Company A
“The first step towards a bigger market share”
Graduation thesis, May 2003 Rijksuniversiteit Groningen
Faculty of Management & Organization S1003712
Max de Lange Bevrijderslaan 9 9501 JD Stadskanaal
First assessor: Prof. Dr. Ir. F.P.J. Kuijpers Second assessor: Ir. J. Slagter
Preface
To complete my study at the faculty of Management and Organization, with a major in Business Development, at the University of Groningen, I have performed a six month research at Company A. This report is the result of that research and ends my graduation project. Because the data we are using in this paper is quite confidential we are forced to use another name for the company to maintain its privacy.
Company A, equipment manufacturer for the semiconductor industry, has the goal to move from the second position in the world to the number one position. The industry is very cyclically sensitive, complex and dynamic. To be able to enlarge their market share Company A needed a clear picture of the market on which they could form a market strategy. This new market strategy should lead to an increase of the market share.
I hope this report resembles the interest and enthousiasm I had while learning in detail about the dynamic world of the semiconductor industry and especially the molding equipment market. Furthermore I think and believe this report will be a good step in the process of enlarging the market share of Company A and will hopefully lead eventually to the number one position in the world.
I would like to thank everyone who helped me accomplish this research project. My special thanks go to the Managing Director and company supervisor (manager Sales Co-ordination) and university supervisors Prof. Dr. Ir. F.P.J. Kuijpers and Ir. J. Slagter.
“He who asks a question will have to live with the answer!”
Max de Lange
Stadskanaal, May 2003
Management summary
“The first step toward a bigger market share.”
This was the question Company A desired to get answerd and has lead to the initiation of this research. Already being the technology leader in the molding equipment industry Fico Moldings Systems wants to become the number one in supplying these systems.
In this paper we present a first big step how Company A can meat this goal.
Through an extensive prelimanary investigation we decided to find out what the dominant or crucial parts of the marketing and sales are in order to gain more market share. There are two crucial elements that need to be changed, namely the promotion also known as communication and the Customer Service.
First of all Company A has to change the way they think about their customers and how the marketing should be organized. In this paper we introduce a differentiated marketing strategy. The underlying thought is that not all customers are equal considering their value to the total turnover. The customers need to be segmented in to four different groups; the platinum segment, the golden segment, the iron segment and the leaden segment. Each group can then be approached with the right amount of time, effort and resources relative to their value. All written down in four different communicationstrategies. In good times, a sellers’market, the focus should be on the platinum- and golden segments, because that is where the growth of the market share can be found. In a buyers’market there is probably no choice but to serve the other segments also.
To make sure Company A keeps its comstomer and acquires new ones we introduced the concept of relation- and acquisition management that can be used as a handle to make the differentiated marketing strategy work.
Secondly, Customer Service, part of relation management, should get more attention within Company A. The customers expect on time deliveries and a quick and sufficient delivery of spare parts. In order to raise the customer satisfaction, important for the growth of the market share, Company A should manage the customers expectations properly and reorganize its operations to meat the expectations of the customers.
- Table of contents -
I
Preface___________________________________________________________ II Management summary____________________________________________ III Chapter 1 Company A_____________________________________________ 1
§ 1.1 Research context_________________________________________________1
§ 1.2 Problem analyses ________________________________________________2
§ 1.3 The history_______________________________________________________3
§ 1.4 The Semiconductor industry ______________________________________4 1.4.1 Front-end____________________________________________________________ 5 1.4.2 Back-end_____________________________________________________________ 5
§ 1.5 The production process___________________________________________7
§ 1.6 Mission, vision and goals _________________________________________8
§ 1.7 Environment _____________________________________________________9 Chapter 2 The research __________________________________________ 11
§ 2.1 Problem definition_______________________________________________11 2.1.1 Objective____________________________________________________________ 11 2.1.2 Presentation of the question___________________________________________ 13 2.1.3 Conceptual model____________________________________________________ 13
§ 2.2 Method of investigation__________________________________________19 2.2.1 Data sources________________________________________________________ 20 2.2.2 Measuring- and observation methods___________________________________ 21 2.2.3 Methods of analyses__________________________________________________ 22
§ 2.3 Theoretical framework___________________________________________22 2.3.1 Theory for C.M.______________________________________________________ 22 2.3.2 Transaction costs theory______________________________________________ 23 2.3.3 Segmentation________________________________________________________ 23 2.3.4 Customer Service____________________________________________________ 24
Chapter 3 Installed base__________________________________________ 25
§ 3.1 Introduction_____________________________________________________25
§ 3.2 Product-portfolio________________________________________________25
§ 3.3 Summary _______________________________________________________26 Chapter 4 Relation- and acquisition management___________________ 28
§ 4.1 Introduction_____________________________________________________28
§ 4.2 Relation management____________________________________________28 4.2.1 Establishing necessity ________________________________________________ 28 4.2.2 The relation management plan_________________________________________ 30
§ 4.3 Acquisition management_________________________________________32 4.3.1 The acquisition plan__________________________________________________ 32
4.3.2 Relations and acquisitions through communication________________________ 35
§ 4.4 Summary _______________________________________________________36 Chapter 5 Promotion_____________________________________________ 39
§ 5.1 Introduction_____________________________________________________39
§ 5.2 Present situation________________________________________________39
§ 5.3 Market segmentation ____________________________________________41 5.3.1 The packaging market________________________________________________ 41 5.3.2 Segmentation design_________________________________________________ 42 5.3.3 The customer pyramid________________________________________________ 45
§ 5.4 Future situation_________________________________________________46 5.4.1 Differentiated market strategies ________________________________________ 46 5.4.2 The golden segment__________________________________________________ 49 5.4.3 Checking results_____________________________________________________ 51
§ 5.5 Key persons ____________________________________________________52 Chapter 6 Customer Service______________________________________ 54
§ 6.1 Introduction_______________________________________________________54
§ 6.2 C.S. at COMPANY A _______________________________________________54 6.2.1 The importance of C.S.________________________________________________ 54 6.2.2 Customer Service in daily practice______________________________________ 57
§ 6.3 Summary_________________________________________________________59 Chapter 7 Conclusion & recommendations_________________________ 61
§ 7.1 Introduction_____________________________________________________61
§ 7.2 Answers to the sub-questions____________________________________61 7.2.1 The market development______________________________________________ 62 7.2.2 The product portfolio__________________________________________________ 62 7.2.3 Existing and new customers___________________________________________ 63 7.2.4 Promotion and communication_________________________________________ 64 7.2.5 The role of Customer service __________________________________________ 65 7.2.6 The end result_______________________________________________________ 65
§ 7.3 Recommendations_______________________________________________66 Bibliography_____________________________________________________ 68 Appendix________________________________________________________ 70
Chapter 1 Company A
§ 1.1 Research context
Company A sells her products on a market with a very strong cyclic movement. Years of very strong growth, that is very hard to keep up with because of the limits of various capacities like personnel or supply of materials / components are being followed by years of very slow growth or often decline. In these slow times reorganizations are often no exception.
