence powers : architects, structural and other engineers, consultants, quantity surveyors. These are also integral part of the chain, even if they never buy or sell any products.. Who in this whole system, is “the customer”? To whom should I ask their market needs and demands ? To make things even more complex, construction supply chains have little in common from country to country, the construction industry being mostly national. Within each country, construction supply chains differ significantly by building type : large landmark buildings, industrial buildings, office buildings, collective and individual housing – each of these is a world in itself. Lastly, supply chains are not the same across building functions : foundations, structure, roofing, walls, façades, doors and windows, partitions, HVAC, sanitary.. all these come from different channels. Purchasing decision-making in such a context, results from of a very complex set of processes. In some cases, the process is simple : to buy steel roof tiles in small quantity, a small builder might go to the next general construction materials store, himself shelving products from the major national suppliers. In other cases, it is extremely complex : between the early sketches of an airport to the actual purchase of specially processed beams, there are years of work and dozens of different decision points. Seen from the materials suppliers point of view, this poses a daunting marketing challenge. One attitude consists in closing your eyes to all this complexity, and sell to your direct customers without much further soulsearching. This undoubtedly is the best approach to reduce the costs of a commercial organization, and for this reason quite a tempting one. Hopefully, closing the eyes strongly enough will even divert attention from the untapped business potential out there. But certainly it is not the best approach to develop value for the company, and reap the most from market potential. We believe there is a lot to gain in exploring the value potential in long supply chains, rather than giving up at the mere sight of their complexities. SOME COMMON ISSUES Here are some of the pitfalls of selling to Long Chains. These and surely others – those specific to your own situation – pose formidable challenges to marketing and sales organizations. Misunderstanding downstream market needs Direct customers act as a screen between market needs and the upstream suppliers. Provided they themselves know the downstream supply chains – which is not at all a given, it is neither natural nor comfortable for them to share this knowledge with their supplier: information is still perceived by many as a source of power, sometimes with good reasons. Poor knowledge of downstream needs results in mis-targeted, inward-driven or inexistent innovation, and in uncompetitive product / price / service positioning. Unchecked competitive forces and trends Your true competition may be quite different than what comes up from sales calls. Back to steel, somebody else’s products may be competing with yours at the distribution level, but a few steps down your true competition is another material – plastic water pipes, wood frame houses, concrete structure. Or perhaps an entirely different way of offering the same function : e.g. “natural-fire” fire safety analysis, instead of structural fire protection paints. 2 Long Chain Marketing

Without a good understanding of your own market access chains and of what is going on at each step, how could you anticipate market movements, let alone react or prevent them. Missed value opportunities Long Chains add value at each step. Your product might constitute a high percentage of your customer costs, leaving reduced space for price negotiation. Offering SOMETHING OF VALUE TO YOUR CUSTOMER’S CUSTOMER will bring new oxygen to the negotiation table. Of course, dealing with such opportunities requires a strong and confident spirit of cooperation with your own customers. You should be prepared to really offer and share value with them. Weak differentiation Upstream producers sometimes misperceive the differentiating quality of their offerings. For example, construction-grade steel is quite a basic product for modern plants, but secondary services and attributes such as response to short-notice volume requests, technical user support, structural engineering software, etc. can make a big difference – provided the producer is conscious of the need. Technically-oriented producers often overlook such service differentiation factors. Conversely, efforts from the factory to chase the last percentage point in some category of defects might not be valued by the market. Complexity cliff In the steel construction materials case described above, analysis of the major market channels resulted in 50 opportunity areas, each with a different chain, a specific set of participants, etc. Which marketing service can possibly deal with 50 market segments in parallel? LESSONS FROM EXPERIENCE Dealing with Long Chains requires specific approaches, adapted to each supplier and market conditions. The key is to start and tenaciously sustain a collective process of learning and channel-building. This process will lead to better knowledge of your markets, a better focus of development and marketing efforts, an enlarged horizon of value creation opportunities, and finally open up opportunities for establishing market leadership positions. We listed below a sample of generic lessons, learned from our experience in dealing with long market access chains. Of course your own situation might offer other lessons. SEGMENT YOUR MARKET UPSIDE DOWN TO UNDERSTAND WHY YOUR PRODUCT IS BOUGHT Upstream producers have a natural tendency to segment their markets by product families, or perhaps by distribution channels. When researching long chains, forget it – at least for a start. Look at your markets from the eyes of the final user, and segment it according to final use. Sometimes the distance is too long : most owners of an apartment flat, for example, really have no clue about which rebars hold their building together (except if they live in an earthquake-stricken city and have seen buildings with poor reinforcement tumble down). In this case, move up in the chain. Perhaps the builder ? Or the structural engineer ? Start with the first step in the value chain, starting from final use, which perceives the functional value (the benefits) of your product; and continue upstream. Proceeding this way you will uncover the real functioning of things, and why and how your product is bought. 3 Long Chain Marketing

