ISOLATING POTENTIAL CUSTOMERS

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ISOLATING POTENTIAL CUSTOMERS

“A European market research project for Unipol Holland B.V.”

Groningen, 28 – 05 – 2003

International Business thesis

Author: Erik Lode 1081489

Co-ordinators: Dr. M. Boon (University) Ms. N. Campbell (University) Ms. T. Megens (Unipol)

Drs. M. Oyevaar (Management Centrum)

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ISOLATING POTENTIAL CUSTOMERS

“A European market research project for Unipol Holland B.V.”

Groningen, 28 – 05 – 2003

International Business thesis

Author: Erik Lode 1081489

Co-ordinators: Dr. M. Boon (University) Ms. N. Campbell (University) Ms. T. Megens (Unipol)

Drs. M. Oyevaar (Management Centrum)

Faculty of Management and Organisation RijksUniversiteit Groningen

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“High-growth companies succeed by identifying and meeting the needs of certain kinds of customers, not all customers, for special kinds of products and services, not all products and services. Business academics call this market segmentation. Entrepreneurs call it common sense.”

Clifford Jr. en Cavanagh (1985 : 53)

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Prologue

This thesis is based on a research project executed at Unipol Holland B.V. . Officially I was employed at the Management Centrum (consulting agency). This is the right place to thank some people who made this research possible and/ or contributed to the quality of this thesis.

Firstly, I want to thank mister Oyevaar from the Management Centrum for having trust in me and my abilities to execute this research project. Also I want to thank him for enabling me to carry out this research correctly by providing me with all the necessary resources, including his personal knowledge of and experience with such research projects.

Secondly, I want to thank misses Megens from Unipol for having trust in me and my abilities to execute this research project. I want to thank her for enabling me to carry out this research correctly by providing me with all the necessary resources, including her knowledge of and experience in this business branch. Also I want to thank her for making me feel welcome at Unipol and treating me in that way.

Thirdly, I want to thank my supervisors from the university, miss Campbell and mister Boon for their contribution to this research project, especially in the form of critical feedback and suggestions.

Lastly, I want to thank all other employees from Unipol who made a contribution to this research and/ or made my employment at Unipol a nice time.

Erik Lode

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Management summary

The research

This research project was conducted for Unipol. Unipol is the supplier of EPS-granulate (resource for EPS) within a larger holding called Unidek, which produces insulation- related products from EPS. Unipol used to supply granulate solely to the parent-company, but is currently also supplying third parties. The reason for this is that demand from Unidek was lower the last years. Unipol likes to extent this business activity in order to prevent that production capacity is not used and as a possible way to grow. Therefore management likes to know about potential customers and competitors in Europe (excluding the Benelux and Germany). The wishes of management are translated in a SWOT-model (see § 2.5, conceptual model), which forms the framework of this research. The overall research question is:

What sales opportunities are there for Unipol on the European market and how can they be used, taking into account competitive threats as well as the strengths and weaknesses of Unipol?

To answer this research question, an external analysis and internal analysis need to be made.

The external analysis comprises a customer analysis (chapter 7), a competitor analysis (chapter 6) and a market analysis (chapter 5). The internal analysis comprises the strengths and weaknesses of the organisation as well as limitations and restraints (chapter 8). The external and internal analysis will be confronted in a SWOT-analysis, based on which strategic recommendations will be done (chapter 9).

Literature review

When a company is going to operate internationally, it is in fact choosing to serve a new (international) segment (§ 3.1). This is why segmentation theories are chosen as a research method for this research project. Since the research project is conducted in a business-to- business (B-2-B) market, the theories of Wind and Cardozo (1974) and Bonoma and Shapiro (1984,1) are most useful. The ‘nested approach’ of Bonoma and Shapiro (1984,1) is selected in order to study a market on different hierarchical levels. If an organisation seems attractive on the first level (highest, most abstract), it can be looked at in more detail on the second level and so on. This is to prevent that time and monetary resources are wasted on organisations which are not interesting.

Additionally some literature regarding B-2-B market research is reviewed, because of its special characteristics (Kort, 2000). Due to the international dimension of this research project, some international business literature is reviewed (Robertson and Wood, 2001).

Method

The ‘nested’ approach of Bonoma and Shapiro (1984,1) is adapted to suit the needs of this international research project (§ 4.1). An additional nest is added, based on Robertson and Wood (2001). This adapted ‘nested approach’ is shown graphically in a research process scheme (figure 4, § 4.1). Firstly, potential customers were searched using the Internet and branch organisations. The final selection contained 219 countries.

Secondly, a country evaluation is made based on macro-economic variables. Some key markets were chosen and a focus-group of 100 potential customers was selected from these countries. An additional selection criterion was the end-products made by the companies;

insulation is preferred over packaging. The other 119 companies formed the rest-group.

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Thirdly, all 219 companies received a questionnaire, but more attention was paid to the focus- group. They received a telephone call in advance and an incentive. The information gathered from the questionnaires forms the basis of the ‘customer profile sketches’ (appendix 16).

Fourthly, the data from the questionnaires was analysed in its totality to make several more general statements about the European EPS-market and about the used method (chapter 9).

