The study describes the effects an engineering solution provider faces, when in one of its business segments, it loses substantial market share by the introduction of an innovation. It describes how a company pioneered in a certain segment becomes a follower due to a certain disruptive innovation brought in by competitors over a period of time resulting in substantial loss in market share. The make or break situation called for some analysis on the market behavior and a possible way forward, is to bring in its own innovation while keeping its existing product in the portfolio for varied offering. It describes the concept of pioneer vs. follower, the different types of market entry strategies, marketing strategies for late to market products, brand positioning, planning and implementing brand marketing program, designing and implementing brand strategies, introducing new products, brand extension, agility required by late entrants in tapping the loopholes etc. with a real life example of an Indian engineering company and its journey curve from being market leader in the segment of hot water generator to loosing substantial market share to a certain innovation and how well it could introduce and position its own innovation product into the market without abolishing its existing successful product with careful consideration of its product portfolio.
To investigate the positioning strategies according to various market requirement and its product portfolio decision in various business ecosystems, of once a market leader to regain its market share and profit by the introduction of new technology known as the heat pump.
a. To evaluate how a company makes positioning and product portfolio decisions.
b. Pioneer versus late arrivals and how a company can grow in a market in spite of not being the first mover.
c. To evaluate the make or buy decision of a product and also to evaluate strategies based on cost and differentiation leadership.
d. Justify the positioning and product portfolio decision by cost analysis.
e. To gain a broader helicopter view of the market and the product positioning from experts of the industry.
The study is divided into eight chapters including introduction and conclusion. The introduction outlines the basic content of the study, its aim and objectives and summarizes the structure of the study.
Chapter two defines the industry of hot water generators. The subchapters’ divide chapter two into market potential, basic industry of hot water generator, application details and the major suppliers of the product in the concerned market.
Chapter three introduces the company Thermax Limited (Thermax) and describes its make or buy strategy in details. In this chapter the author gives a detailed concept of outsourcing and how, when and why it should be done.
In chapter four, the author analyzes the market in the subchapters based on business literature on targeting, segmentation for industrial products, positioning strategies based on Porter’s model, marketing mix and its implementation in B2B market and how it affects innovation and lastly the SWOT Analysis of the concerned product.
Chapter five describes the industry analysis of heat pumps, the nature of participants, perceptual mapping of Thermax’s product in comparison to its major competitors, buyer behavior and buying process in the industry, the power of suppliers, threat of new entrants and threat of substitutes. The author also gives a brief account of the key success factors of the product, the current industry trends and the long term prospect of the product.
The chapter on testing of hypothesis analyzes the two hypothesis based on concrete calculation of operational and capital expenditure of the heat pumps and the hot water generating boilers of Thermax. It justifies the hypothesis based on concrete data and calculations and gives a clear understanding on the positioning and product portfolio decision and strategy the company should embark upon.
Chapter seven describes the qualitative method of data collection based on five semi structured interviews from market experts and analysis of the data based on the study.
Chapter eight presents the conclusion of the main findings, provides recommendation on action to introduce the product and also throws light on the field for further research and study and outlines the limitations.
Chapter nine and ten comprises of the list of references and the appendices.
2. Hot water generators
The study shall steer along the lines of investigating the various hot water generators, their use, the industry and market potential and structure.
2.1 Approximate market potential
Eastern India and Nepal promises to be an extensive and prominent market for heat pumps as it hosts a varied number of hotels, army camps and hospitals throughout its topography. As per field data, Eastern India has an annual market potential of INR 25 Million (Approx. 350,000 Euros) (Samik Roy, personal communication, January 12th 2017, Refer Appendix A) and Nepal as a country has a market potential of 150 numbers of heat pumps with an approximate value of INR 24 Million (Approx. 345,000 Euros) (Sanjay Tulshyan, personal communication, January 27th 2017, Refer Appendix A).
2.2 Introduction to hot water generators
Water heating is a process which is associated with thermodynamic heating and finds varied application in domestic and industrial uses. Thermodynamics can be described as a process where thermal energy is converted to and from other forms of energy. The basic concept is the use of some external energy source to heat water which in turn is used for various domestic and industrial applications (Lucas, 2015). From day to day activity and experience it can be said that typical domestic applications are cooking, cleaning, bathing, space heating etc. whereas industrial application includes various steam applications like food processing, painting, dairy, drug and pharmaceutical etc. (Full System Engineering Company, n.d).
The coil type conventional boiler hot water generators use gas and liquid fuel whereas the heat pump runs on electricity. In this article we shall discuss both the coil type as well as the electricity driven heat pumps with product example from Thermax (Thermax Limited, n.d).
2.2.1 Conventional coil type hot water generators
Figure 1 Conventional hot water generator (Aetom Engineering Technologies Private Limited, n.d)
It’s a compact hot water heater closed loop system which can provide water at a maximum outlet temperature of 90 degree Celsius. It comes with a multitude of benefits: single button start, high efficiency (92%), low electrical load, easy to operate and maintain. It also comes with an option of an external unit called Calorifier which can be mounted without any foundation and to save space can also be erected in the basement (Thermax Limited, n.d)
2.2.2 Heat pump
Heat pump is a new electric hot water generator system which works on the principle of refrigeration cycle. Working Principle: AquaNexa’ works on refrigeration cycle, absorbing heat from ambient air to generate hot water.
Figure 2 (Thermax Scope of Supply, product profile manual, Refer Appendix E)
‘Heat from the ambient air is absorbed & transferred to refrigerant in an evaporator. Refrigerant changes phase from liquid to vapor. The evaporated refrigerant passes through compressor, where its pressure is increased. High pressure & high temperature refrigerant passes through condenser, where latent heat is transferred to incoming cold water. Condensed refrigerant is then passed through expansion valve. High pressure refrigerant expands into low pressure. Now, low pressure & low temperature are again circulated through evaporator section to repeat the whole cycle’ (Thermax Scope of Supply, product profile manual, Refer Appendix E). It can also be explained as an equipment which works on the principle of compression as found in refrigerators and can extract heat from heat sources like air, water, sewage and ground to another location. Recently it has caught the attention of governments and also is endorsed as a practical energy saving option for the country’s hotels like is identified by Singapore government (Chan, Yueng, Chan, & Li, Hotel heat pump hot water systems: impact assessment and analytic hierarchy process, 2013).
2.3 Application details of heat pumps
Heat pumps are exclusively used throughout all forms of industries both in the commercial as well as in the domestic sector. ‘Based on thermodynamic refrigeration cycles, heat pumps use a process fluid and electricity to extract thermal energy from a low-temperature source and provide heat to a higher temperature sink (and refrigeration of the heat source). Heat sources (in heating applications) or sinks (in cooling applications) include outdoor/indoor air, river/lake/sea water, ground heat and waste heat. Common applications for heat pumps are air-conditioning, refrigeration and space heating in both residential and commercial buildings. Other applications include hot water supply in commercial buildings, cold storage warehouses and process heat and steam for industrial applications’ (The International Renewable Energy Agency(IRENA), 2013).