Besides the cyclic motion of the total demand for new machines or molds, another aspect has a great influence on the total market. This is the low predictability of the demand for the future. Often new technologies, like WAP-communication and also the I-mode which is in its introduction phase at the moment this research is being conducted, force manufactures to start the production and thus to buy new equipment from COMPANY A or one of the competitors of COMPANY A. The problem is the fact that those are new technologies and there is little to none information about the way those new technologies will succeed on the market. This makes the prediction of the demand very difficult and the future of COMPANY A very uncertain.
At the moment there is a long-lasting research going on at COMPANY A by a group of six persons, who call themselves ‘the sixth sense’. This is part of their study at the IBO-institute1. The most important preliminary conclusion is the fact that COMPANY A is very orientated towards the customer, but not so much orientated towards the market. There is a lot of information about and a good communication with a few present and active customers and some prospects. Little attention, marketing, is given to inactive and / or potential customers or segments.
Main source of the marketing is the information that is known about the customers, present at COMPANY A in the heads of the people that work with the customers. This information is used as a base for the market approach, but it is likely that by doing it this way some segments are being penetrated poorly or worse, not at all.
1 The IBO-institute is founded in 1975, because the founders saw an opportunity in the market. The goal of the IBO- institute is to educate managers and professionals to enlarge their managerial knowledge.
§ 1.2 Problem analyses
Why do a research about the market / marketing if 80% of the total turnover is being realized through the trade with 4 to 5 customers? This seems to be a fare question to ask oneself, but the situation is a lot more complicated then it looks like from the outside. It looks like there are only 5 customers, but under each company-name are a number of establishments (customer sites / plants) which all have there own power of decision concerning the purchase of new equipment.
In the past there was a distinction between the companies in the Western world (North America and Europe) and those in the Far East. All the new product and process developments were done by companies in the Western world. Once these new technologies had proven themselves they were moved to the Far East were they could start their production based on these new technologies. Thus, the Research and Development were done in the Western world and production in the Far East.
Nowadays the people at COMPANY A told me that there is a shift going on from the Western world to the Far East. The technical skills of the workers in the Far East are getting better every day and they are now able to do the R&D themselves. This means that the parent companies no longer have to have subsidiaries in the Western world, but can move them to the Far East. Because of the low labor costs and the fact that the R&D is close to the production will save money as well.
The result of this shift is the fact that the parent companies and the subsidiaries in the Western world are no longer responsible for the purchase decisions of the subsidiaries in the Far East, like they were a few years ago. This means that COMPANY A has less contact with these Western subsidiaries and has to trade with the subsidiaries in the Far East more and more frequent.
When we keep this in mind and we look at the top 15 of customers we now talk about 70 different establishments. The top 15, based on data from 2001 are, in order of the biggest turnover: Infineon, ST, AVX, Ericsson, Philips, Eems, Epcos, Microsemi, Micronas, Osram, Delphi, Amkor, Motorola, Zetex and Atlantic. It is important to look at each establishment as an individual customer and to make sure that a good business relation is being built up with that customer. Throughout the rest of this paper the term
‘customer’ will be used a lot and with it we mean the customer at the level of the establishment / subsidiary. Having good relations with key persons in the different establishments is very important in this industry.
First of all, the fact is that multinationals will ‘always’ remain to exist, while an establishment can be sold or moved to another location. Then it is important to keep track of that customer and to maintain the business relation, because the customer will still need new machines and molds in the future.
Second is the fact that it is likely that each establishment is most likely involved in a different segment of the industry, different final products. This could mean that a distinction could be made between different establishments based on the type of machines they use for their production. One establishment uses machines that are suited for mass production, while another uses machines that are more suited for flexible production. It all depends on the number and the types of dies the manufacturer needs for the final product.
Before we move to the actual problem definition in chapter two, after we have presented the context in which this research will be conducted, we will describe COMPANY A and will explain some of the aspect of COMPANY A that are important to the research.
§ 1.3 The history
The present core business of COMPANY A is the designing, engineering and installing of machines and molds for manufactures of semiconductors, who use these machines to packages chips (from hereon ‘die / dies’). The industry uses different definitions for the same word. To prevent mistakes, the meaning of the word die (or dies) in this research is the ‘naked’ chip. This means the die is a chip that comes straight of the wafer, without any further operations being executed. How these machines and molds look like and function will be explained later in this paper.
As been explained before, Company A has started as a tool manufacturer after which it was acquired by another company who had to sell Company A because of their bad financial situation at the time. From that point on the parent company has been busy to grow to become a substantial supplier of equipment to the semiconductor industry. To be able to achieve this they acquired several companies that all have there own piece of the equipment market. They all make different machines that are all necessary to get a working semiconductor. Their precise function in this ‘value chain’ will be described in paragraph 1.5.2.
COMPANY A has a staff of about 150 members and gained a turnover of about 45, 87 en 60 million Euro in respectively 1999, 2000 en 2001. The years 2000 and 2001 were, compared to 1999, very well years. The market has gone through an enormous growth in 2000. Right now (2002) the market is very slow and thus the demand for equipment of Company A is low. COMPANY A just barely managed to make the budget for the first three-quarters of 2002. The expectation, expressed in semiconductor reports and newsletters, is that by the end of this year (fourth quarter – Q4) the market will show a small recovery.
The present organizational structure of COMPANY A can be found in figure 1.1.