Market analysis

The market analysis is the country evaluation mentioned under the header method. It is based on several macro-economic variables derived from Robertson and Wood (2001). These variables are: general (political) risk indexes, development and performance, general demand, competition (chapter 6), cultural differences, distribution, tariffs and taxes and non- monetary legislation.

Not all these macro-economic variables are equally important (§ 5.9). Most important are competition and general demand. The other variables, except for culture, shows little differences. This is mainly due to influence of the European Union. Although the cultural differences are large, they are not very important for this research project.

From a general demand point of view eastern and southern Europe are attractive. In the South these are especially Italy and Spain, but also Portugal. In the East these are Croatia, Czech Republic, Hungary, Slovakia and Slovenia. From a competition point of view Scandinavia is less interesting. East Europe and Ireland look attractive.

Austria and Hungary are also interesting, because Unipol is already operating in these markets. Swiss is interesting because Unipol is familiar with doing business with German speaking countries and Swiss has quite some potential customers.

Competition

The competition was analysed with the five forces model of Porter (1980). The threat of substitutes, the negotiation power of the customer , the negotiation power of the supplier and the threat of new entrants were all small (chapter 6). The focus should be on internal competition. The internal competition is fierce partly because the market is oversupplied.

Profile sketches of the different competitors were made (appendix 15). The European market is well covered from a granulate buyer’s point of view. Unipol’s competitors have different strengths and weaknesses (§ 6.4.2).

The main conclusions are that not too much attention should be paid to the three largest players (BASF, BP and Nova), since Unipol is too small to compete effectively with them.

However Unipol should monitor new developments initiated by these players. Unipol’s biggest competitors are the Sunde Group (Sunpor), Styrochem, Polimeri Europa and Monotez. Depending on which market Unipol enters it will encounter local competitors, especially in East-Europe. Polidux and SIR Industriale will be (come) competitors in respectively Spain and Italy.

The results from the questionnaire were largely in accordance with the a priori expectations.

Customer analysis

In chapter 7 the results from the questionnaire are discussed extensively. Some interesting findings are that the response rate in the focus-group was more than two time higher than the response in the rest-group. This shows that these interesting companies are interested in Unipol as well. Most respondents are from the key markets, like Spain and Italy. Many different bean sizes were used (32) and the respondents use 2,13 different sorts of granulate, which they buy from 3,53 different suppliers. The shares of suppliers were largely in accordance with a priori expectations. Most respondents produce EPS 15, 20, 25 and 30.

Lambda value, pressure strength and breaking strength are considered to be important product

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characteristics by both groups. Flame retardant was more important for the focus-group (more insulation) and colour was more important for the rest-group (more packaging). Constant quality was the most important quality aspect followed by price. From the respondents 71,9 % confirmed that Unipol’s granulate would suit their needs. Most respondents would make Unipol a co-supplier (79,4 %).

Strengths and weaknesses of the organisation

The strengths of Unipol are that it produces a good product and has ISO-certifications (§ 8.1).

As part of Unidek it can offer its customers extensive technical service/ knowledge regarding EPS processing (working with Unipol’s granulate). Unipol already has international experience from which both Unipol and potential customers might benefit. Lastly, Unipol has low costs, because it has no R&D facilities and no marketing department.

A weakness of Unipol is the size of its granulate (§ 8.2). It has a very wide range compared with competitors. Smaller ranges of granulate result in a more homogeneous end-product and will cause less problems when being processed. More important are the fluctuations in size per batch. Another weakness is that Unipol does not have a R&D department and is not able to develop new product like other competitors. Being part of Unidek might scare away customers because Unidek is a competitor. Unipol is also relatively small compared to its competitors. Language barriers could become a problem in foreign markets. Because Unipol used to supply solely to Unidek, it has a very low brand (company) awareness. Lastly, Unipol is operating at maximum capacity and can not sell granulate to new customers at the moment.

Confrontation analysis

In chapter 9 the internal and external analysis are confronted and the overall research question is being answered. After the extensive segmentation, it is time to select a target market and positioning Unipol’s product with the 4 p’s (product, promotion, price and place). Firstly, it is shown that it is possible to differentiate a commodity and that there is evidence from this research project that Unipol should differentiate its products as well (§ 9.1).

Secondly, it is shown that Unipol should aim for a service-oriented segment of customers.

Furthermore the companies that should be targeted are mentioned and an estimation of the market potential (in tonnes/ year) is made. Combined with expected additional granulate from Unidek, the conclusion is drawn that Unipol should expand its production capacity.

Furthermore, based on evidence from this research project a profile sketch of an ‘ideal’

customer has been made (§ 9.2.2).

Thirdly the 4 p’s are discussed. Unipol should focus its products on insulation and not enter the packaging segment, because customers have on average 3,5 suppliers. Unipol should try to become the preferred supplier of granulate for insulation products. To achieve this, Unipol has to pay a lot of attention to its product, especially to guarantee constant quality. This means a solution needs to be found for the fluctuations in bean sizes. Unipol should also try to innovate. It should try to improve characteristics, which are important to its customers, for example lambda value. Another way to innovate is by helping Unipol’s customers to develop new products. A worked example is given in § 9.4. The most important promotion aim for Unipol is to create brand awareness. Potential customers should be aware of / and consider Unipol when they are buying their granulate. Since the price is determined by the market, Unipol should focus on cost control in order to get the highest margin possible. Unipol should distribute its products directly to its customers without the interference of (expensive) middlemen. The interest in Unipol’s cell container is remarkable and might offer possibilities for innovation.