Few basic examples of heat pump applications include space heating, sanitary water heating, de-humidification and heat recovery. To authenticate the testimony of successful use of heat pumps, a few published real life examples are stated below:
2.3.1 Case: Real life domestic application example
Heat pumps are considered to have lower running cost when used in certain off gas grid areas compared to direct electric or oil when considered for normal housing projects. Here in this context, a real life example of Mr. and Mrs. Cornwall published on the website of Heat pump association could be stated. As per the case, the family had already experienced the benefits of solar and electric heating and would like to replicate a similar process of modern renewable heating in their new bungalow. Daikin Altherma specialist, provided them with the solution of heat pumps with a CoP averaging over 4.0 throughout the whole year. The benefits that came along with the installation of heat pump was, the family experienced 50% less energy running cost and substantial savings in the long run for a period of 20 years (Heat Pump Association, n.d). To quote Mr. Cornwall, ‘We anticipate energy savings of well over 50% compared to the equivalent electric or oil fired system. Daikin Altherma has low maintenance requirements and is as operationally safe as any heating and hot water system could be’ (Heat Pump Association, n.d).
2.3.2 Case: Real life commercial example
Here we can state an example of a 5 star hotel named Chewton Glen Country house hotel which was to be built near the New forest national park and was scheduled to be opened just before the London Olympics in 2012. The plan comprised of mainly tree house suits at the edge of the forest and demanded a sustainable renewable solution for electricity and hot water. The makers of the hotel turned to a supplier of heat pump. A 16kW high temperature split heat pump along with 260 Liters of hot water cylinders were installed. The installation was capable to a regular supply of hot water throughout the day at a temperature of 75 degree Celsius(C) and an under floor heating of 45 Degree C (Heat pump Association, n.d).
Case: Real life special application example: One stop environmental control
With more than 300,000 visitors flocking a popular pool at Hertfordshire leisure complex, the authority was facing huge energy bills and maintenance cost with 8 air changes per hour to maintain the pool side conditions. After much deliberation they turned into heat pumps (Heat Pump Association, n.d). ‘An energy-efficient HRD heat pump system will remove moisture from the atmosphere, collect its latent energy and re-use it to assist water and air heating, creating a self-perpetuating heat cycle that ensures energy costs are kept to a minimum’ (Heat Pump Association, n.d). It also helped facilitating major savings in CO2 emissions and cuts down drastically on the running cost (Heat Pump Association, n.d).
2.4 Suppliers of the product
There are many large, medium and small sized suppliers of the product both overseas as well as pan India. The most dominant ones other than Thermax in the region are as follows:
Name of the company Brief description
Lombardyne Industries Pvt. Ltd. Established in 1989, the Pune based company expertise in producing heat pumps and industrial chillers. They produce and sell their product mostly pan India, Sri Lanka, Nepal and Dubai (Lombardyne Industries Pvt. Ltd., n.d).
Bluestar India Limited ‘Blue Star is India’s leading air conditioning and commercial refrigeration company, with an annual revenue of over INR 3500 Cr. (over US$ 510 million), a network of 35 offices, 5 modern manufacturing facilities, 2300 employees, 2200 dealers and 600 retailers’ (Blue Star Limited, n.d).
Suntec Energy Systems An ISO 9001 company, Suntec energy systems is the flagship company of Sambhav group. They are the exclusive distributors of Riello (Italian) burners in India (Suntec Energy Systems, n.d).
Venus Home Appliances Pvt. Ltd. Manufacturers of Venus Water Heaters for more than 50 years is a market leader and pioneer in the Water heater industry. Venus is one of the leading brands of water heaters in India and stands for Quality, Reliability and Performance (Venus Home Appliances Pvt. Ltd., n.d)
A O Smith ‘A. O. Smith Water Products Company is headquartered in Ashland City, Tennessee, home of the world’s largest water heater factory. The A. O. Smith network includes five manufacturing facilities in North America, plus plants in Nanjing, China and Veldhoven, The Netherlands. For millions of consumers, business owners, property managers and engineers worldwide, A. O. Smith has delivered innovative hot water solutions for over 70 years’ (A O Smith, n.d).
Racold Thermo Pvt. Ltd. ‘Racold Thermo Pvt. Ltd. (erstwhile Racold Thermo Ltd.), an ISO 9001:2008 company, is a fully owned subsidiary of Ariston Thermo Group ‘ Italy, one of the leading players worldwide, in manufacturing and marketing of water and space heating products and their components. The Indian operations include India’s largest and fully integrated water heater plant in Chakan near Pune, Maharashtra that has been operational since 1999. Ever since its inception, Racold Thermo Pvt. Ltd. (erstwhile Racold Thermo Ltd.) went on to change standards in the Indian water heater industry by bringing in new technology, enhancing the aesthetics, quality, durability and performance of the product’ (Racold Thermo Pvt. Ltd., n.d)
Cristopia Energy Systems Pvt. Ltd. ‘Cristopia Energy Systems (I) Pvt. Ltd. is an ISO 9001:2008 certified, specialist Engineering Group which manufactures large and small scale cooling, heating and energy management solutions, such as Air Cooled & Water Cooled Screw Chillers, Scroll Chillers, and Thermal Energy Storage (TES) systems, in India. In addition to supplying its wide product range to the local marketplace, the Company also exports to a number of countries’ (Cristopia Energy systems pvt. ltd., n.d).
Celcius ‘Celsius, born in 2001, specializes in Tailor-made Solutions in HVAC&R Industry. (Heating, Ventilation, Air-Conditioning & Refrigeration) Celsius Solutions & Products help attain specific Temperature & Humidity conditions’ (Celcius, n.d).
Table 1. List of major suppliers of the product (Refer Appendix F )
3 Introduction to Thermax Limited
Thermax Limited is a leading Indian energy and environment engineering company which pioneers in providing various engineering solutions. Its product portfolio has a varied range of products like boilers, steam equipment, hot water generators, chillers, water and waste water solutions, air pollution control equipment, chemicals and auxiliary engineering solutions (Thermax Limited, n.d).
Thermax group is an INR 5516 Cr. (Approx. $ 1 Billion) company headquartered in Pune, India and operate globally through 19 international offices, 12 sales and service offices and 11 manufacturing facilities (Thermax Limited, n.d).
3.1 Introduction of the company current positioning and its product mix
Thermax has a strong infrastructure in heating system and steam engineering. In so far as the range of boilers and heating equipment are concerned, Thermax manufacturing facilities produce boilers ranging from 50kg to 1000 tons per hour steam boilers. Boilers range from large supersaturated industrial boilers, waste heat recovery and process boilers, fossil-fuel fired heaters, solar thermal heaters and packaged steam boilers (Thermax Limited, n.d).
Hot water generators: Thermax manufactures varied capacity of hot water generators, in the range of 50,000 kcal to 90, 00,000 kcal per hour. These hot water generators are designed to operate on various types of fuel such as heavy and light oil, gas, duel fuel, coal, husk and other agro waste fuel. Thermax manufactures three types of hot water generators by the product names Aquamatic (AMW), Aquatherm (ATHM) and Thermocontainers (Thermax Limited, n.d). Thermocontainers are specific application product which are designed to provide low cost heating for low temperature application (Thermax Limited, n.d).
