ChemCo - Relationship Management and Network Construction in the Chemical Sector - Case Study Example

  Relationship management and network construction in the chemical sector                          Introduction Relationship management and network construction in the chemical sector In the chemical sector, ChemCo’ specialized in global chemicals where it produces chemical additives which are then used by other companies or manufacturers to produce and brand other products for the global market. These products include petroleum and oil. Therefore ChemCo acts as a supplier to the global markets as noted by Michel (2003). This company managed to beat its competitors through doing a thorough research and development and also by having many branches or suppliers who ensured that customers are well attended to and hence a good customer relationship. Comparison and contrast between the situations in the early decade with the one at the end of the decade in the sector: In the early 1990s the sector represented an attractive operating environment. Demand was high and enabled manufacturers and, in turn, chemical suppliers to set premium prices via product differentiation. High demand leads to an increase in prices and then increased need to supply that good while by the end of the decade, marketing environment was changing. Worldwide consumption of chemicals was beginning to plateau, partly due to the fortunes of the Pacific Rim economies, leading to spare capacity amongst manufacturers In the early 1990s, ChemCo had defined three oil market segments which included the global majors’, the major volume purchasers with an international scale of operation, large nationally-based manufacturers, with dominant positions in domestic markets, known as the nationals’ and comprising about 40 in number, and a remaining tier of hundreds of small, local chemical blenders while by the end of the decade, ChemCo had been able to identify over 300 local business units with whom trade was possible, however this was now reduced to only seven core businesses (known within the sector as the seven Sisters’) due to global co-ordination of buying (Dwyer 2002) . In the beginning, ChemCo used product differentiation which acts as a competitive strategy where its products were really distinguished its products from the competitors. According to Michel (2003), differentiation of the product made it more competitive and attractive to its target market like the oil and petroleum sectors which increased the demand for the product from the manufacturers leading to increased sales. Increase in the demand of a product leads to increase sales and increased national income which then led to favorable economic trends. On the contrary by the end of the decade the economies of the country was deteriorating due to changes in market trends leading to high prices and reduced consumption of its products which led to price war (Blythe 2005). Increase in the price of products leads to inflation which leads to an economic crisis. Early in the decade, the company and its customers had a good relationship mainly because of the favorable economic trends in the market according to Bowersox, (2002) which made prices to be favorable but later in the decade the customer relationship began to deteriorate. ChemCo sold its additive to manufacturers but due to price war manufacturers started negotiating for price reduction from ChemCo while product quality was being ignored which led to a widening gap between the customers and the company.  This made the situation of the company to worsen off product quality is very essential in a business if it has to maintain its customers. There are also several similarities between the situations of the early period with the later period of the decade which include the following: In both periods, the company worked hard to have its product differentiated with its rivals to gain a competitive advantage (Dwyer 2002). In the early period ChemCo set premium prices through product differentiation while in the later period ChemCo had its products standardized to prevent other firms from differentiating the product. Product differentiation ensures that a company’s product is very distinct from a similar or a more similar product from a different company. In both periods of the decade, ChemCo worked hard towards the identification of target markets. In the early period the company identified three oil market segments ranging from global majors to local blenders. In the later period the company identified over three hundred local businesses as their target. Market segmentation is where a business identifies smaller segments or customers whom it will be supplying goods to and helped ChemCo to penetrate into the market. For a market segment used by the ChemCo to exactly meet its goals it should be able to equally react to market incentive as well as exhibiting homogeneity in the market segment selected. The same market segmentation should show ways of market innovation other than being distinct from other segments developed by the ChemCo which is a chemical additive company. Pros of ChemCO Pros in a business are the strengths in which the business can use to survive in the market. In the beginning of the decade; ChemCo had the following pros in the management of its relationship with its segment markets.  The company adopted product differentiation that is it ensured that its product had a clear distinct from those of its competitors (Michel 2003). Doing is was to make sure that its customers are able to differentiate between similar products from different companies.  This enabled ChemCo to maintain its customers. ChemCo had a defined market segment which ranged from global majors to local blenders which provided a good match between the customers and the product (Gadde 2001). That is the company had positive market segmentation. Through market segmentation, ChemCo was able to penetrate into the market and therefore able to meet customers needs and desires.  