Fourthly, some lessons for the future are given which will be useful if Unipol wants to conduct a similar market research in the future (for example for East Europe).

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Chapter 1 Introduction Unidek and Unipol

In this chapter the company within which and for whom the research is meant, will be described. Both the parent-company “Unidek” and the daughter-company “Unipol” will be discussed. The information used is mainly derived from the company itself, for example the web-site (www.unidek.nl).

§ 1.1 History

Hendrik van Dijk began trading in wood and building materials in Gemert in 1969. He began to produce Tempex, or EPS, three years later. EPS is the well-known white, insulation foam.

The company had a flying start, partly due to the 1973 oil crisis.

The continuing growth that followed was mainly due to the fact that new products, for which there was a great need, were always being thought up and produced. Unidek thus developed the first self-supporting, insulating sandwich element for sloping roofs in 1977. Construction, insulation and interior finishing are combined in a single production process into a strong, handy and maintenance-friendly element, so that appreciable savings are possible in building.

Ten years after the foundation in 1979, there were about 100 persons employed in the company that Hendrik van Dijk and his enthusiastic fellow workers (almost literally) built up with their own hands. In the course of the eighties, Unidek grew into a well-known and trend- setting international company. The company grew appreciably in size in the nineties due to the establishment and take-over of several other companies.

Unidek celebrated its 25th anniversary in the greatest possible manner in 1994, with for example the opening of the new head office in Gemert. The company then employed almost 600 people. Unidek set up two production companies in Germany in 1998, which increased the total production capacity to 3.5 million m³ EPS per year. The company celebrated its 30th anniversary in 1999 with about 730 employees and several hundred clients. Almost 750 people were employed at the end of 2000 in the 12 Unidek companies at home and abroad.

§ 1.2 Organisation

The legal name of the company, commonly called Unidek, is Unidek Beheer B.V. Several sub-holdings have been placed under this holding, a total of 12 companies. An organisation scheme is given in appendix 1.The companies are mentioned below, a further description of their activities in given in appendix 2.

• Van Dijk Produktie B.V., Gemert

• Unidek Bouwelementen B.V., Gemert

• Unidek Volumebouw B.V., Gemert

• Unidek Services B.V., Gemert

• Smulders Staalwerken B.V., Helmond

• PractiWall B.V., Geldermalsen

• Unipol Holland B.V., Oss

• Unidek Vertrieb GmbH, Bremen (Germany)

• Unidek Dämmtechnik GmbH, Bretten (Germany)

• Unidek Dämmsysteme GmbH, Burkhardtsdorf (Germany)

• Unidek N.V., Antwerp (Belgium)

• Unidek S.A.R.L., Villeneuve d'Ascq (France).

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§ 1.3 Core activities

A production capacity of about 3.5 million m³ per year makes Unidek one of the world's largest producers of EPS (expanded polystyrene). The characteristics of this product will be explained in § 1.5 . Currently Unidek is operating in the Benelux, Germany and France.

Because of the nature of Unidek’s products, actually captured air, Unidek can only serve customers within a circle of several hundred kilometres otherwise the transportation costs will become too high. This means that Unipol has to be present in a market in order to serve it well. Internationalisation strategies which Unidek can use (and has used) are setting up new production facilities abroad (greenfield development) and/ or taking over existing companies (acquisition). At the moment Unidek’s business activities are a bit down due to the economic situation in especially Germany. That is why Unidek started a large-scale re-organisation. As a consequence it is not likely that Unidek will expand its international business activities the coming years.

The production process of EPS is relatively simple as can be seen in appendix 3 which shows the supply chain of EPS building products. The most technical and chemical processes are done in the beginning, by Unipol. Its production process starts with buying monostyrene and ends with EPS-granulate. This process is shown in greater detail in appendix 4.

The innovative nature of Unidek has led to the development of countless products for the building industry, all manufactured on the basis of this environment-saving insulation material. Unidek’s newest innovation in roofing techniques was demonstrated at the

‘Bouwbeurs’ in the Jaarbeurs in Utrecht. By building an entire house it tried to catch the attention of visitors; appendix 5. Unidek is the market leader in Europe in self-supporting insulating sandwich elements for sloping roofs. The products programme, with which the home building, utility building, industry and agrarian sectors are served, also includes for example flat roof, wall and outer wall elements, renovation products, large and wide-scale roof elements, cavity wall insulation plates and a prefabricated foundation encasement system made from EPS.

Unidek is also a trend-setter in high quality system construction. The company has developed an advanced concept for building energy-saving industrial premises called Volume Construction. Several hundred buildings have already been built using this concept, which has a very short building time.

Unidek also makes products that pay attention to the environmental consequences of the selected raw materials, production process, use phase and demolition phase (integral chain management). Implementation of policy does not only mean compliance with the legal rules.

The company also strives towards additional constructive measures to protect health, safety and the environment.

§ 1.4 Unipol Holland B.V.

