A SSESSING KSB’ S S HARE IN THE D UTCH P UMP AND V ALVE M ARKET

A ^SSESSING KSB’ ^S S HARE IN THE D ^UTCH P ^{UMP AND} V ^ALVE M ^ARKET

University of Groningen

Faculty of Management and Organisation Groningen, May 2004

Author:

Hugo E.N.K. Rothengatter Student number: 1064541 Zwanestraat 30-A

9712 CN Groningen

Supervisors:

BA (Hons)., M.Sc. N. Campbell

Faculty of Management and Organisation University of Groningen

Drs. H.C. Stek

Faculty of Management and Organisation

University of Groningen

Preface

This thesis forms the concluding part of my study of Management and Organisation at the University of Groningen, with a specialisation in Marketing. After years of study it was about time to put my knowledge to the test. It was therefore a challenge for me to see whether my theoretical knowledge could be applied to a practical problem as I found it within KSB Nederland BV.

During an internship of approximately seven months, I worked on a research project which ended up in this thesis. This paper discusses the characteristics of the Dutch market for KSB Nederland BV, being a Dutch subsidiary of a worldwide organisation. An assessment is made of the current position in the various Dutch market segments, from which recommendations for the management team of KSB Nederland BV are generated.

There are some important persons whom I’d like to thank, for they made it possible for me to write this thesis and therefore complete my study.

Firstly, I’d like to thank my supervisors at the University of Groningen, Mrs. Nicola Campbell and Mr. Huib Stek. They contributed very substantially to the completion of my thesis by continuously supporting me during the project and providing the relevant and useful advice that I needed. Especially my frequent appointments with Nicola Campbell in the latest stage of the thesis-writing process motivated me to keep going and complete my work.

Furthermore, my special thanks are directed at Nico Gitz and Rob Looman, respectively CEO and Manager Marketing and Public Relations of KSB Nederland BV, and my supervisors during the research project. They gave me the opportunity to work on this research project within their organisation. Their knowledge and constructive feedback was of great help during the research process.

I’m also thankful to Sander Klos, sales engineer at KSB Nederland BV, who showed me the way in the KSB organisation and introduced me into the world of KSB.

Lastly, I’d like to thank everybody in my direct environment who supported me throughout this final part of my study, especially my lovely girlfriend Anita for her understanding and support. I’ll be happy to see you receive your medical degree in August.

I hope you’ll enjoy reading this thesis.

Hugo Rothengatter

Groningen, May 2004

Management Summary

KSB Nederland BV’s main function, being a Dutch subsidiary of the KSB Group, is that of a marketing unit of this worldwide pump and valve producer. The products that KSB Nederland BV sells are produced by KSB Group companies in Germany and Spain mainly. This dependence makes a clear picture of the Dutch market for KSB important. KSB’s position and more specifically its market share in the Dutch market are an important measure of performance.

To help KSB Nederland BV with determining its position in the Dutch pump and valve market more carefully, this research project was executed. An answer to the following research question is pursued in this thesis:

What are the main characteristics and the position of KSB Nederland BV in the Dutch pump and valve market and how can KSB Nederland increase its market share?

The answer to this question can help KSB Nederland BV with determining its course of action in their competitive market place.

With the purpose of analysing the Dutch pump and valve market, the research process was divided into four parts. The answer to the research question is a combination of these four parts.

Firstly, an environmental analysis was conducted to increase knowledge of the environment and general characteristics of the Dutch pump and valve market. Secondly, the segmentation of customers in the market was looked closer at to get a better understanding of how the market segments and what customer motivations are. Thirdly, the characteristics per market segment are analysed separate for pumps and valves. Fourthly, knowledge on competitors is increased by the profiling of individual competitors per pump and valve market segment.

Environmental trends and uncertainty play an important role in the Dutch pump and valve market. The development of universally applicable products is basically a necessity to compete nowadays. Constantly changing requirements cause the need for pump and valve producers to be more flexible. Lowering costs of ownership and development of intelligent pumps and valves are the latest technological developments and KSB is a leading producer of these products.

Customers are trying to cut back on an overload of suppliers. Short delivery times have always been important and tend to become even more important.

Governmental regulations are getting stricter and in the Dutch industry there is a declining investment trend, large projects of former times are scarce. The global pump and valve market growth is expected to decline to a moderate 1.5% per annum. Demand in the Dutch pump and valve market as well as competitor moves are hard to predict and managers have to rely on experience.

These developments cause that expansion of a competitor’s market share will almost certainly lead to a decline in market share of another. On the other side, technological developments leave space for pump and valve manufacturers to differentiate and develop specialised products to not be directly in each others way.

The Dutch pump and valve market is best divided into five segments, in which three types of

customers are present. Within the Industry, Energy, Water Waste water and Building services

segment, these three customer types are end-users, resellers and engineering companies. For

pump and valve producing companies, end users are relatively important in all segments except

water segments. Engineering companies tend to put more emphasis on low purchase prices than on quality and energy consumption of products. Total costs of ownership don’t seem that important as a buying criterion yet. Delivery time does play an important role in a buying decision.

Size is an important characteristic of market segments, especially in the light of the research question. In the pump market, the Industry and Building services segment are considered to be the largest segments, respectively steadily growing and stable. The Waste water segment is the third largest segment and considered to be stable. The Water and Energy segment are relatively small and respectively a stagnating, occupied, unattractive segment and a small, unimportant segment.

Considering valves, the Building services and the Industry segment are basically the only segments of considerable importance. These segments are considered to be stable.

The determination of demand in the pump and valve segments turned out to be very difficult considering the part taken by engineers, although they are known to have an important effect on this demand. The demand form resellers in the valve market is also a very hard to determine fact, though important.

KSB’s market share is nowadays highest in the Industry and Waste water segment considering pumps, and the Industry and Energy segments of the valve market.

Another characteristic of the market segments in view is the population and population share.

The share of the population, meaning pumps or valves currently in use in a certain branch, gives insight into the importance of brands in segments. For KSB, this share is highest in the Waste water segment, followed by the Industry segment in the pump market, and the Energy segment for valves.

The KSB brand turns out to be the most recalled pump brand in the Industry, Energy and Waste water segment. KSB is the second most recalled pump brand in the Water segment and the third most recalled pump brand in the Building services segment though Grundfos is by far the best known pump brand here.

