C a n t h e F l e x t a b r e p l a c e t h e e a s y - o p e n e n d ?
Tom Nauta
Impress Metal Packaging
C a n t h e F l e x t a b r e p l a c e t h e e a s y - o p e n e n d ?
The author is responsible for the contents of this thesis; copyright rests with the author.
Author Tom Nauta [1350897]
University Rijksuniversiteit Groningen Faculty Management & Organisation
First supervisor Prof. Dr. Ir. F.P.J. Kuijpers Second supervisor Ir. J. Slagter
Company Impress Group BV
Supervisor M.B. Smyth
Crosmières – Paris, France Groningen, the Netherlands September 2004 – June 2005
P r e f a c e
Writing your Master’s thesis can be compared with opening a can. It seems so easy to do, but in reality it can be a ‘hell of a job’ to reach your goal. To solve this problem for opening a can, Impress invented the flextab. For a thesis there is no instant solution, so you better get yourself in a comfortable environment for writing.
For me, this environment was provided by Impress, with thanks to Jelmer Jongsma and Till Isensee. Impress gave me the chance to experience being in a business environment on its best, with all the freedom and responsibilities I could have wished.
My acknowledgements therefore go to all the people within Impress I have had the pleasure working with. Special gratitude goes to Mark Smyth for supervising me with this thesis and with other projects I worked on in Impress.
Besides that I would like to thank Leendert van Achteren, Elmar van Loon and Wouter Smrkovský for correcting this report and giving new insights for further writing.
Furthermore my thanks go out to my university supervisor, Mr. Kuijpers.
Albeit most of our contact moments were by phone he really helped me out giving me new insights and helping me finding literature and theories to use in my thesis. I would also like to thank my second supervisor, Mr. Slagter.
Last but not least I would like to thank my parents for supporting me during my study in Groningen and especially during this time in France.
Paris, June 2005 Tom Nauta
E x e c u t i v e s u m m a r y
Impress, a leading company in the European metal packaging industry is developing a new type of an easy open end. An easy open end can be used to open a can without a can opener. The new end development, the flextab end, is easier to access, and reduces the possibility of breaking a fingernail whilst opening the can.
The invention looks good, but Impress is uncertain if the new end is distinctive enough to have market potential as a result Impress wants to know how to launch this product on the market.
Theoretical research shows that there are two important factors which have an influence on the market potential of the flextab: consumers and fillers, the customers of Impress who fill the cans and sell them to retailers. The behaviour of these two parties has a large influence on the success of the market introduction of a product like flextab. In addition to these two influences, there are further factors which should be considered. The market was analysed using Porter’s five forces model.
An investigation into consumer and customer behaviour was conducted through consumer research into the consumer perception about the flextab.
This research concluded that the advantage of the flextab is recognised, but that the original concept was not convincing enough for the consumer to purchase a flextab can.
To convince the consumer of the advantage of the flextab, the technical advantage itself is not enough, also marketing effort is needed to convince the consumer. Examples of other types of metal packaging show that it is possible to persuade consumers to change their perception.
Convincing consumers is not a process that should be executed by Impress, this has to be done by the filler, who has a better view of the market and the marketing possibilities.
As only one company can be the first to introduce the flextab on the market, Impress has to carefully select one of its customers for this market introduction. Since this market introduction can give a competitive advantage to this customer, selecting the right one is an important phase in this process.
A method that could help selecting the right customer is customer profitability. By assessing the customers on their profitability the most profitable customer can be selected to introduce the Impress flextab on the market.
T a b l e o f C o n t e n t s
PREFACE ... I EXECUTIVE SUMMARY ... III TABLE OF CONTENTS...IV
1. ORGANISATION ... 1
HISTORY... 1
STRATEGY... 2
DIVISION STRUCTURE... 2
FOOD... 3
SEAFOOD... 3
DECORATIVE AND PROTECTIVE FINISHES (DPF) ... 4
SPECIALITIES... 4
USA ... 5
RESEARCH AND DEVELOPMENT... 5
FUTURE... 6
2. RESEARCH CONTEXT ... 7
HISTORY... 7
DEVELOPMENT... 7
POPULARITY... 8
INNOVATION... 9
3. PROBLEM DEFINITION ... 10
OBJECTIVE... 10
CONCEPTUAL MODEL... 11
RESEARCH QUESTION AND SUB QUESTIONS... 11
RESEARCH RESTRICTIONS... 12
4. THEORETICAL BACKGROUND ... 13
WHAT IS MARKET POTENTIAL?... 13
HOW TO MEASURE MARKET POTENTIAL?... 13
CONSUMER BEHAVIOUR... 14
CUSTOMER/BUYER BEHAVIOUR... 17
5. METHOD OF INVESTIGATION ... 19
6. MARKET POTENTIAL... 21
6. MARKET POTENTIAL... 21
7. TECHNOLOGIES AND MARKET SEGMENTS ... 23
TECHNOLOGIES... 23
IMPRESS MARKET SEGMENTS... 24
TOTAL MARKETS... 25
8. COMPETITION OF FLEXTAB... 27
INDUSTRY COMPETITORS / RIVALRY... 27
NEW ENTRANTS / BARRIERS TO ENTRY... 28
SUBSTITUTES... 28
BUYER POWER... 30
SUPPLIER POWER... 30
9. CONSUMER BEHAVIOUR... 33
10. CUSTOMER BEHAVIOUR... 35
11. MARKETING STRATEGY... 36
12. CONCLUSIONS ... 40
MARKET POTENTIAL AND INFLUENTIAL FACTORS ON THE MARKET POTENTIAL... 40
MARKET SEGMENTS... 40
COMPETITION AND SUBSTITUTES... 41
CONSUMER BEHAVIOUR... 41
CUSTOMER BEHAVIOUR... 41
MARKETING STRATEGY ... 41
CONCLUSION... 42
13. RECOMMENDATIONS ... 43
REFERENCES ... 45 APPENDIXES:
APPENDIX 1: GLOSSARY
APPENDIX 2: MARKET POTENTIAL
APPENDIX 3: CAPACITY OF EZO PRODUCERS
1 . O r g a n i s a t i o n
The purpose of this chapter is to give the reader an insight in the organisation of Impress. Large multinational companies such as Impress often have a complex organisational structure. Taking into account the fact that the organisational structure can have a great influence on the process and outcome of a research, a detailed description of the organisation is given in this chapter.
