Vantage Blog

23
Feb
2014

Time to grow...but where?

The recent announcement by Toyota means that we now will see the final withdrawal of the car manufacturing from Australia. A real tragedy for those directly employed but what of the component parts manufacturers - those so heavily dependent as part of the supply chain? Time for some tough thinking around their strategic direction and growth options.


Many auto part manufacturers have steadily reduced their dependency on the big three auto players over the last 15 years, but others need to urgently consider their future. They are at a fork in the road and need to decide – is growth appropriate or is it time to milk the business for cash as part of an orderly wind down?

Looking for growth

For most growth will indeed be the path they choose. But where will it come from?

Too often, I see strategic plans indicating a growth aspiration, but there is no real idea of where this will come from and the capabilities required. Putting aside mergers and acquisitions or strategic alliances, there are four broad organic options as Ansoff’s product matrix below demonstrates:
























Market Penetration - can you sell more of your current product to your existing target market?

This requires your current customers purchasing more of your product or service. Difficult for auto parts manufacturers; but very relevant for other industries when thinking about growth.

Are you able to increase the purchase frequency per customer? Alternatively are you able to take market share from your competitors?

Following the path of market penetration requires a real point of difference and an appropriate marketing strategy capable of wooing those customers towards you and away from your competitors. You need to be able to demonstrate very clearly the benefits for customers in switching. Without a clear competitive advantage however, for many it becomes a fight over price – and that’s rarely profitable or sustainable.

Market Development - can you sell your current offering to a different target market?

If you already have the lion’s share of the market, you might consider market development – selling to a different geographic market or a different demographic.

For instance can you sell your product internationally? Starbucks having saturated the US market turned its attention to other international markets. The trick here of course is to make sure your offer suits the new market, or is tailored and packaged to do so – that’s where Starbucks came to grief in Australia. Many auto manufacturers have already gone down this path –especially those in the technology space by selling specialist componentry they manufacture for local purposes to overseas car manufacturers.

Product Development - introduce a different offering to your loyal customers

Yet again difficult for auto parts manufacturers who solely service the big three auto companies locally, but successful companies do this well. For instance JB Hi-Fi decided to introduce white goods under their brand. Same value focused market segment but in a new product category. Similarly McDonalds successfully introduced salads and a healthy offering to their existing customers – tapping into the trend towards healthier eating. Apple broadened their offering to their loyal customer base from the Apple Mac to include IPods, IPhones and IPads – all built off a clear brand positioning and differentiated user experience.

Diversification - what opportunities exist to develop new products and offer them to new markets?

Without doubt the most difficult of all strategies is that of diversification. This is exactly what the automotive component industry is grappling with at the moment. Their current offering is nearing obsoletion. Their customers (big three auto brands) are closing down manufacturing locally.

In order to survive they need to look at what they do well. What is their competitive advantage and capabilities? What can they leverage? Where are the real growth opportunities in long term sustainable industries. And as has been highlighted by Victoria’s premier and the Prime Minister, this requires heavy investment and comes with greater risk.

However a number I know of have already done just this some time ago. They have utilised their core competency, e.g. specialist pipe bending or electronic componentry, to make new products for new market segments.

This requires business leaders to think hard about what their capabilities are, and to think laterally about how they can be applied to meet new customers’ needs. Deep strategic planning and challenge to current thinking is required. Not a simple process, but for auto parts manufacturers critical for them to embrace urgently, if they haven’t already.

Marketing Understanding

And of course all of this requires you to have a very good understanding of the market in which you are playing and your core capabilities and opportunities. What are the long-term prospects for growth? Are there any other barriers such as government policy or the general state of the economy? What are you competitors doing or planning to do? Are there any other major factors affecting the future direction of your market such as technology, the environment or our aging population?

Without a good handle on these questions you will not be in a good position to judge which strategy for growth is appropriate for you.

by James Atkins, Vantage Strategy & Marketing

This article is linked to James' Google+ profile






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