Technological know-how and specialised labour are creating entry barriers in all segments in the Dutch pump and valve market, as are economies of scale and learning effects.

In the Dutch pump and valve market, numerous competitors are active. Due to a lack of knowledge, the relatively smaller and less important competitors couldn’t be included in the form of strategic groups in the profiling of this research project.

Some manufacturers are specialised in one or two pump segments, such as Flygt in the Water and Waste water segment and Wilo in the Building services segment. Larger competitors like Flowserve, Sterling Fluid Systems and KSB are serving the entire pump market but adapt their products to customer wishes in different segments. So it is in the valve market: large competitors like Econosto are serving the entire market while Wouter Witzel is mainly serving the Water and Waste water segment with its line of butterfly valves that is the most used valve type here.

In the pump segments Industry, Waste water and Building services are the most competitors, but these segments are again the largest in the pump market. The pump segments Energy and Water are relatively small and unattractive and competition here is destructive and costly, and putting effort in these segments isn’t attractive unless it is core business for a company.

KSB Nederland BV’s way to growth in this market has to come from existing products within

existing markets, and has to involve an increase of market share. The preferred way to

accomplish this is by creating a sustainable competitive advantage.

preferred supplier and increase the demand from these customers. The Water and Energy segment are rather unattractive and efforts to attract new customers in these segments will not be worthwhile. The Building services segment is a rather large segment in which Grundfos and Wilo hold a strong position. KSB should aim its efforts in this segment on the larger projects because the strength of KSB is in offering total solutions to customers.

The Industry segment is the largest pump segment and has space for several competitors.

Although KSB faces two competitors that are basically in the same position as KSB it is possible for KSB to extend its position here by combining their strengths. The combination of intelligent products, low costs of ownership, the assortment of pumps and valves with the ability of offering total solution needs to be more emphasised and can even create a sustainable competitor advantage, because this combination isn’t offered by its competitors in this market.

This combination can also work in the Waste water market because this segment is in a similar situation. The only extra difficulty is that KSB faces Flygt here, which is specialised in water treatment applications. KSB’s offer of products and solutions is though wider and can be a better possibility for customers.

The possibilities that KSB offers should be more emphasised in the contact with customers on trade fairs and by KSB representatives, who have close customer contact.

KSB should concentrate actions in the valve market on the Industry and Building services segment, as these are the only segments that are of interest for KSB. Selling valves within installations and offerings to current customers are possibilities are two options KSB should concentrate on here, but the most important impact can be achieved here by extending cooperation with wholesale traders. These companies can improve the position of KSB valves.

Contents

Preface II

Management Summary III

List of Figures IX

Chapter 1: Introduction 1

§ 1.1 Management question 1

§ 1.2 Structure of the thesis 1

§ 1.3 Conclusion 2

Chapter 2: Organisation of KSB 3

§ 2.1 Historic perspective 3

§ 2.2 Organisational structure 3

§ 2.3 Mission and vision of KSB Nederland BV 4

§ 2.4 Products 4

§ 2.5 Positioning 6

§ 2.6 Conclusion 7

Chapter 3: Problem Statement 8

§ 3.1 Research objective 8

§ 3.2 Research question and sub-questions 9

§ 3.3 Demarcations of the research 9

§ 3.4 Conclusion 10

Chapter 4: Theoretical Framework and Research Structure 11

§ 4.1 Theoretical framework 11

§ 4.1.1 Hussey and Jenster 12

§ 4.1.2 Aaker framework 14

§ 4.1.3 Eliashberg and Chatterjee 16

§ 4.1.3.1 Objective 16

§ 4.1.3.2 Basic assumptions 16

§ 4.1.3.3 Mode of analysis 17

§ 4.2 Research model 17

§ 4.3 Data collection 19

§ 4.3.1 Desk research 19

§ 4.3.2 Expert interview 20

§ 4.3.3 Questionnaires 20

§ 4.3.3.1 Selection of the survey population 22

§ 4.3.3.2 Response 23

§ 4.3.3.3 Non-response 24

§ 4.4.1 Brand awareness 25

§ 4.4.2 Population and population share 26

§ 4.4.3 Market size and market share 26

§ 4.4.4 Remarks to accounted figures 26

§ 4.5 Conclusion 27

Chapter 5: A Dutch Market Environment Analysis 28

§ 5.1 Environmental aspects 28

§ 5.1.1 Technological aspects 28

§ 5.1.1.1 Lowering the cost of pump ownership 28

§ 5.1.1.2 Intelligent pumps and valves 29

§ 5.1.2 Governmental aspects 29

§ 5.1.3 Economic aspects 29

§ 5.2 Strategic uncertainties 31

§ 5.3 Conclusion 32

Chapter 6: Customers in the Dutch Pump and Valve Market 33

§ 6.1 Segmentation 33

§ 6.2 Customer motivations 34

§ 6.3 Conclusion 35

Chapter 7: Characteristics of the Dutch Pump and Valve Market 36

§ 7.1 Size and growth 36

§ 7.1.1 Size of the Dutch pump market 36

§ 7.1.2 Size of the Dutch valve market 38

§ 7.2 Market share 38

§ 7.3 Population, population share and brand awareness 39

§ 7.3.1 Pump population and population share 39

§ 7.3.2 Valve population and population share 40

§ 7.3.3 Brand awareness 41

§ 7.4 Entry barriers and cost structure 43

§ 7.5 Trends and key success factors 43

§ 7.6 Conclusion 44

Chapter 8: Competitors in the Dutch Pump and Valve Market 46

§ 8.1 Strategic groups 47

§ 8.2 Competitor profiling 47

§ 8.2.1 Competitors in the Dutch pump market 47

§ 8.2.2 Competitors in the Dutch valve market 50

§ 8.3 Presence of competitors per market segment 52

§ 8.4 Conclusion 53

Chapter 9: Conclusions and Recommendations 54

§ 9.1 Conclusion 57

Bibliography 59

List of Appendices 61

Appendix A: Organisation Chart KSB Nederland BV 62

Appendix B: Interview Topic List 63

Appendix C: Questionnaire 64

Appendix D: Competitors per Market Segment 67

Appendix E: Competitor Profile Example: Superconsult Ltd 68

List of figures

Tables

Table 1: Division in business areas with its customers 3 Table 2: BTE-codes and corresponding SBI-codes in the research population 23