History
Most organisation descriptions of large multinational companies start with a story of the founding of the company a long time ago. This is not the case with Impress, because Impress’ history is relatively short, it was created in 1997.
Since it is impossible to create an industrial company with the scale of Impress from nothing there are actually two founders, who made the basis for Impress today.
In 1877 Alfred Rangot, also known as Pechiney became a manager of a company in France and named the company Pechiney. Twenty-one years later, in 1898 J.A. Schmallbach started a factory in Brunswick, Germany.
Figure 1.1 shows both of these companies as the roots of Impress, there were many mergers and acquisitions before the founding of Impress.
In 1997 the British private equity firm Doughty Hanson completed a leveraged buyout1 to merge both the metal non- beverage packaging division of Pechiney and the equivalent division of Schmalbach- Lubeca thereby creating the new company Impress Group B.V..
In 2000 Impress Group made two major acquisitions, namely Ferembal and Heinz
1 A leveraged buyout (LBO) occurs when a financial sponsor gains control of a majority of a target company’s equity through the use of borrowed money or debt.
Starkist Food can operations took place. Doughty Hanson, the major shareholder, supported these acquisitions through a cash injection of approximately 150 million Euro.
Ferembal in France was acquired to secure a better and more central position on the European market, and avoid the introduction of a new player to the European market.
In 1998 Impress secured the contract to supply Heinz Europe its can making components business. In 1999 Impress was offered and secured a tender to acquire the can making operations of H.J. Heinz Starkist business in the U.S.A.
In 2004 the Impress Group had a total turnover of 1,268 million Euro. This turnover was realised in 40 plants in 16 countries, mainly in Europe, Impress employs 6,695 employees.
Strategy
Impress’s strategy is based on three main points. The first point is to create value throughout the supply chain from raw materials to the final packaging.
The second point is to differentiate the product offering from other metal packaging companies in this sector. Impress supports its customers’ initiatives to differentiate products with tailored solutions in shaping, printing, easy opening, and other features, thereby aligning its product offering with the final consumers’ specific needs.
The third equally important point is that Impress is constantly pursuing a streamlined or optimised industrial structure which provides a low cost base, whilst maintaining a high level of quality to the customers.
Pursuing these three points the aim of Impress is to be the best metal packaging company in the world.
Division structure
Impress is divided in four divisions: Food, Seafood, DPF & Specialities and USA. The latter is the only division that is geographically orientated; the other divisions are made by end-market. The reason to make this exception for the USA is practical namely the time difference, the USA division covers two main end-markets, seafood and food. If both divisions, food and seafood, would have had part of their business in the USA, this would create a communication issue. The European business has three time zones to deal with, whereas the USA division is from six to twelve hours behind the European operations.
Operationally communication would be impossible. With the USA as a
separate division this operational (day to day) problem is solved, and there is only a requirement for management communication between Europe and the USA which as in all businesses is at a higher level, and revolves around strategy and finance. A short description of each division will follow below.
Food
With sales of 486 million Euros in 2004 the food division is the largest division of Impress. The products produced in this division are for the main part standard low cost cans which are produced in high volumes, aimed at the mass market. However Impress has introduced differentiated cans to its customers, whilst they tend to be produced in lower volumes with higher price, some such as the small 85g aluminium can are reaching a volume where they are now part of the volume portfolio.
To reduce costs within the food division, there is a continuous monthly bench- marking of all plants, to achieve operational excellence. In terms of expansion Impress is market driven, with customers tending to move east, new plants are based or acquired in countries with low labour costs like Eastern Europe.
Further some plants are based wall-to-wall to the costumer to minimise the transport from Impress to the customer. This causes a huge reduction in the distribution costs made up of transport and inventory.
The main customers for the Impress food division are H.J. Heinz, Bonduelle and Nestle. The market share of this division in the European market is 27%, a second place after the largest competitor Crown who has a share of 49%.
The market for canned food is a mature mass market. The growth prospects are overall flat or slightly positive particularly where the population will increase, and or the disposable income rises to average developed country levels.
Seafood
The seafood division has sales of 205 million Euros in 2004 responsible for 16% of the Impress’ total sales. In the seafood market Impress is worldwide leader with a market share of 27% in the world market of seafood cans. In Europe Impress has a market share of 34%.
This market consists of a huge range of different shaped cans to suit the different types of fish canned and includes new items like bowls. These cans often have specific printing and closing techniques for the different products:
tuna, sardines, herring, etc. The main customers in this division are H.J. Heinz with the brands Petit Navire and John West and the Heristo Group.
The main species canned of canned seafood is tuna, it has been estimated that over 80% of the world’s tuna is ‘harvested’ within ten degrees of the equator. The processing plants have therefore aside from tax measures tended to move to this zone. The tuna after canning is transported to Western Europe, North America and developed Asia (Japan) for the ultimate consumer. The other main fish canned are sardines, and anchovies, followed by herrings and spratts, and mackerel which are found in cooler waters. These other species are principally canned in the cooler Northern and to a lesser degree Souther hemi-sphere, closer to the main end market of Europe and North America. The market for canned seafood continues to grow, which to a degree has surged as a result of consumer scares related to mad cow disease, and negative press related to beef and poultry.
Decorative and protective finishes
The decorative and protective finishes (DPF) division is responsible for the production and sales of paint, protective finishes, and industrial chemical cans. The total sales of the DPF division were 183 Million Euros in 2004. In the industry this segment is often referred to as ‘General line’, yet analysis of the segment shows that paint and finishes is by far the most important end market. Within the end-market for paint and finishes the division is the European leader with 28% market share.
Impress specializes itself in the DPF market for being innovative in producing cans in new shapes and with new kinds of coatings, and has won several international awards for shaped cans, and cans with a ‘tactile finish’ targeted at satin paints. The main customers of Impress’ DPF products are ICI, Akzo Nobel, Sigmakalon and Du Pont.
Specialities
The specialties division serves two main market segments: dry powders &
foods and aerosols, there are then as the name implies many other smaller in some cases niche market segments e.g. beer kegs, cigar boxes, cake tins etc.
Together with other smaller market segments this division had sales of 237 Million Euros in 2004.