The box that is coloured light grey is the department from where this research will be conducted. There are about 10 people working at the Sales Coordination department.
They work in pairs / teams, a senior project manager and a project manager. Each team is responsible for a number of customers, mostly determined by the geographical location of the customer. A more extensive explanation of the activities at the Sales Coordination department will be given later on in this report.
Finance & Administration Information & Communication Services Personnel & Organisation Quality Assurance
Facility Secretary
Sales Coordination Engineering Operations Customer Service Material & Process
Research General manager
§ 1.4 The Semiconductor industry
COMPANY A is not an organization on its own. It is part of a bigger organization. The relation between COMPANY A and the parent company will be explained in the next paragraph. The companies, which belong to the parent company, are all producing
Figure 1.1 Structure of COMPANY A
Source: Annual Report 2001
machines, which are needed for the production of semiconductors. This industry can actually be divided into two segments, namely the front-end and the back-end.
1.4.1 Front-end
The production of dies consists of many different processes, which eventually leads to a usable die. To be able to get a usable die you need a chain of machines, that all have a specific function in the production-chain. First of all, very complicated technology is needed to produce “rough” dies from silicon discs by using lithography. The result of this first step is a disc with a lot of dies, the so-called wafer.
The production of wafers is called the front-end in the production of dies. In the total production chain, front- and back-end, the wafer production determines about 80 to 90 percent of the total cost of the production of a usable die. Thus the whole back- end process is something that has to be done, but does not get much attention.
Although the front-end is a very interesting and a high-grade part of the industry, it will not be a part of this research. The reason for this is the fact that otherwise the research will get too big and there is not enough time to work out every detail, which is necessary if you want to make useful conclusions and recommendations.
1.4.2 Back-end
The machines that belong to the back-end of the industry make sure that the dies are being separated from each other by sawing the wafers and placing the dies, with glue, on a metal plate (the leadframe). The leadframes are connected to the leadframe-strip with leads. The dies are then connected to the leads by wires made out of aluminium or gold. These leads will later on be the connectors with the print board. The names the industry uses for those actions are “die (chip) separation” and “wire bonding”.
Then the leadframe is being covert, with an electric guiding material, before the dies, on the leadframes, can be molded. Molding means that compound (a plastic substrate) covers the entire die and the die-pad on which it is placed.
The reason for this is that the die needs to be protected against moist, dust and high temperatures. An additional advantage, besides these environmental circumstances, is that the die is also protected against customers and competitors, which are interested to know how the die looks like.
Another advantage is the fact that the molded die is easier to handle in the rest of the process of producing dies. The die and the wires are very delicate and can easily fracture when they are not molded. Another name for the process of molding is
“packaging”, which is also being used a lot in the industry. After this, the leads are covert with a thin layer of tin and lead, before they are being cut from the leadframe and formed into L-shaped legs. This process is called trim and form. The process described above excists already a long time and could be called the classic way of molding dies. A few years ago a new way of molding has been developed, called
‘leadless’ molding or better, ‘array’ molding. This offered producers of dies a whole lot of new oppertunities.
Figure 1.2 Position of COMPANY A within the value chain.
Source: Annual Report 2001
In figure 1.2 we present the two ways a mold can be molded and also the role of the parent company or one of its subsidiaries plays in it. The first way of molding is the classical way and has been described above figure 1.2. The new way of molding or at least one with new possibilites will be explained next. The red line in the figure gives an idea of the value-adding activities of sudsidiaries of the parent company. One of those value-adding activities is the molding of the dies which can be done with the systems and molds of COMPANY A.
Recently, there is a new technology developed, based on array molding, called
“flip chip”. What is new about this technology is the way the die is connected to the die- pad. They used to be connected with golden wires, but with this new technology there are small solder-bumps being placed at the top of the die. The dies are then flipped
Processed Wafer
Die/Wire
Bonding Molding Plating,
Trim & Form
Test Handling Flip chip
die attach Molding Ball Placement, singulation COMPA
over and soldered on to the leadframe. The die-pad with the soldered die on top will then be molded.
The big advantage of this new technology is the fact that a large number of dies, close to each other, can be molded at the same time. Later on a process called
‘sawing’ separates the dies from each other.
Besides the advantage for the process of molding there is also a big advantage for the functionality of the die. The old way of molding (leadframe) has reached its maximum capacity. The total number of wires has become limited and because the packaged dies keep getting smaller the capacity has reached its limit. That was the main reason for the development of array-packaging.
The expactation is that between 50% and 60% of the total number of packaged dies will be packaged with the array-method. This expactation has been based on the interviews with some of the senior project managers of COMPANY A of the Sales Coordination department. There will always be dies that need to be wire-bonded, because they have certain characteristics that require leadframe-packaging. For instance, dies that are being used for power generate a lot of heat and are mostly placed on a heatspreader that guides the heat away from the die. By using a heatspraeder it is not possible to use array-molding, because there is no room for solder-bumps.
The Flip-chip technology is momentarily still very expensive, but it eliminates a number of steps in the total production process. With this new technology the dies no longer have to be connected to the leadframes with golden wires and thus the trim and form process becomes unnecessary. This saves time and money.
§ 1.5 The production process
Through Sales and its salespeople abroad a request for a quotation (RFQ) is being made. Sales Coordination works together with Engineering to translate the specifications made by the customer into a datasheet and to draw up a quotation (Cost of Sales).
The datasheets are further worked out with the help of calculations and drawings by the Engineering department. Based on the offer that is made to the customer, a
detailed planning of the production is made by Operations (Logistics / Planning).
Besides Planning, Purchase and Supply are parts of Logistics as well. The Purchase department is responsible for the contracts with deliverers and the Supply department manages the different machine-parts. At Operations (Production) the different components are assembled, tested and tuned.
Material & Process Research (MPR) has knowledge about the process and equipment that supports Sales Coordination and Engineering. They also support Operations when they have a problem during testing.
The Customer Service department is a trouble-shooter that solves problems on site and worldwide and delivers spare parts to customers who do there own maintenance. Customer Service is also responsible for the Internal- en External Buy Off’s2.
§ 1.6 Mission, vision and goals
To be able to better understand the thinking behind the different activities and actions done by COMPANY A, it is necessary to know what the mission, vision and goals of COMPANY A are. This information makes it possible to put this research in a certain perspective and can help to understand some of the assumptions and decisions in this research.