The discussion will be on heat pumps and hot water generators with special emphasis on the product portfolio of Thermax in terms of hot water generator systems. AMW and ATHM are relatively old technology boiler hot water generators which experienced a substantial market share in this segment (Arnab Rahut, personal communication, 3rd February 2017, Refer Appendix A). Over the period of time various small and mid-scale suppliers entered the market with an innovation technology called the heat pump. AMW and ATHM works on the technology of liquid and gaseous fuel firing which are touted hazardous to the environment (The International Renewable Energy Agency(IRENA), 2013) and the whole positioning of the product depends on the availability and the viability of a specific kind of fuel around the specific industry belt (Thermax Limited, n.d). Heat pump on the other hand is not dependent on the type of fuel nor is it dependent on the availability of fuel in a certain area. The heat pump comes in a completely packaged, ready to use condition and is just a plug and play operation for the users. Some of its product features are high COP- low running cost, high efficiency heat exchanger, corrosion free operation and longer life, low noise, pollution free operation and uses environment friendly refrigerant (Thermax Limited, n.d).
3.2 Sourcing plan of the product
When a company is late to enter a market, without core competency on the specific product or service, behaving like a follower of the market, while planning, is most likely to plan an outsourcing strategy of the product. Maximize its benefits in the market, learn from it and then stretch its limits over a period of time (Quinn & Hilmer, 1994).
In the present competitive world where the market is extremely demanding and price sensitive, being a follower can be a bit challenging. So managers, to leverage its company’s skills and resources beyond its limitation combine the following approaches:
i. Concentrate the firm’s own resources in a set of core competencies in order to achieve maximum benefits (Quinn & Hilmer, 1994), like leveraging Thermax’s well spanned out dealer network, state of the art manufacturing facilities and research and development.
ii. Strategically outsource a few activities (including the ones, traditionally inherent to the company) which has neither a critical strategic need nor special abilities (Quinn & Hilmer, 1994). Like how Thermax can make use of its global sourcing partners to gain expertise in the product and overshadow their lack of core competency in the product (Manoj Purohit, personal communication, 7th February, 2017, Refer Appendix A).
Managers leverage their company’s resources in four ways. Firstly, maximize resources by concentrating efforts into what the company does best. Secondly, having core competencies, shields against the threats the company may experience in the future by competitors. Thirdly, full utilization of external supplier’s infrastructure, knowledge and investment to its own advantage. Lastly, in a rapidly changing market place, a joint strategy decreases risk, shortens cycle time and lowers investments. In this context we can consider the following 2 examples. Nike, being a market leader in the industry outsources 100 percent of its shoes features and only manufactures certain special parts which requires specific Nike expertise. Nike trains its foreign based suppliers with specific training programs and even outsource its advertising component of marketing to a company called Wieden and Kennedy. Another example can be of Apple where it outsource around 70% of its components due to its lack of core competency in making chips, printers, keyboards etc. (Quinn & Hilmer, 1994).
We shall discuss about the various strategies to consider towards outsourcing:
Core competency strategy: In the 60’s and 70’s after many conglomerates failed, investors and financers started shifting their focus on more specific concentrated companies. This meant companies to follow a certain pattern which could be identified as ‘sticking to your knitting’. However research suggests that still at that time Japanese companies like Mitsubishi, Yamaha and Sony had diverse portfolio as did American companies like 3M or Hewlett Packard. Companies like Honda and Sony used comparable strategies leveraging a few core skills against multiple markets through extensive outsourcing. However these are just a few examples of companies who have been successful with an expanded portfolio. On the contrary Foster had to wind up its diversification into finance, forest products and pastoral businesses and had to concentrate more on its core beer business after dealing with a blow for non-expertise in the field. Rest of its distribution, transportation, maintenance and computing where contracted where they had no core competencies (Quinn & Hilmer, 1994).
Preeminence: Key strategic barrier: Companies must surround its core competencies with defensive strategies both upstream and downstream. Managers should continuously concentrate on developing its core competencies in order to block its competitors. Honda for example does all its core motor parts in its facilities and outsource the other essentials and keeps competition at bay. Intellectual leadership tends to attract the best minds into business and as a result make the core product expertise of the company even stronger, whereas peripherals can always be outsourced for cost benefits (Quinn & Hilmer, 1994).
Strategic outsourcing: Supplier markets are not always completely reliable and poses a threat between supplier and buyer in terms of price, quality, time etc. Moreover outsourcing entails major transaction cost in terms of contract, treaty etc. Marks and spencer’s can be considered as a critical example where they rely mostly on suppliers and exercise a lot of control on its vendors (Quinn & Hilmer, 1994). As in the case of Thermax, they can benefit from outsourcing the product through its global outsourcing partners with strong governance (Manoj Purohit, personal communication, 7th February 2017, Refer Appendix A).
Competitive edge: Whether a company should go for insourcing or outsourcing completely depends on its core competencies. The part which the company expertise in, should be manufactured in house and the rest could be outsourced, based on the situation. Outsourcing should only be considered if it regularly fetches better price, better competency and delivered in a more timely fashion. Insourcing should not be considered just based on demand that a product is required to be manufactured internally. In the process a company may lose out on its competitive edge as competitors may have better expertise in the product and later one realizes that it would have always been better to outsource the product. A New York bank while introspecting why its Federal express costs were soaring found out that its internal mail department was taking two extra days than normal mail (Quinn & Hilmer, 1994). So, this implies to Thermax in a way that, in spite of having state of the art manufacturing facility and expertise to manufacture capital equipment, they can introspect whether they have the core competency for the particular product. Else, outsourcing can be considered as the best option (Manoj Purohit, personal communication, 7th February 2017, Refer Appendix A).
Transaction cost: In all calculations, analysts must consider the internal cost as well as the outsourcing costs. If a company is to produce something it must continuously invest into its R&D in order to maintain the competitive edge over others. Plus a regular coordination between all its offices and the head office also attracts a lot of transaction cost. In all probability, organizations often fail to foresee the promise the product brings and its future market potential. Whereas in many cases, it is seen that outsourcing reduces executive time, decreases peripheral costs and let the top management invest time, money and energy into the core business. Marketers often fail to analyze and identify the transaction cost involved in insourcing and thus biasing happens. (Quinn & Hilmer, 1994)
Vulnerability: In case where the market is steady and there are many market standards, a potential buyer is more likely to be not so efficient compared to its existing suppliers. Again on the contrary if the potential individual suppliers are weak and less in numbers plus if they fail to innovate in every step then it is always advisable for potential large buyers to produce in house and grow expertise in the product. Another case of vulnerability could be where a large scale monopoly supplier exercises its goodwill and core competency in charging high prices. This in one way may still be less expensive than to do the product in house. Sometimes the whole structure of information could militate for or against the process of outsourcing. For example, in old days computing was strictly an in-house thing as there were many data that companies didn’t want external suppliers to get access to. But in today’s world companies outsource computing quite easily (Quinn & Hilmer, 1994).
Degree of control: Where there is high vulnerability and a high potential for competitive edge, there is requirement of tight control (Quinn & Hilmer, 1994).
Flexibility vs. control: There is always a constant tradeoff between flexibility and control. One of the main purpose of outsourcing is to have suppliers assume certain class of investment. Mc Donald’s yearly growth of 10% have devised the labor demand in such a way that they often need to call up part time and casual workers for huge demand at work, as a result they have created a pool of people available on call. On the contrary IBM since they have started losing their business through various disruptions, have started laying off their existing personnel (Quinn & Hilmer, 1994).
