Opportunities and Threats for Akzo Nobel in the Australian Car Refinishes market.

Choose to grow in Australia!

Opportunities and Threats for Akzo Nobel in the Australian Car Refinishes market.

Graduate thesis for ‘Bedrijfskunde, Business Development’ at the Rijksuniversiteit Groningen. Research performed at Akzo Nobel Car Refinishes Australia Pty. Ltd, Melbourne Australia.

Author: Robert Bouma

Student number: 1165402

Place: Groningen

Date: 9

of May 2005

Supervisors University: Dr. W.G. Biemans

Dr. G.H. Kruithof

Supervisors Akzo Nobel: B. Edney

P. Sadler

‘de auteur is verantwoordelijk voor de inhoud van het afstudeerverslag; het auteursrecht van het verslag

berust bij de auteur’

Contents

Acknowledgements ... 4

Management Summary... 5

Part I Background ... 8

Chapter 1 Introduction ... 8

§ 1.1 Akzo Nobel and Car Refinishes ... 8

§ 1.2 History of Sikkens and ANCR in Australia... 9

Chapter 2 The Problem ... 10

§ 2.1 Background of the problem ... 10

§ 2.2 Research goal ... 10

§ 2.3 Research question... 10

§ 2.4 Boundaries... 11

§ 2.5 Research methodology... 12

§ 2.6 Type of research ... 13

§ 2.7 Structure of the report ... 13

Part II Trends, Development and ANCRAU ... 14

Chapter 3 The Car Refinish market ... 14

§ 3.1 Characteristics of the Car Refinishes market... 14

§ 3.2 Market figures ... 15

§ 3.3 Overseas Markets ... 17

§ 3.4 Conclusion... 18

Chapter 4 Customers in the CR market... 19

§ 4.1 CR market as a business market... 19

§ 4.2. Bargaining position of customers... 20

§ 4.3 Motivation of customers ... 21

§ 4.4 Segmentation of Customers ... 22

§ 4.5 Customers of ANCR... 23

§ 4.6 Conclusion... 24

Chapter 5 Competition in the CR market... 25

§ 5.1 Competition and Strategic groups... 25

§ 5.2 Entering the CR market ... 28

§ 5.3 Possible competitors... 29

§ 5.4 Substitutes... 30

§ 5.5 Suppliers ... 30

§ 5.6 Conclusion... 30

Chapter 6 The exterior ... 31

§ 6.1 Insurance companies ... 31

§ 6.2 Skill shortages and apprentices... 32

§ 6.3 Technological developments ... 34

§ 6.4 Economics and Demographics ... 36

§ 6.5 Conclusion... 36

Chapter 7 Market approach of ANCRAU... 38

§ 7.1 The products ... 38

§ 7.2 Price ... 39

§ 7.3 Distribution... 40

§ 7.4 Promotion ... 41

§ 7.5 Conclusion... 43

Chapter 8 Organisation of ANCRAU ... 44

§ 8.1 Strategic direction of ANCRAU... 44

§ 8.2 Organisation structure of ANCRAU... 45

§ 8.3 Methods and procedures ... 46

§ 8.4 Human capital of ANCRAU... 47

§ 8.5 Management style of ANCRAU ... 47

§ 8.6 Organisation culture of ANCRAU... 47

§ 8.7 Conclusion... 48

Part III SWOT analysis and Recommendations ... 49

Chapter 9 Confrontation of ANCRAU and the market ... 49

§ 9.1 Opportunities and Threats... 49

§ 9.2 Strengths and Weaknesses ... 50

§ 9.3 Selection of most relevant SWOT elements ... 50

§ 9.4 Confrontation matrix ... 52

Chapter 10 Sustainable Competitive Advantage... 54

§ 10.1 The MPA’s and sustainable competitive advantage... 54

§ 10.2 Choice... 56

Chapter 11 Best of both worlds... 58

§ 11.1 Best of both worlds pitch ... 58

§ 11.2 Sikkens ... 59

§ 11.3 Lesonal and Miluz ... 61

§ 11.4 Structural changes... 62

§ 11.5 Sales team and distribution ... 63

§ 11.6 Information systems and intelligence ... 63

§ 11.7 Brand awareness, promotion and trust ... 64

Chapter 12 Reflection and possibilities for further research... 66

References ... 68

Appendices ...Error! Bookmark not defined.

Acknowledgements

Six months I have researched the Australian market for Car Refinishes. This meant visiting smash repairers in different parts of the country. A different culture and a market with a lot of challenges. In this thesis I will give recommendations on how to achieve growth in this market.

First of all I want to thank the people at Akzo Nobel Car Refinishes Australia for their input and help, but also for making me feel welcome. I had a great time working in Melbourne and not the least because of you! Secondly I want to thank all the helpful people that attributed to my research by giving time for interviews or answering questions otherwise. I also want to thank my supervisors. Dr.

Wim Biemans and Dr. G. Kruithof in Groningen for leading me in the right direction and Barry Edney, for guiding me through the process in Melbourne and being there with information and advice.

Special thanks go out to Peter Sadler for giving me the opportunity at Car Refinishes in Melbourne.

Coming to Australia and being part of Australia for a while was a lifelong dream which has come true.

Thanks for that!

With this thesis an end has come to an important and beautiful part of my life: student life. I had an unforgettable time in Groningen and Uppsala and I want to thank all my friends that had a part in it.

Last but definitely not least I want to thank my family, my lovely parents in particular, for supporting me always in everything I do. Thanks for everything!

Robert Bouma

Groningen, 24

of May 2005

Management Summary.

This research was done on behalf of Akzo Nobel Car Refinishes Australia (ANCRAU). The goal was to make a thorough analysis of the Australian Car Refinishes market and give recommendations to Akzo Nobel Car Refinishes Australia on how to deal with the challenges of this market.

This resulted in a thorough analysis of the trends and developments that are present in the Australian market. After this an analysis of the strengths and weaknesses of ANCRAU was made. With these in mind opportunities and threats were identified for ANCRAU. Selection was done and the most important are:

Strengths Weaknesses

Opportunities

ƒ Quality

ƒ A-coat services programme

ƒ Water-based technology and products

ƒ No clear choice for a value proposition

ƒ Approvals of OEM’s

ƒ Quality and reach distribution network

Threats

ƒ Unprofessional market

ƒ Possible introduction of water-based technology

ƒ Possible need for repairers to specialise

ƒ Conservative and price-driven market

ƒ Difficult to get OEM approvals

ƒ Fierce competition in all segments

This selection of the most important elements was made and was put in a confrontation matrix.

