The study addresses the fundamental problems in the competitive market that are retarding the rapid growth of Lafarge-Aget Heracles. Out of the several issues challenging the future growth of the company such as huge transportation costs, under-utilization of capacity and fuel problems, the one identified for subsequent analysis and can be regarded as the most important threat to the company’s growth is the inability of the company to have a differentiated product line. The report suggests some alternative solutions that the company should adopt to remain profitable in the market and the effect of implementing those solutions on the growth prospects of the company. Based on the analysis of these solutions, decision and recommendation have been made which would help the company to remain competitive in the market.
Table of Contents
- The Underlying Problem
- Framework or Theory for Analysing the Problem and the Situation
- Alternative Solutions
- Analysis of Each Alternative
Lafarge-Aget Heracles is one of the world’s leading cement manufacturers. The company has not been able to witness rapid growth within the industry. Some of the problems which are acting as major setbacks to the growth of the company are inability to offer a differentiated product line, huge freight costs added with under utilization of capacity. Out of these problems, the most vital being the inability of the company to offer diverse products which might become one of the principal causes leading to a huge loss of market shares. The company needs to address this problem and the consequences it may suffer as a result of this persistent problem. To strengthen its competitive edge in the market, the company needs to innovate its product line with the help of sophisticated technologies. While other issues do need to be addressed properly, we restrict our scope of review in this report to the examination of one of the most critical problems faced by the company which is inability of offering a differentiated product line.
The Underlying Problem
One of the greatest obstacles to Lafarge-Aget Heracles is their inability to distinguish their line of goods. Inside the cement industry, the need for a differentiated product line was constantly felt and Aget, one of the industry’s major players, was very well aware of the fact. To build a niche in the market, it was becoming necessary for Aget to innovate its product line. The need for environmentally friendly cement mixtures and cement specialties was becoming passionate. To ensure rapid growth in an industry, businesses need to adopt strategies to render higher customer satisfaction and offer value–added products and services. Aget was falling back on this aspect. Looming under its enormous cost structure, it was thought that Aget did not want to introduce innovation strategies. In order to improve its competitive advantage in the industry as a whole, this was becoming an absolute necessity for Aget.
Aget was not able to develop its existing product line or offer new products and was becoming unable to meet the changing needs of the customers. For example, government institutions were demanding certain kinds of cement mixtures and specialty cements which would be environment friendly and would not contribute to the depletion of natural resources. With the growth of the infrastructure industry in different regions throughout the world, for example in the Middle East, the demand for a particular form of cement was growing and more obvious this would mean the network will be more resilient. But like other cement manufacturers across the world, Aget seemed to underestimate the need of an innovative product line as it strongly believed in the fact that cement being a commodity, its price would be uniform in a specific market. But this was becoming one of the factors responsible for Aget’s inability to carve out a niche in the market thereby narrowing its prospects of growth within the industry. It has been found that the company was not giving due weight-age to the fact that the real estate industry was booming in various parts of the world. It has been pointed out that the cement industry is affected with the change in the different macroeconomic factors so with the change in the living standards of people across the countries, the needs of the customers at large has been also undergoing a sea-change. This has been the right time for Aget to introduce some special type of cements and position the products accordingly in the right market so that it could tap the demand of the market and register higher growth.
Furthermore, the company needs to acknowledge the fact that if its competitors are able to launch better product or a substitute product at much lower price than offered by it, then it will lose its customers and a considerable share of the market. Customers are always seeking better products at cheaper rates and if the company keeps on neglecting this fact, it may land itself amidst dire consequences. So, the company needs to ensure that a significant portion of investments is made to strengthen its R & D processes so that it can retain its market edge and can survive amidst increasing challenges.
The company should analyze the consequences that it can face if its competitors adopt a price cutting strategy. This strategy would also gravely affect the company’s market share. Desperate to increase its market share and profitability, Aget had implemented the strategy of lowering its prices by about 12%. The company estimated that even if its competitors adopted the price-cutting strategy, it would register an 8% growth in its overall market share. But during such deductions, Aget did not consider that its competitors have a small cost structure which would insulate them from suffering greater setbacks, on account of failure of the strategy. But Aget would suffer huge losses on failure of the strategy. The adverse effects could have been neutralized by building strong customer relationships. This type of neutralisation can now be achieved by improving its product line and estimating the gap between the demand of the market and its supply. This can be addressed suitably by understanding the customer preferences and innovating products according to the needs of the different customer segments. It is highly suggested that the company should devise strategies in order to strengthen customer loyalty ( Lafarge – Aget Heracles, n.d.).