Table 3: Research population and response rate 24

Table 4: Market segments in the Dutch pump and valve market with

corresponding customer groups 34

Table 5: Demand per pump segment derived from survey 36 Table 6: Demand per valve segment derived from survey 38 Table 7: Market shares of KSB in Dutch pump market segments 39 Table 8: Market shares of KSB in Dutch valve market segments 39 Table 9: Pump population and KSB population share per segment 40 Table 10: Valve population and KSB population share per segment 41 Table 11: Relative importance of competitors per pump market segment 53 Table 12: Relative importance of competitors per valve market segment 53

Figures

Figure 1: Hussey and Jensters approach to competitor analysis 12

Figure 2: The Aaker framework 14

Figure 3: Research model 18

Figure 4: Brand recall rates of the ten most mentioned brands in the survey 42

Figure 5: Brand recall rates per segment 42

Chapter 1: Introduction

§ 1.1 Management question

With current economic developments in mind, in most branches process efficiency becomes more and more important. The more this is true for manufacturers of business goods. Users of these investments goods feel inclined to cut down on expenses on these goods first in economically lesser periods, and will invest in these goods lastly, when the economic situation improves.

For organisations as KSB Nederland BV, emphasis in company policy is put on more efficiently targeting customers. To know where it is probably most profitable to invest time, money and effort is of utmost importance.

This is the origin of the question that rose within the management-team of KSB Nederland BV (KSB).

The nature of the KSB Nederland BV organisation (see next chapter) makes it of great importance to have a clear view of the market situation. As will become clear, KSB Nederland BV hasn’t got any opportunities to sell products other than made by the KSB Group. In fact, the function of KSB Nederland BV is that of a marketing unit.

This function of a marketing unit makes market share an important aspect of measuring performance. The value of KSB Nederland BV to the KSB Group can be enlarged by making the share of the Dutch market as large as possible, and selling profitable in this market.

An updated view of the current market and the position of KSB Nederland BV in it is very important in this context, and will be very useful to management.

This overview of current markets, which will eventually result in recommendations for management, the global policy of the KSB Group taken into account, can help the strategy of KSB Nederland BV to be carried out more certain.

§ 1.2 Structure of the thesis

After giving basic knowledge on the origin and structure of the company and its products, most important is translating the question that occurred to the management team in a suitable research question.

In order to provide this research question with a structured answer, a review of literature written on the topics that are part of this question is the next step. This review serves as a starting point for the research project. Several theoretical models have been found suitable for this project and a combination of these models in a research model will serve as a theoretical framework for providing an answer to the research question. As in any business, there is no end to the material that appears potentially relevant and to prevent from ending up with volumes of useless descriptive material, it is made clear in this part which information will be useful in answering the research question and how this information is gathered.

The next chapters are used to work out the research model as proposed in chapter four, starting

with an environmental analysis of the Dutch pump and valve market. Hereafter, a closer look is

taken at the customers in this market and how this market is to be segmented. Emphasis is put on the next two chapters, which describe the characteristics and the competitive environment of the Dutch pump and valve market.

Eventually, an answer to the research question is provided and conclusions for the research are drawn. The final part is on recommendations for further research, which can make the outcomes of this research more valuable.

§ 1.3 Conclusion

In this chapter, a brief introduction is made on the origin of the research question and objective for this project together with a short outline of the structure of this thesis.

Purpose of this chapter is to make the reader aware of the situation in which this research project

was set up and provide a short guide of the elements that are included in this thesis.

Chapter 2: Organisation of KSB

The purpose of this chapter is to create a clear view of the present situation. It includes a description of the company in question, KSB Nederland BV. This description consists of a historic overview of the group of which this company is a part, the organisational structure of the company and products. This will generate a better knowledge on KSB, in the light of which the research question has to be answered.

§ 2.1 Historic perspective

KSB Nederland BV is a 100% daughter of the Frankenthaler Mashinen- & Armatur-Fabrik Klein Schanzlin & Becker: KSB AG, founded in 1871. In 1958, KSB Nederland BV arose from the

‘Technisch Bureau Nederland’; this agency had taken care of the interests of KSB AG in the Netherlands till then.

The 132 years old KSB concern nowadays deploys about 12000 employees around the world, owns 29 production plants in 19 countries and service centres in more than hundred countries.

With revenues of approximately 1,2 billion Euro the KSB Group is one of the leading global suppliers of pumps, valves and related systems.

The board of directors of the KSB Group (KSB AG) is seated in Frankenthal, Germany. It determines the main strategic course of all subsidiaries and daughter companies.

KSB Nederland BV operates in principle independently, but only sells KSB-products, and can therefore be considered as a marketing unit.

The two centres of KSB Nederland BV are placed in Zwanenburg and Heinenoord, whereby Heinenoord mainly functions as a service centre. No production takes place in the Netherlands, in some cases products from the plants in Germany and France are assembled or adjusted in The Netherlands to meet specific customer wishes. Most products are transported directly from production plants to customers.

§ 2.2 Organisational structure

The KSB Group divides the market she sells her products to into six business areas: building services, industry and process engineering, water, waste water, energy and mining. See table 1 for a division of business areas and the main customer groups in these areas.

Table 1: Division in business areas with its customers

Business areas Customers

Building services Wholesalers, contractors, consultants

Industry and Plant engineers, OEMs,

process engineering industrial companies

Water Plant engineers, water companies (also public)

Waste water Plant engineers, waste water companies (also public)

Energy Plant engineers, operators of power stations

Mining Equipment suppliers & operators in the mining/oil sand industry and of suction hopper dredges

The division in departments of KSB Nederland BV is based on this division in business areas.

Mining, however, is not a large issue in The Netherlands anymore, and in fact it isn’t a separate business area here.

KSB Nederland BV exists of six selling departments and five facilitating departments. For an organisation chart see appendix A.

The departments Industry & Energy (IE), Waste Water & Water (W) and Building Services (GT) sell pumps in their business area. Valves (AF) sells valves and related products in all business areas and Service (S) delivers service to all business areas (as well from Zwanenburg as from Heinenoord).

