WHAT’S IN IT FOR YOU?
Vision Systems is like a commercial incubator for leading edge products. They are based in Melbourne and their products are based on scientific research and market research. This is a company that competes on the world stage and has won the respect of its employees and stock market. Being given the privilege of defining the specification for an entirely new product for them is the kind of task that I can perform for any other hungry growing company.
HISTORY: As discussed in the Market Research section, Vision Systems (a division of VESDA) is a leading edge high technology group. Many of their technologies are patented. My contract role here was to create business and marketing plans for the creation of a crucial missing product in their almost complete range – the duct detector.
ACTION: I was required to essentially create a new product development plan. By performing detailed competitor analysis and primary research by way of one on one in-depth interviews with leading Sydney and Melbourne decisions buyers, I was able to gather all the required information about a product that my client only had tangential knowledge of.
RESULTS: The research provided Vision Systems with some very valuable information on such things as the level of sensitivity of the units, expected product life etc.
The method I used to determine an acceptable price was an adaption of the Van Westendorp Price sensitivity model. In this model, the price test uses a series of four questions to determine an price. Respondents were asked to imagine that a duct detector has been created and that it addresses all of the problems that they had identified. Most respondents were able to estimate values for the average cost of an individual installed duct detector. From the analysis it was noted that there is likely to be some amount of ‘Price Stress’ in such a product. This occurs when the Optimal price point (OPP) is lower than Indifference Price Point (IDP) and has greater significance when the points are far apart.
In this situation, the concern is that with the high variance of surveyed prices, customers are susceptible to “sticker shock” where a significant number of them will “believe that the normal price is too high” (especially if it is sold too close to the 'The Point of Marginal Expensiveness' (PME). The main recommendation I made regarding price in my final report was that once the price had been established, that only small price movements should be allowed for the life of the product. The analysis suggested that there was very little price elasticity for such a premium product and that if price rises occur it would most likely cause “customers to seek alternative products or abandon the product altogether.”
This was a very time critical and data rich assignment that provided the client with invaluable information to literally create a world’s best product. They enjoyed the enviable position of already having an 80% market share in the ultra high end smoke detection market. The concern with this industry was that due to the life critical nature of the product, specifiers are a difficult group to convince to trial a new product.
I was contracted for this role because I had market research, analysis and product management experience. I also had technical understanding of electrical specifications from my career in electronic engineering. Supplementary to this was that coming from outside of the company I would not take on any limitations that internal politics may play and I could approach the project with a clear view, not one constrained by years of working within the industry.
WHAT’S IN IT FOR YOU?
The following account of product management in Clipsal’s heyday (when it was still Australian owned) is a brilliant learning lesson for anyone. Having witnessed and participated in their processes provided me with invaluable experience which I can bring to any future contracting role.
Information about my role in this company is also included in the RESEARCH and ANALYSIS sections on this site. The research section looks at information that was gathered for new product development for a flag ship fan light heater. The analysis section looks at an opportunity that I took to assist the company in their stock holding processes to overcome regular long time product shortages.
HISTORY: Gerard Industries is better known for its flagship brand Clipsal. IT began in 1920 and grew to be the highest market share electrical manufacturer in Australia. By 1998 the company was having difficulty competing in the market due to competitor actions and cheap imports. By the time I joined the company half of it was already owned by Gold Peak, a Hong Kong company. In 2003 Schneider Electric (the world’s largest electrical company) acquired Clipsal.
MISSION: Product Management in an electrical manufacturer was an ideal marketing role as I moved from being an Electronic Engineer in the Aviation industry. This product management role was to revitalize a $20M portfolio of heating and cooling products. This range of products had been neglected in recent years due to a focus on core cash cow products such as power-points and the introduction of a new range of home automation products such as C Bus.
My mission was to analyse the current range, rationalize where necessary, re-brand the ‘cash cows’ ranges and develop new products as necessary. My work at Clipsal touched on all parts of the marketing mix, which is really what product management is all about.
ACTION: In the other sections of this site I have discussed my work on new product development and re designing the stock holding system. In this section I will concentrated on the some of the excellent methods used for creating strong customer loyalty and my work on rationalizing ranges and developing new marketing collateral.