In the powders and dry foods end market segment the main products are printed re-closable cans with a peelable membrane for customers like Friesland Foods and Nutricia, examples of this package is quite widespread for dried baby food. In the powders and dry foods segment, includes dairy products, Impress is European market leader with a share of 21%. In the
aerosol market segment the company’s market share is 21%, making Impress the number three producer in Europe. The aerosols end market is principally personal care and household products with the main customers Wella and Henkel Group. The market for speciality products is a developing and growing market.
The DPF and specialities divisions were merged in 2004 into one division DPF
& Specialities, this interestingly reflects the competitors organisation, to combine aerosols, fancy boxes, with paint and chemical metal cans. However although they are under the same management now, the former divisions are still very much focused and organised by end market.
USA
The only geographical based division, USA, was formed in 2000 with the acquisition of Heinz’ Starkist can manufacturing plants for small seafood, pet food cans, and easy open ends. In the seafood segment Impress has a very strong market position with a market share over 67% and long term contracts with its customers. There again the seafood canning segment in North America is small, when compared to fruit and vegetables. The main customers in the USA are Del Monte (formerly Heinz Starkist and Heinz Pet Products) as well as Bumble Bee and Thai Union. The total sales of the USA division were 156 Million Euros in 2004.
Research and Development
Impress spends about 7.5 Million Euro per year on research and development (R&D). This is 0.6 % of its total sales, which is comparable, or less than competing metal can companies.
Although a consumer could say that it is hard to improve something about cans as a metal packaging, the truth is there is still much which can be improved. In the Impress R&D Centre in Crosmières, France about 90 people are continuously working on the improvement of cans, and equally important product differentiation. The difference is that there is a pilot facility for all processes and around this is the support, rather than having laboratories to demonstrate the capability to detect a certain molecule, or geared purely for providing investigative tools for trouble shooting. Improvements are for instance made on new opening solutions like the invention of EasyPeel®, reducing material usage to reduce material costs and developing new methods for shaping and printing cans.
Future
Being the second largest company in the world market of metal packaging (excluding beverage cans) Impress is consolidating and improving its position with organic growth on one hand and growing with acquisitions on the other hand.
In 2005 two acquisitions were concluded, with the purchase of PAK, a Polish paint and aerosol can producer in January, and the acquisition of the sardine canmaking activities of Connors Bros in New Brunswick, Canada in May.
Both of these acquisitions support the growing-strategy of Impress, following the customers to Eastern Europe and securing a solid business base in North America. In this case the acquisitions were made through the companies existing funds.
2 . R e s e a r c h c o n t e x t
This chapter deals with the research context to gain an impression about the invention which took place before this research was initiated, in other words the birth of this project.
History
Since the metal can for food preservation was introduced in the French army around 1860, there have been a lot of improvements to improve the preservation of the food, and the ease of opening the can. The original cans had a soldered vent hole to open the can; this was followed by the standard food end after the first war, for which a tool was required to open the can – the can opener. Then in the 60s Pechiney introduced the first aluminium full panel easy open end for food cans, followed shortly by American Can introducing the first steel easy open ends.
Cans equipped with this type of end are opened with a system that uses a riveted tab with a ring, the flat end panel has a ring of reduced metal, which is called the score. By lifting the ring side of the tab a lever is raised so that it pops a hole in the end. Lifting the ring makes the hole big enough to propagate the tear along the score enabling at its conclusion to pull the end completely by pulling the ring up and backwards. In this way the cans equipped with an easy-open (EZO) end can be opened without the use of a can opener or other (kitchen) tools. The same principal for a partial opening or pourable end is instantly recognisable with the beverage can.
Development
Since the first food EZO cans were not as easy to open as the EZO cans we use today significant developments have been made to improve the quality of the EZO ends. For instance the first EZO cans were not suitable for all sterilization equipment, the ends could not handle the high pressure during this process and popped, they had to be deployed through specifically adapted heat sterilisers. Another development which is still on going is downgaging, reducing the thickness of the steel used for the end and the tab to save steel to reduce costs. Different materials were introduced, aluminium and steel with a higher stiffness or improved mechanical properties. All these developments served a purpose, they were made to make it easier for the consumer to open the can and secondly to reduce the costs of producing an EZO end. Of course
these qualities serve one purpose, to make it more attractive for the fillers to buy, and for consumers to accept more EZO ends.
Popularity
As you can see in Figure 2.1 the EZO end is clearly accepted by the food canners, in Europe 85% of the market of processed food is packed in an EZO can whereas in the USA the market penetration is 35% and still growing2. Given the market data the easy open end is widely accepted by consumers both in North America, and Europe.
0.0 5.0 10.0 15.0 20.0 25.0 30.0
Sales (billion units)
1980 1985 1990 1995 2000 2004
Year Steel Easy Open
Steel Open Top Alu Easy Open Alu Open Top
On the other hand a survey in the UK with a sample of almost 20,000 elderly women showed that 67.6% of the respondents could open the cans with difficulty and 11.4% could not even open them at all3. This was not a research done by an official institute, but it gives a message about a possible difficulty elderly people have with opening an EZO end, and therefore often using a spoon for leverage, or using a can opener to open the base of the can.
This survey shows that, although the EZO end is accepted by the majority of the consumers, there are still some people having difficulties opening these cans. If the convenience of opening the can could be optimised the popularity of the EZO end would increase amongst these people.
As the elderly population in Europe is growing, optimising the convenience would be a chance to give Impress’ customers a competitive advantage.
2 The Canmaker, November 2004, page 28
3 Survey done by Len Beard, Electroplating consultant in the UK (2000)
Figure 2.1: Sales of can ends 1980-2004 (Source: Impress management)
Innovation
If there could be an easier way to open a can it would lead to a higher consumer satisfaction and this could develop into a preference possibly leading to higher sales, depending on the cost position. This preference when achieved would in turn result in a higher market share in this market for Impress, as the package becomes the preferred convenience can package.
When Ad Emmerzaal, senior R&D Manager in Impress, saw his wife and daughter struggling to open an EZO can without breaking their fingernails he saw the need to develop something that would be easier to open. After a lot of home constructing with different flexible materials he finally came to a design with a flexible steel tab.
In this design, called the flextab, the idea was not to reduce the force required to lift the ring, but to make the ring more accessible, and to flex once the leverage was established. When the ring is more accessible the consumer will experience a lower ‘opening force’. The actual opening force is still the same, but because this force is not only on the fingernail but on the whole finger top the perception of the force is lower. The whole opening experience is easier as the lever bends.