The sales managers and staff meet on a regular basis to discuss developments and daily business and monitor the progress of the organisation. The fact that all departments are housed in the same building, except for the Heinenoord service centre, contributes to a sharing of knowledge and experience.

§ 2.3 Mission and vision of KSB Nederland BV

As an international leading concern KSB feels it has to be as near the customer as possible and generate a customer satisfaction as high as possible: with first-class but economic solutions, total advice, regional presence of service and a broad line of products. This is KSBs way of serving the customers interests world-wide.

Customer-focused thinking and acting, modern technique and high product-quality have to guarantee a leading role in the market, whereby efficient and market-focused work has to lead to a profitable growth, so continuity will be guaranteed.

§ 2.4 Products

Products of KSB can be roughly divided in fluid-pumps, pump-systems, mixers, valves, actuators and the service delivered to these products. They will be described in more detail.

Actuators:

Actuators are electric, pneumatic or hydraulic devices for opening, closing and monitoring valves.

Mixers:

Mixers are devices used for, for example, re-circulation of a suspension (waste water) in sewage treatment systems. Main purpose is keeping the suspension optimally mixed.

Fluid-pumps:

A fluid-pump is defined here as a device, used for transporting fluids or suspensions. The medium that is pumped can also contain more or less solid parts, e.g. think of mussel-fishing or making chips from potatoes by shooting them through a raster.

There are numerous types of pumps. In the first place, a division between mechanically and not-

mechanically driven pumps can be made. The first type derives its function from mechanically

driven parts, such as a plunger or a blade, which gives speed to the fluid, and thus moves it. All

other types of pumps are called not-mechanical. All pumps made by KSB are mechanical types,

and this is why not-mechanical types are not considered in this thesis.

Furthermore, a division in plunger-, screw- and centrifugal-pumps is used here. These will be described next. Not all types are of importance for this research.

Plunger-pumps are pumps that consist of a cylinder with in it a moving piston that uses under- and over-pressure to suck and press fluids in and out of the cylinder. Instead of a piston also wings or membranes are used and even combinations of multiple cylinders. This type of pump is not made by KSB Nederland BV, and will not be considered furthermore.

Screw-pumps are pumps that use a turning, screw-like axis in a cylinder. This axis can vary from forms with thin blades on it (water-transport) to forms with almost no blades on it (thick suspensions). KSB produces only the latter, but it isn’t a great part of the assortment of KSB, and it is used for rather specific applications, so it will not be regarded in this thesis.

Centrifugal-pumps are the most common pumps. In this type, the fluid enters the pump axially and leaves it radially. A turning blade inside the pump swings the fluid outwards, with which it creates acceleration. Most KSB pumps are of this type.

The centrifugal-pump type is for the use of this thesis divided into six types. There could be many other ways to do this, but this way suits the centrifugal-pump program of KSB the best, and as the target is to generate information on the position of KSB and its products, I consider this a logical step.

These six centrifugal-pump types are:

Water-norm pumps: These pumps are used for water, or water-like fluids, for instance in heating or cooling systems. They meet standardised norms like DIN (Deutsche Industrie Norm) or ANSI (American National Standards Institute). These norms standardise for example size and connection sizes, which makes it easier to use different brands of pumps together in a system, or to replace a pump with a different brand. Concrete, it means that for a certain capacity scheme, the main proportions of a pump are prescribed

.

Multiple-stage pumps: In fact this type of pump consists of multiple centrifugal pumps, put in-line with each other. The objective is to create a higher pressure, which can be used in for instance kettle-feeding applications, as there is a high pressure inside the kettle; a higher pressure is needed to feed it with water.

Chemical-norm pumps: These pumps meet norms used in chemical industries such as DIN and ANSI size norms and ISO construction norms. They prescribe connection sizes, installation lengths and construction materials. These pumps, in all there varieties, can be used to transport toxic, aggressive and abrasive fluids.

Chemical heavy duty pumps: These chemical pumps (among which API pumps) can be used to function under extra heavy circumstances. For instance, pumping of high-temperature process liquids places extraordinary demands on a system, particularly pumps. Pump failure is not on option because it leads to production downtime, wasted effort and ruined final products.

Because pump performance and reliability are critical in these situations, the American Petroleum Institute (API) many years ago set rigid standards for the design, construction and performance of process pumps for applications in petroleum, heavy-chemical and gas industries. These pumps must for instance have special bearing house materials and seals, resistant to flammable or hazardous liquids, all specified in the API directives

.

1 www.mainpress.com/zonepumps

2 www.chemicalprocessing.com

Dry mounted waste water pumps: This is defined here as pumps that are used for transporting waste water, which are placed above water, or have only the pumping part placed under water and the engine above it. There can be a distance between the engine and the water moving blade, connected through an axis. Waste water is defined here as polluted water which may contain more or less solid parts.

Wet mounted waste water pumps: This type of centrifugal pump is completely placed under water (engine and blade). They are also called submersible pumps.

Pump-systems:

Pumps can also be installed in a system combined with valves and mains as a turnkey system.

Often, several firms are involved in advising, deciding and buying of such a system, of which more further on.

Valves:

Valves are the devices in pump-system that can help regulate the flow of fluids by (partly) opening and closing them. They can be manually operated, mechanically, hydraulically or pneumatically driven with help of actuators. In some cases valves have the option to connect to a computer system that keeps track of e.g. flow and temperature and can be automatically adjusted to circumstances. This option exists however with pumps to.

There are several types of valves, and the most common will be described next.

Gate valves: This type of valve is the simplest type. A plate is slide into the valve and thus closes the pipe. They can be used in rather large applications.

Butterfly valves: This type consists of a round plate with an axis in the centre of it, shaped like a butterfly, which can be twisted 90 degrees to put the plate in-line with or against the flow, as to open and close it. It can be used in a lot of applications, from small to big. Within the KSB Group it is produced by AMRI, in Houston, Texas.

Membrane valves: In this type a membrane is used to open and close the fluid-passage. The membrane is mechanically or pneumatically pushed against this fluid-passage. This type is used a lot in applications when exact doses need to be supplied. Within the KSB Group this type is produced by daughter SISTO in France.

Ball valves: This type is the most common. A ball inside the valve can be twisted 90 degrees as to open and close it. It is often used in rather small applications and mostly driven manually.

§ 2.5 Positioning

For a better understanding of the position of KSB products in the Dutch pump and valve market it is important to have an understanding of the positioning of these products. The importance of this information will become clear in chapter five and paragraph 7.5. The positioning information of KSB products relates to the environmental analysis in chapter five and the key success factors in paragraph 7.5. KSB is positioning its products in the upper level of the market on the basis of quality and latest technology.

The positioning of products or services comes from three aspects: The position that the product

occupies with customers, that is also determined by own strengths in relation to competitors’

strengths

. This basically comes down to the fact that positioning isn’t only determined by company strengths and the way the company sees their products, but also the way in which these strengths relate to competitors’ strengths and the way customers perceive the products.

The objective of KSB is to distinguish its products from its competitors on the grounds of outstanding quality and latest technology. KSB finds the best solutions to each particular problem and delivers the best products accompanied with excellent service. This is demonstrated by the following quote from KSB’s 2001 Annual report: ‘Innovative technology is the key to our business success. Based on input from Sales and Marketing and driven by technological progress, our experts in hydraulics, materials and electrical engineering give shape to the wishes of our customers in the form of new design solutions’

.

The products of KSB can, in relation to competitors, be classified in the upper level of the market. This is echoed by KSB employees who point out that KSB products are indeed perceived by customers to be high quality products of latest technology which last long and function properly. In essence, KSB customers also make a connection with expensive products.

The marketing strategy of KSB in general is mainly based on trade fairs and representatives. The organisation rarely advertises. Personal contact with customers is important in the vision of KSB.

Many processes in industry nowadays are that complex that a customised solution is needed concerning pumps and valves. Personal conversation contributes to a fast and solid solution for a client.

§2.6 Conclusion

This chapter has dealt with KSB from a historical perspective, its organisational structure, its mission and vision, together with its products and positioning in the Dutch pump and valve market.

The purpose of this chapter is to help the reader with better understanding KSB and its position in the complex market place, before looking at the research question that arose from this situation. A clear understanding of KSB’s structure and position is absolutely relevant for the purpose of this research.

3 Hoekstra J.C. (1998), p. 62

4 KSB 2001 Annual Report (2002), p. 26

Chapter 3: Problem Statement

The objective of this section is to define the research problem; it includes the research objective, research question and research demarcations, which will serve as a framework for this entire research. For this purpose the management question is used to deduce a research objective and research question. This problem definition records for whom this research is done, what will be the result of it and why it is of importance to them

.

§ 3.1 Research objective

Within KSB Nederland BV there is a wish for a clear view of market-segments in which they are active: Industry, Water, Waste Water, Energy and Building Services, for pumps as well as valves.

Assessing the position of KSB Nederland BV on the Dutch market is the main target of this study.

KSB Nederland BV will use this information on the position of KSB in different segments to create a better insight in their market, which helps with generating a more suitable strategy for a better serving of the market, a better performance compared to competitors and realisation of planned growth.

One can say that the existing information is not considered to be enough to enable KSB Nederland BV to become more successful on the Dutch market; this research intends to deliver the information that helps KSB to become more successful.

KSB Nederland BV’s function of a marketing unit makes market share an important aspect of measuring performance. The value of KSB Nederland BV to the KSB Group can be enlarged by making the share of the Dutch market as large as possible. A larger understanding of the Dutch market for KSB eventually contributes to reaching a larger market share.

An overview of the Dutch market for KSB Nederland BV is therefore the purpose of this research project. In a concrete way, the information in this thesis on the position of KSB in the Dutch market and the recommendations derived from here enable KSB Nederland BV to conduct more focussed studies within market segments for specific products, which will help KSB Nederland BV in daily business.

In short, the objective of this research is:

‘Assessing the current position of KSB Nederland BV in its most important market segments and giving KSB Nederland BV advice on how to increase its market share in the Dutch pump and valve market’.

5 De Leeuw, 1996, p. 85

§ 3.2 Research question and sub-questions

The research question formulates the main question that connects to the research objective, but is written in for research accessible terms. This research question has to connect to the theoretical framework and research model. This question is the main starting point for working the research problem out in sub questions

.

As KSB Nederland BV finds itself in a tough market at the moment, it’s of great importance to know how strong competition is, and where there are possibilities for the firm to increase its market share. The main research question for this research is:

‘What are the main characteristics and the position of KSB Nederland BV in the Dutch pump and valve market and how can KSB Nederland increase its market share?’

1. What are the characteristics of the market for KSB Nederland BV in the market-segments Industry, Water, Energy and Building Services in the Netherlands for pumps and valves?

• What are key success factors and trends in the Dutch pump and valve market?

• How is the market for KSB products to be segmented?

• What players are active in these market-segments?

• What is the market size and how does the market-growth develop?

• What is the competitive intensity? How do competitors behave?

2. What is the share of KSB products in the selected branches?

• What is the population share of KSB products?

• What is the market share of KSB products?

• What is the brand-awareness of the KSB-brand in selected branches?

§ 3.3 Demarcations of the research

Research demarcations indicate the limitations which are of influence on the research results and the methods to be used; it considers process and product boundaries

.

• The available time for gathering information sets boundaries for this research; it has to be conducted in approximately six months.

• The research considers only the Dutch part of the market in which KSB Nederland BV sells pumps and valves.

• The most important part of pump-spectrum KSB sells consists of centrifugal pumps, and therefore the main focus will be on this type.

6 De Leeuw, 1996, p. 85

7 Ibid.

§ 3.4 Conclusion

This chapter has looked at the research objective, research question and sub- questions together with demarcations of the research.

The purpose of this part is to reveal the objective for this research, the reason for performing this

research project. The research objective is specified in a research question which is broken down

into sub questions with help of which an answer to the research question is to be provided. The

research demarcations relate closely to the research questions and provide the boundaries for this

research.

Chapter 4: Theoretical Framework and Research Structure

In this section, the theoretical framework and research model are given. They relate closely to the main question of this research to be able to provide it with a sound answer. The theoretical framework will be used as a guiding framework for the research that is described in this thesis. It gives insight in theoretical findings that exist on the subjects of the research question, in order to set results of this research in perspective. The relevance of this framework for KSB Nederland BV is that is can support in generating a better understanding of the Dutch pump and valve market, and by this support KSB Nederland BV in attributing in a better way to the overall strategy of the KSB Group.

Furthermore, collecting the relevant data and methods of analyzing this information, related to sub-questions will be discussed.

§ 4.1 Theoretical framework

As stated before, market share is one of the most important aspects of performance for KSB Nederland BV. Therefore the goal of this research is to determine the most important characteristics of the Dutch market in which KSB finds itself in. This process will lead to a clear view of the present situation KSB deals with, and eventually recommendations for management can be generated, which will help KSB Nederland BV with doing business in the Dutch pump and valve market.

To be able to do so, it is necessary to define the aspects that will be investigated, as well as the importance of investigating them. For this purpose a framework of theoretical findings in management literature will be put together that will eventually be schematically displayed in a research model. It serves as the backbone of this research process.

In the following, the models and approaches considered and used for this research project will be described. Firstly, the model of Hussey and Jenster is described followed by the approach of David Aaker. Then the approach of Eliashberg and Chatterjee is discussed and eventually the article of Bruce D. Henderson is introduced. Hereafter, the research model is displayed and the reason and importance of the parts integrated in this model will be discussed.

This theoretical side of the research is to be divided in two parts. First there is a part on the characteristics of the pump and valve market and determining which are the most important among these.

Setting up a theoretical background for these matters is the starting point in this process.

There are two very appealing approaches for the first part of this research: The approach of

Hussey and Jenster and the approach of Aaker, which will be presented here. As will be clear,

both models are suited for this research. They serve as a basis for designing a customised

research model for this research project. The parts of the models that are best suited for this

research are combined into this research model, which gives an outline of this project.

Furthermore, the framework of Eliashberg and Chatterjee is presented as an additional help with analysis.

§ 4.1.1 Hussey and Jenster

Figure 1 shows Hussey and Jensters approach to competitor analysis. They have been using this approach on several industries since the early 1980s

. The four parts in the centre of the model depict the information sources used in the process. The research process itself is depicted in the boxes surrounding the core, starting with Industry analysis. The thin outlined boxes are not appropriate in every situation. The phases of the model that will be used for this research will be introduced within the research model, designed specially for this project. The thin outlined boxes aren’t of interest for this research and will therefore not be described.

The first step in the process of competitor analysis is industry analysis. Obtaining a detailed understanding of the competitive arena is the objective of this part. The principles of Porter (1980), the Five Forces

, are used to do this. This model consists of the five following factors:

-Rivalry among competitors in the industry -Bargaining power of buyers

8 Hussey D. and P. Jenster (1999), p. 142

9 Ibid., p. 144

Desk research

Database and internet Market

research Internal information Industry

analysis

Special competitor studies

Competitor profiling

Critical succes factors Industry mapping

Value chain analysis Benchmarking

Building competitive advantage

Figure 1: Hussey and Jensters approach to competitor analysis

Start here

-Bargaining power of suppliers -The relative attraction of substitutes -Entry/ exit barriers

Hussey and Jenster

integrate the outside environment into the Five Forces model, which basically means that this model is surrounded by economic, political, social, technological, infrastructural, ecological, legal and demographic influences. The objective here is to link the supplier/ competitor/ buyer boxes of the Porter model to the outside environment, which affect all boxes in this model. It intends to mirror the reality that every industry operates within an environment and that this environment is continually changing.

In order to expand on the knowledge gathered in our industry analysis, the second phase of the approach is developed. Industry mapping uses the supply chain to create a picture of the industry. The interest here is to chart the industry in the sense that every means by which the product can reach the customer is identified, not restricted to a single producing company. Then there has to be decided whether there has to be a separation within a single step in the supply chain, for instance a significant difference in wholesalers. Drawing a chart of the industry can help interpreting the industry and provides a framework for keeping information up to date. It also shows where information is lacking.

An increasingly popular approach for identifying ‘strategically relevant’ information is through the critical success factor (Hise and McDaniel, 1984; see also Daniel, 1961, 1966)

. Critical success factors (CSFs) are events, conditions, circumstances or activities. Specifically, they are

‘the limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organisation’ (Rockart, 1979).

These factors can also be the result from the outcome of external events when there is risk exposure, achievements of one or more individuals or the internal operating process. These CSFs relate to the internal or external conditions for the firms strategy, or those competencies or resources it must attain.

According to Hussey, CSFs are company specific and can be an important part of strategy forming and thus important in a competitor analysis. Research has indicated that firms with a higher return on equity formally identified their CSFs and used them to monitor progress in strategic changes.

The fourth step in the approach is competitor profiling. This profiling basically means recording key information about each significant competitor per industry (preferred is a schematic drawing on an A3 sheet of paper). This is meant as a shorthand version that managers should consult regularly, and which will be updated on a continuous basis.

It makes it easier to identify firms in the industry where collaboration is possible, and can even help to pinpoint appropriate competitors whom to recommend to customers.

The next step in the model that is of interest for this research is ‘building competitive advantage’.

The whole purpose of competitor analysis is to build competitive advantage. These competitive advantages are in relation to the market and the rest of the industry, because being better than a

10 Hussey D. and P. Jenster (1999), p. 144

11 Ibid., p. 79

competitor will not guarantee success if what is offered gives little value to the customer

. The information gathered in the previous steps of the models is therefore used here to construct competitive advantage.

§ 4.1.2 Aaker framework

The research method developed by D.A. Aaker

is very useful for the purpose of market analysis. See figure 2 for the Aaker framework. It is a very comprehensive model originally intended to identify and select the most appropriate strategy for a company. It consists of an external and internal analysis which will lead to the identification of strengths and weaknesses of the company as well as the opportunities and threats in the environment, also known as the SWOT-checklist. The combination of these factors leads to areas of attention with which strategic alternatives can be generated. Eventually the most appropriate strategy for the company will be chosen

.

Figure 2: The Aaker framework

In this research, only the external part of this framework is of interest. The reason for this will be explained in the following.

