Climetery - case on "Market Sensing"

Climetery - The Case

A Caselet Written By Prof S K Palekar For Class Use

TV Interview its CEO Mr Fritz Rampf 

In the 1950s most people did not encounter even the word “pollution;” let alone the actual phenomenon. In such time and era a German firm called Climetery was established out of Frankfurt. It was far ahead of its time because it began developing, making and selling a equipment that measured various types of gaseous and liquid pollutants. Due to its pioneering position, it single handedly carried out research and development in this area and improved its product line.

Following are some excerpts from the conversation between a TV anchor Susanne Kruger and Fritz Rampf, the CEO of Climetery in 2005.

Introducing his company, Fritz said “we have single handedly created and nurtured the market of pollution measuring apparatus over the last 5 decades all over the globe. It is a highly specialized market and we know everyone out there. And they too know us. We are $ 80 Million out of this market”   

Susanne; “so you may not be having many competitors in the world?”

Fritz; “I am told that there are not more than 10-12 companies all over the world in this space.”

Susanne; “where are these competitors located?”

Fritz; “Our management team do not know of any competitor we have in Germany. Another thing I know is that many of our customers visit us here in Frankfurt and it is only infrequently that I have heard of them talking to us about any competitor. Over my last 15 years here I must have heard the names of barely 10-12 competitors.”  

Susanne; “You seem to be in an enviable position. How large is the market and what is your share?”

Fritz; “Sounds pompous for me to say but the fact is that we are the market. Since we are $ 80 Million,  the total market must be $100 Million or 110 Million. It cannot be more than $120 Mn. It is a specialty and niche market ”

Susanne; “Recently a lot of magazines have written about the lack of growth in your top line and hence in your stock price. Your sales revenue has grown only by 5% pa whereas the German industry’s growth rate in revenue is 12% pa. What do you say?”

Fritz; “They do not understand that we operate in a market which is growing only at 5% pa. Internally we joke that the best answer to our growth will be when more people want to measure the pollution as the world gets more polluted. Ha. Ha. Currently the awareness of the need for, and benefits from, the air pollution measurement is very low ”.

Susanne; “Have your traveling executives reported this ?”

Fritz; “ No. When the sales growth is only 5% I cannot afford to have many people traveling the world over running up my travel bills. But we have appointed a few equipment distributors all over the world who represent us in their respective areas. We have about 20 such representative distributors all over the world right now who provide us access to commercial customers. We have one meeting of all such people every year here in Frankfurt where we try to forecast the business that may come in the year to come. The kind of questions you are asking me sometimes come up in these meetings. Of course every one does not come but at least half of the people do come.”

Susanne; “So what is your message to your shareholders?”

Fritz; “I want to ask them to hang on to their shares. Even if the top line grows at 5%-7% pa in future we are sure that the bottom line will grow at 10%-15% because we are introducing stricter cost reduction programs in Climetery and we have halved our R&D expenditure because it makes no sense to develop for the market which is not growing well.”

Question   

Please comment on the state of the marketing function in the company.

Teaching Note

What happened actually ?

A consulting firm tried to convince the management that the company really did not know how big and where exactly the market was. The firm arrived at this conclusion by individually meeting the people top  20 managers of the company and finding that

·         The market share estimates varied widely from 60% to 90%.  and  75%.

·         Not one of them knew even the names and locations of more than 2 competitors.

·         No one answered what specific strengths / weaknesses Climetery had over competitors

·         They hardly traveled  internationally.

·         When they did go international, they met only the distributors. They hardly visited customers.

Based on this, the consulting firm recommended a survey of the market. The reaction, at first was ridicule “we have been around for 50 years and know everybody and everything. What can the survey tell us?” . Fortunately the consultancy firm had collected the literature of at least 5 competitors which no one in the company was aware of and also conducted indicative interviews of potential buyers who did not even seem to be aware of Climetery. The management woke up to the possibility that it may be worth doing the survey.

The survey, when completed, showed the following

·         There  were  69  competitors. Not 10-12. 

·         Many of them were indeed small but  growing  fast.

·         Local  governments / universities  were  the  growing market segments. They were not targeted by Climetery’s distributors who catered to commercial markets and hence their orders  were  going  mainly  to  local  suppliers.

·         The company’s market share was  a  mere  22%.

·         The  market  was  growing at 12% annually.

Response

·         SEGMENTATION : Shifted  from an  unspecified  global strategy to a segment wise global  strategy and prices  set to fit each global  segment. Re-staffed  the  sales forces  to match  segment  potential.

·         COMPETITIVE ACTION : Each  competitor  was analyzed to determine what was needed to recapture share and marketing mix was accordingly changed in large markets where the competitor was strong.

·         GOVERNMENT SEGMENT : Massive lobbying  was done to national governments saying that buying  company  products  was  only  25 % of  "reinventing the wheel“  by asking local firms to develop the products.

·         PRODUCT DEVELOPMENT : R&D spending was increased  to develop a complete new line of instrumentation and also calibration was improved.

Results

·         Sales increased faster than market growth.

·         Market  share went up from  22%  to  30%  in  five  years. 

·         Won many large government contracts at the expense of local manufacturers.

·         20  competitors  closed  the shop in 3 years. 

Opportunities To Teach

This is a good case to understand how even a fundamental marketing information makes a difference. You need to get the basics right. You do not need to get into high tech research but you need to understand basic facts.