Unipol Holland B.V. (hereafter Unipol) was founded in Oss in 1989 and has been a full part of Unidek B.V. since 1992. Unipol is the producer of EPS-granulate within Unidek B.V. An organisation scheme of Unipol is given in appendix 6. The most important resource for producing expanded polystyrene (EPS) is EPS-granulate. Unipol provides the EPS-producing companies within Unidek B.V. with this granulate. These are Van Dijk B.V. and two German companies, called Unidek Dämmtechnik GmbH and Unidek Dämmsysteme GmbH. Because Unipol supplied its granulate only to other companies within the holding, there has been no need to create brand (company) awareness or conduct marketing activities.

The production capacity was enlarged in 1999 from 23.000 tonnes to 42.000 tonnes per year.

In 2002 the capacity was again increased, from 42.000 to 47.000, as a result of a new recipe.

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Unipol can determine its own policy as long as its not conflicting with other companies within Unidek B.V.

Unipol Holland B.V. is a middle-large player on the European EPS-granulate producing market. Its granulate is especially suited for heat-insulation purposes. Unipol employs approximately 60 people and has a turn-over of around 26 million Euro. Quality, Safety and Environment are the fundamentals of Unipol's organisation and production process. It is ISO- 9001 and ISO-14001 certified. Unipol is not conducting large-scale Research and Development (R&D) like bigger competitors (BASF, Nova) but prefers a follower strategy.

This saves Unipol substantial costs, which results in a better margin with a given market price. However it makes Unipol vulnerable for new developments (§ 6.1.1). Since Unipol is a small company with few customers it has no sales/ marketing department. These tasks are fulfilled by the director. Again this saves Unipol costs.

Because of its size and the fact that most granulate is sold to other companies within the holding, Unipol prefers serving smaller companies. Unipol is already supplying granulate to other customers than Unidek. It sells its granulate directly and indirectly (via middlemen) to companies in several European countries. In this way Unipol tried to make optimal use of its capacity, while demand from Unidek was decreasing. As a result Unipol already has some experience in conducting international business.

§ 1.5 Product

The following product-information has mainly been derived from the web-site of Stybenex, the Dutch branch-organisation of EPS(-granulate)-producing companies (www.stybenex.nl).

The letters EPS stand for ‘expanded polystyrene’, an almost always white fiber, which has been used for almost 40 years now for lots of purposes. EPS (earlier also known as tempex or PS-hardfoam and ‘piepschuim’in Dutch) is originally an insulation material and this is still the biggest application nowadays, followed by packaging and products for the GWR-sector (ground-, water and road-building). In appendix 7 some pictures of EPS-applications are given. Thanks to a really efficient way of producing, EPS remains one of the cheapest and, because its unique structure one of the best insulation materials. Each cubic meter of EPS contains around 10 million little balls, also known as pearls. Each pearl contains 3.000 closed cells filled with air. In volume EPS consists of 2% polystyrene and 98% air.

EPS has multiple advantages. It is not affected by humidity (vapour). It can resist big mechanical pressures thanks to its specific cell-structure. Furthermore EPS-products are light, easy to process and attach without health risks. EPS is therefore known as a nice material to work with and is also environmentally friendly. EPS is a ‘mono-material’, which means it consists of one material, so it is easy to recycle. Furthermore it does not affect groundwater.

EPS-products are being produced in blocks, plates or other shapes. The blocks can be cut in pieces or random shapes. EPS building materials can be supplied boldly like plates or floors as well as composed high-grade products like sandwich-panels. EPS is being used in all building-sectors. Another advantage of EPS is its durability. Tests have showed that EPS hardly absorbs any water even after years in a humid soil. EPS also has a high pressing strength and heat-conducting value. Since EPS is insensitive to water, it is also free of rot, mildews and bacteria. A last advantage is that EPS is resisted against a lot of chemicals.

The qualities of EPS like steadiness, insulation value and flammability are determined for an important part by the quality of the EPS-granulate from which it has been produced.

Unipol’s product

As mentioned before EPS-granulate is the primary resource for producing EPS. EPS- granulate are small beans filled with pentane. Because they are expanded yet (not filled with air), EPS-granulate can be transported efficiently all over Europe.

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Unipol produces two sizes of EPS-granulate, 0,7 – 1,2 mm en 1,2 – 1,7 mm. This is not much in comparison with the competition, see appendix 15 (§ 6.3.2). The size of the beans determines whether the product is more suited for insulation (large beans which can contain more air) or for packaging (small beans to create a high density and high pressure/ break strength). The size of the beans and the differences in size per batch are determined by the (chemical) production process. The variations in size can be decreased by (additional) sieving.

Currently Unipol has some problems with controlling size fluctuations between different batches (§ 8.2). The other qualities, for example lambda value, of the EPS-granulate are determined by the recipe used. Note that the production of EPS-granulate is a chemical process and can never be controlled for 100 percent.

Signals from the market tell us that EPS which has been produced with granulate from Unipol has good sound- and heat-isolating qualities. These qualities are especially useful for application in the building-sector. It is part of the policy of Unipol that its granulate also has fire delaying qualities. Recently this has become a rule (§ 5.8.1).This limits the possibilities for application in certain areas, mainly food-related packaging. From this it follows that marketing research should be focused on potential customers which appreciate these qualities.