Through the confrontations of the elements Main Points of Attention (MPA’s) were identified. These MPA’s were used as the basis for the strategic options. The MPA’s were:

ƒ How can ANCRAU use A-coat to grow?

ƒ How can ANCRAU use water-based products at the possible mandatory introduction of water- based technology in Australia?

ƒ What changes should ANCRAU make to deal with the lack of OEM approvals?

ƒ What choices should ANCRAU make to profit from the future need for repairers to specialise?

ƒ What choices should ANCRAU make to defend itself against fierce competition?

Strategic options have to create a Sustainable Competitive Advantage in order for ANCRAU to be sustainable competive. The options each have their own value proposition they pursue and they are:

ƒ Focus on Sikkens. Use Sikkens and A-coat to aim for the high-end segment of the market.

Abandon Lesonal and Miluz to use all resources to become a differentiator through high quality and excellent service. Differentiate by pursuing Customer Intimacy through A-coat which should be tailor-made for every customer. Be frontrunner in waterbased technology and get the needed OEM approvals.

ƒ Focus on Lesonal. Use Lesonal and Miluz to become cost leaders in the medium and low segments of the market. Drop Sikkens and create a cost efficient structure to support Lesonal and Miluz. Emphasize sales skills to achieve the volume needed for high profits.

ƒ Best of both worlds. Try to combine the best of both strategies by focussing on growth pockets within the segments. Put the emphasis on Sikkens to become a truly trustworthy player in the high-end segment and focus on Lesonal customers that want good quality but no thrills. Ensure that there is no confusion with the customers and employees on the differences between Sikkens and Lesonal.

These are the possible strategic options. Taking the boundaries and criteria in consideration makes

‘Best of both worlds’ the preferred option. What are the consequences for the strategy and ANCRAU?

This leads to the following recommendations on different levels.

Sikkens A-coat

ƒ Sikkens quality stays high and A-coat is developed as the Sustainable Competitive Advantage;

ƒ Broaden the focus of A-coat nationwide with A-coat selected customers all over Australia;

ƒ Enrich the program with concepts from mature markets;

ƒ Gain knowledge from other regions within ANCRA on the effects of specialisation and waterbased technology on bodyshops and create A-coat programs dealing with these effects;

ƒ Stay in contact with insurance companies on their plans with regards to specialisation.

Quality and waterbased technology

ƒ Profit from the innovative products created by ANCR;

ƒ Start a lobby on State level to influence the decision regarding mandatory waterbased products;

ƒ Set up projects with bodyshops in cooperation with sustainability fund in order to create the association in the market between waterbased and Sikkens.

OEM approvals

ƒ Start lobby with local OEMs in order to do all that is possible in order to obtain the approvals;

ƒ Put and keep the pressure on HQ and ANCRAS to keep approvals high on the agenda, calculate how much we would benefit from approvals;

ƒ Discuss ANCRAU’s needs with the new manager for OEM contacts within ANCR;

ƒ Try to create pull demand through the insurance companies.

Lesonal

ƒ Target top-end shops that do not need services as added-value

ƒ Target repairers that have potential of becoming Sikkens, but add value straight away Sales structure

ƒ Create more clarity by having different Sales Teams for Sikkens and Lesonal;

ƒ Divide the responsibilities between the brands and create a matrix structure in which the RSA’s are responsible for the sales per region and brand managers are responsible for the sales per brand;

ƒ Manage on costs and output through targets.

Distribution

ƒ Sikkens in metro areas sold through the ANCRAU branches;

ƒ Lesonal in metro areas goes through distributors with limited support from the ANCRAU branches;

ƒ Sikkens and Lesonal in rural areas through distributors Staff

ƒ Prepare staff for the renewed market approach through training Information systems

ƒ Sharepoint becomes the opening screen/homepage on everybody’s computer;

ƒ RSA creates market report on his region which serves as basis for discussion and strategy for the whole;

ƒ NSM puts excerpts on Sharepoint and Carnet to promote the sharing of information.

Brand awareness, promotion and trust

ƒ Start an internal promotional campaign on Akzo Nobel through news letters to make employees proud. Being the most important ambassadors they need to know more about the company;

ƒ Continue the distinctive promotional campaigns of Sikkens and Lesonal and advertise with waterbased paint consistently to help create the image of Sikkens as the producer of waterbased products;

ƒ Restart the STARS project in order to build trust in the market and to show ANCRAU’s

involvement with the market.

It is hard to pursue different value propositions and this could lead to a situation that is called ‘stuck in the middle’. Being stuck in the middle will prevent a company from becoming an excellent performer.

This is not a favourable situation, but very common. This means a clear choice for one value

proposition would be the best option. These choices are not possible because of the boundaries so

making clear choices within the boundaries is necessary.

Part I Background

Chapter 1 Introduction

To start it is good to get a better understanding of the market and the way Akzo Nobel Car Refinishes participates in it, it is crucial to have some background information on Akzo Nobel, Car Refinishes and the history of ANCR in Australia.

§ 1.1 Akzo Nobel and Car Refinishes

ANCR is part of the Business Unit (BU) Coatings of Akzo Nobel. Akzo Nobel N.V. is a multinational company with its Head Quarters (HQ) based in Arnhem, The Netherlands. It was founded in the 18

century in both The Netherlands and Sweden, but in its current form it was founded through a merger of the Dutch AKZO N.V. and the Swedish Nobel Industries. Akzo Nobel has over 70.000 employees in more than 80 countries. It is listed on the Dutch and American stock exchanges, in Amsterdam and New York. Akzo Nobel is a business-to-business company. This means that people probably use their products on a day-to-day basis, but do not notice it.

§ 1.1.1 Activities of Akzo Nobel

The activities of Akzo Nobel are split up in three Business Units:

ƒ Chemicals

ƒ Pharmaceuticals

ƒ Coatings

Sales is divided roughly evenly over the different BU’s with the share of Coatings is growing slowly (table 1.1).

Sales per Business Unit (%) 2002 2003 2004 Coatings 39 40 41 Chemicals 33 33 34

Pharma 28 27 25 Table 1.1: Annual Report Akzo Nobel 2002-2004

Chemicals:

At the BU Chemicals a variety of chemicals used in on a day-to-day basis are produced. This varies from chemicals like salt and chlorides to the more recognisable salt used for dinner.