Strategic benefits vs. Risks: Too often companies considered outsourcing as a means to lower short term direct costs and tend to overlook strategic benefits if implemented properly can lower long term investments like Nike and Apple has done. They also negate many types of risks and unwanted management problems. An example can be stated of Gallo- the largest producer and distributor of wines in USA outsources most of its grapes pushing the risk of weather, land prices, labor problems on to its suppliers (Quinn & Hilmer, 1994).
Strategic risks: Outsourcing creates great opportunities for growth but at the same time poses a threat of strategic risks in the organization by the following means:
Loss of critical skills or developing the wrong skills: This can be described with a small example where US computer manufacturers outsourced some of its products like semiconductors and printers to its suppliers and also taught their suppliers how to produce them. Eventually due to lack of expertise of the suppliers they couldn’t innovate with time and keep up the pace with the fast moving world. By then, the major buyers had lost touch of the nitty-gritties and eventually they lose out on the expertise (Quinn & Hilmer, 1994).
Loss of cross functional skills: When a product is outsourced it is often seen that the buyer’s employees are in constant touch with the supplier. As a result there is a constant exchange of ideas and innovation. If a product is made in-house then that interaction among two absolutely different brains is unlikely (Quinn & Hilmer, 1994).
Loss of control over the supplier: By overexposing the market and business strategies and by being too lenient to the supplier, buyers often end up losing control over the suppliers and in some cases the suppliers turn out to be direct competition to the buyers at a later stage. Giant Manufacturing of Taiwan, a supplier of bicycle frame became direct competition to Schwinn. Also the seller may learn as much as possible from the buyer and sell the knowledge to the various competitors of the buyer (Quinn & Hilmer, 1994).
The above gives a detailed account of the various strategies to consider while considering outsourcing plans of industrial products. Now, discussing the plans and the strategies which could be beneficial to Thermax while considering its outsourcing strategy we should first understand why and how Thermax wants to bring the product into the market. As is evident from the previous discussion, Thermax was losing considerable market share in its hot water generator business and eventually dealt with a blow in its sales especially in its hospitality segment (Arnab Rahut, personal communication, 3rd March 2017, Refer Appendix A). The disruptive innovation brought in by its competitors in form of heat pump made Thermax explore opportunities in getting the innovation product into its portfolio. The point to understand here is, does Thermax has the expertise to insource the product in its own factory or do they outsource it? Thermax is not a conventional retail trading company and has its own R&D and state of the art manufacturing facilities in India as well as around the world (Arnab Rahut, personal communication, 3rd March 2017, Refer Appendix A). It may appear at the first instance that Thermax’s strength lies in manufacturing and with its existing infrastructure they can actually produce the heat pumps at a very low cost and thus gain competitive advantage over its market disruptors. But, as is mentioned earlier in the literature, there should not be any compulsion in manufacturing a product in-house just because one needs to cut down on the cost of production or one has the infrastructure. In that way the competition with better core competency could gain competitive advantage over the incumbent or in this case a bigger firm. So, Thermax’s decision to outsource its product from an external vendor (name withheld for confidentiality in business) with a certain expertise in the product could be beneficial. Thermax in this way, could gain expertise on the product, understand the market and also in a myopic view can make the product act as a shielding product to its hot water generator in some markets and reduces chance to lose market share to other competition. The strategy as it appears is rather simple: outsource the expertise, run a pilot operation for a few years, understand the market and the product and at a later stage think about developing it in-house (Manoj Purohit, personal communication, 7th February 2017, Refer Appendix A). As per Mr. Manoj Purohit (Product Manager- Heating, Thermax Limited) ‘Thermax has manufacturing facility of Oil/Gas/ Solid fuel fired Boilers, heaters & Hot Water Generators in India. AMW & ATH are products under HWG category which are mainly used in Hospitality & Industrial segment. Recently, heat pump technology has become popular in Hospitality segment due to various advantages over fired systems like ‘ high COP, no emission, lesser footprint etc. Considering industry demand, Thermax has introduced Aquanexa catering to hospitality sector. As a part of Global manufacturing & sourcing strategy, we are utilizing our global set-up to introduce competitive solutions in the market’ (Refer Appendix F). It should also be mentioned that in order to gain back market share, Thermax must exercise certain degree of control over its vendors and also involve on a strategic level with the vendor personnel, exchange ideas about the product and market (Manoj Purohit, personal communication, 7th February 2017, Refer Appendix A).
4 Market Analysis
One of the key challenges of a market analysis is defining the market. According to popular economics theory an industry is defined as a group of firms that supply to a market. So, the big question here is, what is the difference between analyzing industry structure and market structure? The basic difference is that an industry analysis looks at the industry profitability from two perspectives: Profitability in product market and profitability in input markets. Everyday usage defines industry as a broad sector whereas markets are related to specific products. From an economists point of view, the term, ‘US Automobile industry’ would refer to the aggregation of all the auto companies competing in the US market whereas in common terms it would refer to the number of companies based in the USA (Grant & Jordan, 2015).
So, to define an industry one should start with the idea of market. The basic question to be asked is, which firm competes to supply a certain product or service? (Grant & Jordan, 2015).
In this article we will discuss about the industry domain of heat pumps in the eastern part of India and Nepal. The major application of heat pumps are in hotels and villas, hospitals, hostels/residential complex, canteens and kitchens, schools, boarding, factories etc. where there is requirement of space heating and hot water.
4.1 Target Market
The use of heat pump is to heat water and in space heating. The industry structure is based on supply of hot water to institutions like hotels and hostels, hospitals, residential complexes, canteens and kitchens, schools etc. A paper published, suggest that water consumption in a 5 start hotel is 462 liters per guest per night. It also mentions a 199 liters and 292 Liters of water consumption in 3 star and 4 star hotels respectively (Timesofmalta.com, 2012).
We will extensively discuss about the application of each and every institution and their average water consumption in details which are as follows:
Type of building Consumption per occupant Peak demand per occupant Storage per occupant
Liters/day Gal/day Liters/day Gal/day Liters Gallons
Factories (not process) 22 ‘ 45 5 ‘ 10 9 2 5 1
Hospitals, general 160 35 30 7 27 6
Hospitals, mental 110 25 22 5 27 6
Hostels 90 20 45 10 30 7
Hotels 90 ‘ 160 20 ‘ 35 45 10 30 7
Houses and Flats 90 ‘ 160 20 ‘ 35 45 10 30 7
Offices 22 5 9 2 5 1
School, boarding 115 25 20 4 25 5
Schools, day 15 3 9 2 5 1
Table 2. Consumption of hot water per person or occupant (The Engineering ToolBox, n.d)
Hotels, offices and schools: To explain the feasibility in using hot water generators in hotels and hostels we can consider a hypothesis test conducted. The purpose of the test was to estimate the energy consumed and emission associated with different hot water systems, to identify the decision’making criteria in selecting hot water systems. The decision making criteria is based on payback period, net present value, energy conserving potential, reduction potential of emission, reliability and shelf life. A total of 24 hotels which accounted for 22% of the hotels in Hong Kong used heat pumps. The study clearly showed that using heat pumps to heat water, substantial energy savings, economic savings and deduction of air pollutants was observed compared to conventional boilers. (Chan, Yueng, Chan, & Li, Hotel heat pump hot water systems: impact assessment and analytic hierarchy process, 2013).