Mission:
The mission of COMPANY A is determined by the parent company and describes where COMPANY A stands for. The mission is “Always ahead”. The mission denotes to the ambition for continuously improvement.
Vision:
The vision puts in to words the right to exist in the long run. COMPANY A operates in a very cyclically sensitive market, thus in the long run means in this case 2 to 4 years. So the vision is “The designing and delivering of molding system solutions to the chip industry”.
Goals:
The goals put in to words the right to exist in the short run. The goals are set for a period of 1 to 2 years. In reference to the vision, COMPANY A has formulated two main goals, namely:
2 Internal and external buy-off’s are important milestones in the delivery process. The machine gets tested and needs to run for four hours without any major problems. This is done twice. The second time the customer is present and accepts the machine when it meets the requirements listed on a pre-determined checklist.
- Market leader
- Technology leadership
To be able to achieve these main goals a number of targets are set, which in fact are parts of the strategy of COMPANY A. These targets are:
- Quality of supply
- Technology leadership by revolutionary research
- Progressive communication / relation with key customers - Efficient and effective process layout
§ 1.7 Environment
There are a number of different reasons why a customer chooses for the machines and molds of COMPANY A. Mainly the high quality of the products is a distinctive feature in comparison to COMPANY A competitors. The high quality is based on excellent solutions for difficult processes (know-how), the thinking along with the customer with help from Research & Development and the high degree of guidance to the customer.
Besides the high quality, COMPANY A has an extensive Material Process Research lab (MPR), where new developments are being developed and followed.
Because of this high quality, the extensive MPR lab and the high degree of attention given to the customer, COMPANY A can count on a high, worldwide reputation in the semiconductor industry.
To be able to remain anticipating on the demands and desires of the customer it is also important to follow the developments made by the customer. At this moment the customers of COMPANY A are mainly occupied with the integration of systems and the development of a better process management. The reason for this research is the fact that they want a better connection between the input and the output. COMPANY A anticipates on these developments by working together with other suppliers of back- end systems. They can be the other subsidiaries of the parent company, but also other suppliers that have nothing to do with the parent company.
The developments of the competitors are also a key focus of COMPANY A. The market of semiconductors is, as mentioned earlier, very cyclically sensitive and is dominated by the one who can offer the most advanced products, which agree with the demands and desires of the customer. Technology leadership is hereby the key word.
Momentarily, a Japanese company called Towa Corporation is market leader in back- end equipment and thus the biggest competitor of COMPANY A. Their advantage is their location. Around 80% of the market is located in Asia and this means that Towa has lesser costs (transport- and transaction costs) and a smaller cultural difference with their customers.
COMPANY A has a cost price that is considerable higher then its competitors, like Towa Corporation, because of the high quality of the products, the service and the high transport costs. By showing the customers their cost of ownership (COO) and because of the good results of machines sold in the past, customers get convinced to buy products at COMPANY A. Strong aspect of the molding process that can be achieved with the systems and molds of COMPANY A is the fact that it in most cases uses less compound then competitors. The money saved on compound, based on the type of product and the number of molded dies produced, can be used to justify the higher initial costs, the purchase price.
The problem is that customers do not always take the time to look at those aspects and are only interested in de cost of sales, especially when the market is not doing so good. Even more important is the time of delivery. COMPANY A has a time of delivery of about 12 to 14 weeks, while the competitors can deliver in 6 to 8 weeks.
Chapter 2 The research
§ 2.1 Problem definition
The problem definition consists of four different sub-definitions. First of all the objective of the research has to be clear. The objective is a definition of the (desired) end result and is a base for the rest of the research. When the objective is clear, a conceptual model can be drawn of the situation. All the variables, based on preliminary information, which play a role or have an influence on the problem situation, will have to come back in the conceptual model. Thus this model gives an overall picture and shows the relations between the variables and the problem, but also shows the interrelations of the variables.
After this phase it is time for the presentation of the question. Based on the objective and the conceptual model a research question and a number of sub- questions can be noted. The difference between the objective and the question is the fact that the objective is a specification of a bottleneck (a problem) and the question concerns the necessary knowledge to be able to solve the bottleneck [P.J.M.
Verschuren, page. 33].
2.1.1 Objective
At this moment COMPANY A is second in the market for molding-equipment and has the desire to become the number one. Managing Director of COMPANY A, has the feeling that COMPANY A does not have a good, clear, overall picture of the market they are competing on. This feeling made him decide to appoint me, to do a research to make this feeling go away.
In the first few weeks I tried to get a picture of COMPANY A and the activities it executes. To be able to do this I have read a lot of brochures, reports and documents and spoke with people in an informal way. After this learning-process and a first orientation of the problem situation we found out that there were a number of possible research objectives.
- To generate some kind of matrix based on a number of key market characteristics.
- Marketing-strategies for each plant / establishment or for each customer.
- A benchmark concerning the competitors of COMPANY A.
- The future of the molding process.
- The introduction of a Marketing Information System.
We discussed these options and together we decided not to continue with the last two, but to focus on the first three. In that same meeting we spoke about the final objective for my research and decided to focus this research on the ‘critical success-factors’ or
‘dominant factors’ of COMPANY A concerning the sales process and the marketing.
During the determination and execution of the critical success factors the first three objectives will play an important role. The objective for this research can thus be formulated as followed:
‘To identify the dominant factors in the capturing of market share of COMPANY A.’
In this research only the dominant factors of the marketing and sales will be taken into account. This means that other areas / functions, like personnel, transportation, supply, etc., will not be looked at and considered as fixed data. This also means that the product portfolio is a fixed data and the conclusions and recommendations at the end of this research will be about changes in the marketing and sales process and not in the product portfolio.
However, the product portfolio will be examined to see how it fits with the market.
The reason why the product portfolio will be seen as fixed data in this research is because the client does not want this research to go about the product portfolio. He is more interested to know how COMPANY A should organize the marketing and sales, based on the present product portfolio.
Another important aspect of this research is the customer service. Not so much as a selling argument in first buy situations, but for the existing customers it is very important if you want them to repurchase again some day. The customer service is different from the other aspects, because customer service can not be so easily adjusted to different segments. Customer service should be the same for each customer and is a precondition for customer satisfaction and hopefully repurchases, which will lead to a better performance / result.