Because Clipsal had needed many specialist exhaust fans and they covered all residential and commercial markets, over time they found themselves with three overlapping ranges. This meant that while qualities and expected ‘mean time before failure’ values varied, that the overlapping price and specification values caused market confusion. With over 300 exhaust products in the range it also caused problems for stock holding, spare parts, wholesalers and electrical contractors.
The rationalizing process began with sales analysis over the last five years of fan sales. Once this baseline was created, discussions with electrical tradesmen provided some of the greatest insight into the market preferences. This is because while the products were sold into parallel wholesale and retail markets, the wholesale market made the majority of sales.
RESULTS: It was found that Asian imports had forced Clipsal to lower prices across the range so much that along with a complicated system of rebates, many products ended up being loss leaders. Quality also became a contentious issue as some of the spare parts that Clipsal imported were not as reliable as expected.
Many competitor imported products were of the lowest acceptable quality, but this is what many specifiers selected to keep overall house building costs down. This meant that only a few very high quality (long lasting) products were actually required to be stocked by Clipsal. This concept of quality for a purpose was what became very obvious very early on. Consider that using ball bearing motors rather than bush and sleeve designs may only cost a few dollars more but would significantly extend the motor life and its quiet running. Many large projects still select the cheapest exhaust fans.
It was decided that Clipsal would stock a reduced size medium quality range to compete with the imports, drop much of a older range and only stock a reduced set of the very high quality fully imported European fans, O’erre. This rationalization required the following marketing collateral work.
All of the brochures and packaging in my ranges were beginning to look tired. While these may not have been vital to acceptance by the specifiers and tradesmen, they were still important to the consumer market, who paid a much higher price for their products. I was involved in the launch of new brochures for the range of ceiling fans, one of the ranges of exhaust fans and brochures for the EcoHeat range. Of particular interest in this area was the creation of a new brochure for the re-launch of a high efficiency heater called EcoHeat. The back story to this product was that it was not heavily supported on its first launch and did not receive support from specifiers because its benefits were not communicated.
This form of electric heating was created in Europe and has a relatively high usage compared to its almost unknown status in Australia. The benefits of this technology are many, but essentially its warming action is two-fold. Firstly it radiates infra-red heat off the metal surface of the heater, likened the warmth felt from the sun on a cool temperature day. Like conventional heaters, it also heats the surrounding air. But because of this direct radiation action, heat in large volume rooms can be felt much earlier, and the heater can be used at much lower power as at least half of its effective heating coming from direct heat means that it doesn’t need to heat the room air to a high stifling level.
After I performed competitor analysis on numerous competitor products (other heating technologies) the direction of the brochures was set. This meant that while the brochures still needed to carry considerable educational content (as is often the case with the launch of a new technology product), it also needed to have a complete range and make an emotional connection with the potential buyer.
It was realized very early on with the relatively high cost of these units that niches would need to be indentified and testimonials quoted. Because of the very robust nature of the product they had previously enjoyed considerable success being installed in such places as correctional centers, public places (pedestrian tunnels) and industrial complexes. My research also suggested that due the innovative nature and higher cost of these units that they should have some other way of differentiating themselves from the standard package that had some people consider them to look like a refrigerator door. My suggestion was to provide information on the brochures as to where customers could get exact replication of any scanned artwork or pictures blown-up and printed on the heaters surface.
RESULT: The complex nature of this brochure that would span national distribution and the re-launch of the range which was constantly being extended made this a fairly complex project.
CONCLUSION: The complexity of this report was high because of the number of stakeholders that needed to be incorporated into the information gathering process including negotiations on the third party manufacturer Thermofilm. Managing this project and coordinating the final brochure creation with the in-house advertising department was a steep and memorable learning curve.
HISTORY: When text books and articles discuss customer loyalty they usually refer to the cost of acquiring a new customer being in the range of 8 to 10 times more than it cost to retain a customer. With 60% plus market share in Australia Clipsal, knew what it was doing in regard to loyalty. By being located in Adelaide, they kept manufacturing cost down. Recently by relocating from Bowden near Adelaide to a mid range suburb (Gepps Cross) they have made a short term gain on real estate and decreased future land rate costs. In many aspects many industry experts considered Clipsal products to be equal in design and quality to HPM, their main competition. And while much of their ability to retain their leading share relied on their ability to force supplier costs downs and sell loss leader products, they also had excellent customer loyalty programs.