You may discover unexpected factors : reduce the number of stock items, allow mounting with the traditional set of tools of the trade, be self-explanatory to illiterate workers, respect the rules of work allocation between trades, be easily insurable… a whole host of factors might play an important role in the chain, that have nothing to do with the product’s main functionality. FORM AND EMPOWER SECTOR TEAMS Early in the process, form multi-functional sector teams who will explore your market access channels and formulate the core of your marketing strategies. Representatives from factories, research & development, technical support, logistics can all contribute. A common difficulty here, perhaps surprisingly, is to involve the sales organization itself. Salespeople live in a world of reality, of pressure on time and money; they fight for results. Long Chain marketing meetings will appear to them as a waste of time and perhaps also, as a threat to the balance of their established relationships with their customers. If your sales organization hesitates, insist. Do involve them from the start. If you don’t, they’ll come back later with questions, inertia, new obstacles; Sector teams should not have formal authority beyond organizing their own work : in the end, the responsibilities of the commercial line organization should be respected. But their members should have relevant influence in their own field. Sector teams produce knowledge, cooperation, action proposals, innovation ideas; it’s up to the operational organization to act. To ensure coordination, they should report regularly at a proper level – e.g. Marketing Committee for work progress and BU (Business Unit) executive committee for major recommendations and strategy proposals. Of course, as for any cross-functional team, proper teamwork training and coaching should be offered. Long Chain Marketing specifics also justify a short team briefing on interview skills and market analysis. A side benefit of such an internally-driven organization is its collective learning, team-building and recognition effects. It happens that although a sector team does not generate any significant new actionable proposal, participants find it so useful that they turn it into some form of permanent “market team” afterwards, in order to keep the momentum going. In complex organizations, ensuring dialogue between functions is a rare and valuable occasion. The temptation to use outside consultants to research markets is universal. They are neutral, they are supposed to know many things, they can focus on our questions. Well, it can work. I have been both a market consultant and a marketing executive at different stages of my career. Remember : if you and your people don’t understand your complex market access channels, who else on earth would have any reason to know more? If you can, hire real experts. But the best broad-base consultants will merely ask your people, and put this in good form. Why not, but then let’s use them as members of a team and give proper recognition to all. 4 Long Chain Marketing

DISCOVER THY CHAINS Now is the time to send your newly formed sector teams out in the field for some real work. The objective here is to describe and understand the various steps of the chain. Example : Safety road barriers for motorways The whole process gains maximum power when members of the sector team conduct field interviews themselves, with minimal support from outside consultants (which is also good for budgets..). Knowledge should primarily grow within the company, not within the consultant’s brains... Sending your own people do the market interviews, however, undoubtedly takes a little more time. The research is to be conducted sector-by sector (remember, sectors are end-use segments), preferably upside down (users first). It should produce types of participants in the supply chain, names of the major players, volume estimates, and key 1 drivers of the purchasing process . The chain is simple : . customers buy flat steel from steel service centers, and process it into road barriers . motorway companies buy, mount, maintain and replace the barriers themselves or through subcontracting . drivers pay motorway toll fees, and unfortunately some of them crash onto the barriers. Market research and creativity exercises identified several opportunities, but stumbled upon the price/cost constraints. Ground was being lost against concrete solution and low-grade steel imports. However new, higher-safety European Standards were being prepared. Steel is an excellent shock energy absorber. However the supply chain was too dispersed to exploit this advantagestrong research resources were required. The steel maker established a crash modeling competence center, selling its services to safety barrier makers. In parallel, research was conducted to reduce thickness and weight, thus reopening a price flexibility windows (less kg of steel per meter of motorway) and creating product differentiation. Supplier teams are generally wellreceived and well-perceived by clients. However, do not ever visit your customer’s customer without a clear agreement, and share all findings openly in this case. The It took a few years to re-establish steel as a highsame holds for your own customers performance solution, displace lower-grade steels, reverse and sales force. the concrete substitution trend, and start improving driver Lastly, don’t forget the powerful safety in Europe. influences that may reside outside your scope. What is chinese competition doing? Are there new environmental regulations in preparation ? etc.. Understanding the chain includes understanding what is influencing the chain, its dynamic trends. 1 Following a systematic framework covering e.g. function, performance attributes, logistics, service, price of ownership, … 5 Long Chain Marketing

Factoring in internal politics and the time pressures on everybody, a thorough research work on a reasonably complex segment may take 6 to 12 calendar months. In this period however, parallel work should start on value-creation opportunities. IDENTIFY VALUE CREATION OPPORTUNITIES In this phase, creativity should be stimulated to identify value creation opportunities at each stage of the market access chain. The knowledge gained in the research phase is a guide and reference base against which ideas can be created, typically in creativity workshops, and prioritized. Value-creation should be understood in a broad sense. Anything that helps your products solve somebody’s problems should be included. Opportunities may appear under the form of new information / communication offered; new services; optimized products, packaging, technical support; new environmental / recycling performance features; etc.. Value Creation Opportunities need not be readily feasible / available in the supplier organization. Indeed, third-party players might well be included in the picture at later stages. The rules of creative processes apply here. Favor quantity in idea-generation, to obtain quality in the end; apply thorough idea evaluation mechanisms to prioritize and allocate investment. It is here hypothesized that a sound market product launch process is established within your company; a whole other subject.. CAN THE VALUE BE CAPTURED ? Nobody would appreciate investing its time and money, see their idea succeed on the market, but finally see the benefits going to competitors. This can however happen, whenever value creation opportunities do not lend themselves well to IP (Industrial Property) protection. Technical and Commercial barriers should also be envisaged. In the steel safety barrier case described above, copying grade and thickness optimization would technically take some time. Close coordination between sales and marketing is a must – sales teams should be kept well-informed and put in a position to exploit marketing action quickly. ESTABLISH KEY DOWNSTREAM PARTNERSHIPS This is the key to success, the “magic” and equally risky element in the Long Chain marketing framework. Since no upstream producer can possibly master and control all steps and members in its market access chains, it is often led to delegate this role to a set of carefully empowered partners. Indeed, they – your downstream customers – are infinitely better placed and competent than you are yourself, to act within the scope of their specific position in the chain. “Partnership” is a big word, sometimes a hollow phrase for “I want your money”. Commerce is no idealistic adventure. In this context, partnership is a joint investment into a commonly perceived business opportunity. We could produce here complex matrices about the choice of ideal partners. In real business life, partners should first and foremost be willing and able to walk this part of the walk together, and feel confident with one another – that’s about it. Money will be involved. Potential partners may attempt to take advantage of you, e.g. obtain better prices in exchange for lipservice support to your new idea. Our advice here is to clearly disconnect price discussions from partnership discussions. If you need to subsidize your customer, don’t do it through prices : it would distort market realities and lead both of you onto erroneous paths. If the business model is not viable, let’s discover it as soon as possible. Concretely, market development partnerships may involve financing conferences, exhibitions, communication material, advertising; conducting joint research; support financing of new equipment; 6 Long Chain Marketing

etc. You will end up helping them to sell their products to your mutual benefit. One advice though, never provide 100% of the efforts. If your partner does not make any investment, you can be sure he does not believe in the idea. Partnership often takes the form of contracts at some point. But often, the first moves and commitments will happen on the basis of trust, intuition, and the courage of taking some risk. FINAL WORD In this short paper we have tried to share some of the lessons gained from our experience , mostly in several sectors of the steel industry. While our experience shows that Long Chain marketing can bring fruitful business benefits through specific projects and optimization actions, there is also a hidden treasure in it. Gathering multi-functional teams, researching the ultimate destiny of our products, promoting creativity and innovation : this whole process is an extraordinary opportunity for learning, individually and as an organization. It is an excellent way of sharing information, strategies and a sense of common purpose among the teams. Contact : Pascal Ponty pascal.ponty@nextmove.fr Tél. (+33) (0)670 900 781 www.nextmove.fr 7 Long Chain Marketing

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