This innovation on EZO ends distinguishes itself from other innovations because it is consumer driven and not technology driven. Other innovations on the EZO end were always focussed on reducing the cost or the actual opening force, and not the perceived opening force.
As the market penetration EZO end in Europe is approximately 85% the product is in the maturity stage of its product life cycle, depending on market segment. Some market segments may be more mature than others, but the overall market is relatively mature. This means the EZO sales will grow slightly, with 2-3% per annum in Europe.
The flextab could be a way to introduce a new product lifecycle within the area of convenient easy opening solutions. In this way the success of the EZO end could be extended by the flextab.
3 . P r o b l e m d e f i n i t i o n
With the objective of this research clarified the problem4 will be defined in this chapter. The problem definition consists of four different elements. First there is the objective of the research. This defines what research should be conducted and the possible outcome. When the objective is clear, a conceptual model can be developed.
Based on the objective and the conceptual model the research question can be detailed, including a number of sub questions. Finally the research boundaries are identified.
Objective
As explained in the previous chapter Impress invented the flextab to provide a more convenient ‘easy to open’ EZO end. Since flextab is just at the end of the development cycle Impress would like to identify the market potential of this product. Flextab can be used in every food and seafood can market segment, but including all market segments is beyond the scope of this research. Therefore the main objective in this research is to get knowledge of the market potential of the flextab in the pet food and ready meals market segment.
4 The employees of Impress rather use the word ‘challenge’, but because of the academic perspective of this research, the word ‘problem’ will be used.
Which parties have influence on the market potential of flextab?
Consumer behavior
Filler (customer) Behavior
Recognition
Convenience
Extra costs
Awareness Willingness to change
What is market potential?
What is flextab?
Figure 3.1: Conceptual model
Conceptual model
In this conceptual model (Figure 3.1) the first step made is to define the market potential. The approach taken is to use different theories to find a good measurement of the market potential. Further the flextab has to be defined, what exactly is the flextab end, what does it offer, and for which products (cans) is it suitable, and what markets are discussed for introducing the flextab.
When these two factors are defined, the forces which influence the market potential can be analysed. It is expected that the two main forces are shown, the consumers and the fillers will be the forces with the most influence on the the market potential. Consumers are the end-users or customers of the fillers who buy the cans in the supermarkets. Fillers are the customers of Impress, who buy the empty cans and fill them with their products, in this case ready meals or pet food.
This is a classic ‘chicken or egg’ problem, who will be the first. If the consumer is not convinced by the convenience of use the filler will not start using the flextab end. On the other hand, it is impossible for the consumer to get convinced by the convenience when the filler will not use the end.
Furthermore since fillers are often preoccupied with cost-reduction, differentiation is often bottom of the agenda, since the outcome is uncertain.
The research has to be done on both forces, fillers and consumers to gain knowledge of the market potential of flextab.
Research question and sub questions
The main research question based on the conceptual model shown in Figure 3.1 will be:
What is the market potential of the flextab end for cans in the pet food and ready meals market segment?
Sub questions related to this main research question are:
• What is meant by market potential, in the context of this research?
• What factors influence the market potential?
• What products are sold in the market segments pet food and ready meals?
• What exactly is flextab and are there any threats from competitors with a similar product offering?
• Will the consumer recognize the advantage of the flextab and is the consumer willing to pay extra for a can equipped with a flextab end?
• Do the fillers recognize the advantage of the flextab and are they willing to change the normal (ring pull) end of their product for a flextab end, knowing that this end will be more expensive as the normal end?
Research restrictions
There are two kinds of restrictions in this research, process restrictions and product restrictions.
Process:
• The research is conducted during an internship within Impress Metal Packaging.
• The research will be done only in the pet food and ready meals market segment in Western Europe.
Product:
• This research will result in a written thesis and must be approved by both Impress and the University of Groningen.
• The thesis needs to be written in English.
4 . T h e o r e t i c a l b a c k g r o u n d
Today in 2005 Boeing predicts a world market for about 275 big airplanes whereas its direct competitor Airbus predicts the same market to be 1,250 airplanes. Both companies will make investments based on their research and therefore the research has to be done properly. Time will tell whose prediction will be closest to the truth.
Although Boeing and Airbus have similar market information sources, such as airline companies, flying habits, their forecast about the market differs significantly. This could be because they expect the customer do behave different.
In this chapter the theoretical background of market potential and consumer behaviour is discussed to gain a better insight in these topics.
What is market potential?
An often referred definition of market potential is the definition of Kotler et al.
(1999). The market potential is defined as ‘the limit approached by market demand as industry marketing effort goes to infinity, for a given environment’.
For example, if a market research is done in Paris and 10 percent of respondents would answer yes to the question: ‘Do you have interest in buying canned vegetables, the market potential of canned vegetables is 1.1 Million units and given the fact that Paris (including suburbs) has a population of 11.18 Million people5.
In this definition of market potential, the term market demand is used. Kotler (1999) defines the market demand as following: ‘the total market demand for a product or service is the total volume that would be bought by a defined consumer group in a defined geographic area in a defined time period in a defined marketing environment under a defined level and mix of industry marketing effort (marketing program).’
This definition gives eight related concepts (in italics) that together form the market potential and provide a basis to measure it. In the next chapters this eight concepts will be discussed in relation to the product.
How to measure market potential?
To make an exact measurement of the market potential all the eight above- mentioned concepts need to be known in detail. Because it is very hard if not
5 Source: www.evd.nl
impossible for new products to gather all this information, the art of forecasting comes in. Forecasting a future demand is making estimates about the future demand of a certain product under a certain set of conditions.
Forecasting can be done with different methods depending on the product and the market.
According to Robert J. Thomas and other authors (1987) the best way is to combine two or three methods of forecasting and use the results of these methods to reconcile a single forecasting. One reason for this wisdom is that the different methods often include different unrelated parameters, for example looking top-down as compared to bottom up, can be used to provide a weighted view. Combining multiple methods is advised to be not dependent on a single forecasting method. Forecasting is always a difficult process because all the data needed is often not available. In sizing markets, where there is no data, 2 or more independent approaches which are bottom up and top down, will help reduce the risk of an outlying result, some simple comparative checks such as per capita demand can help clarify the data, and spot false positives.