Whether the granulate of Unipol has added value can be discovered by studying the final products of potential customers.

§ 1.6 Market

The EPS-granulate market is a commodity market, which can be defined as: “a handful of suppliers producing highly standardised product offerings and marketing them to customers on a non-differentiated basis” (Hutt and Speh, 1989: 262). The driving force for competitive advantage is economies of scale and cost efficiency in both manufacturing and marketing.

The fundamental strategic issue is to gain market share.

The market for EPS-granulate is an oligopoly (there is a limited number of suppliers). As can be seen in table 17 (§ 6.3), three companies have a total market share of 50,52 %. Like in the oil industry price setting is done by the larger players and the smaller players will follow.

The granulate is a raw material for EPS which can be used for building (insulation), roads (foundation material) and packaging (filling/ insulation). The product could also be called

‘expandable polystyrene”. In the market of EPS-granulate there is hardly any price competition, because it is a commodity like for example grain. The price is determined by the market. However by differentiating on quality or additional services a company will perhaps be able to justify slightly higher prices. This means that while contacting customers the main focus should be on product qualities. The estimated number of potential customers in Europe is 100.

§ 1.7 Strategy

Porter (1980: 35) distinguishes three generic strategies:

• The strategy of cost leadership, whereby the aim to keep the costs as low as possible in comparison with the competition

• Product differentiation, whereby the aim is to create a product that is considered unique in the industry

• Focus strategy, whereby the whole strategy is aimed at serving a particular goal really well

The strategy of Unipol will discussed here. However the distinction of Porter is important for determining Unipol’s position in relation with its (potential) competitors. This will be done later in chapter 6 ‘competitor analysis’.

Unipol is not following a cost leadership strategy. Of course it is trying to minimise costs, especially by re-using granulate that is not suited for sale (for example too small or too large

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beans), but Unipol is probably too small to follow an effective cost leadership strategy. There are much larger competitors in the market, who can benefit from economies of scale/ scope.

In this way these competitors will be able to get good/ better margin with a given market price. Unipol is however limiting costs because it does not have R&D facilities and a sales/

marketing department (§ 1.4).

EPS-granulate is a commodity and the qualities of Unipol’s product are not that unique that one can speak of differentiation in terms of Porter (1980: 35). The granulate that it is supplying can be supplied by other players as well with similar quality. However the granulate of Unipol is of a good quality and Unipol is able to guarantee this good quality by continuously testing.

As a consequence Unipol should aim for a focus strategy. It is doing this by focusing on a small piece of the market, a so called niche-strategy. In this niche-market quality is an important factor and assortment is expected to be less important. Unipol is only producing a limited amount of product compared to for example BASF; it is only supplying two sizes of grain. As a result of this choice, Unipol is implicitly focusing more on EPS insulation producers (§ 1.5). EPS packaging producers prefer smaller beans with slightly different characteristics. Lastly Unipol focuses on building long-term relationships with customers and serve them as well as it can. For example by guaranteeing constant quality and providing know-how regarding EPS-processing. As mentioned in § 1.4 Unipol prefers smaller customers. In chapter 9 strategic recommendations will be made as to how Unipol should continue this focus strategy to create a competitive advantage. The aim is to become the preferred supplier.

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Chapter 2 The research

At the moment Unipol still sells most of its granulate to the EPS producing companies in the Netherlands and Germany. However the production capacity of Unipol exceeded the demand of Unidek. This meant that part of the capacity was unused, which is costly. Unipol has solved this problem by supplying EPS producing companies outside the holding. It is already doing this on a small scale, but it wants to expand this business activity in the near future. That is why Unipol wants more clarity about potential customers in Europe. Its company policy may not be conflicting with the interests of (companies within) the holding.

To satisfy the wishes of the management this research has to answer the question ‘which market parties can be considered as potential customers and how attractive are they for Unipol’. Management also likes to know more about its competitors, mainly to determine which type of customers they serve and where they are operating.

To satisfy the scientific wishes of the university, the research has to be conducted by means of a scientific method and by using relevant theories. According to De Leeuw (1997: 9): “A scientific method is honest and objective. Objectivity means in this context that the researcher makes transparent choices, presuppositions and value judgements which form the base of his conclusions. The approach must also accessible for criticism and the weaknesses should be dealt with in an honest manner.”

§ 2.1 Problem statement

When closer attention is being paid to the formulation of the management, some things become clear. First that it is interested in the possibilities of operating on the European market and serving new customers (opportunities). Second it is also interested in the competition and which customers they serve (threats). The choice has been made to broaden the assignment as to include the strengths and weaknesses. Furthermore the influence of macro-economic factors and market factors, which can be either opportunities or threats will be included in the research. The result is a SWOT-analysis as a research base for outlining the strategic options for Unipol.

Goal statement: To make an analysis of the European market (Germany and the Benelux excluded) for EPS and give strategic recommendations to Unipol on how to enter this market.

Research question: What sales opportunities are there for Unipol on the European market and how can they be used, taking into account competitive threats as well as the strengths and weaknesses of Unipol?

This results in 5 research objectives, which can be achieved by answering the questions in that section. The research objectives stated above can be divided in an external analysis (1-3) and an internal analysis (4-5). These will be combined into a confrontation analysis (SWOT- analysis), on which the strategic recommendations will be based (visualised in the conceptual model in § 2.5).