Pharmaceuticals:

Pharma is the BU that produces medicinal products. The main focus is on the on-prescription-only- medicine, veterinary products and complex active pharmaceutical ingredients. The business is centred around three main strategic products namely: Organon, Intervet and Diosynth. Recently human healthcare suffered a blow through the loss of the patent on the antidepressant bestseller Remeron.

Coatings:

The coatings activities of Akzo Nobel are the largest in the world (Coatingworld magazine, July 1999- 2004). They produce paint and (re)finishes for industrial, transport and marine markets. They also service the professional and private decorative sector. Besides Car Refinishes there are the following sub-BUs:

ƒ Decorative Coatings: Products to decorate and style your house in the latest colours, but also protect it from the influences from the weather.

ƒ Industrial Activities: This unit consists of Industrial Finishes and Powder Coatings and they produce products used on wood, metal buildings and machinery.

ƒ Marine and Protective Coatings: Products from this unit are used on all sorts of ships from

yachts to vessels for protection and maintenance. This unit also contains Aerospace Coatings.

ƒ Nobilas: Nobilas offers services to insurance companies, fleet owners and lease companies in car damage management. It used to be a part of Car Refinishes but in order to achieve fast growth it was made a separate unit.

§ 1.1.2 Car Refinishes

Car Refinishes is a sub-BU of the BU Coatings. The largest operations of ANCR are in Western Europe and North America. In recent years emerging markets such as Asia have grown to be very important for ANCR. This is illustrated by the growing activities in China and India and the large production site in Jakarta, Indonesia.

The organisation is split up in different regions which all report to Global HQ in Sassenheim, The Netherlands. These regions are:

ƒ Europe West, ANCREW

ƒ Europe East. ANCREA

ƒ South America, ANCRSA

ƒ North America, ANCRNA

ƒ Asia Pacific, ANCRAS

ANCRAU has to report to ANCRAS which has its HQ in Singapore.

Currently the activities of Car Refinishes are being restructured. The results were under pressure in the two largest markets, Europe West and North America. This was caused by a high level of maturity in the market combined with fierce competition. The organisation had become very heavy and needed to be tuned. This has resulted in a layoff of 10% of the total global staff in order to cut costs and regain healthy margins.

While these restructurings are taking place all around the world, but mostly in Europe West and North America, Australia was still on a growth plan. In Australia there is still growth in volume and market share so the effects were limited in Melbourne. Staff cuts would not help ANCRAU pursuing growth.

There were effects being felt in that there is an even stronger focus on results living up to the proposed budget. This focus was always there, but now ANCRAU has to keep growing at considerable pace.

§ 1.2 History of Sikkens and ANCR in Australia

ANCR were the last of the world’s largest paint companies to move into the Australian market. This entry began with a license agreement between the Australian producer Wattyl and Sikkens. Wattyl was licensed to distribute Sikkens paint to Australian customers. At a certain point in 1999 ANCR and Wattyl were supposed to join in a joint venture (JV) to bring Sikkens as a premium brand on the Australian market and no longer under the Wattyl brand. These negotiations ended dramatically and the JV was abandoned. Shortly after this, Wattyl engaged in a partnership with competitor BASF.

Because of the loss of its partner the ANCR Australia (ANCRAU) organisation found itself, virtually overnight, without customers, employees and products in the Australian market. A lot of work had to be done.

It is from this background that Melbourne was chosen as the location for HQ, or better said: imposed on the organisation. Focus was put on getting products and gaining customers and the current location was Melbourne. A few loyal employees stayed with the General Manager (GM) at that time or came back after a short time. This has created a very tight group of people that have built the organisation from scratch to what it is today.

The period following was very much focused on growth of market share. In five years a market share

of 4% of the Car Refinishes market (CR market) has been achieved. It is also from this background

that the current mentality has been shaped. ANCR is perceived as a pro-active organisation that does

not take customers for granted, because it simply has never had that luxury. On certain issues a referral

will be made to this history to find an explanation for organisational behaviour and structure.

Chapter 2 The Problem

§ 2.1 Background of the problem

First the background of the research. ANCRAU has been in Australia for five years, and can therefore be regarded as new within the marketplace. From the turbulent days where the organisation started until the present there has been a focus on growth and sales. Market information and knowledge of the market is present in the organisation but most of it is tacit and held by more than one person. Due to the lack of an overall view it is hard to make rational decisions based on research. Furthermore most of the information used for decision making is held by people who have worked close to the business for many years. Are their perceptions correct? Or have their views become too narrow as they have become immersed in the industry?

The second issue is the overall feeling of the management team that there are many opportunities left in the market to be explored. Market share is still growing, but new opportunities occur often and may not necessarily be fully explored. A generic view of these opportunities has not been created yet and once this has been undertaken it will add greatly to the understanding of the market.

Before starting to collect the data needed for this research, it is necessary to ask ourselves a few crucial questions regarding the research (Verschuren, 1986: 22). These are the questions I asked myself before the project:

ƒ What is the goal of the research?

ƒ What will be researched?

ƒ What is the object to be researched?

ƒ How will the research be conducted?

§ 2.2 Research goal

The lack of overview and the adding a view from outside the industry has led the management to formulate a research project with the goal to:

Make a thorough analysis of the Australian market for Car Refinishes and ANCRAU to identify the opportunities and threats for growth and develop a strategy to deal with these.

With the conducted research, an overview should be created which can be used as a supportive means for developing strategy for the near future and coming years.

§ 2.3 Research question

What needs to be achieved in order to say we achieved our goal? This is the research question that I will try to answer. The question I ask is:

What trends and developments are present on the Australian Car Refinishes market what is their effect on ANCRAU and how should ANCRAU deal with these?

This research question can be split up into the following questions:

1. What are the trends and developments relevant to ANCRAU and how can they be characterised?

• What does the market for car refinishes look like and how does it develop?

• Who are the customers in the car refinishes industry and how do they change?

• Who are the competitors of ANCRAU and how are they positioned?

• Which are the relevant environmental factors that affect the Car Refinishes industry and what is their influence?

2. How can the organisation of ANCRAU be described and characterised?

• What strategy does ANCRAU pursue?

• How is ANCRAU structured?

• What kind of culture does ANCRAU have?

• How does ANCRAU use the marketing mix?

• What is ANCRAU good at and what bad?

3. What strengths, weaknesses, opportunities and threats come from the match between ANCRAU and the marketplace?

• What are the strengths of ANCRAU?