Cons of ChemCo Cons are the weaknesses of a firm which can lead to a downfall of the business. ChemCo also had the following cons the early decade; The company passed its product prices to purchasing managers and therefore gave them a chance to take up its customers and this made the managers to think of specifying ChemCo’s products into their market which resulted to being negative market segmentation. Passing their prices to the manufacturers who are near to the customers gave them a chance to persuade the customers to buy from them instead of going to ChemCo. Besides, the prices of ChemCo and its manufacturers were similar. It has pursued competition based on price instead of basing it on the customers in order to obtain a market share. This weakened the customer relationship as customer needs were not satisfied (New 2004). Once customers feel neglected then it is obvious that they will shift to other firms and this is what faced ChemCo. Impacts of emphasis of key account management (KAM) ChemCo key account management (KAM) based action had the following impacts to its stakeholders; The global major who mainly concerned with high volume of purchases with a global presence operations were assigned the key account management (KAM) action. In the beginning of the decade, ChemCo had the global majors as one of its market segment but it failed to manage its buying activity from the ChemCo and it was overtaken by the purchasing managers. The internal stakeholders who included the employees felt that assigning the key account management to global majors who are not customers to the company would kill the company’s customer relationship as most investments will be driven to the global majors and away from its customers like the nationals. Such a move by the management of ChemCo would derail any achievement that has so far been attained through the various employee relationship developments and may have adverse effects on the company. This is because customers being external stakeholder’s attitudes towards a company are increased when the company invests in its customers. According to Anderson (2009), Customers should be the major investors in any business which makes them feel part of the company failure to which they cease to be the company’s customers and they seek to invest in other businesses. Hence the key account management strategy had an overriding impact on the customers as the once close relationship between ChemCo and its customers.  The key account management (KAM) strategy was to regulate the prices of the company’s product in line with the competitor’s prices. When the company prices reduce then the supplier price also reduces. The aim of any business is to make profit or else it should be closed so when the suppliers are making little or no profit in the business then it means that they are unable to continue supplying ChemCo products. In a business, suppliers are external stakeholders. Low prices lead to vicious cycle or poverty cycle to the suppliers as it is noted by Michel (2003). Also supplier’s main interest is on the company’s stability but when prices are low in ChemCo then it means that the company is faced with a vicious cycle making the company unstable and bankrupt and therefore it has to be dissolved.  Key accounting management (KAM) strategy of reducing prices has a negative impact to the government as an external stakeholder. Government relies on companies for taxes obtained from the company’s income. Reducing prices therefore, reduces the income of the company leading to low taxes. Government use taxes for funding various projects and therefore reduction in prices leads to lack of funds to the government. Key account management emphasized on the reduction of prices in which the cost of production is not put in consideration. Reducing prices to lower levels leads to a deficit in the accounts of the company or too low profits  The key account management (KAM) strategy encouraged ChemCo to concentrate centralized global markets which lead to reduction in the magnitude of sales as compared to when selling was done to the seven sisters. Though it is profitable to sell abroad, it is also profitable to sell to local customers and especially when the customer-business relationship is good and this also reduces other costs involved in the selling of goods to the global market. The key account management strategy or the KAM strategy was also initiated by the company to answer customer’s technical queries but managers felt that one point of contact was not enough to cater for the customers needs and hence this affected customer relationship with the company and its management. Customers are much more satisfied with a company in which their needs are addressed without time wastage otherwise they look for alternative company. Relationship between marketing and supply chain management in developing the customer relationships in chemical industry Supply chain management ensures provision of goods and services as required by the final customers. The marketing part in developing the customer relationship in the chemical industry by the ChemCo and its competitors will include the different marketing mix strategies they apply to ensure the customers get the p[product in the desired manner. Therefore the relationship between the supply chain management and the marketing process of the companies in the chemical sector is brought about by the manner in which the companies ensure competitive provision of their products to the customers without lowering the quality of the product. The supply chain management will also involve the interconnection of the firms involved in the business to business operations such as ChemCo and the prospective competitors. A good management of the supply will include the strategic development of the location of business zones which make the marketing of the products much easier to being within the reach of the consumers. This kind of development habitually helps enhancing the overall relationship to consumers since they feel satisfied by their respective producer of the goods they consume. Recommendations to management The following recommendations to management concerning ChemCo selling approaches as well as their vertical cum horizontal relationships in their area of operation would be of great help in helping it to competitively fit in the market. ChemCo management should understand the orientation of the market as its