2.1.2 Presentation of the question
Now the objective and the conceptual model are known, it is time for the next step in this iterative process, the presentation of the question. The presentation of the question, as I explained before, is a definition of the direction in which a solution can be found to solve the problem, defined in the objective. Thus, for this research the presentation of the question is:
‘What are the dominant parts of the marketing- and sales instruments that will help COMPANY A raise its market share?’
Sub-questions
How does the market development look like?
How does the product portfolio look like?
How can COMPANY A keep its existing customer and at the same time acquire new customers?
What are the dominant parts of the market instrument ‘promotion / communication’?
What is the role of customer service in the process of getting a bigger market share?
How should these instruments be used to market the products in the most effective way to each different customer?
Limiting conditions:
- The research will be executed within Company A.
- This research is restricted to the molding-market of semiconductors.
- This research is focussed on the marketing and sales of COMPANY A.
- The duration of this research is 6 months.
2.1.3 Conceptual model
There are a number of aspects involved in this problem situation. The central problem is the growth of the market share. This is explained in a previous section and is based on the preliminary investigation the central theme of this research. There are two remarks that have to be made about this central theme.
First of all, it is important to make a distinction between a market that is growing and a market that is in decline. Both situations require (perhaps) different ways of organizing the business in order to get a bigger market share.
The second remark is the fact that one not only has to look at the market share of COMPANY A, but also at the total market and especially the market shares of the main competitors. Analyzing these data could be very useful to understand if COMPANY A is on the right track.
According to many books about Business to Business marketing, but also consumer marketing, there are four marketing instruments that can be influenced by an organization to ‘try’ to make the market share bigger. These four instruments are presented in the figure 2.1 and are the four blocks close around the block with ‘growth market share’ in it. This model has been used for the preliminary investigation and indicates possible dominant factors of COMPANY A in achieving a bigger market share.
To generate this model I used the theory explained in the book of Biemans, which deals with business marketing management. The four instruments have been further worked out to make the picture specific for COMPANY A.
According to Biemans [Biemans, 2000] the marketing of the products of COMPANY A could be described as ‘systems marketing’, which means that COMPANY A offers its customers a package of products and services. COMPANY A is an ‘advisor’ to the
Promotion / communication
Growth market share
Machines / Molds
Customer Service Installed base
Price-fixing Product-portfolio
Capacity planning prod.
Technology
Market segmentation Existing customers
Key persons
Growth markets Prospects / new cust.
CoS reduction
Cost of ownership Quality improvement
Spare parts Problem solving
Sales method
Figure 2.1 Model of the preliminary investigation Training
customer and uses its installed base and its knowledge to help the customer solve a problem. Systems marketing is a way to differentiate the product, to offer the highest possible added value to the customer and to enlarge the switching-costs, which will enlarge the customer commitment [Biemans, 2000, page 229].
The marketing instruments for the systems marketing get a specific interpretation that changes as the project develops [Vollering, 1986]. He mentions four instruments:
product, price, distribution and communication. In this research there will not be any attention given to the aspect of distribution, because as we explained before this research is focused on the marketing and sales of COMPANY A. Instead of distribution another important factor has been introduced and that is the customer service, which will be explained in the next section of this paper. Just like Biemans said COMPANY A offers a solution to the problem of a customer. This solution consists of goods as well as services. That is why customer service has been introduced in this research.
Core of this research are the aspects presented in the two ovals in the model of the preliminary investigation. Early in the research and still in the information gathering phase (the preliminary investigation) we knew this research had to focus on the promotion and communication strategy of COMPANY A as well as the role of customer service in the growth of the market share of COMPANY A.
We have explained why customer service and promotion / communication are part of this research, but not why the other two (machine / molds and price-fixing) are not. In case of price-fixing we found out that COMPANY A is by far the most expensive one and that all (possible) customers know this.
Customers buy at COMPANY A because of the reputation COMPANY A has in finding solutions for difficult problems and for proven certainty of quality. Later on in this paper we will mention price again, because price sensitivity is one of the characteristics by which the customers of COMPANY A can be segmented.
The reason we do not pay any or little attention to the aspect of machines / molds, as well as distribution, is the fact that the Managing director of COMPANY A did not want this research to include those aspects. We understand his decision, because an investigation of those aspects would have lead to conclusions of a different order then the conclusions and recommendations we made. By this we mean that a change in the product portfolio or a change in the way COMPANY A distributes its products have a more strategic character. An adjustment in the way COMPANY A markets its products
does not have to have great implications for the daily business or on the total costs.
The development of a new system or the decision to move the production to the Far East has far greater consequences for the organization, as you can imagine.
Thus, based on the preliminary investigation and the explanation of why some aspects are not important to the research we now present the conceptual model (see figure 2.2). This model will be the base for the rest of the research and all further investigation shall have to be relevant to the model.
The main objective of this model is to provide us with a clear picture of the elements that will be investigated and the way they influence the growth of the market share.
This model gives an indication where the boundaries are of this investigation and important decisions should be based on this model.
We narrowed the research area (compared with the model of preliminary investigation, figure 2.1) in order to get more tangible results in the limited time we have. The model shows that promotion / communication and Customer service play a crucial role in the process of achieving a bigger market share. These two factors are rather vague. That is why we unraveled these factors into several sub-aspects. We will conduct our research at the level of these sub-aspects. In this way we will be able to make conclusions and recommendations that can help COMPANY A to adjust the daily operations concerning the marketing. The different sub-aspects will be explained shortly.
Promotion / communication
Growth market share
Customer Service
Market segmentation Existing customers
Key persons
Growth markets Prospects / new cust.
Spare parts Problem solving capability
Sales method Figure 2.2 Conceptual model
Training
Promotion / communication:
The most important market instrument that will be discussed in this paper is ‘promotion / communication’. This could be described as the real marketing. It is the part about the way COMPANY A sells itself to the outside world and the way it sells its products. The main reason why this aspect is so important is the fact only 4 or 5 customers are responsible for 80% of the total turnover of COMPANY A. Especially in these very slow times in which COMPANY A is right now, the dependence of only a few customers is very big and COMPANY A should try to make this dependence smaller by getting more substantial customers. This is where promotion and communication can be very useful.