• What are the weaknesses of ANCRAU?

• What are the opportunities for ANCRAU?

• What are the threats for ANCRAU?

• What conclusions can be drawn from these?

4. What strategy should be chosen and what how should this strategy be pursued?

• What strategies are possible?

• Which strategy is the best option?

• What recommendations come from the chosen strategy?

The questions are mixed descriptive, evaluating and designing. The descriptive questions are needed to create a view on the market. More description is necessary to gain more knowledge on the present approach of the market and the way ANCRAU deals with opportunities. From this I will develop a model that provides ANCRAU with a possible approach to capitalise on these opportunities.

§ 2.4 Boundaries

Where will the research take place and what will be the research object? To ensure that the research stays within boundaries and takes factors such as time and money available into account I have to set these boundaries in advance.

The research will only take the Australian market for Car Refinishes into account. Before we go any further I will define the Car Refinishes market for this research. Firstly there is the distinction between Car Refinish Classic and Commercial Vehicles. Car Refinish Classic mainly focuses on supplying paint for passenger vehicles whereas Commercial Vehicles focuses on serving the commercial vehicle market, for instance trucks, busses and trains. The second distinction is between OEM-paint, paint used when producing the car, and repair paint. Although they seem supplementary, they are two different types of markets. In this research the Car Repair market is the object of research.

Boundaries always limit the possibilities, but they can be split into two types: boundaries that can be influenced to a certain extent and ones that cannot be influenced at all.

ANCRAU is a subsidiary of Akzo Nobel Car Refinishes (ANCR) and reports to Akzo Nobel Car Refinishes Asia Pacific (ANCRAS) in Singapore. Being part of a larger multinational organisation means that strategic directions are given from both headquarters (HQ) in Sassenheim, The Netherlands as well from Singapore. This means that all strategies have to be within the boundaries given by HQ.

This effects two areas the most:

ƒ Contacts with some third parties, mostly OEM’s, have to be initiated on a global level. After that local organisations can follow on local level.

ƒ ANCRAU pursues a multi-brand strategy in most markets. ANCRAU is not entirely free in

the decision to drop brands.

ƒ ANCR is in the middle of a restructuring process. This means that ANCRAU has to show substantial growth in the near future to justify the investments done by HQ.

Further there are several practical boundaries found outside the organisation that have to be taken into account. Firstly the ones that cannot be influenced:

ƒ Due to the geographical size of Australia only a limited part of the market was visited physically. Visits and interviews have been done in the largest and therefore most important metropolitan areas of Sydney, Melbourne, Adelaide and Canberra.

ƒ Developments and trends in the economy and demography of Australia influence the approach of the market, but cannot be influenced themselves. Therefore they have to be dealt with.

Secondly the ones that can be influenced:

ƒ For some developments political choices have to be made on State or Commonwealth level.

This means ANCRAU is dependent on political processes. This makes influencing difficult, but not impossible. Limited influence is possible through lobby.

ƒ Other developments are dependent on insurance companies. This is also not completely within the span of control of ANCRAU, but through preserving and building good contacts in the insurance world influence can be had.

§ 2.5 Research methodology

To gather the data I need to complete this project I have used a mix of methods. Among the methods available are interviews and existing data (Baarda, 1997: 133). Some of the questions could be answered using information that already existed; others were better answered with primary data coming from the interviews.

§ 2.5.1 Secondary data

First use was made, if available, of existing data through desk research both within the company and outside of the company. Within the company I made use of:

ƒ strategy plans

ƒ marketing plans

ƒ previously done market research

ƒ the global intranet of Car Refinishes, Carnet.

This provided basic information to diagnose the CR market, the customers of ANCRAU and the competitors of ANCRAU in the market. It also provided basic information on the ANCRAU organisation structure, systems and strategy.

To get a more complete view on the CR market and the external factors influencing the market, sources outside the company were used. These were sources like:

ƒ trade magazines

ƒ the internet

ƒ governmental institutions,

ƒ Australian Bureau of Statistics (ABS)

§ 2.5.2 Primary data

Desk research creates a good framework and answers questions, but it also brings new questions. That is why the collection of existing data was closely intertwined with the use of in-depth interviews.

These interviews could fill in the gaps left by desk research, especially with concern to information on competitors, the role of insurance companies, environmental issues and employment issues. These interviews were held with:

ƒ employees with experience with competitors

ƒ representatives of governmental institutions

ƒ representatives of insurance companies

ƒ representatives of ANCRAU

The last category of questions is those that can only be answered through interviews. The information in the organisation was mainly tacit knowledge had to be brought to the surface. For that I interviewed all the members of the Management Team on their specific field of knowledge. This provided more in depth information on technical issues, the marketing mix, culture and strategy.

To get a deeper knowledge on the CR market, the competition and the customers an interview round with all four of the Regional Sales Managers (RSM) was held using preliminary results of the analyses as a starting point. This assisted in obtaining far more detailed and informative interviews.

Interviews were held with different groups of customers. Within the company interviews served to get a better and comprehensive view on strategy, structure and marketing. The interviewees were:

ƒ members of the Management Team

ƒ Regional Sales Managers

To obtain a better insight into customer behaviour and needs customers, interviews were held. To create an objective view, customers from different segments were interviewed. So interviews were held with:

ƒ customers of every segment

ƒ customers using competitor products

Where possible face-to-face interviews were held, but due to geographical restrictions in a country the size of Australia this was not done for every region. See Appendix A for a list of interviewees.

§ 2.6 Type of research

Important to the development of a research project is the type of research that has been executed. Two kinds of qualifications that are frequently used are: explorative and evaluating (Verschuren, 1986: 61).

Looking at the research question and goal I proposed, an explorative research was most suitable. The questions asked do not have much information incorporated. This information needed, largely, had to be explored in the field. This exploration was broad but focussed on identifying the strengths and weaknesses of ANCRAU and trends and developments that are present in the market. Using an evaluating mechanism the most relevant were selected and classified as an opportunity or threat. This was done keeping the strengths and weaknesses of ANCRAU in mind. This kept the research

focussed. From this exploration a diagnosis was made which served as the basis for three strategies/

options. A choice from these options was made and recommendations were done.

§ 2.7 Structure of the report

The report is split up in three parts. Part I provides backgrounds. Backgrounds on the organisation,

history, research and problem. After the background comes the diagnostic part II. In this part different

analyses are done to provide a thorough view of the organisation, market and environment. In Part III

a SWOT analysis will be done. The trends and developments identified are labelled opportunities or

threats and matched with the strengths and weaknesses of ANCRAU. Here from three strategies will

be identified. The best will be chosen and further developed.