The external analysis process should not be an end in itself. Rather, it should be motivated throughout a desire to affect strategy, to generate or evaluate strategic options

. In other words, it should not be an endless process of analysing the environment an organisation finds itself in, but be directed at a higher target. This can be generating the most appropriate strategy for an

12 Ibid., p. 21

13 Aaker D.A. (1998)

14 Ibid., p. 19-25

15 Ibid., p. 39

External analysis

• Customer analysis

• Competitor analysis

• Market analysis

• Environmental analysis

Internal analysis

• Performance analysis

• Determinants of strategic options

Strategy identification and selection

• Identify strategic alternatives

• Select strategy

• Implement the operating plan

• Review strategies Opportunities, threats, trends

and strategic uncertainties Strategic strengths, weaknesses, problems, constraints and uncertainties

organisation, by choosing the most appropriate strategy from generated options as a result of the SWOT checklist.

This research is however dedicated to a part of an organisation, and not an organisation as a whole. KSB Nederland BV is one of the selling parts of a much larger worldwide organisation, and strategy is mainly determined by the board of directors of this larger organisation. For KSB Nederland BV, items as shareholder value, product portfolio and financial resources and constraints are in this research of lesser interest. Contributing to the overall strategy of the KSB Group by understanding the nature of the Dutch market for KSB products is of higher priority.

Therefore, having the research question in mind, only the external part of the framework described by Aaker is of interest. This external part of the Aaker framework is divided into four parts.

The first part is an environmental analysis. The environment is looked at in terms of technological, demographic, cultural, governmental and economic aspects. The use of this part is to get a better understanding of the pump and valve market and its surroundings. This is an essential step, for in order to understand the likely behaviour of a competitor, we first need to understand the context in which it operates

. The balance of forces which determine competitor behaviour within an industry is another important aspect in this broad view.

The next part is a customer analysis. Customer segments and motivations are to be looked at.

This part is rather important, for enhancing knowledge on competition and market share can’t be done without knowledge on the market segmentation. So there has to be a segmentation of the pump and valve market. According to Aaker, segmentation variables are to be divided into customer characteristics and product related approaches. They should be evaluated on their ability to identify segments for which different strategies are or should be pursued

. The segments also have to meet the requirements of segmentation to be useful. These requirements are measurability, accessibility, size, feasibility and stability

. Of course segmentation also is dependent of the ways in which segmentation is used throughout the industry itself. After describing the segments that play a role in this industry, some knowledge on their motivations and especially key motivations are important. Knowledge of motivation can provide insight into what assets and competences are needed to compete and can indicate possible sustainable competitive advantages

.

The third part deals with the analysis of the market: size, projected growth, entry barriers, cost structure, trends and key success factors. Information of this kind per market segment as identified before is necessary to be able to generate an answer to the research question. An analysis of market segments and their attractiveness gives more information on competitiveness and its relation to market share. Information on these matters will mainly come from questionnaires and interviews. This market analysis provides the actual basis for a description of competitive review as described in the following.

The fourth part is a competitor analysis, which is an important part in the light of the research question. It starts with the identification of groups of competitors

. Aaker proposes two

16 Hussey D. and P. Jenster (1999), p. 41

17 Aaker D.A. (1998), p. 46

18 Leeflang P.S.H. (1981), p. 41

19 Aaker D.A. (1998), p. 56

20 Ibid. p. 76

approaches. The first considers customer choice, identifying the set of competitors from which the customer selects, or product use associations, identifying the set of competitors whose products are used in the same use situation. A second approach is identifying strategic groups, groups of competitive firms that pursue similar strategies and have similar assets, competencies, and other characteristics.

§ 4.1.3 Eliashberg and Chatterjee

In this research, emphasis is put on competition and market share. In order to determine whether competition has influence on market share and to what extend it influences market share, an analytical view on competition is necessary. Many authors have composed their competition model, with according assumptions and determining factors.

In this case, competition and analysis of competitive behaviour is much more complex than a static phenomenon described in much literature, in which a given number of firms compete under similar assumptions with similar products or closely related substitutes with a perfect knowledge of market conditions. In an attempt to cover the most important aspects and determine the focus of a competitor analysis, the framework of Eliashberg and Chatterjee is introduced.

Eliashberg and Chatterjee

reviewed a cross-section of competitive models with a framework of competitive analysis from a marketing perspective. Using this framework for analysis to develop a view on the competitive activity can give new insight in this particular situation. It won’t be used to develop a new competition model, but to support the concepts and aspects with which to assess the competitive activity in the Dutch market for KSB only. It allows us to look carefully at important aspects of competition in this market and to look closer at characteristics on which assumptions have to be made.

This framework developed by Eliashberg and Chatterjee is divided into three major dimensions.

The first dimension is the objective of the model, the second deals with the basic assumptions made about demand characteristics, supply characteristics and the competitive activity and the decision-making process, and finally the third dimension concerns the mode of analysis (level of aggregation, static versus dynamic, etc.). In the following they will be reviewed one at a time.

§ 4.1.3.1 Objective

In the first dimension a decision has to be made on whether this framework will be used to develop a basic understanding or to use it in a decision oriented way. The decision oriented way is focussed on a manager’s alternative course of action, in the light of actions and reactions of competitors. It can be used for improving decision making. Developing a basic understanding means studying the industry as a whole rather than one specific company and can be used to generate propositions and hypotheses about actual competitor behaviour, which then can be tested in an experimental laboratory setting or with industry data.

In this research, the framework is added to help generate a better basic understanding of the market. There is no specific action that has to be judged on its value. Studying the Dutch pump and valve market as a whole is the target, though from the viewing point of KSB Nederland BV.

21 Eliashberg J. And R. Chatterjee (1985), p. 237-261

§ 4.1.3.2 Basic Assumptions

In the second dimension assumptions are considered. About demand characteristics they imply decisions on the number of segments to be looked at and their interrelationship, factors affecting primary demand, market share and brand sales, and uncertainty in demand characteristics. If elements of uncertainty are assumed to be present, modelling the decision making process by managers should involve predictions – often guesses – about future demand conditions

.

Assumptions on supply characteristics cover the number of products and the degree of their differentiation, barriers to entry, cost structure and uncertainty. Cost structure is largely determined by technology, in a static sense (economies of scale) and a dynamic sense (in terms of learning curves)

.