Looking at the marketing there has to be made a distinction between existing customers and new customers / prospects. There is a big difference in the promotion / communication with existing customers and new customers. A relation needs to be built up with the new customer, but both sides do not know what they can expect from each other. An aspect that plays a big role in the promotion / communication with customer, and for that reason has got its own block in the conceptual model, is the role of the ‘key persons’. The whole industry is depending on who knows whom. It is important to identify key persons who have power of decision and try to build up a relation with them.
Another important aspect is the market segmentation. To optimize the marketing, COMPANY A has to know how the market can be segmented and what the characteristics are of those different segments. Segmentations can be made on a number of different factors, like type of package, final product made by the buyer or geographical. They all have positive and negative aspects and will be discussed in this paper. The growth markets are also part of this subject, but are of great importance for the growth of the market share.
The last aspect of the market instrument ‘promotion / communication’ is the ‘sales method’. With this I mean the way COMPANY A organizes the sales process. Which channels are being used, what the policy is concerning discounts (price discrimination) and how the communication with existing customers and new customers is organized.
A last, very important, remark about this conceptual model is the role of the competitors. The central problem is the growth of the market share of COMPANY A.
The model shows aspects that can be influenced / altered by COMPANY A to (possibly) enlarge the market share. How competitors work, on which markets they
operate, what their customers are, etc., can not be influenced. However, the competitors will have to be discussed, because many activities executed by COMPANY A have an influence on the competitors and vice versa. Thus, when the aspects from the conceptual model will be discussed, the role of the competitors and the influence of the competitors will be taken into account also.
Service:
A research conducted in May 2002 by two students of the Economics Faculty of the University of Groningen proved that service is a highly appreciated aspect of a supplier.
One could say it is a selling argument. These students had to find an organization for which they could do a research in China and that is how they came in contact with COMPANY A. The research was focused on the semiconductor industry in China, a growth market with big potential for COMPANY A.
They have interviewed at lot of people of different companies that make semiconductors and one of their conclusions is the fact that companies find service very important [Van Daalen and Söhngen, chapter 6, 2002]. Many of the companies that have been interviewed for the research have their headquarters and / or other subsidiaries in other countries all over the world. That is why service has been introduced in this paper as an important factor to make the market share of COMPANY A grow.
The activities of the Customer Service department at COMPANY A can be grouped into five different parts. First of all there is a ‘Customer Education Center’ that educates and trains the people that are going to work with the machines. This can be done at the site of COMPANY A or at the customer’s site.
This is also one of the scarce moments of direct face to face contact between personnel of COMPANY A and those of the customer. It is important to realize this and to try to leave a good impression at the trainees. They are the ones that are going to work with the systems and molds and can have an influence on the decision to buy at COMPANY A the next time the customer needs a system or mold.
The second aspect is the maintaining of a ‘World Wide Organization’ that consists of mostly native speakers, engineers, in major part of the world that help customers when the systems or molds are not working one hundred percent. These engineers are divided on account and / or machine type.
The third aspect is the ‘Global Service Management System’ (GSMS), which is a computer network that monitors and acts on problems that customers have with their products. The process of packaging dies is a very complex process and a lot off things can go wrong. Especially with totally new package designs, you could say it is learning by doing. The GSMS registers all incoming problems and complaints and has protocols on how to act on these problems.
Spare parts are the fourth aspect of the Customer Service department. There are customers that complain about the delivery time and the prices of the spare parts of COMPANY A. A machine stop is not good in any business, so you want to resume production as soon as possible. The competitors of COMPANY A, like TOWA Corporation, have spare shops in the Far East that enables them to deliver the spares much faster then COMPANY A can. Also with spare parts, pricing is a problem.
COMPANY A is investigating the possibility of some kind of e-procurement for the spare parts and is planning to start with it somewhere in 2003.
The final aspect, which is still under development, is the Remote Service. Goal of this service is to reduce the downtime of the machine. This can be achieved by gathering al kinds of data of the machines that are in the field, through the Internet, and analyze these data at COMPANY A. Perhaps it is possible, based on the analyses, to adjust some of the settings and let the machine perform better.
§ 2.2 Method of investigation
For this research the market of molding equipment needs to be worked out into a clear, understandable picture, based on a number of variables (mentioned earlier in the conceptual model). The reason we need to have a clear picture is the fact that we want to segment the market by characteristics we will discuss later on in this paper. This segmentation is necessary to introduce the concept of ‘differentiated market strategy’.
Information that matters to be able to segment the market is:
- The installed base of the different customers at present time (sales history);
- The geographic position of the customers (are there any concentrations);
- The final product for which the customers uses the machines from COMPANY A;
- Growth of particular segments and / or geographic locations (economics).
The sub-questions mentioned in the problem definition are a guideline for the way the rest of this research will be executed. They determine what information needs to be gathered. Figure 2.2, the “Ballentent” of Prof. Dr. Ir. A.C.J. de Leeuw gives a nice view of the elements that play a role in the determination of the research method.
According to Mr. De Leeuw the research method is a coherent set of decisions about the balls in the “Ballentent” [A.C.J. de Leeuw, 1996:88]. In the following segment we will indicate what data is necessary for this research, where it can be found and how it will be analyzed.
There are six different kinds of data sources. The ones that will be used in this research are documents, the reality (the “field”) and databases. Another “source” is the experience / knowledge of the researcher. The problem with this source is the fact that the experience can not be used as a foundation for conclusions and assumptions in the research, because of the subjective character of the source. The reason why we mention this source is the fact that the experience and knowledge of the researcher is vital if one wants to think up ideas during fantasizing, which is so important during practical research.
2.2.1 Data sources
The meaning behind documents is the available information at libraries (public and / or university), at COMPANY A and secondary sources, like the reports made by the students of the IBO-institute, which I mentioned earlier. Up till now these sources have been very helpful in getting data for the set-up and the problem definition of this research.
Methods of analyses
Measuring- and observation methods
Problem definition
Useful concepts
Data sources
Figure 2.2 “Ballentent van onderzoek” (Source: De Leeuw, 1996: 88)
The reality is also an important source for the research. By looking at the reality you get up to date information and one can check if information from other sources are correct.
