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Holcim Case

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Submitted By alaricng
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M407 Business-to-business Marketing
Holcim Case Assignment Alaric Ng Mao Xuan Rating of Cement Segments in Northwestern Italy The five factors chosen to rate the segments are – 1) Growth Rate, 2) National Demand, 3) Cement Types, 4) Margin Percentage and 5) Ease of Entry. Growth Rate was ranked as the most important factor because it shows market potential. If a segment does not demonstrate market potential, there is no point in targeting it as demand in that segment has already stagnated. It would be wise for Holcim to target a segment which has promising market potential as it signals long-term growth potential. Concrete Manufacturers rated the highest here due to the upward trend of demand from 1995-2000, while the rest displayed no observable trend; Pre-fab Manufacturers showed a very gradual upward trend. National Demand was given a high 4.5 level of importance because it shows the current market demand. This is especially crucial because different segments displayed vast differences in demand levels. It would not be wise for Holcim to identify a segment with negligible market demand. Concrete Manufacturers rated the highest at 18000m tons while P&I rated the lowest at only about 500m tons in 2000. Cement Types was ranked alongside National Demand; different segments make use of different amounts of cements types. As Holcim only produces Portland composite, Pozzolanic and Blast-furnace cements, it would not make sense if Holcim were to even consider a segment which utilizes none of the abovementioned three cement types. Retailers came in first as 54% of their 237 firms made use of either one of the three cements, which is the highest compared to P&I with only 49.3% of the 217 firms using either of these three cement types. Margin Percentage is an economic indicator which hints at the profitability level of Holcim’s engagement in that particular segment. It is rated slightly below the three abovementioned factors because theoretically, Holcim has slight control over this factor in terms of cost of cement production and also transaction prices. However, it would not be feasible to select a segment which currently has very low profitability, thus the above-average importance of this factor. Retailers came in highest at a 74% margin level. The Ease of Entry in this industry entails the customer’s knowledge of cement and its technical characteristics through past research and field experience. The more a customer knows about specific aspects of cement, the harder it is to enter because the customer would have strict requirements of cement and could possibly already be loyal to certain cement manufacturers. It is also harder to enter the segment if the buying decision is made by a large team consisting of a few departments like purchasing, engineering, technical manager etc.; this is contrasted to a single decision-maker whereby the cement manufacturer just has to convince and satisfy one person. Retailers are rated the highest in this category as they have a very low knowledge of cement and the sole decision-maker is the owner of the store. Pre-fab Manufacturers and P&I are rated the lowest as they have the greatest knowledge of all the aspects of manufacturing concrete from cement. They engage in research and continuous exchange of information with cement-works. This segment engages in sophisticated uses of cement. Furthermore, in larger companies, the purchasing process is more complex as it involves a group of people. Rating of Segment Profitability The five factors chosen to rate the segment profitability are – 1) Technical Assistance, 2) Product Quality, 3) Market Share, 4) Geographical Coverage and 5) Price. Technical Assistance and Product Quality were chosen as the two most important factors because Holcim’s position in the Italian market is one of high quality products and services. It has a solid and prestigious reputation and one of its key assets is its technical assistance service which recently obtained ISO9002 certification. Holcim is well-recognized in the market for these two traits and thus it would be profitable for the company to target the segments which seek these traits in their cement supplier/manufacturer. Concrete Manufacturers rated the highest for Technical Assistance (TA) as they had the largest percentage of pre-sales and complaint TAs. This shows that the segment makes use of this service, which is also reflected in their selection criteria. As for Product Quality, Pre-fab Manufacturers and P&I are rated the highest as it is a top criteria in their selection process; the other segments do not list it as a selection criteria. Market Share comes as the next most important factor. Market Share is a relatively good indicator of how much percentage of each segment Holcim has already captured and should make an effort to sustain or improve on. It could also mean Holcim has already established relation with these business owners, which is crucial as transactions in the cement industry in Italy rely on “human links” and “friendly relationships”. Building companies are rated the highest here due to the 22.3% market share Holcim has captured, compared to the Pre-Fab Manufacturers – rated lowest – of which Holcim has captured only 4.7%. market share. Geographical Coverage and Price are the last two factors in order of importance. Geographical Coverage is ranked slightly higher because Holcim on the continuum, Holcim has multi-regional coverage which is slightly above average. It can still compete using this factor as it has the second most number of factories in Northwestern Italy, after Italcementi. Price is not one of its competitive positions. All of the segments regard Geographical Coverage factor as one of their selection criteria. However, Retailers, Building Companies and Concrete Manufactures are rated slightly higher due to them regarding this as the topmost selection criteria. Lastly, Price is an area which Holcim cannot compete on. Its competitive position leans towards reliability of the offer, not price. Hence, for Pre-Fab Manufacturers and P&I whereby Price plays only a residual role, the scores are the highest as the higher prices offered by Holcim does not play heavily into the decision-making. Segment to Pursue Holcim should pursue the Concrete Manufacturers segment. It is the most attractive and profitable. It is almost on par with Building Companies in terms of profitability, but it stands out as a significantly more attractive segment due to two factors: high national demand and high growth rate. The next most attractive segment is the Retailers, but the Concrete Manufacturers is significantly more profitable due to a way higher market share Holcim currently controls and its use of technical assistance which is Holcim’s key asset.

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