Assumptions on competitive activity and the decision making process deal with the number of competitors, competition among existing brands or competition against new entries, decision variables and competitive interaction, information base and level of uncertainty, decision makers objectives (profit maximisation or goals in terms of market share or sales), and decision makers’

attitudes towards risk (impact of uncertainty on decisions). Decision variables and competitive interaction is about the marketing decision variables controlled by the firm, decision variables controlled by each of the other competitors and external (environmental/situational) factors beyond immediate control of competing firms, which are essential elements of competitive interaction. The informational base and level of uncertainty deals with the fact that competitors may be assumed to make their decisions simultaneously and noncooperatively or sequential and reactively. Simultaneity is to be interpreted here as not having the opportunity to observe decisions taken by others. Uncertainty plays a large role here. The assumptions may range from complete information (each competitor is aware and fully informed of mutual interaction) to the incomplete information case where uncertainty is inherent in the competitive interaction which leads each competitor to act according to its expectations of what rivals strategies might be.

§ 4.1.3.3 Mode of Analysis

The third dimension of the framework considers the mode of analysis. It deals with the level of aggregation, static versus dynamic mode, equilibrium conditions and the analytical versus simulation approach. The aggregation level concerns the demand function that is essentially an aggregate description of consumer behaviour. According to Chatterjee two approaches are commonly used: One is the aggregate approach while the other is the ‘build up’ approach, starting from an individual consumer behaviour model, and then aggregating across the population often with help of some heterogeneity (segmentation) variables. The static or dynamic mode depends on the origin of decision variables, i.e. if they have to be made for at least two consecutive time periods. The equilibrium conditions have to be considered under different modes of competitive behaviour. They will prevail in the industry in the long run and are dependent on the simultaneous and cooperative mode or sequential and reactive mode in combination with a static or dynamic mode of analysis. It describes the nature of the equilibrium.

The approach in deriving implications has two options: The analytical and simulation approach.

A simulation approach can help to model more complicated situations.

§ 4.2 Research model

22 Eliashberg J. And R. Chatterjee (1985) p. 238

23 Ibid., p. 238

Competitor profiling Market segment

characteristics Environment/ general

characteristics

Customer segmentation

Increase in market share

The model in figure 3 clarifies the process of this research and is influenced by the three models and the article of Henderson discussed in paragraph 4.1. The left part schematically shows the four parts of analysis in this research derived from the findings of Aaker and Hussey. Both approaches are very similar, and can both be of great value in the competitive analysis process.

For this research, a combination of the for this research best parts of both approaches is made.

The first three steps are derived from the Aaker approach, the fourth step; competitor profiling is from the Hussey approach. The fact that both approaches are rather similar makes it possible to support the analysis with findings of both authors.

Figure 3: Research model

The first part of this model is an environmental analysis of the Dutch pump and valve market, on the basis of the approach of David Aaker. This part of the analysis is conducted in chapter five.

The reason for the choice of the Aaker approach here is that it leaves out Porter’s Five Forces model, and concentrates on the environmental aspects, which are of the most value for this research project. The aspects of the Five Forces model that are of value to the research question, being rivalry among current competitors and entry barriers, are respectively discussed in chapter eight and paragraph 7.4.

The technological, governmental and economic aspects of the market are of great value in describing the trends in the market and thereby answering a part of the research question stated in paragraph 3.2.

Strategic uncertainty is an aspect that relates to the discussion on environmental characteristics of the market and is therefore a part of the environmental analysis. The framework of Eliashberg and Chatterjee is used here, for in this framework there is a good discussion on strategic uncertainty from various perspectives. Strategic uncertainty is discussed in paragraph 5.2.

The second part of the research model shows the customer segmentation. This part is also

derived from the Aaker approach, as it discusses segmentation of markets together with

motivations of customers. The Dutch pump and valve market cannot be looked at without

dividing it into segments and especially the position of KSB Nederland BV in the market has to

be looked at from this perspective, see chapter seven. Customer motivations and differences per

segment are of importance for the research question as they provide more clarity on trends and aspects that are of importance to customers. Therefore they can form grounds on which to compete and thereby influence market share of pump and valve selling companies.

The third part of the research model is a market analysis. This part is also derived from the Aaker approach for the reason that Aaker describes a very extensive market analysis. For KSB Nederland BV this is a very important part as it gives information on, among more, the size of the several segments and the position of KSB in them. As already stated in paragraph 1.1 this information is crucial to KSB Nederland BV, being a part of a larger organisation, which makes the market share in the Netherlands an important part of performance.

In this part the basic assumptions of the Eliashberg and Chatterjee approach are useful, for they give more insight into the cost structure of the Dutch pump and valve market and thereby on the position of KSB Nederland BV in it.

This part of the analysis, discussed in chapter seven, gives market segment specific information on the characteristics of the market and the position of KSB Nederland BV in it, and is thereby substantially contributing to the research question.

The fourth part of the research model is derived from the Hussey and Jenster approach to competitor analysis. This part, discussed in chapter eight, is on the profiling of the competitors of KSB in the Dutch pump and valve market. This is an essential step in the process, because knowledge on individual competitors and their presence in the market shows where direct competition is taking place, which again is of influence on the market share of KSB.

The fifth part of the research model, the right side of the model shows the final target of this research project. This part, discussed in chapter nine, is an important part of this research project, discussing various ways of achieving an increase in market share for KSB Nederland BV in the Dutch pump and valve market.

§ 4.3 Data collection

This research is a combination of a descriptive and explorative research. The main objective of this study is to describe and explore the Dutch pump and valve market.

For the purpose of information gathering, both primary and secondary sources are used.

Secondary data, being data already collected for some other purpose

, was expected to fall short for the purpose of this research project and therefore primary data is collected too. Three methods are used for data collection in this research process: Desk research, expert interviews and questionnaires.

§ 4.3.1 Desk research

Collection of secondary data mainly took take place through the use of desk research. This secondary data will be used to develop a more general insight into the research subject. Sources for this data are for instance: Internet, magazines, relevant databases, fairs and literature.

24 Hakim, (1982), In: Saunders M.N.K. et al., (2000), p. 188