It is also possible to get information about COMPANY A from outside. Perhaps suppliers, competitor or other parent company’s subsidiaries have another opinion about the market or the products than COMPANY A. Besides the physical reality there is also a social reality. The core of this reality is the less tangible data like the opinions of the employees about the way COMPANY A works and what they think are essential aspects of COMPANY A in relation to this research.
The databases that are used and will be used for this research are the databases on the Intranet of COMPANY A and databases on the Internet. There is a lot of information known within COMPANY A, which are accessible through a number of programs. Especially information about the customers and the product-mix can be found in those databases and are (possibly) of great use to the research.
Besides the Intranet there are many sites on the Internet were information can be found on the semiconductor industry. Some of these sites are free of charge, but for some of them you need to subscribe and pay.
2.2.2 Measuring- and observation methods
Once you know where you can get the necessary data you need to be able to abstract this information. This is done by measuring- and observation methods. To ensure a certain level of quality the measurements need to meet the requirements: reliability, validity, accuracy and suitability. These requirements will be explained later in this paper when the measuring- and observation methods are really being used.
There are a number of different measuring methods, but there is one that has the most potential for this research. This method distinguishes between register and measuring with stimulus. The reason behind register is that some aspects of the reality just occur to us. They happen without a preconceived plan to measure them. Differently put, there is no need for an extra stimulus to see how things work. In case of this research I will use observation, studying of documents and analyze other researches.
The big advantage of these kinds of “measuring” is the suitability. Important is to check the quality of each method for each case.
The second kind of measuring (with stimulus) asks direct involvement of the researcher. The researcher adds a stimulus and observes the result. The ones that are going to be used are surveying and interviewing. They are both effective ways to collect a large amount of data in a relative small amount of time. Another advantage is
the structured way the information gets collected. Thus these methods are very helpful at COMPANY A to get a lot of information about the market and the variables that play a role in that market.
2.2.3 Methods of analyses
The data, after it has been collected, needs to be processed and analyzed, because out of the rough data the relevant information needs to be selected. Tools that can help to select the relevant information are attentive studying and considering and to make a model of the collected data. The way I am going to rapport my findings are in writing as well by oral presentation.
An extra difficulty is the confidentiality and secrecy that play a role in the publication of the final report of this research. As the researcher I have signed a confidentiality contract, what could mean that the final report, which will be a public report, needs some adjustments to protect vital information.
§ 2.3 Theoretical framework
In the previous paragraphs I have explained what information I need and where I most likely can find it, that will enable me to give answers to the sub-questions and write down some conclusions and recommendations concerning the main question.
Another aspect in the gathering of information is the way it is used in the research. One has to put the collected information in a certain perspective. An ideal way to process information is by using theory. By using theory, suited for the problem situation of this research, one has something to gone on.
In this paragraph we will discuss a number of theories and / or concepts that could be of value to this research, because they (most likely) are of use to be able to understand the problem field or a part of the problem. Most theories say something about a specific area, like the marketing, organizational structure, personnel and so on.
2.3.1 Theory for C.M.
As you have read earlier in this paper the realization of a conceptual model (C.M.) is an iterative process. We used the book of Prof. Dr. Ir. A.C.J. de Leeuw [de Leeuw, 1996]
and the knowledge of university supervisor Prof. Dr. Ir. F.P.J. Kuijpers to shape the C.M. to how it is presented in this paper right now.
For the completion of the C.M. (figure 2.1) we used the theory of the 4 P’s of marketing. These 4 P’s are mentioned in almost every book about the (business)
marketing, but we used the book of Mr. Biemans [Biemans, 2000]. The theory about the 4 P’s together with our own investigation and wisdom has lead to the completion of the C.M.
2.3.2 Transaction costs theory
This theory discusses not only the relation between the customer and COMPANY A, but also the relation between COMPANY A and the suppliers. We will not pay any attention on the latter one, because this is a marketing study in which the supplier will not be involved. There are two hypotheses underlying this theory. One is the fact that there is a striving for rationality. Total rationality is an illusion. This means that contracts are based on limited rationality and can never be complete. There are several unexpected circumstances that have not been accounted for.
The other hypothesis is the fact that customers can behave in an opportunistic way. The more unexpected circumstances occur, the higher the risk a customer shows opportunistic behaviour [B. Nooteboom, 1994: 31-32].
This theory can be very useful in this research to find out, in-depth, the relation between COMPANY A and the customers of COMPANY A. It will show how great the risk is the different customers will show opportunistic behaviour and if there are other
‘costs’ that have an influence on the relation between COMPANY A and the customers.
One of the advantages of this theory is that it gives a clear picture on how COMPANY A should be able to increase the dependability of customer to keep working with products of COMPANY A. In other words, to increase the transaction costs.
Perhaps the gathered information can be used in a market strategy that will help COMPANY A acquire new customers.
2.3.3 Segmentation
To be able to segment the market on which COMPANY A operates we are going to use several theories and models. We are going to use the customer pyramid [Rust, Zeithaml and Lemon, 2001] and combine it with the ‘nested approach’ [Bonoma and Shapiro, 1983] to make a first segmentation in the customer database of COMPANY A.
Again, the book of Biemans [Biemans, 2000] will be used to explain some of the assumptions and aspects about segmentation.
Besides these theories and models we will also use inquiry reports about the semiconductor market. They will provide us the necessary quantifiable data that will back up the segmentation we are suggesting in this paper. These data will tell us what the growth markets are, which packages have the future, etc. The names of these
inquiry reports can be found in the bibliography in the back of this paper. We found these inquiry reports on the Internet, as well as at COMPANY A where they get (update-) reports on the semiconductor business.
2.3.4 Customer Service
The priority of this paper is the promotion and communication strategy (marketing strategy) of COMPANY A and how it should be organized to work the most effectively.
Therefore the time invested in and the extensiveness of the chapter Customer Service is lesser then that of the chapter Promotion. That is why will not be using as much theory and models as the other chapter.
We will use the books about business marketing and combine them with a number of inquiry reports that also deal with this subject. The reason we use inquiry reports in this case, is the fact that Customer Service is a relative new subject in the literature. There are not so many books specifically written about it, so these reports are a good reflection of the present way of thinking concerning Customer Service.