EXTERNAL ANALYSIS

1. To make an analysis of the market of EPS-producing companies and to determine which of them can be considered as potential customers. To make profile sketches of these potential customers and their needs. The estimated number is 100.

• Who are potential customers and what are their buying motives?

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• What are their needs ?

• What are the benefits sought for by customers?

• Which needs are not satisfied?

• Considering the answers of the questions in this section does this qualify the buyer as a potential buyer for Unipol?

2. To make a market analysis based on macro-economic variables (like size of the market and growth, profitability, trends and developments, for example expansion of the EU).

• What are the risks associated with operating in the different European markets?

• What are the economic development and performance at macro-level of the different European markets?

• What is the EPS market potential for the different European markets?

• Which cultural differences influence the attractiveness of the different European markets?

• What is the influence of infrastructure on the attractiveness of different European markets?

• What legal aspects influence the attractiveness of different European markets?

• Considering the answers of the questions in this section, which markets qualify as attractive for Unipol?

3. To make an analysis of the competition, whereby a picture is drawn of the important competitors and their influence on the attractiveness of certain countries/ customers.

• Who are (potential) competitors?

• What are their strengths and weaknesses?

• In which part of the market are they operating?

• Considering the answers of the questions in this section, which influence does competition have on the attractiveness of different European countries?

INTERNAL ANALYSIS

4. To determine the strengths and weaknesses of the organisation in relation with entering the European market.

• What are the organisational skills and problems?

• In which way can these influence the possibilities for Unipol to enter the European market?

5. To determine limitations and restraints

• What are the organisational limitations?

• What are the financial limitations?

§ 2.1 Research type

This research is mainly policy supporting and aimed at making a contribution to the business practice in the form of useful findings, conclusions and recommendations.

Firstly the research can be called descriptive. Especially the first part is about the registration and systematic ordering of what is happening in a certain area using systematics which have been determined in advance and whereby developing a theory or formulating hypotheses is not an aim (Baarda en de Goede, 1998: 78). This is the part of gathering data about markets, potential customers and competitors.

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To gather more in-depth information about potential customers, use will be made of questionnaires. According to Saunders (2000: 279) this method is especially suited for descriptive and explanatory research. Although the main part will be descriptive, relevant relationships between variables will be considered if relevant, for example differences in product demands between producers of EPS packaging producers and EPS insulation producers. The choice to use questionnaires and more information about this method can be found in § 4.5.1 .

§ 2.3 Data collection

1. A literature review focused on segmentation in industrial marketing and segmentation of European markets.

2. Researching the following aspects by means of desk research:

• Determining which segments are relevant for Unipol and determining in which European countries these segment are best represented

• To make an inventory of potential “customers” in the different geographic markets by means of Internet and other resources

• To determine which markets are attractive. For this purpose general market data about size, growth and profitability will be collected

• To make an inventory of potential “competitors” in the different geographic markets by means of Internet and other resources

3. Furthermore primary data will be collected from potential customers regarding their specific needs. For this purpose questionnaires will be used. Other necessary primary data will be gathered from employees at Unipol/ Unidek and internal documents, for example regarding primary processes.

§ 2.4 Data analysis

1. During the literature research theories will be analysed and judged on their relevance.

A limited number of theories will be chosen. This choice will be supported by arguments. Based on these theories a conceptual framework will be made, a sort of meta-theory.

2. The analysis of the secondary data will be aimed at finding patterns and making profiles of markets as a first step in the segmentation process.

3. The primary data will be analysed according to their possibilities. The questionnaires will be analysed with SPSS in order to discover relations between factors. The statistical options for interviews are of course limited and this analysis will be more qualitative. Furthermore a split-run test will be done to show differences between the two groups of questionnaires.

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MARKET DEFINITION Customer analysis

• Who are potential customers and what are their buying motives?

• What are their needs ?

• What are the benefits sought for by customers?

• Which needs are not satisfied?

Competitor analysis

• Who are (potential) competitors?

• What are their strengths and weaknesses?

• In which part of the market are they operating?

Market analysis

• What are the risks associated with operating in the different European markets?

• What is the economic development and performance at macro-level of the different European markets?

• What is the EPS market potential for the different European markets?

• Which cultural differences influence the attractiveness of the different European markets?

• What is the influence of infrastructure on the attractiveness of different European markets?

• What legal aspects influence the attractiveness of different European markets?

Strengths and weaknesses of the organisation

• What are the organisational skills and problems?

• In which way can these influence the possibilities for Unipol to enter the European market?

Limitations and restraints

• What are the organisational limitations?

• What are the financial limitations?

CONFRONTATION ANALYSIS (SWOT)

Strategic options

STRENGTHS AND WEAKNESSES OPPORTUNITIES AND THREATS

§ 2.5 Conceptual model

EXTERNAL ANALYSIS INTERNAL ANALYSIS

Figure 1: conceptual model

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§ 2.6 Assumptions

• When analysing the market for potential customers the focus is on the products currently produced and sold by Unipol. As may be clear from § 1.5 EPS can be produced in a lot of different forms and with different qualities

• Unipol is going to enter the European market

• The estimated number of 100 potential customers will be reached, so that no attention has to be paid to customers in the Benelux and Germany

• The focus will be on customers who already produce EPS (-related products)

• At this point of time the sole method of entering the European market will be exporting, because of financial restraints and good transportation abilities of EPS- granulate

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Chapter 3 Literature review

In this chapter relevant business literature will be reviewed in order to make the link between theory and business practice. Special attention will be paid to segmentation strategies and international business literature.