Part II Trends, Development and ANCRAU

Chapter 3 The Car Refinish market

Chapter three will deal with trends and developments concerning ANCRAU using three levels:

ƒ macro, the larger economic context

ƒ meso, the CR industry and related markets

ƒ micro, the customers

In order to do this, analyses will be done on:

ƒ the CR market;

ƒ the customers;

ƒ the competition and;

ƒ the environment

First: the marketplace. An introduction will be given on the relation between the end-user and our customer, the smash repairer. After that figures on the Australian market and developments in overseas markets.

§ 3.1 Characteristics of the Car Refinishes market

§ 3.1.1 Car Refinishes Classic

CR Classic is the market of passenger vehicles. This market is the most important one for ANCRAU and ANCR in general. The bodyshops are the customers and to a lesser extent, fleet owners, in the case of lease companies.

A car in Australia has an accident roughly every 5 years. Per car a limited volume of 1.5 litre paint is needed, but the need for colour accuracy is very high. The colour has to match the rest of the car as best as possible. This speciality aspect ensures a better margin on the paint than paint for OEM that is manufactured and sold in large quantities and therefore generates low margins.

When a car gets damaged it is taken to a bodyshop or car repair centre. The damage is assessed and this is communicated to the insurance company who most often pays for the damage. The insurance company has standard listings of operation times and rates and pays accordingly. The actual process is too complicated for this research, but a general overview is required. After all the parts are removed and the dent is taken out and repaired, the spray painter cleans the area and applies a primer and filler.

The filler is used to straighten out the dent and ease away the last little imperfections. After this several techniques can be applied to respray the damaged part of the car.

The biggest difference between the techniques is the use of a direct gloss and the basecoat/clearcoat system. The difference between these two systems is simple; with a direct gloss a clearcoat is not necessary to getting a durable finish. Whereas with the basecoat/clearcoat system first a basecoat is applied which is coloured and then it is coated with a transparent clear-coat to protect the coating. The best system for the car and the business depends on the car and the features required. The direct gloss has limitations, as this is only available in solid colours, whereas with the basecoat/clearcoat, a whole range of colours can be achieved such as simple solids, metallics, pearls and the new fashion xyrallic colours.

A last difference is that between 1k and 2k technology. The difference is in the fact that 2k technology needs an activator to the start curing, x-linking process, whereas 1k products form the film by solvent evaporation. It is this x-linking of the binders that gives the coating a number of resistance properties.

The difference in this technology has implications, such as the combination of products used and other

features. It also means another product to sell for ANCRAU and another product on the shelf of the

repairers. These differences in techniques have large impacts on the product assortment a paint

company has to have.

The last phase of the repair process is the drying process in the oven. Once the car has been in the oven the damage is repaired and the car is reassembled and cleaned for the customer.

§ 3.1.2 Commercial Vehicles

CV is the market for painting, repairing, refurbishing of vehicles and components used for commercial vehicles. This is broader than just repairing vehicles. Roughly there are 4 different customer groups:

ƒ OE Builders

ƒ CV Builders

ƒ General Refinisher

ƒ General Finishers

The OE builders are the manufacturers of trucks, busses and trains. CV builders are the manufacturers of coaches, utility vehicles, recreational vehicles etc. They mostly start where the OE builders end and customise for more specific customer demands. General Refinishers are the group of fleet owners, specification driven, accident repair, general refurbish etc. They control large quantities of vehicles that have to be painted. The last group is General Finishers that deal with vehicle and non-vehicle components to be painted.

In comparison to the amount of paint used on a car, a commercial vehicle uses substantially more. For a refurbishment which takes place once every 8 years, 30-45 litre of paint is used. This has to do with the size of the vehicle coupled with harsher conditions and the most of the time maximised utilisation of a commercial vehicle. Very important is the representative aspect of a commercial vehicle, people prefer vegetables to come from a clean truck and companies want their corporate brands in shiny, non- damaged paint on the vehicle. The higher quantities have an impact on the margins made per litre, but the constant need for paint makes this market substantial as its estimated value is considered to be at 45 million dollars per year (Interview National Sales Manager). See Appendix B for models of both the CR Classic and the CV market.

§ 3.1.3 Geographical concentration

A characteristic of business markets is that they cluster in certain geographical areas. Most often smash repairers cluster in industrial areas. This is not different in Australia. The geography of Australia has shaped the industry substantially. The main influencing factor is the size of Australia.

Australia as a continent is larger than Europe with a population of an average European country. Most of the Australian population is located in the metropolitan areas of the state capitals. This means most cars and smash repairers are in these areas. Dispersion within these areas is changing with the rising real estate prices. Smash repairers are more and more driven out of the city centres and into the industrial areas where large clusters occur. The large distances between rural communities make small businesses in these regions viable. These shops are difficult to service as they mostly have small turnover and considerable costs have to be made to deliver goods.

§ 3.1.4 Paint companies as partners

Looking at the role of the paint suppliers in this industry it is at least remarkable to see the proactive role they play. Paint costs are 5 to 8% of the total repair bill, but paint suppliers take responsibility when it comes to the future of the industry. They have proven to be a partner instead of supplier to the smash repairers thinking: When the repairers are profitable, we are profitable. These efforts are not equalled by any other supplier, not even the OEM who must have a special interest in well repaired cars.

§ 3.2 Market figures

§ 3.2.1 Market size

The Car Refinishes market in Australia is one in transition. Based on years of experience of executives

these figures have led to the following estimates of market size (Table 3.1)

Total CR Market Size Value, (AUD) Year Total High Medium Low 2004 222.046 119.310 55.151 47.585 2003 223.340 124.429 46.593 52.318 2002 295.397 129.695 39.605 56.098 Table 3.1: TOP Marketing plan ANCRAU 2005

In determining the market size the market is split up in three segments, more detail on these segments will be given in paragraph 4.4. These figures show that the high segment still is the biggest. It is important to note that the decline is still continuing even though not as strong as before. In comparison to the high segment the medium segment is growing, this is because of former high segment customers changing over to cheaper paint brands in order to cut costs. The decline of the lowest segment can be explained through repairers going out of business.