Goal of this chapter is to describe the translation of the term Customer Service at COMPANY A and compare this translation with the literature. Based on this comparison it should be possible to make some conclusions and recommendations.
Perhaps the research will find out some remarkable aspects present at COMPANY A or in the literature that leads to a new research done by somebody else specifically on the subject of Customer Service.
Chapter 3 Installed base
§ 3.1 Introduction
In this chapter we will discuss the installed base of customers of COMPANY A. The reason we are discussing the installed base is to give a picture of the complexity and dynamic of the molding equipment market. It is also a beginning to understand how this market works and how it will develop.
COMPANY A operates on a worldwide market with a lot of customers and the goal is to look for any segments by which this market can be divided. The actual segmentation will be explained in the chapter five.
As been mentioned before, only a small number of customers are responsible for a great part of the total turnover of COMPANY A. This is the reason why we have chosen to use the information of the top 15 customers based on their part in the total turnover of COMPANY A. We have tried to organize and analyze the information on a clear and orderly way. By doing this we were able to make some remarks / conclusions about the installed base and the way it influences the problem situation.
To be able to understand the assumptions and conclusions made about the installed base it is important to know a little bit more about the different systems (machines) COMPANY A sells. Besides the present product-portfolio, it is also important what kind of systems COMPANY A is developing at this moment. Not only for this chapter, about the installed base, but also for the rest of this research.
§ 3.2 Product-portfolio
COMPANY A sells complete molding systems (machines) as well as the molds that fit in these systems. To give you an idea; the systems COMPANY A sell can weigh up to several tons, the costs of one system can be as high as 7 or 8 hundred-thousand Euro and requires up to 7 square meters. The molds COMPANY A sells are mostly suited for one kind of package and it takes a lot of money and time to change them for another product. In this chapter only the installed base concerning systems will be analyzed.
There are a number of reasons for this decision.
First of all, a mold can only be sold if the buyer already has a system of COMPANY A. This means that the buyer of a mold is also the buyer of a system.
Notice that the system could have been purchased long ago.
Second, the number of different molds is very big and would take a lot of time to make any analysis and conclusions. Final, the way COMPANY A sells itself to the outside world is by the different systems they have developed and are now selling to the customers and not through their different kinds of molds.
There are different ways a system can operate, automatically or manually. A system that works manually needs input, like pellets and leadframes, put in the machine by hand. The entire operating of the machine also has to be done by hand.
These manual systems are mostly used for cleaning the molds, so the automatic systems can continue to run with maximum capacity. They can also be used to run some tests, when for example a new kind of die has to molded.
In conclusion we can say that the total product portfolio, especially with the introduction of a new type of system, COMPANY A is able to mold any package the customer asks for now and in the near future. Not only the machines are important, but also the molds.
The technology that is necessary to build a mold is too complex to give a short explanation. The producing of molds is a very specialized process, with a lot of variables that need to be taken care of.
Although this is a very interesting process, it is not relevant for this research, as I explained earlier in this report. The basic principle is that COMPANY A can make a mold for any die on the market today. This means that in some cases the mold is just a repeat or almost a repeat and in some cases a totally new mold needs to be developed for a customer.
§ 3.3 Summary
The original chapter 3 gave a complete picture of all the different system types and customers, but we had to leave this data outside this paper. This is done because we wanted to make sure that the privacy of the company is maintained. This paper will be published on the internet and thus available to anyone including competitors.
In this chapter we have given a picture of the different systems COMPANY A sells, who the customers are of COMPANY A and what their installed base is. Based on their installed base the most important subsidiaries to COMPANY A are Infineon Malaysia, ST Malta, ST Malaysia, Amkor Philippines (P3), Amkor South Korea (Seoul), Amkor South Korea (Bu Pyung), AVX Czech Republic and Motorola Hong-Kong (Taipo).
The most important type of system is one particular system, which is responsible for about 50 percent of the total installed base of COMPANY A.
At the moment COMPANY A is busy introducing a new and improved system which will eventually replace the old successfully series. To make this introduction a success COMPANY A has to promote this to the market and especially to the customers that are working with the old series right now. The old system has proven itself. Customers are convinced of the reliability and familiar with the possibilities of the old system. They do not know what to aspect of the new system and COMPANY A has to convince the customer the new system will be as good or even better then the old system.
The conclusion we can draw out of this chapter is that there are only a few important customers and that COMPANY A is very dependent on one particular type of system. In the next chapter we will discuss how COMPANY A should deal with the fact that there are only a few important customers and how COMPANY A can get more important (substantial) customers.
The high dependence on one type of system and the way COMPANY A can reduce this dependence requires a whole new research and will not be discussed in this paper. We will however pay some attention to the old system and the fact that the new type of system is going to replace it. This will be something we are going to explain in chapter 5.
Chapter 4 Relation- and acquisition management
§ 4.1 Introduction
In this chapter we will discuss the two instruments, relation management and acquisition management, that, according to the theory of Burgers and Kense [Burgers and Kense, 2001], could help enlarge the market share of, in this case, COMPANY A.
Relation management has to do with the way COMPANY A deals with the existing customers and the importance of these customers for the turnover. It is an instrument that can help COMPANY A to keep its customers and will generate repurchases.
Acquisition management deals with the way COMPANY A organizes its promotion and communication activities in order to get new customers. Acquisition management has to be combined with a good relation management. It is obvious that it only makes sense to attract new customers, if you are able to keep the existing customers satisfied. That is why we will start by explaining what the effects are and / or could be of relation management at COMPANY A.
§ 4.2 Relation management
4.2.1 Establishing necessity
A good relation management contributes to an enlargement of the profitability and to the realization of growth of the turnover. After all, by having a good relation management you can try to reduce your own costs, increase sales and reduce the price sensitivity.
The considerations that underlie these assumptions are:
1. Realize growth by relation management;
2. A higher profitability;
3. The high acquisition costs;
4. The possibility of cross-selling;
5. A reduction of price sensitivity [Burgers and Kense, 2001: 245].
First of all, we have to establish if a shift of time, money and resources towards more attention for relation management is wanted and / or necessary. There are five aspects that can be analyzed to back this decision up:
