Xiameter Case Study
Silicon and silicon-based materials can be formulated to deliver unlimited range of uses. Silicon is durable enough for long lasting uses in the construction industry, yet can be gentle enough for uses in the healthcare and medical devices. Dow Corning has been pioneers in the development of silicones for commercial uses for the last 80 years, founded as a joint venture between Dow Chemical Company and Corning Glass. They became a global leader in manufacturers of silicon-based products with a 40% worldwide market share.Dow Corning was a pioneer producing fit for purpose market leading products.
Around late 1990 Dow Corning encountered major performance and financial losses, customers were defecting to low-priced suppliers which eroded Dow Corning’s volumes and margins. In 2001 after another dismal year and Dow corning not living up to its capabilities and layoffs proved inadequate, a fresh start was required. After numerous strategic deliberations Dow Corning decided on a dual brand strategy going forward, resulting in a ‘new’ business unit Xiameter ‘a disruptive innovation’ being formed.Xiameter first mover advantage was starting to erode according to some pessimists, we need review current marketing plan, and chart a future for the business. Introduction The purpose of this report is to investigate decisions that shaped the business model and marketing strategy, interrogate the segmentation, discuss the product, pricing and competitive environment and possibly make recommendations to maintain the current market share Xaimeter is enjoying. Xiameter’s present model was centered on high priced advanced products with high quality service offerings.
Customers are spread worldwide in more than 80 countries within 6 concentrated industries, serving 25 000 customers with more than 7 500 products. Industries include from healthcare to automobiles and household products to electronics.Customer paid premium prices for the innovative high quality product that included value add services like customized application testing, training custom blending packaging and recycling. Customer had long term relationships based on making Dow Corning interest the customer’s interest.
During the initial years Dow Corning was very profitable and they enjoyed double digit growth on unique products. In the late 1990’s their healthy business performance came to an abrupt end. The main contributor was Dow Cornings’ marketing strategies have not change with the market.
The marketing environment comprises the microenvironment as well as the macro environment. Actors on the microenvironment affect the market directly, while actors on the macro environment affect the marketing environment indirectly.
The factors and decisions that shape the business model and strategy is depict in the microenvironment Political In all chemical manufacturing environments there are the challenges of environmental regulations as specified by the authorities, Dow Corning was no exception. Rising demand for “Green” projects, Dow Corning participate in the Responsible Care Program of the American Chemist Council Economic Global leader in silicone based product with a 40% worldwide market share, with its closest rival with only 26% market share.Dow Corning achieved double digit growth in its initial years. Social All manufacturing, development and testing is conducted ethical and ecological friendly environment, as they are suppliers of silicone products within the healthcare industry Technological Dow Corning is innovative and produces high quality products supported by the company’s strong service offering. This include customize application testing, training custom blending packaging and recycling and formulation.
They earned the reputation as the world’s inventive supplier of silicone products
Fig 01.Competitive Environment illustrated using Porter’s 5 forces
Threat to new entrants
- Minor local players with no R&D and low overheads offered rock-bottom prices on silicone products to bulk customers
- Large global and regional rivals were boosting supply chain efficiencies, undercutting Dow Corning’s prices Power of suppliers
- Commoditization trend from rival suppliers were denting Dow Corning’s financial performance
- Suppliers with no R&D could afford to sell at cheaper prices Bargaining power of Buyers
- Customers defecting to low-price suppliers
- Price seeker segment was at odds with Dow Corning’s’ core strengths Availability of Substitutes
- Cheaper imitator products flooded the market Competitive rivalry
- Regional, global and local players took advantage of the changing markets
Herewith an extraction of the findings of the internal and external audits which draws attention to Dow Corning’s strengths and weaknesses, opportunities and threats facing the company’.
- Constant Innovation
- Leadership in Poly-silicon Market
- Geographical Diversity
- Extensive Range of Offerings
- On-going Legal Proceedings
- 5 consecutive years of stagnation
- Same business model for the last 60 years
- Rising Demand for Green Projects
- Growing Applications of Semiconductors
- Expansion in Key Growth Markets
- New Product LaunchesTHREATS
- Challenge of Environmental Regulations
- Shift in Technology
- Infringement of Intellectual Property
Fig 02. High-level SWOT analysis on Dow Corning
- The analysis indicate that the business model for Xiameter was shaped based on the following factors
- The current customer analysis influenced specifically by the customers that defected to the competitors,
- The Competitive environment as illustrated using Porter’s Five forces model
- SWOT analysis, specifically the weakness where Dow Corning was bleeding cash on law suits and Stagnation performance for 5 years
- The company did not live up to its capabilities and that is bad for a market leader.
No company has the resources to cater for every customer in every market. By going after segments instead of the whole market, companies have a better chance to deliver value to the consumer and receive maximum rewards.
Through market segmentation companies divide customers into groups, based on location, buying attitudes, needs buying practices in order to service customers’ needs efficiently and effectively with products and service for their unique needs. A marketer has to try different segmentation variables, alone and in combination to find the best way to view the market structure.Dow Corning segmentation was based on 6 industries which sold to their customers within the industry segment from healthcare to automobiles, from household products to electronics. The company had their own marketing-, sales-, and technical service department per industry.This is a typical ‘end-user segmentation approach. Initially this segmentation worked for Dow Corning, in my opinion due to the marketing department per industry, they obviously did not see they should revisit their segmentation.
The segmentation worked for 60 years, the problem is, the market then changed, their Dow Corning only used the single segmentation, of which the disadvantage is that they potentially overlooked buying behavior in another industry. “A task force concluded, the past segmentation did not fully address the emerging shift in customer needs” .Dow Corning had to thus try different segmentation variables, alone and in combination to find the best way to view the market structure.Despite companies segmentation practices, customers decide for themselves what their required needs are, once this was realized by Dow Corning, evident from their self-audit, and 5 years of customer surveys and discussions with sales force. They reviewed their segmentation to a needs-based segmentation scheme.
Target market The major advantage of the needs-based segmentation open a ‘new’ differentiated target market coverage strategy, Dow Corning could now target several market segments with separate value added offerings for each, if required. This evidently, resulted in higher product sales and a stronger positioning, and a greater market share within each market segment. Product and price strategies A product can be a product or a service. If your product provides sufficient value to customers, they will buy – no matter how good or bad the economic situation is, if they perceive value they will pay the price.All products consist of three levels, the most basic core product, which is the problem solving benefit the consumer seeking. The second level is called actual product which is the quality, branding, features etc.
of the product. The third level of a product is the augmented product, which is the aftersales services, installation warranty.
Fig 03. Three levels of a product Source: Kotler et al. 2008
Through application of the above theory about product levels to products sold by Xiameter, the above figure has been created to demonstrate what Xaimeter consumers are actually buying into, in terms of product levels. Xiameter has strip down and changed the augmented product level to fulfill the needs specifically for the price seeker segment, who wanted the lowest price and not all the services and support.
Xaimeter initial product range was 350 products from the 7500 from Dow Corning The current pricing model was based on a high-priced innovative product and service package. They had to develop a fundamentally lower price structure with standardize service Differentiation and positioning Dow Corning, despite being market leader could not sustain differentiation on pricing.Based on all the evaluation and analysis completed in the self-audit as well as the industry knowledge of the 450 strong sales force, the key differentiators is brand image and history, excellent high quality products, product mix over several large industries. Xiameter is obviously adopting all these differentiators, but as a dual brand can introduce the pricing differentiator because of the “no-frills” offering.
Branding form part of the product mix.
Xaimeter have introduced “dual branding”, the standard Dow Corning brand and the “no frills” brand. Dual brand offers some advantages. Dual brand open ‘new’ untried segments in the silicone based market. With Dow Corning already the major player, buyers associate with the same level of quality, innovation and development. Of course there is the possibility of brand cannibalizing where Xaimeter brand would over shadow Dow Corning’s brand or the other way around.
It would also increase marketing cost.
Pricing is the major factor affecting buyer choice and also the most flexible marketing mix element, because it can be change quickly.
Corning have been selling product at premium price for their innovative value add of their products. This was value-based pricing. Xiameter on the other hand introduced market related pricing, by having the “no-frills products offering, being in a monopolistic market Xiameter have to continually develop differentiated offers to different customer segments to maintain market share.
I believe, Xaimeter can review the penalty rules to be more lenient to build that segment and gain market leader then, introduce the penalty system, gradually. There are trying to serve a declining segment. From the case study Xiameter turnover has increased dramatically, but there is no indication of the profitability of the business. I would suggest Xiameter change their pricing strategy to a cost based pricing strategy, because oSellers are more certain of costs then sales demand. oSilicone prices are on the increase that would affect the margins on the entire market.
oCost-based pricing strategy will reduce daily adjustments, thus effeciency oit will minimize price competition, and it is fairer to both seller and buyer.There is also the threat that competitors will very soon catch on to web-based offering that was pioneered by Dow Corning. Recommendations Xaimeter being a sub brand of Dow Corning, I will assume as the market leader in the silicone based market, they currently have the competitive advantage by offering great value to it consumers using lower prices and other instances providing high quality value added services. To be able to maintain the market leader spot, the company needs to continually review on its close competitors’ information and compare its marketing strategies, products, prices and promotions. In this way the company can identify any advantages or disadvantages it has.
There are several things the market leader can do to protect its position. They can always fulfill their value promises; its price must remain consistent with the value of the brand and keep strong relationships.Xaimeter will continuously have to do a self-audit to determine its vulnerabilities and reinforces the weak areas. Like in the case of Dow Corning, the segmentation became suspect after 60 years of using the same segmentation.There is constant change in the market place and customers’ needs change accordingly therefor the market strategy must change as well.
Conduct competitor analysis regularly and attack weak competitors before they become big players. Xiameter provide superior value by leading the industry in pricing and convenience. If it can reduce it cost by creating an efficient delivery channel that can service customer with reliable good quality products.The innovation and R;D must definitely proceed, to produce high quality products. With the increase in “green” awareness, Xiameter must not forget to take the ecological and ethical issues in consideration when developing and testing new products.Logically, if Xiameter and Dow Corning use the same factories, producing similar products, utilizing the same raw material, the cost of manufacturing will be reduced.
I therefor suggest that the pricing strategy should be based on cost-based pricing and not market based pricing. This will also minimize price adjust administration thus more efficiencies. I suggest the product range must be extended to additional 350 products, specifically products that is nearing its end of life cycle and try and re-launch the product by making modifications to the augmented product level and go to market with it. More intelligence needs to go into the web-enabled offering, by offering blanket just-in-time contracts, which can enable customer to get deliveries whenever they require it, without the hassle of renegotiations on price and quantities, this can be achieved by interrogating of the historic buying behavior of the customer. Leniency must be instituted on the order penalty system.