Strategic Marketing Planning - Report Example

s Strategic Marketing Planning 24 February 2006 Summary This report analyses the current operating environment of Corus and its position in a declining industry, in order to determine the possible options available to enable business expansion. Marketing strategies were compared, with the cost-leadership marketing strategy being the chosen strategy to stimulate expansion. A marketing plan was devised based on this strategy stating objectives and the means with which to achieve them. The British manufacturing industry was once one of the world's great industries with new innovations and technologies in a variety of areas. However, during the last 20 years, this industry has been experiencing a rapid decline. Declining industries were once growth industries but a continuing fall in demand for their products has resulted in their decline. The steel industry is typical of the British decline in the manufacturing sector. This industry was in a position of supremacy in the 1870's but by 1910-14 British output had fallen behind that of the United States and Germany (Pope, 1998:24). Whilst annual output averaged 7 million tonnes, Germany was averaging 15 million tonnes and the United States averaging 27 million (Pope, 1998: 24). The US and German producers benefited from home markets protected by tariffs. A guaranteed home market, especially one dominated by huge corporations like US Steel or cartels, encouraged investment in large scale integrated plants utilising the latest technology. These plants gave the US and German producers a competitive edge. However the British industry comprised of mainly modest sized family firms, lacking the capital resources or the market to justify investment in the latest, large-scale and integrated plants (Pope, 1998: 24). Western Europe accounts for more than 60% of total steel production; with North America accounting for 50% and Japan for about 80% of steel production. Nevertheless the industry is still fragmented and even with the creation of the Mittal Steel Company the top 5 producers in the world account for fewer than 25% of global steel production. By contrast, the top 5 iron ore producers account for about 90% of the global iron ore market; in the automotive sector, the 5 biggest players account for about 65% of market share (Varin, 2005: 4). Although the UK steel industry has made great strides to become internationally competitive, and is on a par with the most efficient producers in Europe, the depreciation of the euro since its launch at the beginning of 1999 has undermined the viability of UK manufacturing. To offset its price disadvantage, UK manufacturing has sourced semi-finished products increasingly from overseas. In addition, UK distributors have increasingly purchased finished goods from abroad. As a result of these developments, steel in imported goods is now the biggest source of steel used in the UK, representing nearly 40% of UK steel consumption, against 25% in 1989 ( Hickman, 2001:11). As a result of increased import penetration largely via the steel content of finished and semi-finished goods, the steel demand chain in the UK is under pressure. UK mill products now satisfy little more than one third of total UK consumption. The competitiveness of UK mill products has inevitably been affected by sterling's strength, and the mill product share of total consumption has fallen from 53% to 35% over the past decade. Imported mill products rose by 36% in the ten years to 1999, but this was a much slower rise than the 68% rise of steel contained in imported goods (Hickman, 2001:11). This sharp rise reflects moves by manufacturers of consumer goods to produce increasingly in locations where labour and energy costs are cheapest. There is clearly a growing threat to the steel industry from a contracting customer base, as the UK manufacturing sector continues to suffer from global competition, and an over-valued pound. This is illustrated by the performance of the main markets for steel. Machinery & equipment and metal products which together account for almost 40% of the domestic market for steel, have both seen output decline by some 15% since 1989, despite increased exports to Euro-zone producers (Hickman, 2001:10). The industry no longer enjoys cheaper energy prices in the way of reduced gas prices. The sterling exchange rate particularly against the euro has been a problem in recent years. A lower exchange rate is vital to restore competitiveness in the important European market and to enable the UK industry and its customers to compete with imports. The demand for steel has also increased in China and Asia, where China now accounts for 25% of global steel production, which exceeds the one billion tonne mark (Varin, 2005: 4). This trend is set to increase over the next few decades as other countries are increasing their steel production capacities, such as Brazil and India. This growth in production is also putting pressure the availability and prices of raw materials as rising input costs are putting pressure on steel margins. One example of such costs is energy costs in the form of gas or electricity, which will indirectly lead to price increases. Corus British Steel was formed in 1967 (Corus, 2004: 1), however, by 1975 the organisation was plunging into loss and significant closures were eminent by the end of the decade. The organisation was then dogged by strikes, pay disputes which resulted in the closures of plants and a reduction employee numbers. British Steel was then privatised in 1988 and experienced a major decline in the 1990's (Corus, 2004: 1). This and other factors resulted in the merger with a Dutch company - Koninklijke Hoogovens to form Corus in October 1999 (Corus, 2004: 1). The market supply of steel for Corus of steel sheet piling had become an international one, but by Corus was supplying between 65 and 75 per cent of UK demand. Corus's internal projections were that-while overall UK demand for steel sheet piling could be expected to grow slightly over the next decade-its own share would continue to decline, the scale of its exports was also much reduced. (Competition Commission, 2005: 13). Corus also retained a strong (if declining) position with its UK customers-based partly on their conservative purchasing habits and partly on the service levels it continued to provide. (Competition Commission, 2005: 13). However this was not enough to prevent further losses in 2003. As a result of this decline in profit, Corus was forced to export two-thirds of its production to markets offering lower prices. Corus tried to address these difficulties by developing new products, investing in a capability to produce wider piles and forming an alliance with another manufacturer (Varin, 2005: 2). This can be demonstrated by Corus' involvement in the new Wembley Stadium where they are delivering 21,000 tonnes of steel. With Britain's attention turning to the Olympic bid, Corus has identified residential construction as a priority for Corus. It is an underdeveloped market for steel and Corus has a number of new approaches and products for this market. Examples are: Living Solutions for volumetric living accommodation, Framing Solutions for light steel frames in a joint venture with Redrow, Hi-point for modular roof systems and Corefast for lift shafts. In support we have a number of strong brands: Colorcoat pre-finished steel, Kalzip aluminium roofing systems and Catnic lintel and plaster products (Varin, 2005: 4). Corus is currently operating in a declining industry in the UK. Corus' main market had been steel sheet piling but the market was now international, which translated into a drop in demand in the UK. Corus' market was largely domestic and in the early 1990's Corus had managed to meet 90% of UK demand. However, the share of the market started to decline and by 2003, Corus was supplying 65 - 75% of UK demand (Competition Commission, 2005: 13). This also affected the scale of its exports. Declining industries do not have many options available to their disposable for reviving their sales. The most common approach most organisations operating in this industry take is to sell off their assets and/or business, but this is often not ideal, as by the time the organisation decides to sell its business, the value of the assets will have decreased. When the business loses its value, it is often difficult to find a buyer. Another strategy often employed in this industry is a fast exit or gradual turnaround strategy (AMCI, 2003). However, if other organisations within the industry are experiencing the same difficulties then this strategy will not be useful, as there will be too many companies trying to exit the industry with too little avenues or not enough buyers. Gradual turnaround is also difficult in an industry that is characterised by a multitude of small to medium sized organisations. This was the case with British Steel, where decline was marked by job cuts and plant closures to reduce costs. Research from the Harvard Business School (AMCI, 2003) has developed three common characteristics of business strategies that have succeeded in declining industries. These characteristics include the following: the need for organisations in this sector need to identify growth or niche segments (AMCI, 2003). This characteristic is best suited to organisations that are not in the strongest competitive position in their industry. This is ideal for small and medium sized organisations as they will be able to divert to other sectors in the market quicker than a larger organisation. These organisations can select a specialised lucrative group of customers to serve, and this is ideal if the organisation has a loyal customer base. Identifying growth segments is not as simple as niche markets, as they require a very creative management, as this often relies on new innovations or general service or product improvements. The second characteristic emphasises product quality (AMCI, 2003). Product quality is often overlooked, as most organisations in a declining industry undertake drastic action to improve product quality such as procuring new equipment or investing heavily in new technologies that have not been verified and are not cost effective for the organisation. Product quality can be achieved by employing simple quality management and quality assurance principles such as Kaizen and Just-In-Time (JIT) Management. Product quality is also linked to the final characteristic of consistently improving the efficiency of the manufacturing and distribution systems that will lower their break-even point. Improvements in manufacturing processes can be achieved from paying constant attention to cost reduction, and this can be achieved by improving the manufacturing and/or distribution process. It is important for organisation to understand that cost reductions can come from day-to-day improvements and attention to deal, which are present in the quality assurance and management principles. Marketing Objectives As Corus still has a potentially attractive market, and it is considered one of the strongest in the global steel industry, due to its merger, it is best if Corus' marketing objectives involve investing the remainder of their best resources to support their products. This entails: ensuring product quality, improving their manufacturing process and Concentrating on their loyal customers to support this objective. Marketing Strategy Corus needs to follow a cost leadership marketing strategy, as most of the issues facing Corus and the industry pertain to cost issues such as employment, exchange rates and other costs such as energy in the form of rising electricity and gas prices. Most of Corus' plants are based outside the UK due to the fact that they can produce and market good quality steel at a lower cost than in the UK. This is due to the high labour costs associated with the UK. Low costs are associated with profit margins, which should work in Corus' favour as globally; Corus has access to operating capital, good process engineering skills, products are designed for ease of manufacturing and low cost distribution (AMCI, 2003). A differentiation strategy would be inappropriate as Corus is not offering a unique product, as its product cannot be branded. The market also does not perceive Corus to be offering a superior service. A focus strategy works for a focussed market segment, and usually works for niche markets or markets where other organisations cannot compete. This excludes the steel industry, as it is a competitive industry. Recommendations - Strategic Marketing Plan A viable steel industry is dependent on a sizeable manufacturing base and an indigenous manufacturing industry is essential for UK economic success (Hickman, 2001:4) as it contributes to the UK's balance of payments. It is also estimated that the total gain from exports is 8.2 billion annually. From this, it is easy to see the knock-on effect the decline will have on the economy and employment Our marketing objectives should improve our position and help us expand in the UK industry, as well as adding value to the manufacturing industry. This can be achieved by following a cost leadership strategy and by contributing to our skills base through increased involvement in educational institutions and apprenticeship programmes. This will result in a valuable contribution to the employment sector, as an industry can only survive if it has sufficient labour and skills resources. This in turn will have a positive influence on the UK economy. All levels of management from the most senior positions to the production floor workers should be involved in this plan. The participation of all employees is vital if Corus is to follow the cost leadership marketing strategy. Cost leadership can be achieved through the adoption of quality production methods such as Just-In-Time and Business Process Re-engineering, and these methods require the participation of all employees. This enables quality and cost saving to be built into the manufacturing process and the organization. An assessment of the target audience must be conducted to explore other sections of the industry that Corus supports indirectly. As most of the steel utilized in the UK is imported, it is essential for Corus to include industries such as construction in their potential market. By focusing on other industries Corus will be able to create a wide range of jobs, in a way that most service sector jobs do not. The number of people with skills required for manufacturing is very low, and an investment in these sectors would help Corus build up its skills base once again; as most of Corus' labour force is now based outside the UK. Increasing the human resource base within the UK would support our business expansion. Corus needs to be able to capitalize on the increasing innovations in the manufacturing processes and design to produce faster income growth than in the service sector. The decline in the domestic manufacturing production has resulted in an increase in exports and the service sector cannot expand rapidly enough to deal with the resulting effects of this decline. By getting involved with the local colleges and universities, Corus can re-market the steel industry as a viable employment alternative, by offering apprenticeships and placements in the industry. This will raise more awareness of Corus and the steel industry and its importance to the British economy. The service industry has been highly successful in marketing itself, and the steel industry needs to do this, to increase its labour pool. This can be achieved by marketing the benefits of working in the steel industry, presenting the opportunities available and more importantly, the rewards for the individual. This is important as there are new manufacturing technologies and new management techniques that can be exploited in the UK to enable expansion in this industry. Finally the Corus also has to take environmental issues into consideration. Manufacturing industry is largely associated with the creation of waste and products that are not friendly to the environment and the local ecosystems. For Corus to penetrate a larger market, they need to demonstrate their willingness and commitment to minimizing the environmental impact of steel production the environment (Hickman, 2001: 8). This can be achieved by encouraging recycling and developing recycling strategies and policies. Corus could invest in recycling steel products, for example, household appliances which often end up in land-fill sites, which create a potential environmental hazard. Supporting such measures will result in a positive perception of Corus. Corus also needs to invest in technologies for energy efficiency, emission control and emission minimization. An example of this is provided by the vehicle industry, where a sizeable skills base and investment resulted in the development of unleaded fuel to minimize certain emissions. Works Cited AMCI News Quarterly. "Strategies for Declining Industries." (February 2003). http://www.amciconsulting.com. Accessed 18 February 2006. Competition Commission (February 2005). "Arcelor SA and Corus Group plc A report on the acquisition by Arcelor SA of part of Corus Group plc's UK hot rolled steel sheet piling business" http://www.competition-commission.org.uk. Corus. http://www.corusgroup.com. (2004) Accessed 18 February 2006. Hickmann R. "The Steel Industry and Manufacturing in the UK". (27 June 2001). Business Strategies Ltd. www.uksteel.org.uk/download7.htm Pope, R. "The British Economy Since 1914; A Study in Decline" Seminar Studies in History. (1998). Longman. London. Varin, P. (05 March 2005). "Becoming a Value Player in Steel" BCSA Annual Dinner. CORUS. Bibliography Claughton P. "NEW TECHNIQUES, NEW SOURCES: THE BRITISH STEEL INDUSTRY AND ITS ORE SUPPLY, 1850-1950", Centre for South Western Historical Studies, University of Exeter, UK, (2005). Corus "A new force in the metals industry; background to the proposed merger." http://www.corusgroup.com. (07 June 1999). Accessed 18 February 2006. Interim Report. "Building the future." http://www.corusgroup.com. (2005) Accessed 18 February 2006. ThompsonA A, Strickland A J. "Strategies by Industry Situation", Crafting and Implementing Strategy, (1998), Tenth Edition, London. Varin P. "The Future of European Steel: Steel Success Strategies Europe III." (28 November 2005). London. Read More