The number of bodyshops has declined from around 5600 in 1998/1999 to 5100 in 2004 (Productivity Commission Draft Report 2004). This means that the amount of customers is declining more. This makes it even more important to pick the right customers in order to get the return on investment needed. Table 3.2 shows the number of bodyshops divided per state. The data is from state based repairer groups. Note that there is no data on the Northern Territory. A lot of estimates circle through the industry, although the number of bodyshops is still declining, there is an indication that the rate of rationalisation has stabilised (Productivity Commission Draft Report, 2004).

Number of bodyshops per State

New South Wales 2100

Victoria 1544

Queensland 650 South Australia 250

Western Australia 350

Tasmania 165 Australia Capital Territory 32

Table 3.2: Productivity Commission Draft Report 2004

§ 3.2.2 Market growth

The high and low segment are declining, the medium segment is growing though. This can be

explained by repairers from the high segment moving to the medium segment to cut costs. But in total the market is declining. Even thought the amount of vehicles is growing the market for CR is

declining. This means the growth in cars has to be offset by fewer accidents per car. In Appendix H figures are given on Australia’s vehicle fleet. Growth and size of the smash repair industry is

dependent on the number of accidents there are. Accidents are not pleasant, but costly and a hazard to the end-user. So there is also a market that actively tries to prevent accidents. This is done through or caused by:

ƒ Stronger control on drink driving and speeding;

ƒ Traffic calming initiatives;

ƒ Improvements of car technology;

ƒ The recent drier weather which improved driving conditions.

Technology and cars are getting more and more sophisticated and safety regulation is getting stricter.

The OEM’s constantly improve their cars with new features that prevent accidents. Also the

government tries to prevent crashes from happening. With more alcohol and speed control and speed controlling measures like traffic lights and roundabouts, they have managed to get the accident rates down significantly. From July 2000 to July 2002 collision amongst customers of the largest insurance company (NRMA) in NSW and the ACT dropped from 15,783 to 12,675, a drop over almost 20%

(Paint & Panel, Jan/Feb 2003). Finally the drought that has been ongoing in Australia for the last few

years is improving driving conditions. Rain makes roads slippery and it prevents drivers from having

good vision during driving. Heavy rainfall in for instance Canberra has a significantly positive effect on the amount of work for the industry in the region (interview customer Canberra)

So it is these factors that cause the volume of repair work to decline in spite of growing numbers of vehicles. Road fatalities are declining and insurance companies receive fewer claims. According to numbers of the former Insurance Enquiries and Complaints Limited (IEC), now named Insurance Ombudsman Service (IOS), the amount of motor vehicle insurance claims has dropped from 1.210.000 in 2001-02 to 970.000 in 2002-03 (Productivity Commission Draft Report 2004; 21)

§ 3.3 Overseas Markets

The Australian smash repair industry is in comparison to developments in markets in North America and Europe West a bit behind with regards to professionalism. This is reflected in the way their business is run and through that has an effect on the position of ANCRAU. The products ANCRAU are particularly dependent on a high level of professionalism. But most often the industry has followed Europe West and as a former colony of the UK, the UK specifically. The largest paint company in Australia has always been British ICI. Now it is owned by PPG, but the name is still known everywhere. Over the last 20 to 25 years these markets have undergone significant changes that are now occurring in Australia. The development of the UK market appears to have a lot of similarities with the Australian and knowledge of these developments can help make some predictions for the future in Australia.

Consolidation:

In the 25 years the number of shops in the UK declined by 70%. The consolidation of the customer base of the Refinish brands came through rationalisation and professionalising of the industry. The market was not transparent and under pressure of the largest customers, being the insurance companies, a consolidation process has emerged.

Competitors:

In the UK market the same companies are active as in the Australian market: BASF, Akzo Nobel, Du Pont and PPG. With a declining number of customers, the amount of brands has increased and most are owned by these four companies. They hold 10 brands. These companies mostly aim at the top-end and medium segment of the market. By doing this they gave smaller, new entrants the opportunity to enter the market.

Brand strategy:

In the refinish business there are two business models currently used. One is the parallel brand

approach, the other the multiple brand approach. For the first the company has two brands aimed at the same target group through different distribution channels. When using the second approach a company has two complementary brands that are positioned opposite of each other. This means having a premium brand with a lot of added-value and a second brand without these ‘bells and whistles’.

Market penetration:

There are several ways to enter a market which is already established. You can try to grow share through autonomous growth or by buying an existing player in the market. When buying a player, you can keep using the original brand or re-brand it and only use the business.

During the 1980’s most of the companies acquiring other paint companies kept the original brands.

They were used as a means to diversify and create customer value.

In the UK, PPG bought the International Paint refinish operation from Courtaulds to enter the market

with their own brand. Du Pont on the other hand chose to build their brand from scratch. The Spies

Hecker/Standox combination came into the UK market using the same disciplined brand strategy that

has proven successful in other markets. BASF came into the UK being the premium brand used on the

German prestige cars; they acquired a competitor and ended up with two global brands: Glasurit and

R-M in the UK-market. All these companies if using more than one brand used the parallel brand

approach. Akzo Nobel was the first and only one to pursue the complementary approach strategy.

They introduced Sikkens with all the services and Lesonal as the no-frills brand. Rumours in the UK are the possible entry of large US player, Sherwin Williams to the market.

In Australia in the 2k market there were 3 players: Berger, Dulux and Spartan. In Australia PPG did the same as they did in the UK by buying Dulux from ICI. This got them their large market share they have today. Du Pont did what they did in the UK by establishing their Du Pont brand from scratch.

They bought market share however through Spies Hecker buying Berger. The third and last brand is Spartan which was Sikkens paint produced by Wattyl under license. They were to go into a JV with Akzo Nobel, but changed overnight to BASF, leaving Akzo Nobel with empty hands in the market and having to start the business from scratch. They started with Sikkens, but added Lesonal to the portfolio as the no-frills brand next to Sikkens (Murtaugh, 2002)

§ 3.4 Conclusion

Within the CR market the CR Classic has the largest share opposed to the CV market. Repairers are mostly clustered in certain areas. But the largest effect of geography comes from the size of Australia which has made distribution very important. The role of paint companies is that of partner of the repairers. The high segment is declining, but still considerable larger then the medium and low segments. The number of bodyshops in Australia is large in comparison to similar countries. The number is declining as well. The market in total is declining as are the high and low segment. The medium segment is showing growth.