§ 3.1 General

In order to select the appropriate theories it is necessary to have a profound understanding of the type of research being dealt with. One of the most important differences is that this research is a business to business (B-2-B) research and not a consumer market research. This will be an important evaluative criterion.

According to Kort (2000: 133) B-2-B can be defined as: ‘the systematic collection, processing and analysis of data that is relevant for making marketing decisions in markets where the buyer procures goods and services necessary for his own business’. A consumer market research will be the opposite. The buyer is a natural person who procures goods and services for private use and is the end-user of these goods and services.

He mentions a few differences between B-2-B markets and consumer markets. Firstly B-2-B is mainly dealing with derived demand. This means that researchers should look at the whole supply chain (appendix 3) in order to understand the market. The value chain of Porter (Porter 1985) will be used for this purpose. There are a lot of alliances, a growing number of international ones, and as a consequence a great deal of familiarity with the branch in which companies operate. Secondly the demand in B-2-B markets is often concentrated; the 80-20 rule (Kort 2000: 139).

As a consequence buying behaviour in business markets is different:

- there is a phased buying process in which a lot of attention is being paid to different stages (orientation, selection)

- the Decision-Making Unit (DMU) is larger - continuity of the relation is important

- the buying process is more rational, especially the first stages

- the focus is more on the augmented product; businesses are not only buying a product but also additional services and as a consequence (value chain Porter) …

- …. price-performance is more important than prices. This is partly because performances are easier to measure in B-2-B situations

- buyers are often experts

It is important to keep those characteristics in mind when one is conducting research in a B-2-B market. Furthermore it is important to determine which development direction Unipol is choosing. Leeflang (1998, band II: 13) refers to Ansoff for this purpose.

Products Markets

Current New

Current penetration product development

New market development diversification

Table 1: the development directions by Ansoff (Leeflang 1998, band II: 13)

As already explained in chapter 1, Unipol wants to sell its current products on new markets and is following a strategy of market development. Leeflang (1998, band II: 13) remarks that a company in this case is focusing on new segments with current products. Market development is changing your segmentation strategy. In other words one is adapting the

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marketing instruments (mix) in order to focus on new segments. But if an organisation determines to enter a new geographic market (export strategy) with its products, one is dealing with an organisation strategy, because more functional areas are involved. While dealing with segmentation strategies, Leeflang (band II: 35-36) returns to this subject. He states that geographic marketing strategies are special sorts of segmentation strategies. One way to use them is for choosing the market area on which the organisation wants to focus.

Another way to use them is for determining in which way an organisation is or is not going to operate internationally. Leeflang (1998, band II: 35-36) is differentiating four approaches:

• ethnocentric, whereby one is concentrating on the home market (= national market)

• polycentric, whereby one opts for a differentiated approach for each international market

• regio-centric, whereby one opts for a differentiated approach for several regions and whereby the regions are segments which can cross national borders

• geocentric, whereby one opts for an undifferentiated approach for international markets. This is also called ‘global marketing’

These approaches differ in degree of differentiation used. In the case of Unipol a regio-centric approach can be used, because the product is a commodity. This project endeavours to ascertain whether differentiation between countries is needed. Again the reader is being warned by Leeflang (1998) that if a few of these geographic marketing strategies are being chosen, one result can be that a company has to change its whole organisation or organisational practices. The reason is that these strategies can be regarded as organisational strategies.

From the above the conclusion can be drawn that it is possible to use segmentation strategies for this research project. However these strategies should be used in a broader, organisational context. These strategies should take into account the specific characteristics of B-2-B research.

§ 3.2 Segmentation theories

The literature concerning segmentation is numerous. However a lot of this literature is based on/ meant for consumer market research. As stated in the previous paragraph this research project is dealing with a B-2-B market, which makes this literature less suited. Some examples of these theories (which have not been used) are: Aaker (1984), Kotler (1980) and Webster (1984). The most important segmentation theories for B-2-B research can be divided in two main groups: the theory of Wind and Cardozo and the Bonoma and Shapiro theory.

These will be discussed in § 3.2.1 and § 3.2.2. Because of the international dimension of this research project, it is wise to review some international business literature. This will be done in § 3.3.

§ 3.2.1 Macro- and micro-segmentation (Wind and Cardozo)

The segmentation theory of Wind and Cardozo (1974: 155) is based on a difference between macro- and micro-segmentation. This theory will be later in this paragraph.

According to Wind and Cardozo (1974, cited by Hutt and Speh, 1989: 173) a market segment is: “a group of present or potential customers with some common characteristic which is relevant in explaining (and predicting) their response to a supplier’s marketing stimuli”. Wind and Cardozo (1974, cited by Hutt and Speh, 1989: 173) propose to select segments based on macro-segmentation first and if necessary to use micro-segmentation as well.

Frank, Massy and Wind (1972, cited by Gankema and Wedel, 1992: 208) classify segmentation variables as follows (see also Leeflang, 1998, band II: 44).

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General Product specific Directly observable Cultural, geographic,

demographic en sociographic variables

Frequency of use, brand and store loyalty, situation of use

Derived Psychographics, personality traits, life style and values

Psychographics, perceptions, attitudes, preferences and intentions

Table 2: Classification of segmentation variables (Frank, Massy and Wind 1972, cited by Gankema and Wedel, 1992: 208)

Later on the general variables have become the variables for macro-segmentation and the product specific variables the variables for micro-segmentation.

Segments based on directly observable, general variables are easy to identify and reach and relatively stable. Empirical research conducted by the authors (Frank, Massy and Wind 1972, cited by Gankema and Wedel, 1992: 210), shows however that the relation between these variables and sales is weak. Segments based on directly observable, product specific variables are sometimes good, but show mixed results. Derived, general variables such as psychographics give a colourful image of the market based on a more realistic portray of the customer. Finally segments based on derived, product specific variables can be divided in two groups. * Segments based on perceptions of product characteristics (for example quality) seem to be quite homogeneous in their response to marketing instruments and are a good indicator for marketing strategy. However the stability is problematic. Segments based on the weight consumers attach to product characteristics (benefits) seem to be stable and homogeneous in response.* According to the authors (Frank, Massy and Wind 1972, cited by Gankema and Wedel, 1992: 210) product benefits are referred to in the literature as the most effective bases of segmentation. This can be summarised in the following table:

criterion Bases identifiable

scope reachable stability processable homogeneous response 1. Directly observable,

general

+ + ++ + - -

2. Directly observable, specific

- buying - usage

+ +

- +/-

+/- +

- -

+ + 3.Derived, general

- personality - life style - psychographics

+/- +/- +/-

+ + +

- - -

+/- + +

- - - 4. Derived, specific

- psychographics - perceptions - benefits - intentions

+/- +/- + +

+ + + +

- - - -

- - -*

+/-

++

+ + -

+/- -*

-*

+ Table 3: Summary evaluation of segmentation bases (Frank, Massy and Wind 1972, cited by Gankema and Wedel, 1992: 211)

++ = very good + = good +/- = moderate - = bad

* These scores are not matching with the text above. What is stated in the text is more logical and shall be considered true

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In this research use will be made of all these variables, although the difference between directly observable and derived may differ between companies, as one company is more willing to share information than another. The same accounts for frequency of use and brand and store loyalty (loyalty to a certain supplier in case of B-2-B), which may be less observable in B-2-B situations. While end consumers can be observed as the go to a store and buy their products, this is often harder to determine for companies. Use of certain products and certain suppliers is considered strategic information, that not all companies want to share (see the lower response rates for these questions in chapter 7). In general the directly observable variables will form the macro-segmentation and the derived variables will form the micro- segmentation as described below.

Lilien and Kotler (1983, cited by Hutt and Speh, 1989: 176) present the ideas of Wind and Cardozo in a model. This model forms the first step in the segmentation process. One should take into account that the model is already focused on industrial markets and as a result the variables as well.

Figure 2: a hierarchy of business market segmentation (Lilien and Kotler 1983, cited by Hutt and Speh, 1989:

176)

They distinguish the following bases for macro- and micro-segmentation. These resemble the classification of Frank, Massy and Wind (1972), but are made more explicit. Leeflang (1998, band II: 45) is doing the same.

Macro-level bases of segmentation

1. Characteristics of the buying organisation

- Size (the scale of operations of the organisation); small, medium, large based on sales or number of employees

- Geographic location

- Usage rate: non-user, light user, moderate user, heavy user - Structure of procurement; central vs. de-central

2. Product/ service application

All potential customers

Basis: SIC code, size, locale

Macro-segment 2 Macro-segment 3 Macro-segment 1

Basis: DMU, structure

Micro-segment 2

Micro-segment 1 Micro-segment 3

ISOLATING POTENTIAL CUSTOMERS

ISOLATING POTENTIAL CUSTOMERS

“A European market research project for Unipol Holland B.V.”

Groningen, 28 – 05 – 2003

International Business thesis

Author: Erik Lode 1081489

Co-ordinators: Dr. M. Boon (University) Ms. N. Campbell (University) Ms. T. Megens (Unipol)

Drs. M. Oyevaar (Management Centrum)

ISOLATING POTENTIAL CUSTOMERS

“A European market research project for Unipol Holland B.V.”

Groningen, 28 – 05 – 2003

International Business thesis

Author: Erik Lode 1081489

Co-ordinators: Dr. M. Boon (University) Ms. N. Campbell (University) Ms. T. Megens (Unipol)

Drs. M. Oyevaar (Management Centrum)

“High-growth companies succeed by identifying and meeting the needs of certain kinds of customers, not all customers, for special kinds of products and services, not all products and services. Business academics call this market segmentation. Entrepreneurs call it common sense.”

Clifford Jr. en Cavanagh (1985 : 53)

Prologue

Contents

Management summary

Chapter 1 Introduction Unidek and Unipol

Chapter 2 The research

Chapter 3 Literature review