marketing or selling approach. In our case ChemCo emphasized on cost reduction and price manipulation so as to hold the position of the low cost sellers instead working towards the customers needs and that is why it lost to its rival Chem two. I would therefore advise ChemCo not to be production oriented but instead aim at being customer oriented in order to maintain their customers. Being a customer orientated means that customers are given chance to give their views concerning the business and that every activity in the company is geared towards the customer and this makes the customer to feel part and parcel of the company. If ChemCo tries this then they can be sure that their customers will stick by. Chem Co management should use an appropriate approach that targets the customers. That is the customers should be the centre of focus in all activities instead of focusing more on the price. For Chem Co to obtain a competitive advantage over its rivals then it should be customer based and not price based so as to meet the customers needs and desires. Being customer based means that Chem Co will work towards the quality of their products to enhance customer satisfaction. It is therefore an important tool for the ChemCo and its competitors to ensure that they have a good marketing process in place coupled with a perfect supply chain management since this helps in perfecting the business operations in the industry thus enhancing customer relationship. I would also encourage Chem Co to use horizontal and vertical integration in enhancing customer relationship. Horizontal integration is where a company merges various firms in the same industry like merging of product suppliers while vertical integration merges companies at different production stages where the company can merge its input suppliers to its output suppliers. Merging of companies enhances monopoly into the company as the companies are merged right from the primary to the tertiary. Monopolistic firms enjoy high profits as they are the ones who determine the prices unlike in the market where prices are regulated by the forces of demand and supply. On reduction of prices ChemCo’s rival further reduced its prices. I would advise the management to be careful on competitor’s likely reaction following ChemCo’s action. This is because competitors usually have their own strengths and capabilities and uniqueness. Chem Co should therefore be prepared with good strategies to face any market threat. ChemCo should for example have been prepared to modify its product when its product and the prices were overtaken Chem Two. Counteractive methods for ChemCo can include giving discounts to customers, re-packaging the product, offering transport costs to customers and even advertising its products. ChemCo should do a company, situation and customer analysis. In analysis its situation, ChemCo should first analyze its goals, strengths, market share and weaknesses and this helps it to know its areas of weakness and strengths in order to determine how to venture into the market and conquer its competitors. When a company has a good market share that is, if it sells to a large group of people then it is better of. I would also recommend ChemCo to do a competitor analysis to determine the strengths, market position, market shares and strengths of the rival as this will enable it use the rivals’ weakness to penetrate into the market or be able to devise some counteractive mechanisms. Customer analysis is also an essential recommendation to ChemCo management as it is through this that the company will understand the number of their customers and how to reach them well to satisfy their needs and this calls for concentration on customer based products Conclusion From the above information we are to determine the reasons why ChemCo found itself in a deteriorating status due to changes in the economy together with introducing a consolidated and centralized buying. This sectors relationship with its customers was overridden by the KAM strategy. In this case the marketing strategy used by ChemCo is quite questionable.. The dangers of adopting this narrow version of relationship management are reinforced because the global majors are adopting a coercive power stance based on short-term transactional goals offering no long term benefit to the supplier. ChemCo’s current relational approach probably has its origins in a combination of traditional industry attitudes and an overreaction to the buying polices of the majors. Overall, the case illustrates the long-term nature of relationship building and the impact of past experience on the atmosphere of interactions between organizations. The strategic management should include the SWOT analysis of the company which helps it identify the very internal forces which are derailing it to achieve a fully pledged customer relationship. The analysis should also include the clear examination of external forces which help the company to remain a competitive one in the market. The marketing plan must put into consideration the application of the PEST analysis which will help it determine factors such as socio-cultural which will enhance customer relationship. Finally there is a lot to learn for ChemCo and its competitors in terms of customer relationship Reference   Anderson, J, Narus, J & Narayandas, D. 2009. 3rd ed. Business Market Management New Pearson International. Pg 140-160 Blythe, J & Zimmerman, A.  2005. 2nd ed. Business-to-Business Marketing Management. Thomson. Pg 205- 235 Bowersox, D, Closs, D & Cooper, M. 2002. Supply Chain Logistics Management. McGraw Hill. Pg 400-408 Dwyer, F R & Tanner, J F.2002. Business Marketing, New York, McGraw Hill Gadde, L-E & Hakansson, H 2001,.Supply Network Strategies, Chichester, John Wiley Ford, D et al 2006.2nd ed. The Business Marketing Course .Chichester, John Wiley Hakansson, H et al 2009 Business in Networks, Chichester, John Wiley Hutt, M & Speh, T.2002.7th ed.  Business Marketing Management .Fort Worth, Dryden Press Michel, D et al.2003.Business-to-Business Marketing, Basingstoke, Palgrave New, S & Westbrook, R.2004.Understanding Supply Chains, Oxford, OUP   Greco, John A. Jr.2005. 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