Figure 3 Daily usage of water (The Engineering ToolBox, n.d)
As is evident from the hypothesis test conducted by Emerald group clearly (Chan, Yueng, Chan, & Li, Hotel heat pump hot water systems: impact assessment and analytic hierarchy process, 2013) proves a point in favor of use of heat pumps in hotels and it can well be one of the reasons why Thermax in spite of its successful conventional boiler hot water generator in the product portfolio were losing substantial market share in hospitality segment.
Swimming pools: In another example the energy cost analysis of heat pump application for hotel swimming pool was conducted. ‘A roof top pool in a city hotel was investigated. The energy requirement for maintaining the pool water temperature was analyzed in terms of the energy loss through four major processes, namely evaporation, radiation, convection and water refill. It was found that substantial energy savings could be achieved. Compared with conventional electric boilers and condensing/non-condensing gas fired boilers, the total energy savings during a 6 month (mid-October to April) heating season ranged from 39.9 to 46.3 MW h. A life cycle of 10 years was used to calculate the net present value of the energy cost. Over a 10 year life cycle, the energy cost could be reduced by HK$ 275,700 if a heat pump (with a mean seasonal coefficient of performance of 3.5) were used instead of a conventional electric boiler or condensing boiler’ (ResearchGate, 2001).
Hospitals: The hospitals are responsible for major consumption of hot water. The minimum requirement of hot water consumption by any hospital shall be in accordance to National Building code (NBC) and they are tabulated as follows (Kunders, 2008):
Figure 4: Hot water requirement in hospitals (Kunders, 2008)
So, as per the above mentioned account, Hotels and Hospitals remain to be lucrative target markets for heat pump. The capacity of the product Thermax deals with, can mostly be targeted towards 3 star and 4 star stand-alone hotels where there are less number of rooms. Also, another prospective target market is the military bases spread extensively across the eastern Indian geography. This market can be targeted through MES (Military Engineering Services) consultants. The only constraint in this case is that, as this segment is more of a replacement market of stand-alone boiler hot water generators, it poses a weakness where customers may be reluctant to buy a new product because they have already incurred substantial auxiliary investments towards erection and interconnecting pipe line costs (Arnab Rahut, personal communication, 3rd February, 2017, Refer Appendix A).
4.2 Market Segmentation
‘The process of defining and subdividing a large homogeneous market into clearly identifiable segments having similar needs, wants or demand characteristics. Its objective is to design a marketing mix based on expectation of customer in the target segment’ (BusinessDictionary, n.d). In todays’ world there are a handful of big companies who supply to the needs of the entire market; most must break down their market based on certain factors and requirement. Four basic factors that affect market segmentation are as follows:
i. ‘Clear identification of the segment
ii. Measurability of its effective size
iii. Its accessibility through promotional efforts
iv. Its appropriateness to the policies and resource of the company’ (BusinessDictionary, n.d)
Market segmentation is a marketing term coined to aggregate prospective buyers into various groups or segments that have common needs and responds similarly to a marketing action. Market can be segmented in a number of ways: geographically by region or area; demographically by age, gender, family size or life cycle; psycho graphically by social class, lifestyle or personality; or behaviorally by benefit, uses or response. The objective is to enable the company to differentiate its products or message according to the common dimension of the market segment (Investopedia, n.d).
4.2.1 Types of segmentation
The various types of market segmentation can be described as follows:
Demographic segmentation: In demographic segmentation the market is divided into variables like age, gender, family size, lifecycle, income etc. Demographic segmentation is often associated with consumer needs and wants and are easy to measure. Here is how some marketers have used certain demographics to segment the market: AGE AND LIFE CYCLE: With age consumers wants change. Toothpaste brands like Colgate and Crest offers three main lines of product targeted to kids, adults and older consumer. Pamper also divide its market into various segments based on age. LIFE STAGE describes a condition where people on the same stage of the life cycle differs in their life stages. Like people going through a divorce generally will have different choices in life than people getting married. GENDER: Men and women have different attitudes and behave differently based on socialization and genetic makeup. According to studies in US itself women controls 80% of consumer goods business. Marketers can reach women consumers via media like lifetime, oxygen etc. whereas men can be reached via ESPN, Comedy central, through many Men’s magazines etc. INCOME: It’s a long standing practice in industries like automobiles, clothing, cosmetics, financial services etc. Levi Strauss has various product line based on income of consumers. GENERATION: Generation X (influenced by rock music), Baby Boomers (huge population of consumers born between 1946 and 1964), Silent generation (born between 1925 and 1945) all have different demographic preferences LGBT (Lesbian, Gay, Bisexual and Transgender), African Americans etc. to name a few demographic variations showcased by various section of people (Kotler & Keller, Marketing Management, 2012).
Behavioral Segmentation: Marketers divide the buyers into groups on the basis of their knowledge, attitude, use or response to a product. Need based segmentation is a widely based approach. To state an example from the US wine industry, the market is segmented based on the behavior of the consumers as: ENTHUSIASTS which comprises of about 12 percent of the market mostly skewing female. IMAGE SEEKER comprises of 20 percent market share skewing male of the age of 35. SAVVY SHOPPERS comprises of 15 percent market share and who doesn’t mind shopping a lot. TRADITIONALIST comprises of 16 percent, SATISFIED SIPPERS comprises of 14% who doesn’t have much knowledge about various wines and tend to buy the same tested brand and OVERWHELMED which constitutes of 23% market share find buying a good wine confusing (Kotler & Keller, Marketing Management, 2012). To state a real life example one can use the example of mobile phones.
Psychographic segmentation: It is the science of combining demographics and psychology to better understand the buying pattern of consumers. Here buyers are segmented into various groups based on personality traits, lifestyle or values (Kotler & Keller, Marketing Management, 2012). Zara markets itself as the lifestyle brand and people who want latest and differential clothing can visit Zara stores whereas Arrow markets itself as a premium office clothing which attracts the bosses and super bosses of corporates (Bhasin, 2016).
Geographic Segmentation: Geographical segmentation divides the market into geographic segments such as country, state, continent, region etc. The company can operate in a few areas and also can operate in all the areas and pay differentiated attention to specific regional concentration. A common example would be of Nike where they make its consumers used to its products by advertising and sponsoring school and junior club teams (Kotler & Keller, Marketing Management, 2012). The fast food giant McDonalds serves beer in their German outlets whereas they don’t have beer in their menu in the USA. This is geographic segmentation based on culture. Also the same organization has also adopted local food in their menu. For example they have introduced McVeggie in India, McArabia in the Middle East and Banana Pie in Brazil based on the preference of the local market (Nair, 2016).
New segmentation approach: In today’s world where the technology is changing every day and competition is getting fiercer certain changes need to be brought in to be updated:
‘ Deploy an integrated segmentation approach: Think beyond the conventional demographic approach and consider the attitudinal and emotional inputs of the target audience as well.
‘ Employ emotional motivation and attitudinal drivers to win over customer minds.
‘ Ensuring optimal use of rebates and incentives to encourage the drive.