The company aims to deliver customised products such as cement mixtures according to the specifications of customers in order to ensure that the total construction costs of the customer is reduced. But even then the company has not been able to tap the increasing demand of the international markets like Middle East. This market has been forecasted to have a demand consumption of about 5% on an annual basis( Lafarge – Aget Heracles, n.d.). To enter into new markets, the need of consolidations is felt by the company as it would enable it to attain cost synergies. Various challenges are threatening the foray of Aget into new markets out of them cultural conflicts, developing strong sales force, building technological and product expertise pose as some major challenges.
Besides being meticulous in choosing the countries where it should foray, the company should primarily modify the strategies related with product development and devise strategies by which it could differentiate its existing product line. Adopting these strategies would ensure higher customer satisfaction and would enable the company to register greater profit margins.
Framework or Theory for Analysing the Problem and the Situation
To deal with the problem the company needs to understand the need of developing a differentiated product line. As the company’s products are solely based on Portland cement, the company should address the issue that if its competitors are successful in developing a better quality substitute product, then the company would lose a considerable percentage of its market share and may end up in being cornered in the market. The need of constant innovation should be given due importance and steps should be taken by the company to address the same.
Product differentiation is an absolute necessity of a company to remain competitive in today’s market and to grab greater market share in a given industry. Product differentiation would help the customers to differentiate the products from those offered by its competitors. This will not only strengthen the company’s competitive edge in a given market but would also help them to build a niche in the market. The company needs to address that it is absolutely necessary for a company to build uniqueness in its product offering otherwise its grip on the market would become lose.
The company should address that to build a differentiated product line it should take into consideration the importance of the three related factors namely customization, convenience and the capacity to recover costs. To survive amidst massive competition, Aget needs to deploy proper marketing strategies which would help the company to successfully position its products in the market. Before penetrating into international markets like the Middle East market, the company needs to undergo a thorough analysis of the market forces operating in those markets. It should conduct a thorough research of the different challenges and opportunities that are inherent in a market. This would minimize the chances of failure. It would also help the company to adopt suitable segmentation and targeting strategies which would enable the company to gain a strong foot hold in the new market.
The company had decided to enter into some new markets such as Lebanon, UAE and Kuwait. To successfully position its products in those markets, the company needs to build strong marketing and distribution network. It should first segment its customers on the basis of their differing preferences and adopt suitable marketing strategies to position the products accordingly in the market.
A thorough analysis of the changes undergoing in the market and the changing demands of customers would help Aget to gain an overview of the entire situation. This would help the company to identify the solutions which would enable the company to strengthen its foothold in the foreign market.
As Aget is not keen to differentiate its product line, it is felt that some of the following suggestions would enable the company to position its existing product in the new markets. Aget should devise strategies by which it can strengthen its distribution channels and marketing network Entering into an unknown market without properly analysing the key market forces operating within the industry can lead to some huge setbacks. To avoid the occurrence of the same, the company needs to identify its own weaknesses and adopt proper strategies to strengthen them. Otherwise they may become vulnerable to takeovers and acquisitions by stronger entities of the market. The company should focus on developing customised products so that it can tap the specific demand of the different customer segments. The company can easily achieve this by being proactive in its approach. The company can eliminate production bottlenecks as far as possible. It can devise strategies by which the idle time between production processes can be minimised and the product can enter the market at the right time. Another aspect to be taken into consideration is redesigning the logistics of the company accordingly. It has been found that transportation accounts to about 20% of the total cost so there is an ardent necessity of revamping the total logistic operation (Lafarge – Aget Heracles, n.d.).
Another aspect that should be given due importance is the role played by the ‘customer’s buying center’ in the industry. It has been found that the ‘customer’s buying center’ plays an important role in determining the profitability of a particular project undertaken by the company and in ensuring that the company is successful in achieving the end results. Emphasis on the operations of this buying center would enable the companies to reach a trade off between ‘product cost’ and ‘product value’ which will help the company to gain larger customers (Lafarge – Aget Heracles, n.d.).
The company should remember that ‘product policy’ plays a vital role in achieving the end objectives of higher profitability and growth so it should develop a sound product offering strategy by which it would be able to render higher customer satisfaction. The company should emphasize on developing a stronger sales force and focus on changing their approach of selling products to customers. The company should give importance on building brand loyalty and devise strategies accordingly. After sales service should be made stronger which would help in developing better customer relationship.
Analysis of Each Alternative
Strengthening distribution and marketing network plays a vital role for a company which seeks to enter a new market (Exhibit I). This factor is of more importance for Aget as it lacks a differentiated product line which would have helped it to tap the demand of the different customer segments in a given market. To gain market leadership and maintain a sustainable growth within a given market, it is always of prima-facie importance to have a differentiated product line but Aget, till date, have been found to fall back on this aspect.
Exhibit I: A Typical Distribution Network
Source: Compiled by using many sources, no date
The company needs to understand the customer preferences and adopt suitable techniques to offer customized product to the customers. This can be readily achieved with the help of strong distribution channels. The company should train its sales force properly so that their approach to selling undergoes a thorough change. This would enable the company to position its product properly in a given market ensuring higher profitability.
Aget needs to understand the customer preferences and their buying attitude. This can be understood by studying the factors that affect their decision-making. The company should remember that a customer’s buying patterns is largely dependent on his/her previous buying experience. So the company should focus on rendering better service and focusing on developing strong customer relationships. The company can also conduct a survey by which it can understand the type of products demanded by the customer and can modify the cement mixes accordingly. This would help the company in building its niche in the market. Thus the company would be able to transit from make-to-stock approach to make –to-order approach. This would enable the company to lower its inventory levels thereby reducing the overall production costs. This can be successfully achieved by building strong ties with the local suppliers who would be intimated from time to time about the need of stock replenishments and the different production requirements. This would help the company to reduce bottlenecks in the production process and the company would be able to launch its product at the right time in the market. This would also ensure timely delivery of products thereby helping the company to earn customer loyalty. The company should aim at offering value added products which would help in strengthening its customer relationship.
The responsibilities of the sales force should be increased from just being people performing the job of selling the company’s products to providing necessary information demanded by the customers about the company’s product offerings. This would give the customers a thorough insight about the type of product offered by the company and whether their demands can be met by the company or not. This would minimize the chances of misinterpretation and customer dissatisfaction which, if persists on a long run, can ruin a company’s image. Developing the sales force into a ‘management information’ team would enable the company to strengthen its position in the market and build its niche. The company should remember that in today’s world ‘customer is the king’ so it should devise strategies by which it can retain its existing customers and in the process lead to the generation of more customers.
The company should redefine its logistic operations, though it is a common concern for all the companies operating in the cement industry, but Aget should try and locate local suppliers and find out ways by which it can minimize the distance between its production site and end customers. This can also be attained by strengthening the distribution channels of the company which would help in timely delivery of products.
The company should try to understand the role played by the buying center and the ways in which it can affect the profitability of the company. It must be taken into due consideration that with experience customers change their expectations and it then become quite difficult for a company to retain its customers. So, the company should devise strategies by which it can retain its customers even when they become experienced. This can be done by providing them after sales support and offering them higher quality products and services than the competitors existing in the market.
The company should remember that customers are the key to higher growth and profitability. This should be achieved either by changing the product policy or differentiating the product line accordingly or understanding the customer preferences and building strong customer relationship or revamping the entire logistic system to ensure timely delivery of products. If the company does not adopt suitable strategies, then it may be lead to loss of customers and market shares. It totally depends what strategy the company prioritises but the end objective should be to render higher customer satisfaction as that is the only key to higher growth and greater profitability.
It is suggested that the company should focus on product differentiation. It should understand that without a differentiated product line it would not be able to tap the varying demands of the different customer segments. If it cannot meet the preferences of the different customers, it would not be able to grow or sustain in the competitive market. Building strong customer relationship would help it to emerge as a stronger entity in the domestic as well as in the international market. So, it should reorganize its sales operations and adopt strategies to build brand loyalty.
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