Consumer behaviour
An important factor to influence the market potential in consumer markets is consumer behaviour. Consumer behaviour includes the whole psychology leading to the buying decision. There are many factors which have an effect on the consumer whether to purchase a product or not or whether to purchase product X or product Y.
To understand the effect of consumer behaviour in the market consideration should be given to the factors affecting the consumer behaviour. Kotler (2000) developed a buying behaviour model with a black box (see Figure 4.1).
Marketing
stimuli Other
stimuli Buyers
characteristics Buyers decision
process Buyer’s responses Product
Price Place Promotion
Economic Technological Political Cultural
Cultural Social Personal Psychological
Problem recognition Information search Evaluation of alternatives Purchase decision Post purchase behaviour
Product choice Brand choice Dealer choice Purchase timing Purchase amount
Figure 4.1: Buyer Behaviour model (Kotler, 2000)
The inputs of the black box are marketing stimuli and other stimuli. The outcome of the box is the actual purchase of a product. The question about this model is what is happening in the black box. If one knows what happens in the black box it is easier to influence the consumer behaviour by changing your marketing instruments.
In this first model Kotler describes four types of characteristics that influence the buyer to purchase products: cultural, social, personal and psychological characteristics. Those four characteristics are divided in to factors. (see Figure 4.2)
Cultural Social Personal Psychological
Culture Subculture Social class
Reference groups Family
Roles and status
Age and lifecycle stage
Occupation Economical circumstances Lifestyle Personality and self-concept
Motivation Perception Learning Beliefs and attitudes
Figure 4.2: Factors influencing behaviour (Kotler, 1999)
Although all these factors influence the buying behaviour of consumers, it depends on the product the consumer wishes to buy, which factors have the most influence. For instance buying a microwave pizza is far less culture dependent than buying clothes.
Kotler also describes a buyer’s decision process with the five stages a buyer goes trough purchasing a product. These stages (see Figure 4.3) are influenced by the in factors mentioned above.
Dependent on the product that is purchased the stages in this model can be recognized, but in most purchases they are present. Two examples to explain this:
Figure 4.3: Model of the consumer buying process (Kotler et al., 2000)
When someone is hungry and sees a McDonalds restaurant, he walks in, decides to go for the BigMac. After finishing the BigMac the hunger has gone, and the consumer feels satisfied (or not).
Problem recognition
Information search
Evaluation of alternatives
Purchase decision
Postpurchase behaviour
A consumer can feel the need to buy a digital camera because all their relatives have one and this gives the consumer feeling that he should have one too. Besides that the need to have a digital camera is supported by the media.
The consumer decides to go to different stores and talk with relatives who own a digital camera to gather information about the different models and features available.
Based on this information and expectation of what he wishes to do with the camera the consumer makes it decision to buy a certain digital camera at a certain store. When this camera meets his expectations the consumer is satisfied, if not he is dissappointed.
When you want to apply these models of consumer behaviour on Impress’
consumers the best is to start with the latter, the model of the consumer buying process (Figure 4.2) for customers in the ready meals and pet food segment.
The first step in this model is the problem recogition. The need to buy can be an internal or external stimulus. An internal stimulus would be hunger, and therefore the need to buy (canned) food. Whereas an external stimulus could be the advertisement of a new pet food brand that sells canned pet food. An other stimulus could be an empty shelf in the cupboard of the customer.
The second step in this process is the information research. Because pet food as well as ready meals are not high investment goods, there will not be a long information research, it can be assumed that consumers will not read brochures about the products or the way they are packed, because that is not what they are interested in.
The evaluation of alternatives is the next step. In our case, with the purchase of a can of (pet) food the evaluation of alternatives is made in the supermarket, standing next to the shelve and deciding what product to buy.
There the different factors, mentioned in Figure 4.2 will play a role. The way the various factors will influence this part of the process will be described later on.
The fourth step is the purchase decision. This means practically taking the product from the shelf and placing it in the shopping cart or shopping basket.
Although this seems to be a simple, every-day action, on this moment the consumer decides which product to buy, weighing all the factors mentioned in the previous step.
Finally there is the postpurchase behaviour stage. In this final stage the consumer experiences the product. In the case of the can with food this is the experience of opening the can and preparing and tasting the food.
As the example of the BigMac shows, these steps can be done in seconds, and it can be hard to distinguish one step from each other. This counts too for the purchase of a can of food, the steps mentioned above can be taken in a few seconds.
Azjen and Fishbein (1980) made a model about the consumer attitude, where they see the attitude as the important factor on consumer behaviour. They found only two parameters that influence the attitude of a consumer on a certain product, in relation with a certain quality of that product, namely the belief and the evaluation.
The belief factor is measuring the how strong the belief about a quality of a product is, for instance in what extent does a consumer think a Volvo is a safe car. The evaluation factor is measuring the appreciation of the consumer about that quality, for instance what is the importance of having a safe car.
The attitude of a certain quality is the product of the belief and the evaluation.
The attitude of a certain product is the sum of all ‘quality attitudes’. In the example of the Volvo the consumer also has an attitude about the fuel consumption, the price, etc. etc.
Customer/buyer behaviour
There are a differences between customers/buyers and consumers. Business buyers are organizations that acquire goods and services used in the production of other products of services that are sold, rented or supplied to others. Therefore buyers have a different behaviour than consumers.
Consumers purchase products to satisfy their own needs, customers/buyers acquire products to satisfy direct or indirect the need of their customers, which in some case are the consumers.
The difference between consumers and business buyers is expressed in the business buyer behaviour model (Figure 4.4)
The environment Marketing
stimuli Other stimuli
Buyer’s responses
Product Price Place Promotion
Economic Technological Political Cultural Competitive
The buying organisation The buying centre
Buying decision process (Interpersonal and individual influences) (Organisational influences)
Product or service choice
Supplier choice Order quantities Delivery terms and times
Service terms Payment
Figure 4.4: Business Buyer Behaviour model (Kotler, 1999)
The similarities between this model (Figure 4.4) and the consumer buyer behaviour model (Figure 4.1) are that they both need a set of stimuli to get activated and that they both end up in a buyer response.
The difference between them is the middle part, namely the black box. The consumer model contains a black box that is based on the buyers’
characteristics and its decision process. In the business buying model this part is replaced by the buying organisation and the buying centre, made up of all the people involved in the buying decision.