Compared to the UK the market in Australia is considered less professional. The customers are less

professional in comparison to their colleagues in the UK. The market will probably show further

consolidation like it did in the UK. As in the UK ANCRAU is the only company pursuing a multi

brand strategy. All competitors have used similar strategies to penetrate the Australian market as they

used in the UK. The rumours in the UK are that large US player Sherwin Williams will enter the

market. With the division of the Australian market ANCRAU was left out through the collapsing

cooperation with Wattyl. This has left ANCRAU with no other option than organic growth.

Chapter 4 Customers in the CR market

This second section is dedicated to get a better understanding of our customers. First the effects of being a business market on the customer are discussed after which the power of the customers towards the paint industry is determined. After determining the effects of power of buyers this three strategic questions relating to customers are asked (Aaker, 1995; 50):

ƒ Motivation of customers;

ƒ Segmentation of customers;

ƒ Unmet needs of customers.

§ 4.1 CR market as a business market

The CR-market is a business market. Instead of delivering products to the end-user, paint companies supply to the repairers who are one step earlier in the value chain. Business markets have certain characteristics (Biemans, 2000; 23). In the analysis of the CR market already was concluded that businesses cluster in the industrial areas and that the geography of Australia has large effects on the structure of the business. The other characteristics of business markets are:

ƒ Derived demand: We are dealing with derived demand; customers only need to be supplied if they get enough demand. In order for ANCRAU to get business, accidents have to occur.

Another change in derived demand could come from changing preferences; this is not likely to happen as the customer in most cases only is interested in getting the car back in the condition it was before the collision. Most customers do not have the technical knowledge to make demands on that part. A change that could appear is a move to more environmental responsible technology.

ƒ Joint demand: For a repair certain complementary products are necessary. Customers preferably buy all those products off one supplier. To fulfil these needs and to win the business of a customer most distributors offer the full range of products. Some paint companies open up their own branches where these complementary products are sold.

ƒ International markets: ANCR sells products in most markets in the world. With a strong customer base in Europe West and North America, ANCR can be called a multinational player.

ƒ Small numbers of suppliers and customers: Compared to markets in Europe West and North America, Australia has a relatively large number of bodyshops. The ongoing rationalisation process is responsible for decline, but geographical factors keep businesses alive. In comparison with other consumer markets, the number of 5100 shops is still a small number.

On the supplier side there are the four large multinationals, and further, a number of smaller local suppliers that compete in the different regions. The number of companies actually involved in the supplier side of the market is fairly limited, but when taking the brands they carry into account it is fairly large.

ƒ Buying behaviour of organisations: People that influence the purchasing behaviour of an organisation can be identified as a Decision Making Unit (Biemans, 2000; 89). In most cases this is the owner or head spray painter. Most of the time it is the owner, but in some cases the owner does not have a painting background and as such has not enough knowledge on the subject. It is important to acknowledge that they are human beings with their personal preferences. These preferences can have different backgrounds. Sometimes the spray painter has been using a certain brand for years and does not have the willingness to train for a new system. Many new spray painters get acquainted with paint brands in Technical and Further Education institutions (TAFE) and do not want to change. The painters in most cases have an important input into discussion as since they have to work with the products on a daily basis.

This gives them a special and important position as a Decision Making Unit (DMU). This

means that besides persuading the owner of the business advantages of your product, you also

have to persuade the painters. In a lot of cases the opinion of the painters is decisive even if

the alternative is more cost efficient. The owners are particularly scared of losing good

tradesmen to competitors. A last important factor is the representatives, they have to have

sufficient knowledge, but they also have to be ‘good blokes’. Whether a representative is liked

or not makes a big difference. These preferences are vital in the decision making process. It is extremely important to gain good knowledge about these preferences. Beside this, most often you are dealing with people with good technical knowledge. In order to become a fully accepted partner in the conversations expertise in the area is needed. A problem arising with the importance of personal preferences is that generalisations are difficult to make. It is hard to estimate what is most important as it varies per person.

§ 4.2. Bargaining position of customers

The better the bargaining position of customers, the more power they have (Porter, 1985; 6).

§ 4.2.1 Organisation of customers

The more concentrated the powers are, the more pressure there is on the price of the products (Porter, 1985; 6). In Australia the market is becoming more concentrated because of the ongoing consolidation process. The number of customers is limited and the amounts they buy can be reasonably large.

With regard to cooperation between the bodyshops, there are some organisations that serve the purpose of uniting the customers. Two such organisations are the Collision Repair Specialists of Australia (CRSA) and the Motor Trades Association (MTA). The main difference between the two is that the CRSA only serves as a platform for information sharing, such as organising conferences, bodyshop tours and overseas study tours. The MTA serves a political purpose and is the lobby group for the smash repair industry. Real energy towards creating a buying block has not been put forward;

the focus is completely on the relationship with the insurance sector.

§ 4.2.2 Switching costs

With the development of technology, paint does not just come out of a can and into a spray gun. Most paints have to be mixed in the mixing room and additives have to be added. The paint company supplies the machines necessary as well as the training for the personnel. For the customer it involves unproductive hours of personnel being trained and adaptation costs to the new product. ANCRAU tries to reduce these costs by doing the training on actual work in the bodyshop. Using this process production is relatively unaffected.

The costs for the paint companies are higher then the costs made by the customer. The fact that the costs are so considerable for ANCRAU to convert customers is proof that not every customer should automatically be converted. A thorough ROI-analysis has to be made.

Even though the absolute costs for the paint supplier are higher, customers are not likely to just change supplier. Their relative costs are still considerable and the satisfaction of the painters comes into play.

So at first sight it looks as if customers have most of the power. But this is not entirely true. When trying to keep business, a paint company will generally see that if the customer is satisfied, they will remain a customer.

For a long time this was common practise to work with long-term contracts in the market. An analysis on the return was done and a price negotiated, under this relationship a customer was locked in for the duration of the contract and could not be targeted by competitors. When starting to ‘write checks’, a precedent is created and the image of the company in the market will be that of a company that ‘buys business’. The instrument can be useful and necessary to win some business, but too many deals will put a strain on resources and bring considerable risk. As such, the market tends to more cautious with these deals. To the smash repairers these deals are important. Especially for struggling companies, this bonus is a means to invest in the business or simply livelihood for the next year.

§ 4.2.3 Integration

The ability to backward integrate has a lowering effect on the prices. Customers start doing what their suppliers do and produce for themselves. This is not an issue in the Car Refinish business and that has a relieving effect on the price. In the end the bodyshops need the paint companies to supply them with paint.

