SENSOMEX - THE CASE - for teaching use of basic marketing

SENSOMEX - THE CASE

1.    SENSOMEX  is a partnership company founded 25 years ago by 3 engineers fresh from the campus. It is a B2B company and its  current revenue is $ 119 Mn.  The company currently has  3  divisions which make and market  various types of sensors for different uses. These sensors are broadly classified as sensors that sense pressure, humidity and direction and speed for navigational use.  The business is still managed by the original 3 partners at the apex level : each division is headed  by  a  partner.

a.     Kenny handles Pressure  sensors division : turnover of  $ 40 Mn

b.    Ted handles Humidity  sensors division : turnover of  $ 43 Mn

c.     Joey handles Navigational  sensors division : turnover of $ 36 Mn

2.    Each partner handles front-end functions -  sales force, production planning, sales & expense accounting of their divisions. Other functions are common - the treasury function is handled by Ted, Manufacturing and supply chain by Kenny and Administration and HR by Joey.

3.    From an external perspective the company is financially well placed :  sizeable amount of profit has been kept aside as reserves looking pretty on its balance sheet. Ted who handles the finance function of the company says that  banks have repeatedly approached the company and shown their  willingness to lend money to the company for  expansion of facilities, extension to new markets, product up-gradation or  even acquisitions of new companies.

4.    However, internally, the things are not as good. The partners are worried about the inability of the company to grow well.  Of particular concern are  the new initiatives that were taken in the area of Humidity Sensor division 7 years ago which sucked cash but did not deliver – when a Swedish company MELOTT offered its technology to Sensomex for the Humidity Sensors and its sales force was enthused about the sales boost that could come from offering a far better technology to the market because the customers had enthusiastically endorsed the sensors using new technology. Sensomex then spent over $ 40 Mn on (a) paying Melott (b) expanding R&D facilities (c) testing of new products with customers (d) upgrading production equipment (e) expanding the sales force.

5.    But in reality, the sales have been far below what the sales force had forecasted and the division was  in the red for years till it broke even only last year.  Ted says “ I am unable to explain why, in spite of having a better product, my division is unable to sell anywhere close to what we expected. We asked the customers too and they say they not only like the product but are also willingly paying a higher price”. He went on to add; “but as a result of this fiasco, we have not invested in the other two divisions also and the sales of the whole company are now levelling off.”

6.    Of late, the partners are having differences of opinion on the future direction to take. Kenny feels that since the company failed in making the existing business grow, the only safe option is taking over one of the competing companies but he cannot clearly say which company. Ted feels the company must start a new business of office automation and telecommunications which has a great future because existing business cannot grow.  Joey says taking over a new company or going into an unknown field are riskier moves – because we will have to pay a high price to take over an existing successful  company - and going into an unfamiliar business will have its own trials and errors – hence it is better to invest  and focus on the existing businesses. The Melott experience is obviously haunting all the three partners.

Question : Could Sensomex Have Avoided This?

Sensomex - The Teaching Note

In this case the problem is that the company does not know that they pretty much own the humidity sensors market and hence the answers to the growth of the humidity division are actually outside the existing category ! The company has been so inward looking that they had not conceived of this possibility .

External perspective

·         See the huge difference - just knowing the market size – makes !

Market orientation 

·         Why did they not discover this for so many years?
Because they had no marketing department ?
Because the task of marketing was not assigned to someone in the company ?
Because the company / top management / sales department was not market oriented ?

Choosing the customer and choosing the purpose before market scanning

·         They asked existing customers and all of them said they would upgrade and pay a higher price – which they did- but the fact is that the problem was never with the value proposition to the existing customers anyway - they were buying a lower quality product at lower price and now the same are buying higher quality product at a higher price

·         The problem is that there are not enough customers in the market to start with – and we have no idea why they do not use humidity sensors. Actually the company should have researched the non-customers

Positioning - Value For Money  

·         If  adding cost (better product) leads you to charge a higher price, it means that the existing customers sitting at the wrong VFM point on the quality-price curve. Is there a market for a price even  higher than the raised price ?

·         Is it likely that there is a market at the price point which we have just vacated and we may actually be creating a gap for a competitor to enter ? Should we therefore market two ranges of sensors – one for price-oriented customers and the other for value-oriented customers?

·         Is there a market for humidity sensors at lower prices ?

·         How are the customers populated around the VFM curve ?

Growth Strategy  

Ansoff Matrix
Population distribution on readiness scale ( PDRS)

·         Existing Customers , Existing Products ( PDRS) : Penetration

·         Existing Customers,  New Products ( Swedish Technology ) ( PRDS ) : product dev

·         New Customers, existing Products ( PRDS ) : market dev

·         New Customers, new products ( PRDS ) : diversification

Basic marketing logic

·         How committed to developing and providing VP for chosen customer : attractive market

o   Size of the market : # of customers

o   Growth of this size of the market

o   Extent of competitiveness ( inversely proportional )

·         How committed to accepting VP from the chosen marketer : differentiation

o   Fit with the need

o   How different and better than competition

o   Right VFM position

·         GO-To-Market effort

o   How wide and how deep

o   How does the sales funnel operate

o   How partnerships work   

What happened actually ?

·         Actions taken

o   No  need  for  diversification  because the  pressure sensor market  can  provide  ample  growth.  The company stopped looking into acquisitions unrelated  to products  outside its areas of expertise.

o   They formed a management committee of the 3 partners to oversee all product lines rather than segmenting the firm into three discrete divisions.

o   The company increased  sales  manpower  in pressure sensor market and improved sales management inputs to ensure that the productivity per person does not fall.  

o   Allocated  more  funds for pressure  sensor  development

·         The Result

o   For  3  years  grew  at  11%  pa
 6 %  higher than over the previous three-year period.

o   Sales from the pressure instrument division
now account for 51 %  company sales and projected to be 75 % in 7 years

·         Management harmony has increased because the decisions are based  on  market  figures  and not  personalities.

Opportunities to Teach

1. External perspective and important marketing terminology
1. Market size : Volume and Value
2. Industry and Market
3. Classification of  customers : Non, lapsed, current, competitors’ etc 
4. Right questions to right customers
5. Words : Potential, Current, Loyal
6. Concept of multiple markets including intermediaries and influencers
7. DMU or Buying Center
2. Marketing is an orientation and not a department. You can do without a marketing department but you cannot do without performing the basis marketing tasks.
1. Marketing tasks
2. Core processes in marketing 
3. Concept of  Market Space : How are customers spread out
1. On VFM curve
2. Geographically
3. Seasonally
4. Application wise
5. Marketing Mix wise : Type of product / price / channel wise
4. Value for money concept : Customers exist at all levels in VFM curve : marketing opportunities : range development
5. Adding the right costs gets you a better price
6. Ansoff Matrix
7. Population distribution on Readiness To Buy Scale 
8. Basic marketing logic : there should be a market ready to buy the products, there should be a value proposition which is attractive to both sides, there should be a go-to-market strategy for customer acquisitions
1. Market size and readiness
2. How committed to developing and providing VP for chosen customer : attractive market : Size of the market : # of customers.  Growth of this size of the market.  Extent of competitiveness ( inversely proportional )
3. How committed to accepting VP from the chosen marketer : differentiation. Fit with the need.  How different and better than competition.  Right VFM position
4. GO-To-Market effort.  How wide and how deep. How does the sales funnel operate.  How partnerships work