There are three main types of business buying situations: the straight rebuy, the modified rebuy and the new task (Kotler, 2000).
The straight rebuy is a buying situation in which the buyer routinely reorders something without any modifications. The modified rebuy is a same situation where the buyer wants to change some specifications.
The new task is a buying situation where the buyer purchases a product or service for the first time.
In the new task situation, a lot more decisions are made compared to the straight rebuy, for instance on the product specifications, the suppliers, price limits, the payment terms, order quantities, delivery times and service terms.
5 . M e t h o d o f i n v e s t i g a t i o n
Since the different sub-questions have different backgrounds, they require a different approach of investigation. Therefore the method of investigation will be discussed per sub-question. These investigations, together with their outcomes and sub-conclusions will lead to an answer on the main research question.
The first sub-questions, about the definition of market potential and the factors that influence the market potential are answered by theories of market potential as mentioned in the previous chapter. By investigating these theories and connecting those with the product that is used in this research there will be a good outcome of which factors influence the market potential of the product.
The question about the market segments can be answered by using the internal Impress data about their sales over the last two years. The strategic plan database within Impress provides this data for this period of time.
For market data about the whole market, not only the customers Impress is serving, research from Euromonitor are used. Euromonitor is a market research agency in London that has conducted market surveys on a lot of different markets. This market data is put together in an online database. The pet food research used for this research was conducted by Euromonitor in charge of Impress.
Because the Euromonitor research reports cover both market segments completely there is no need to investigate other sources for market information.
For the description of technologies that are used within the can business reports were used that were already set up within Impress for other purposes.
This information was combined with results of conversations with Impress’
experts on EZO ends.
The consumer behaviour questions were answered with the help of theory on one hand and with a consumer research on the other hand. This consumer research was conducted by Cabinet Herzog, a highly respected consumer research agency in Paris. This agency conducted a survey with two groups of
eight women to examine the consumer perception of EZO ends and the flextab in particular.
To answer the issue about the market strategy information was used from similar situations in the market where packaging products were introduced. It is possible that these approaches are not conducted in an academic way, but because the market is the same the outcome is very valuable for this research.
Another way of gathering information about the marketing strategy would be to interview customers. Because the flextab project is still confidential, Impress’ management would not allow this project to be communicated with customers.
6 . M a r k e t p o t e n t i a l
In the theoretical background the definition of market potential is given as:
‘the total market demand for a product or service is the total volume that would be bought by a defined consumer group in a defined geographic area in a defined time period in a defined marketing environment under a defined level and mix of industry marketing effort (marketing program)’. (Kotler, 1999)
In this definition there are eight ‘parameters’ that can be adjusted in the situation as described in the research context and the problem definition:
• The market demand as described in Kotlers definition will be the same and this is actually the parameter you want to know about the product.
• The product or service is very clear described, this will be a can equipped with an EZO end with a flextab tab.
• The defined consumer group is not exactly defined in the problem definition, but the markets are defined as the market for ready meals and pet food. The customer group could be defined as ‘consumers of ready meals and/or pet food sold in cans’.
• The defined geographic area is defined as Western Europe.
• The time period is not defined in the problem definition. Because within Impress a time span of one year is commonly used, the time period here is also one year.
• The defined market environment will be the retail sector. As most cans, bought by the consumer group described above, are bought in the supermarket, this will be the market environment.
• The marketing program or level and mix of industry marketing effort is a difficult parameter in this situation. As there is no really European marketing program for metal EZO cans, the only marketing efforts are done by the producers of the contents of the cans, for instance a TV- commercial of Whiskas canned cat food.
Filling in these parameters results in the following definition, specified for this research at Impress: the total market demand for cans equipped with an EZO/flextab end that would be bought by consumers of ready meals and/or pet food sold in cans in Western Europe in one year.
If someone could simply make the perfect prediction about the total market demand as described above, Impress would just have to produce the amount of product that they predict to sell. Though in reality, a lot of things have to be taken into account to make a prediction that makes sense.
Factors that have a big influence in the market potential are the consumer behaviour: does the consumer buy the product and why (not), and customer (filler) behaviour: how much marketing effort is done to make the consumer buy the product. These factors will be described in more detail in chapters 9 and 10.
7 . T e c h n o l o g i e s a n d M a r k e t s e g m e n t s Now that the different theories and methods of investigation are clear, there is one thing left that needs some explanation, the product itself. In this chapter the different technologies and products are described. Also a closer look is taken at the different market segments to which this research is restricted.
Technologies
There are three different technologies available for manufacturing retortable food cans:
• Welding and seaming technology to make three piece cans
• Draw Re-Draw (DRD) technology to produce two piece cans
• Drawn Wall Iron (DWI) technology to make two piece cans
Three piece (3P) cans, which were the first to be developed in the middle of thenineteenth century, consist of a cylindrical body rolled from a piece of flat metal with a longitudinal seam, usually formed by soldering, together with two can ends, one at the top and one at the bottom, which are seamed onto the body. These cans can be made in almost any combination of height and diameter. This process is particularly suitable for making cans of mixed specifications as it is relatively simple to change the specifications.
Two piece (2P) cans are made from a disk of metal, which is formed into a cylinder with an integral end. A loose end is seamed onto this cylinder to close the can. The 2P cans are made by two technologies. When the metal is reformed without changing the thickness the process is called drawing or re- drawing. The process of producing a can with reducing the thickness of de material is DWI. Both 2P can making technologies were developed in the 60s.
In the 1980s the industry moved to solder free cans, which became possible with the introduction of high speed roll-welding.
Impress currently uses both the welding and seaming and the DRD technology to produce its cans. The DWI technology requires much more capital to invest, but leads to a higher capacity and less material used per can Impress is now doing research about implementing a flexible DWI technology.
Concerning the production of can ends there are three different types used for food cans:
• The standard or open top end
• The easy open (EZO) end
• The peelable end
The standard end and the EZO end can both be produced in a high capacity line at 2000 units per minute whereas the peelable ends production speed is about 50-200 units per minute.
In Impress the peelable end, which can be compared with a lid on for instance a yoghurt tray is still under development. Although it has been introduced on the market and is available in some segments, the R&D department is working on improving the product for more segments. Easypeel® is the Impress brand-name for peelable ends and is one of the major R&D project within Impress.