Integration is more likely to go forward. ANCRAU has opened up branches in several cities to take on

their own distribution and will start supplying other goods besides paint to complete the offering to the

customers. This way the distribution layer is cut away. This is only done in regions where the extra

costs are offset by the extra margin. Market leader PPG is also moving in that direction. The danger in

it is that a lot of resources are put in something that is not the core competence of the paint company.

Distributors are generally better at this, because of the fact that they can solely focus on that job.

Taking on distribution means responsibilities when it comes to delivery and for that you need a large infrastructure. Paint companies are not well equipped to operate distribution channels.

§ 4.3 Motivation of customers

The market in which ANCR operates is large with different kinds of customers. Each of these customers has their own needs and demands. It is very useful to group these customers in segments.

The reason we define customer segments is to group their demands and needs as much as possible in homogenous groups. When you gather market information and define a marketing strategy this is very useful.

Within ANCR there has been chosen for certain segmentation. To better understand the chosen segmentation more knowledge about who the customers are and their motivations, is needed.

§ 4.3.1 Characteristics of customers

The distributors sell to bodyshop owners. Most bodyshops around Australia are owned and managed by tradesmen that started their own business. This comes from the idea that it is better to work for yourself than to earn money for the boss. This means that most repairers have no business background and are unfamiliar with running a business. Until a few years ago the market got away with this, because of a lack of transparency. The actual owners of the damage, the insurance companies, had no real idea of costs in the business and high prices could be negotiated. Having a bodyshop was very profitable. With the consolidation of the insurance market that came with more competition, the focus on costs in insurances became stronger. This automatically meant that repairers had to control costs in order to stay profitable and competitive. This is where a large split in the market occurs. On one hand you have those that smoothly made the right decisions and responded to this market change. On the other, there are those that did not have the knowledge and skills to make these decisions and were left behind. The ones that made the decisions that are right for their shop are making profit and have room for investments despite the tough market conditions. The ones that did not make these decisions are struggling. It is important to add that these are two extreme situations and a lot of companies are in that grey area in between, either going up or down. But it is these two types that determine the mentality in the market and the way business is done, aside from some general aspects.

With most of the owners and managers in the industry coming from the work floor there is hardly any fresh blood from outside the business. This in combination with the lack of business management skills is the reason for the widespread conservatism in the market. There is a lack of visionaries that bring the industry to a higher level. People that are willing to step outside the box they are in, in a market that is under pressure such as this one, would be extremely valuable.

§ 4.3.2 Drivers of customers

ƒ Price: The first and currently most important driver would be price. The paint companies are the last supplier they feel they can bargain with. Paint is sold in large quantities on a yearly basis and rebates and discounts are common practise. Furthermore even though paint is 5 to 8 percent of the total repair costs, it concerns a reasonably large amount of money.

ƒ Conservatism: The second driver is conservatism and resistance to change. Smash repairers and their painters are very conservative. To change the paint system in a bodyshop is asking the painters to step out of their comfort zone and try something new, which often asks a slightly different approach. This is extremely difficult, even though sometimes the savings and advantages seem clear. The earlier discussed importance of the painter as a DMU is

responsible for this.

ƒ Trust: Taking the resistance to change a bit further brings us to trust. Changing paint takes initial investments in training and loss of production. In order for a repairer to make this decision he has to trust his supplier to be around for a long time. He wants to be sure that he can count on his supplier in the long run.

ƒ Relationships: The last factor is relationships. More than in a business-to-consumer market,

people buy from people. People do not anonymously buy a can off the shelf, but deal with the

same person for years. As Global Marketing Manager of PPG Paints Michael Murtaugh says in his essay on the history of the UK market (Murtaugh, 2002):

‘When people express a preference for a particular brand, they are really expressing a preference for the people they do business with and the way they have been treated in the past’

This expresses precisely what it is all about in the CR-market. This has different effects on the organisation and the way business has to be done. In some cases the most rational decision are put aside to keep relationships healthy. This makes relations a hard to manage.

§ 4.4 Segmentation of Customers

There are differences in segmenting a business market and a consumer market. The most important difference is that besides the individual you are dealing with, you also have to deal with characteristics of the organisation as a whole (Biemans, 2000: 143).

When segmenting a market, you can use different variables. The segmenting process that ANCR has undertaken can be classified as a macro- and micro segmentation as defined by Wind and Cardozo in 1974 (Wind, 1974). Wind and Cardozo use a phased model in which first a macro segmentation is done on basis of variables like size, geographic location and use of product. After the macro segmentation a micro segmentation is done on more specific variables that have to do with buying process and for instance the buying behaviour of the buying company.

§ 4.4.1 Macro Segmentation

To refine the market initially ANCR defines different areas all around Australia. Each area has its own responsible manager. Further, a distinction is made between commercial vehicles and passenger vehicles. They are a complete different market with different needs. Finally, to a certain extent ANCR looks at the size of the company. This is not the main driver as there are small shops with the Sikkens mentality, whereas some large shops most definitely would be classified as Lesonal customer.

§ 4.4.2 Micro Segmentation

The micro segmentation used here is unique for ANCRAU. Most competitors use the size of a repairer as their main variable to segment customers. ANCRAU uses the mentality of customers with regards to business processes. In other words the professionalism of a repairer.

ƒ High segment: The market for Car Refinishes in Australia at the moment is under high pressure to lower costs. The market will rationalise in the coming years as it has in more markets around the world. A customer who sees this need and is willing to make their business more profitable is regarded part of the highest segment in the market.

ƒ Medium segment: A natural reaction of a lot of people in the business is focusing on the costs.

Customers with a focus on price per can instead of what the product can do for your business are considered part of the market as the medium segment. Costs are important but colour and product efficiency are still important.

ƒ Low segment: The last segment ANCR distinguishes is the lower segment. Customers in this segment are extremely price driven and solely focused on the price per can.

§ 4.4.3 ANCRAU and the segments

How does ANCRAU serve these different segments? ANCRAU has products for every segment, but the organisation originates from Sikkens, the high segment product. This is a high quality product that positively affects the production capacity of the repairer. Sikkens is offered in combination with a services programme called A-coat.

Introducing Lesonal as a second brand for the medium segment was regarded as brave by the industry.

The biggest fear from introducing a cheaper brand next to your top-end brand is that of

cannibalisation. This has kept ANCR and competitors in the past from pursuing this strategy. The

figures show that this cannibalisation has happened, sales of Sikkens went down and sales of Lesonal