‘ Investing in marketing and sales capabilities and in customer insight efforts through basic surveys (Frankel, Heck, & Tai, 2013)
4.2.2 Segmentation of industrial products
It is always difficult to segment the market for industrial products. The layers begin with demographics and then gets into increasingly complex criteria such as company variables, situational factors and personal characteristics. Industrial customers in B2B business differs greatly and it’s difficult to figure out which differences are trivial. Demographics: Nested approach should have demographics to form the outermost shell. It gives a broad description of the company and includes industry, company size and customer location. Operating variables: It comprises of the second nest segmentation which enables more precise identification of potential customers within specified demographics. They are intrinsically stable and includes company technology, brand usage status and customer capabilities. Purchasing approaches: The middle segmentation comprises of purchasing function, power structure, nature of buyer-seller relationship, general purchasing policies and purchasing criteria. Situation factors: It strongly resembles operating variables but requires a more detailed knowledge of the customer which includes urgency of order fulfillment, product application and size of the order. Buyers’ personal characteristics: Industrial marketers like consumer goods can segment the market based on buyer preferences, motivation, individual perception and risk management strategies. The ‘Nest’ approach (Refer Appendix G) may not be used in a cookbook fashion but requires careful consideration and intelligent judgment (Shapiro & Bonoma, 1984).
4.2.3 Thermax’s segmentation of heat pump
In case of Thermax, the nest approach can be considered while segmenting its heat pump market. The outer most shell (demographics) will comprise of the size of the market which is roughly in the range of US $700,000 (Sanjay Tulshyan, personal communication, 17th January 2017 and Mr. Samik Roy, personal communication, 12th January 2017, Refer Appendix A) which is shared by big, medium and small suppliers and the geographic location ranges from developed urban hotels to remote military camp locations. So, the topographical extent is diverse. Also the region is divided into various heat zones. Since, most parts of eastern India enjoys a tropical weather, requirement of hot water is restricted to the use of electric geezers for a substantial number of small budget hotels (Arnab Rahut, personal communication, 3rd March, 2017, Refer Appendix A). As a whole, the topography and climate in Nepal and North Eastern India encourages use of heat pumps. Operating variables like brand name, goodwill plays an important role in product selection which supports Thermax’s cause as the company is well reputed (Prashant Singh, personal communication, 11th February, 2017, Refer Appendix A). The purchasing approach of the customers are mostly influenced by operating cost and space saving. Also in certain areas, the pollution control board has standardized norms which prohibits fossil fuel (solid, liquid, gaseous) firing mainly in the urban areas which encourages the business (Samik Roy, personal communication, 12th January, 2017, Refer Appendix A). Also, it is forecasted that the hotel industry is set to grow at a steady rate of 9%-11% which resulted in growth of new hotels along the vicinity of picturesque North-Eastern India and Nepal (India Brand Equity Foundation, 2017). So, the requirement of hot water generator is high in this area and the urgency of project fulfillment is at its highest. So considering situational factor, Eastern India and Nepal shows great promise of project completion under strict delivery guidelines. The market is inclined towards price as a deciding factor but there is value for the brand by individual perception to minimize risk of operation. Thermax being a renowned name, is expected to win over buyers’ personal characteristics and preferences (Sanjay Tulshyan, personal communication, 17th January, 2017, Refer Appendix A).
Targeting or target market can be defined to be a group of customers a business decides to aim its efforts into. In all good marketing strategies, a well- defined target market is the first step towards success (Kerr, n.d).
In this context a very important concept should be explained. What is target marketing? After segmenting the market, marketers decide which segment pose the greatest opportunity. For every target market firms develop a strategy which it positions in the minds of the buyers. Volvo develops its cars for people whose primary concern is safety, whereas Porsche aims at pleasure and excitement of buyers from driving fast. The targeting can be done through offering and brands, by setting up a value proposition which indicates the benefits of the product, have a well informed and well-connected marketing channel and spread a word through paid, owned and earned media (Kotler & Keller, Marketing Mangement, 2016).
Now, the next step towards targeting is how to identify the target market based on the standard segmentation variables. In today’s world, marketers are increasingly combining several variables in order to get a deep understanding of the market and distinguish certain segments in terms of various variable like age, income etc. This has led to need based market segmentation approach which can be tabulated as follows:
Steps in segmentation Description
1. Needs-Based Segmentation Group customers into segments based on similar needs and benefits sought by customers in solving a particular consumption problem
2. Segment Identification For each need-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).
3. Segment Attractiveness Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment.
4. Segment Profitability Determine segment profitability.
5. Segment Positioning For each segment, create a ‘value proposition’ and product-price positioning strategy based on that segment’s unique customer needs and characteristics.
6. Segment ‘Acid Test’ Create ‘segment storyboard’ to test the attractiveness of each segment’s positioning strategy.
7. Marketing-Mix Strategy Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion, and place.
Table 3 Steps in segmentation (Kotler & Keller, Marketing Management, 2016)
In this context a real life example could be discussed from the wireless industry. Wireless industries generally provide nice specimens of growth with niche markets and target marketing. The biggest players like AT&T, Verizon and Sprint are all big providers and focusses on the business in the biggest markets where they have shareholders to answer to in every quarter no matter what they do in their business. It is seen in most of the occasions that these big companies don’t employ multilingual support lines in order to provide support services or offer competitive rate on specific region based plans. They came up with a solution of selling the rights of their wireless to small businesses who in turn run after the niche market whose business interest are so far ignored by these big giants. So, in that way both the markets are catered. (Kerr, n.d).
In case of Thermax’s targeting approach, the primary target are the hotels and their future projects in the pipe line. The segment is identifiable because of the fact that FDI investments in the region is increasing and tourism is expected to grow at a rate of 9%-11% (India Brand Equity Foundation, 2017) which is encouraging. Though the market is price sensitive still it gives special recognition to known brands. Hospitality being a close knit industry, a good reference in one of the best hotels can act as a leverage to breakthrough future projects. The unique customer need in this segment is mostly price but customers do tend to appreciate brand and good service. Thermax can target the customers with its goodwill, service and quick availability of spare parts with the help of its extensive dealer network (Manoj Purohit, personal communication, 7th February, 2017, Refer Appendix A).
Positioning can be defined as the act of designing the company’s offerings to occupy a distinctive place in the target markets mind (Kotler P. , Marketing management, 2001). Positioning describes where a product stands compared to other similar products and services in the market place as well as in the minds of the consumers. A good positioning provides a product with a USP. In a market place where there are many similar products and brands, a good positioning ensures that the product gets a higher rating in the minds of the consumers and stands out in the crowd of similarly positioned products. (The Economic Times, 2016).
4.4.1 Positioning in a Marketing plan
Positioning is a marketing concept that outlines what and how a company should make a place in the minds of the consumers so that whenever in a market place full of similar products, the specific product always stands out in the mind of the consumers. The concept is explained by the use of the 4P’s (product, price, place and promotion). A good positioning strategy helps a buyer move from product knowledge, price etc. but actually buying the product in reality. There are certain steps which should be maintained to execute a successful positioning strategy based on positioning through advertisements, sales locations, price etc.
Developing and communicating a positioning strategy: Most of the products can be differentiated to some degree but not all brands are distinguished. A difference has to be clearly defined as to from the buyers perspective it has to look important, distinctive, superior, preemptive, affordable and profitable. So, positioning is not what one does to the product. It is what one does to the mind of the prospects, with the product. (Kotler P. , Marketing Management- Millenium Edition, 2000).
How many differences to promote: Marketers have to select as to how many differences of the product to promote. In today’s world most of the companies don’t stick to only one attribute like Aquafresh toothpaste offers three benefits; anti cavity, better breadth and whiter teeth. (Kotler P. , Marketing Management- Millenium Edition, 2000)
Communicating the company’s positioning: Once a company has zeroed down on the positioning strategy, it must communicate the positioning effectively along all facets of the marketing mix and every point of contact. For example, a well-known frozen food company lost its premium status by frequently putting its product on sale. A new product maybe the lifeblood of a growing firm but they need to be properly positioned and differentiated to be successful. (Kotler P. , Marketing Management- Millenium Edition, 2000)
4.4.2 Five Terrific positioning strategy example
In this context we can discuss about 5 terrific positioning strategies by real life companies.
i. Simple vs. Bank of America: Simple focused on tech savvy youth and created an easy to use customer friendly mobile app which attracted a lot of people compared to the conventional banks who in spite of their huge number of branches failed to produce the best technology friendly apps. (Roberts, 2015).
ii. Prius vs. Tesla: At the time when in the business of electric vehicles, market valued economy more than form and function, Tesla got their disruption into the market and competed in the high end segment without getting into the normal competition with Chevy Volt or Toyota Hybrids (Roberts, 2015).
iii. Delta vs. JetBlue Branding: Delta stopped the complimentary peanuts and reduced the leg rooms in economy classes in order to accommodate more people, JetBlue came up with their customer friendly services of snacks serving and big leg room. Every part of their branding pushed to communicate the hospitality and fun of flying while big airlines like delta continued to push their message towards business travelers (Roberts, 2015).
iv. Chipotle vs. Taco Bell: Taco bell enjoyed more market share for years for their cheap Mexican fast food until Chipotle came in who competed mainly on quality and attracted the niche customers with great ambience and cup jokes (Roberts, 2015).
v. Gillette vs. Dollar shave club: Gillette is a very recognized name in the industry for its professional and masculine razors. When Dollar shave club came into the market, they played mainly on price and at a later stage differentiated their product by creating humorous messaging on advertisements which made them attract a certain segment of consumers and do well alongside the likes of Gillette (Roberts, 2015).
4.4.3 Thermax’ positioning of heat pump
In order to gain back market share Thermax embarked on a strategy to outsource its heat pump by using its global sourcing strategy through its vendors for a couple of reasons: 1. Lacking in core competency of the product and 2. They lacked elaborate understanding of the market and the detailed application of the product as their existing competitors do. So Thermax can position the product based on two variables: i) Product and ii) Market positioning. (Arnab Rahut, personal communication, 3rd March 2017, Refer Appendix A).
Product positioning: The term can be defined as the act of designing the image of firm’s offering so that the target customers understand the product and appreciate what the product stands for, in comparison to its existing competition (Kohli & Leuthesser, 1993). The big question to ask here for Thermax is, who is the competition? What is Thermax’s relative market share compared to the competition? Why Thermax? Thermax doesn’t manufacture the product and the existing competitors are reputed, having years of experience with a list of satisfied customers. Heat pump works on the principle of reverse Carnot cycle. In this field Thermax has very little expertise compared to competitors like Bluestar. So, as is evident from the questions raised above, Thermax clearly doesn’t have the core competency. So, the next best possible solution is to outsource the product from a vendor who has technical expertise of the product and understands the competition better. As of now, in the pilot stage, the product can be positioned and special efforts are to be made to reach out to customers. On top of it, Thermax also experiences a possible threat in service. As the company doesn’t have any major expertise in the product, it is likely that the service part of the business will not be at its best either, especially in the initial days and also the well spanned dealer network of Thermax doesn’t have much hands on experience of the product. Overall product positioning is critical and the initial positioning could well be the deciding factor (Arnab Rahut, personal communication, 3rd March 2017, Refer Appendix A).
Market positioning: Thermax is most likely to follow a market follower strategy as the product and its core features are very new to Thermax and its more of a ‘me-too’ product than innovation. ‘Me too’ product can be defined as the product which is similar in function and action to that of the competition and brought in by a company to draw a certain market share from a dominant innovator. Common examples would be Microsoft Zune vs. Apple Ipod, Android vs. IPhone, Barnes and Noble vs. Amazon etc. (Brown, 2011). So here, it can be seen that the product Thermax is introducing, is no innovation of sorts but just replicating an existing innovation through outsourcing. Also, there is no competitive edge of Thermax here in the market in terms of being first in the market. If we consider the prices of the same capacity product of competition and Thermax, there is hardly any difference and in a few cases Thermax is actually asking for a premium price. Here also getting a competitive edge seems unlikely. (Arnab Rahut, personal communication, 3rd March 2017, Refer Appendix A). So, to position the product, Thermax has to measure its steps very carefully and it is advisable to start off by leveraging its goodwill in the market, cross sell the heat pumps along with its other divisional product, where Thermax has a very successful water and waste water division, tap in and sell to loyal existing customers with regular checkups in their premises to ensure positive word of mouth marketing to spread awareness of the product (Prashant Singh, personal communication, 11th February, 2017, Refer Appendix A). Presentations to governing bodies like Indian military, hotel and hospital associations, plumber association etc. (Samik Roy, personal communication, 12th January 2017, Refer Appendix A).
So, it can be concluded that the product should be positioned considering all the points above to avoid confusing the customers (Arnab Rahut, personal communication, 3rd March 2017, Refer Appendix A). Confused positioning can be defined as the positioning error which leaves customers with a confused image of the company, its products or brands etc. (Oxford Reference, n.d). It is evident that Thermax needs to embark on a positioning strategy where they introduce the product in confidence with various governing bodies and leverage its wide spread dealer network which also acts as a quick source of spare parts. Goodwill, in time service, one stop solution should be the USP of the product (Samik Roy, personal communication, 12th January 2017, Refer Appendix A). The positioning should be done which highlights the fact that Thermax is a global brand with engineering excellence in product and service and also buying from Thermax ensures that the buyer will have some control over the company and its service in case there is some break down. The above positioning strategy is expected to attract customers towards buying Thermax product as none of its competitors have the industrial expertise or can be a one stop solution to the buyers (Manoj Purohit, personal communication, 7th February, 2017, Refer Appendix A).
Porter’s generic business strategy: The early scholars of strategy recognized that there are various aspects to business strategy. Porter successfully encompassed the different variables by incorporating various strategic variables like product market environment, circumstances and managerial choices into his framework. He also changed the perspective from industry to firm. A major flaw in the structure is that the variables are mutually exclusive and combined use of the variable may need to be effected simultaneously (Moon H. C., 2015). Porter suggests that for long term profitability firms must consider one of the three generic strategies or else they will end up being ‘stuck in the middle’ (MindTools Limited, n.d).
A basic matrix of Porter’s generic strategy looks like the following:
Figure 5 Source of competitive advantage (MindTools Limited, n.d)
Cost Leadership: The strategy focuses on gaining competitive advantage by having the lowest cost in the industry. In order to achieve this an organization must have low cost leadership, low cost manufacturing and workforce committed to low cost strategy. Companies are supposed to discontinue any activities in which they don’t have a cost advantage and for that matter outsource certain products if necessary to achieve low cost. Typically to achieve cost leadership, firms must have a large market share and through mass production, mass distribution, economies of scale, technology etc. companies can achieve cost leadership. Low cost advantage results from process innovation, learning curve benefits, economies of scale etc. It can also be achieved through access to cheap raw materials, superior proprietary technology etc. Here it should be noted that firms do not lose out on revenue to be market leaders, instead through large volume supply they achieve economies of scale and as a result can create huge demand of the product in the market which the company can supply. Also, it makes the entry barriers difficult for new entrants as any new entrant will require huge capital to counter such a competition. It doesn’t have any significant disadvantage but it creates minimum customer loyalty and if any firm drops its revenue substantially, the incumbent is prone to lose out on revenue (Allen & Helms, 2006).
Differentiation strategy: By using this strategy a company focuses on producing a unique product and thus creates good customer loyalty. Product differentiation fulfills a customer’s need and its benefits draws customers to be loyal to the product or service. The quality of the product may be real or perceived depending on the brand name or image. The differentiation strategy appeals to a sophisticated or knowledgeable customer segment who are willing to pay a premium for it. Factors like market sector, quality of work, size of the firm, image, graphical reach, involvement, product, delivery system, quality of service or distribution channel etc. all adds up to creating a differentiation strategy. Some key concepts for establishing differentiation include, speaking about the product to select panels, writing on certain attributes to magazines, be involved in the community, adding flair or drama to packaging, adding e-commerce, using company size, in depth training, quality service, use of facilities etc. all add up to making the product or service unique (Allen & Helms, 2006).
The focus strategy: In focus strategy a firm targets a specific segment and can chose to focus on a select customer group, product range, geographical area or service line. Focus aims are growing market share by operating at niche market or operating at unattractive markets where competition is not very dominant. These niches arise from various factors like geography, buyer characteristics, product specification and requirement. A successful focus strategy is the one where the industry segment is large enough to have good growth potential but at the same time the competition’s presence is not very dominant. Large and mid-sized firms generally use focus strategies along with one of the other two. They are most effective when consumers have distinct preferences and the niche is not very attractive to the rival firms (Allen & Helms, 2006).
Combination: It is not alien that organizations chose more than one strategy which gives them the unique opportunity to offer a unique proposition. (Allen & Helms, 2006)
Drawbacks of the generic strategy: As it is static, it fails to explain how to start by choosing one strategy. Also, it doesn’t show the evolutionary movement of one strategy to the other. If the above mentioned constraints could be taken care of, then, for the new entrants, it becomes easier to shift from one strategy to the other. The changes help to distinguish the major player with the minor. Lastly it has been seen that many companies use more than one strategy, so Porter’s claim that only one strategy is to be used is questionable. (Moon, 2015)
Thermax’s positioning of heat pump: Thermax is most likely to position the product based on a combination strategy. Like most of its products, Thermax heat pump is priced higher compared to industry average. Thermax can leverage its goodwill and extensive dealer network to get the word out (Prashant Singh, personal communication, 11th February, 2017, Refer Appendix A). Thermax being the latest entrant into the market is expected to embark on a strategy of late entrants in the market. They shall consider strategies related to pioneer vs. late arrivals (Gurumurthy & Kalyanaram, 1998) and strategies related to late-to-market products (Paul, 2010). Also Thermax should consider the fact that throughout its operation, it has always been a company which enjoys majority of market share in its defined markets. So, the positioning of the product has to be in a way that its ultimate goal rests in achieving the maximum market share. If not initially but in the long run it has to understand how to estimate profitability and risk as a function of market share and how to find out the optimal level. Thermax can also embark on a policy of product pacification with which with their capital strength can promote the product more than its specific brand. Thermax supplies a lot of its hot water generator products to the MES (Military Engineering Service) (Arnab Rahut, personal communication, 3rd March, 2017, Refer Appendix A) so they can take the Dependence and Legislation strategy where they make the government good reference to the product and the brand. Lastly, the product is more of a diversification in terms of Thermax’s core competency. Diversification often leads to continuation of steady profits in spite of certain sudden break in operation in its existing products happen (Kotler & BloomPhilip, 1975). This is pretty low in terms of the magnitude of the business of the product.
So, overall Thermax shall be largely depending on its price, service and reach to get the product in place. In so far as the product differentiation and attributes are concerned, except for a few changes, there is not much of a differentiation that is evident. Thermax through its global sourcing strategy and its research and development, should try to upgrade according to the future demand of the industry. So, it can be summarized as the approach taken by Thermax is expected to be more of a cost leadership and differentiation leadership in terms of service, reach and quick availability of spares (Arnab Rahut, personal communication, 3rd March, 2017, Refer Appendix A). Also, one major differentiating factor of Thermax is, it has hot water generating boilers (AMW and ATHM) in its portfolio which is a very useful and viable alternative in certain situations and conditions. The hot water boiler can race out competition in many situations and is also touted to be a tried and tested, reliable technology for years. It will also concentrate on focus strategy to the extent that it shall specifically target the hospitality segment and certain geographies where tourism is appreciated (Manoj Purohit, personal communication, 7th February, 2017, Refer Appendix A).
Figure 6 Key differentiating factors of heat pump (Refer Appendix A, Interviews)
4.5 Marketing Mix: The Four P’s
The marketing tools that elicit the desired responses from the target markets to the marketers are popularly known as the marketing mix. McKarthy classified these tools into 4 broad forms which he called the 4 P’s of Marketing: product, price, place and promotion. Marketing mix decision must be formulated in such a fashion so as to influence both its trade channels as well as its consumers. Typically, firms can change its price, sales force size, advertising expenditures in the short run in a myopic view and develop new products and modify its distribution channels in the long run. The following figure describes a typical 4 P components of the marketing mix (Kotler P. , Marketing Management, 2000):
Figure 7 Marketing Mix (Kotler P. , Marketing Management, 2000)
According to Robert Lauterborn, winning companies are the ones who meets customer needs economically and conveniently with proper communication (Kotler P. , Marketing Management, 2000). He devised the concept of 4 C’s which are related to customers unlike the 4 P’s related to the sellers and are as follows:
Four P’s Four C’s
Product Customer solution
Price Customer cost
Table: 4 The 4 C’s (Kotler P. , Marketing Management, 2000)
4.5.1 4P’s in Business to Business Market
Marketers and sales team often tend to stress more on product technology and quality as per the definition of the conventional 4 P’s. Product technology and quality are no longer differentiators but are simply the cost of entry into a market. These often distracts buyers from being a trusted source of diagnostics, consultant advice and problem solving. In today’s competitive market the meaning of the terms have shifted. Product to solution, place to access, price to value and promotion to education. It has been observed that many engineering companies fail to come out of their ‘technologically superior product and service’ zone and be more customer centric and more towards helping the customer attain the perfect solution to the problem. Management must ensure that the sales and marketing group must reinforce a customer centric organization. Also, the functional boundaries should not determine the firm’s solution. There has to be a certain degree of coordination among the division of sales, marketing, product development, service and packaging to complete the triangle and serve the market better. Companies who are still locked into the conventional 4P mindset are likely to be locked into unproductive technological race which makes them ignorant towards new solution- selling strategy and eventually stops growth in the long run (Ettenson, Conrado, & Knowles, 2013).
...(download the rest of the essay above)