Customers used to buy cans and ends at the same supplier, but split sourcing has nowadays become more common. Split sourcing stands for buying cans and ands at different suppliers. Because the highly standardised products it is very good possible to buy cans at one supplier and ends at another.
Impress market segments
In 2004 Impress developed a new way of collecting information about sales data of all of its products which lead to the introduction of the strategic plan database. This database contains all sales data of Impress with a large level of detail. The introduction of this database also led to a new system of market segments where every Impress division is divided into four to six market segments. The reason behind this division is to gain a better overview of the results per end market.
Before this database was introduced it was only possible to get an overview on plant or product level, not on end market. Some cans are used as well for fruits and vegetables, pet food, soups and dry foods as well. Therefore it is impossible to get a good overview of the growing markets because there is only overview on product or plant level. During 2004 a special team was formed to tackle this issue and make it possible for the management to get an overview on market segment level.
In the food division there are two market segments that fit in the research description, pet food and soups, sauces & ready meals.
Pet food concerns all cans sold to pet food producers, totally responsible for a sales of 99,7 million Euros in 2003, which equals 20.1% of the food division.
The most important customers in this market segment are: Nestle (24%), Stockmeyer group (20%) and Mars (18%).
The Soups, sauces & ready meals segment counts for a sales of 93,9 million Euros in 2003, which is 18,9 % of the food division. The most important customers in the soups & sauces market segment are H.J. Heinz (43%), Struik Foods Group (15%) and William Saurin (14%).
In both segments the 73mm diameter can is the most popular can within Impress, most times equipped with an easy open end. This can contains 400 grams of (pet) food.
Total markets
According to a research done by Euromonitor6 about the outlook for canned pet food the total market for pet food in North America is worth 14 billion US dollar in 2004. The market share of canned food within this market is 23%, which equals 3.2 billion dollar. This market is forecasted to stay stable.
The market in Western Europe is nowadays worth 11 billion euro. The canned food part in this market represents 48% of the total market, equal to 5.3 billion euro. Although the market has shown a decline in past years, it is forecasted to recover and show little growth in the next ten years.
According to this research the 400 grams 73 diameter can is the key size in pet food cans in Western Europe, although Nestlé is trying to gain market share with smaller cans. These 85 and 170 gram cans have the advantage that they contain a single pet portion of food, so there is no need to store opened cans in the consumer’s refrigerator. The research tells us that in Europe 90% of the cans have an easy open end, against 65% for North America.
Despite the availability of new packaging products such as pouches and trays offering an image of better quality pet food Euromonitor expects that canned pet food will remain a core part of the overall pet food market in Western Europe. Mars, who is still making TV commercials for their Whiskas pet food brand, supports this estimation.
According to another Euromonitor7 research the world ready meals market is worth 53,463 million US dollar in 2003. Although other packaging materials are increasing their share in the ready meals market, canned ready meals still account for 7,019.8 million US dollar in 2003, which is 13.1% of the total market.
6 Euromonitor Consultancy: Outlook for canned petfood in Europe, December 2004
7 Euromonitor : The World Market for Packaged Food (april 2004)
In this research the ready meals market is seen as a growing market with a compound annual growth rate (CAGR) over 1998-2003 in global sales of 4.0%. Unfortunately the CAGR of canned ready meals in the same period was 1.5%, which is still a growth, but less than other ready meals packaging. The main reason for this is that canned ready meals have to deal with an old fashioned image. Chilled ready meals and chilled pizza have a fresher and healthier image and have therefore a growth rate that is over the market average.
The research does not show which can is the most popular in the market, but it can be assumed that the 73 diameter cans are the most popular, containing 400 grams of food, which is an average meal size. The 73 is followed by the 99 diameter can, containing 800 grams of food, a double meal.
Potential Market
As stated in the previous chapter, a lot of factors have influence on the potential market of the flextab end. Some of these factors, like consumer behaviour and marketing strategy, will be discussed in the following chapters.
Depending on those factors estimates can be made about the market.
The current EZO market in Europe for ready meals is about 3.2 billion ends in 2005 and the pet food market for EZO cans has a size of 4.8 billion ends.
Depending on the factors mentioned before the conversion rate from EZO to flextab can vary from 10% up to 55% or even higher within 5 years after introduction. This varies from a number of 190 million till 1050 million ends. A calculation of these numbers can be found in appendix 2.
8 . C o m p e t i t i o n o f f l e x t a b
To get a better overview of the market environment of the flextab in the future, this chapter will deal with the competition within the EZO market using Porters model (Biemans, 2000). This model describes five different competitive forces shown below (see Figure 8.1). In essence it describes the equilibrium between qualification (new entrants vs. substitutes) and the opportunity in the market environment or segment.
In this model the easy open end is seen as the product of competition because the flextab will direct compete with these products.
Industry competitors / rivalry
Within the industry there are several producers of easy open ends. The metal packaging market has a high level of standardisation: customers (fillers) can easily change from one producer to another without having to change their systems for filling, closing and processing the cans. For instance Heinz UK produces cans itself but buys the ends from Impress. Main reson is that cans are very voluminous and can only be transported profitable within 500 kilometres of the production location, whereas ends are not. Ends can be stacked and therefore be transported all over the world.
Competition on ends is not the same as competition on cans, because of split sourcing Competitors in the can market will be within 500 kilometres of Figure 8.1: Porters five forces of competition (Biemans, 2000)
Buyer power Supplier power
New Entrants
Substitutes Industry competitors
Rivalry
distance where competitors in the end market can be practically all over the world.
The European market for EZO ends is quite concentrated, the three largest producers, Crown, Impress and Mivisa together have over two third of the market. The other third of the market is owned by a lot of small producers, the largest of these has a market share of 4.5% of Europe (see appendix 3).
A method to measure the market concentration is the Herfindahl-Hirschman Index. This index is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. Applying this index on the European market results in a total of about 1650. Markets with an index between 1000 and 1800 should be considered moderately concentrated. An index of 1800 and higher shows a concentrated market.
According to this qualification the EZO end market is on the upper side of a moderately concentrated market.
The competition within the industry is based on technical advantage. Two main competitive advantages can be distinguished. Can producers try continuously to reduce the thickness of the material used to make the EZO end. The second development is reducing the opening force of the EZO end.