MISSION: Loyalty was so valuable to Clipsal that they had their own marketing promotion team looking after it. The biggest regular events Clipsal put on were their legendary weeklong, fortnightly spaced product education retreat classes in Strathalbyn. Even the location of this purpose built centre was genius as Clipsal negotiated a very low price for the land in the scenic Adelaide hills, for resort style conference centre, golf course and tennis courts, educational facility. In return the council of Strathalbyn would get kudos and potentially increased traffic and money into their town. See Google maps: Clipsal Strathalbyn - Dunreath Road, Dunreath St, Strathalbyn, SA 5255.
Clipsal Strathalbyn Conference Complex
ACTION: The brilliance of this system was that only the top product buyers were invited to these camps. For those lucky enough to be invited to a Clipsal camp it usually involved a week with seminars by day and parties at night. Besides the camps excellent facilities, customers were usually treated to the best of Adelaide’s restaurants and on occasions a few customers may ‘off the clock’ tag along to the towns best clubs.
They also got to hear about future Clipsal product releases. On the Friday of these weeklong seminars the invitees were bused to head office just south of the CBD and the Product Management team would be given a five to ten minute time slot to present some of the finer points of their range.
An even bigger lure was the competitions that were regularly created. Besides good discounts for promising to exclusively carry the Clipsal range, customers often partook in competitions such as the Malaysian Commonwealth games campaign. For this event Clipsal decided to run a lottery where tickets were essentially the tokens provided on the packaging of products electricians bought. Buy many products during the competition time and increase your chances of winning an overseas holiday and entry to some of the games events.
Whilst these large competitions were relatively sparse, one of the most coveted prizes in the industry was the legendary Clipsal leather and suede jacket. To an outsider, this kind of sports jacket would have no particular value, but due to the brilliant branding, good quality products, weekly seminars etc, the rarity of winning these jackets was likened to winning a green jacket on the Golf masters tournament.
This information is not a competitive secret, as all of the wholesalers, tradesmen and customers were in on it. Also several years have passed, so I am sure that their methods are much more sophisticated now. It is also very likely that the competitors also lure customers by providing that something extra special. However you will see from the glimpse above, that Clipsal knew how to keep its best customers very close. They had already discounted their prices to the barest of margins for many of their ranges and here they were giving away many other prized things such as ‘time’. Sponsorship of events such as the Clipsal sports car races again aligns themselves closely with their customer’s values.
I have worked in two pure product management roles. These roles were with market share leading, blue chip companies, which makes my experience both enjoyable and valuable. Product management is one of the core disciplines that any marketer can experience. Sure, business development, market analysis, strategies and marcomms are all very important, but once the product or service has been created product management becomes the holistic effort that that is used to keep sales up or grow the product. You can’t have a cash cow or rising star without effective product management.
One of the things found lacking in many companies who don’t regularly create new products is thorough market analysis and market research to help define what the ideal product should be. Many companies tend to rush head long into making products thinking that their gut feel and long time in a market somehow magically has them know exactly what all potential customers want. Relying on instinct rather than research is the best way to miss the mark or create something generic with a low margin.
The obvious reasons for this reticence for primary research and analysis is usually both cost and a senior management belief structure that it is ‘too risky’ to uncover what the market may really want. Particularly if the company currently doesn’t have the skills to produce an ideal product or an innovative market driven product is too far away from the company’s current philosophy. You may be amazed how many times Market Research is used by companies only to ‘back up’ a campaign that is already in force, rather than ascertain if it is the right approach.
The other part often neglected in product management is life cycle analysis. This has improved over the last decade with the publics’ increased awareness of recycling and sustainability, however life cycle analysis was originally aimed at satisfying the customers, rather than the environment. It would take into account of how a customer could thoughtfully dispose of a unit at the end of its productive life with minimum effort and potentially upgrade to another of the company’s units. The reason that Australian companies did not follow through on such a promise is that creating an effective lifecycle program often costs a lot to manage. Now electronic devices such as PC’s and mobile phones are at the forefront of companies that jostle for the greenest credentials to claim the trendy prize of smallest carbon footprint. People win, the environment wins, all is good.
I hope you find the associated product management articles linked to this page informative.
Product Management definition
“ The organizational structure within a business that manages the development, marketing and sale of a product or set of products throughout the product life cycle. It encompasses the broad set of activities required to get the product to market and to support it thereafter.” (www.businessdictionary.com)