New entrants / barriers to entry
Until a few years the barriers to entry the metal packaging and specially the end making market were quite high, depending on the technology used. A Spanish company, Global Ends, has proved the contrary. The company was started with relatively low capital, some grants of the European Union and the use of second hand equipment. Because of the low capital involved the fixed costs were relatively low and the payback time of the capital invested was below two years, where this is normally four to five years.
Herewith Global Ends made a breakthrough that showed that it is very good possible for a company to enter the market of EZO ends. Global Ends only produces ends and no cans, which gives the company the focus on the EZO end market and become highly competitive.
Substitutes
One of the main forces of competition in metal packaging is the treat of substitutes. There are two kinds of substitutes, namely substitutes in metal packaging and substitutes in non-metal packaging.
Although this split up seems only to be based on the material, there is another difference between substitution by metal and by non-metal
packaging, namely the packaging process. Changing from one type of metal packaging to another, as mentioned before, is easy.
If however a customer would like to change from metal packaging to another type of packaging the filling process needs to be adapted, this often implies the investment in new equipment. Therefore this decision is extensively discussed before it is taken.
The first category of substitutes, the metal ones, could be seen as rivalry and therewith placed at the industry competition. Because these products actually are a substitute of the steel easy open end a better solution would be to categorize them as substitutes. The three metal substitutes of the steel easy open end are: the aluminium easy open end, the open top end, both steel as aluminium and the peelable end.
The aluminium easy open end was always seen as an expensive end, which had the advantage of a lower opening force, because of its material qualities.
Because steel prices have increased 20% in January 2005 the gap between aluminium and steel has become smaller or in some cases is closed or has become negative. In other words, the aluminium end has become cheaper than its steel equivalent.
Disagreement about this statement is possible, because the production of an aluminium EZO end with the same qualities as its steel equivalent more material is needed. Therefore the two materials are not comparable. Fact is though that the gap between aluminium and steel has become smaller.
The open top end is a substitute at the low end of the market. This is the end that was used before the easy open end was introduced and a consumer will need a can opener to open cans equipped with this end. This end is mainly used by customers who want to want to offer a low priced product without the ease of the easy open end to the consumers.
The peelable end serves the higher end of the market, because the ease of opening of this end is comparable with opening a yoghurt tray. This end has been on the market for a few years now and is not yet available for all pet food and ready meals market. Since the developments continue within Impress this will be a matter of years.
Non-metal substitutes are substitutes that replace the can for another type of packaging. The end is only a part of the package, which only fits on a metal can. When a customer wants to have a different way of opening his products, the whole packaging needs to be replaced. The non-metal substitutes are mainly plastic and cardboard or a combination of both.
In the ready meals segment metal packaging is really at the low end of the range. Nowadays most ready meals are chilled and in the refrigerated compartment of the supermarket. Those meals are mostly packed in a plastic tray, covered with a transparent plastic film and possibly wrapped in a cardboard wrap. Other, frozen ready meals can be packed in an aluminium tray packed in a cardboard box.
In the pet food segment the substitute for metal is also plastic and cardboard.
Plastic pouches are a new upcoming type of packaging for wet pet food, besides cans and aluminium trails. Dry pet food is usually packed in paper or cardboard pouches.
Buyer power
The buyers have a very good position concerning the purchase of their packaign, because the EZO end is highly standardised. An end produced by one company will fit most times on a can produced by another company.
Since the transportation costs per end are much lower than the transportation costs of the voluminous cans, the location is not an important factor in the process of choosing an end supplier.
This could give the buyers unlimited freedom to browse around looking for a supplier. An important restriction however is capacity. Small customers can easily switch from one supplier to another, but the larger customers do not have that privilege because there is no other supplier with that excess capacity. For this reason most large fillers have long term contracts with their suppliers.
Supplier power
In Europe there are three big producers of tinplate: Corus in the Netherlands, Rasselstein (part of ThyssenKrupp) in Germany and Arcelor in France. Those companies, Corus, ThyssenKrupp and Arcelor, are suppliers of steel in first place. Tinplate is only a small part of their production although it is a product with a higher value added as the standard hot rolled steel. In the past decade there was a balance between demand and supply. For this reason the tinplate market was an interesting market for the steel suppliers to gain extra revenues. Because of the high economic growth in China nowadays there is an imbalance in the market of steel, the demand is higher than the supply which leads to increased prices.
Because the demand for tinplate has been stable for the years that the steel market was growing, the tinplate market has become less interesting, as it is
easier to make money on the standard hot rolled steel. On the other hand, tinplate mills are capital intensive and can be used for the production of tinplate only.
The European tinplate market is a relatively small market, in terms of numbers of suppliers and customers. The top three suppliers produce 83% of the total production wherease the top three customers are responsible for a little over 50% of of the demand. Therefore there is not much space for a change of supplier.
Conclusion
Finally the forces within Porters model will be rated on a scale of 1 to 5 where 1 stands for a low competitive force and 5 for a high competitive force.
Taking the information into account one could say that there is a stable equilibrium between suppliers and buyers. For both there is a mutual dependence. Steel producers need the canmakers to buy their tinplate and of course the canmakers need the tinplate producers for their raw materials.
There is no space for companies with the size of Impress to completely switch from one supplier to another. Therefore the supplier power is rated on 3.
On the buyer side there is also a mutual dependence, although the force is higher as on the supplier side. Long term contracts are used between large customers and canmakers and not all canmakers have the capacity to serve the large customers. The buyer power is valued on 3.5
The threat of new entrants is relatively small, although the barriers to entry are not as high as they used to be. This force would be rated on 2.
The market within the industry is divided among three large producers of EZO ends. Smaller parties on the market are trying to gain market share from the larger parties and in meanwhile the large parties are competing with each other. Because the EZO end can be transported efficiently this competition is on a large geographical scale. Therefore the force of the rivalry can be valued on 3.5.
The largest force in of competition for the EZO end is the treat of substitutes.
In both markets, pet food and ready meals, there are a lot of alternative packaging products available that have equal or better qualities than metal packaging. As these products have a growing market share in the packaging market the force of the substitutes can be valued on 4.
The competition within the EZO market could therefore be seen as in Figure 8.2 on the next page.
Figure 8.2: Five forces of competition, applied to the EZO market
3.5
Buyer power Supplier power3
New Entrants
2
Rivalry
3.5
4
Substitutes
