PROPOSED MARKETING STRATEGY AT PT. ABC SALES OFFICE BANDUNG USING 3V S MODEL

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1 THE INDONESIAN JOURNAL OF BUSINESS ADMINISTRATION Vol. 2, No. 6, 2013: PROPOSED MARKETING STRATEGY AT PT. ABC SALES OFFICE BANDUNG USING 3V S MODEL Hendry Arie Siandi and Evo S. Hariandja School of Business and Management Institut Teknologi Bandung, Indonesia hendry.arie@sbm itb.ac.id Abstract Automotive Industry growth in Indonesia is quite phenomenal. Unit of cars being sold are increasing each year. The growth of automotive industry becomes an opportunity for automotive replacement market. However competition in replacement market is believed to be more intense each year. Many players are interested to take part in this industry. When competition gets intense, customers are getting demanding because availability of choices they have. Automotive replacement market s customers are divided into two customers B2C and B2B customers. PT. ABC Bandung is a spare parts distribution company who serve automotive replacement market in Bandung Area. Customers of PT. ABC Bandung are believed to be more concern about easiness in doing business. Threats are emerge from company current situation and customers demand. Analysis on customer demand will be needed to keep company in the business by creating intimacy with customers. Three values method is the right method to find out customer s need and lead to creation of STP. Better STP is guidance for company to build their marketing mix. This thesis will analyze customer s needs through creation of three value method. Keywords: automotive, b2b, marketing mix, 3v 1. Introduction A. PT. ABC Bandung at a Glance PT. XYZ Tbk. is well known as manufacturer of cars and its spare parts. While PT. ABC Bandung is one of its subsidiaries who created to serve automotive replacement market and focus on traditional retailers in Bandung area. PT. ABC Bandung Vision: Become the best distribution company for auto component (spare parts) products in West Java Region. PT. ABC Bandung Mission: To creates value for customers through excellent distribution network and services with supportive human resources and operation system. The History. The first car in Indonesia is Benz Phaeton form Germany that was ordered by Sultan Solo in 1894 from John C. Potter who was the first car dealer in Indonesia (Herbawati, 2003). In 1938 automotive industry in Indonesia was controlled by local people, RP Soenaryo Gondokoesoemo, a General Motor s Agent in Yogyakarta. Latter, followed by Hasjim Ning (1950s), William Suryadjaya (1960s), Syarnoebi Said (1970s), and Soebronto Laras (1980s). At that time US product was dominated with Chevrolet from General Motor as their flagship product. Latter in Japanese products began penetrated Indonesia Market. Spare parts are parts of tools, engine, or vehicle that are provided for replacement. Replacement for those parts are needed while there is damage that caused by external factors or the function of the parts are not work properly. Procurement of spare parts is a must to make sure the engine works according to its economic life time. However, in Indonesia there are lots of engines or vehicles being used much longer than its 690

2 economic life time so that retailer stills provide spare parts for vehicle that produced during 1980 s B. Business Issues and Problems Identification This journal will discuss about threat that could be arise due to competition in automotive replacement market. Competition in automotive replacement market especially in battery product is getting intense since lots of companies try to penetrate PT. ABC Bandung as market leader in this industry. Customers are provided with many choices of brands. Performance of PT. ABC Bandung for the last five years could be stated less successful. Deeper exploration about problems that impact in performance of PT. ABC Bandung will be conducted in this journal. 2. Business Issue Exploration A. Conceptual Framework In the case of PT. ABC Sales Office Bandung, especially in business to business (B2B) markets, suppliers of products are struggle to against product commoditization. Threats are come from everywhere such as competitors that rapidly copy new features, effectively destroyed product differentiation, and sophisticated buyers refuse to pay any brand premium. These threats are become more real in the industry. It could be seen on business issues part that PT. ABC are facing this threats since they are too focus on their product rather than providing solutions to its customers. In this journal, the writer is trying to analyze the root cause of the problems that PT. ABC faced. To give the detail picture of the problem, it is important to analyze the internal and external factors that determine marketing activities in PT. ABC Sales Office Bandung. The tools that would be used to do the analysis of internal and external condition within the industry are 5C s analysis. Analyze the segmentation and targeting that the company aim is important as well. Last but not least, positioning of the product and its marketing mix has to be placed on the right place. From those analyses, company would have alternatives of strategies that could be implemented. This journal will focus on the condition of customer s level of importance towards marketing mix program held by company. Using the theory of three V s (Value Customer, Value Proposition, and Value Distribution), customers need would be analyze lead to creation of STP (Segmentation, Target, and Positioning). This approach would be use for manager to make strategic decision refer to its STP. The right STP and Three V s will help managers in PT. ABC to create the right marketing mix. The reason is to maintain its existing customers and attract new customers as well. The alignment of this three V s and the marketing mix is expected to improve PT. ABC Bandung performances. B. Method of Data Collection and Analysis Related to conceptual framework, here is the data and analysis to find out the root cause of business issues: Corporate, Business, and Marketing Strategy at PT. ABC. PT. ABC Sales office Bandung is a subsidiary of PT. XYZ Tbk. on trading division. Based on business structure and business portfolio that PT. XYZ Tbk. have, it could be seen that all of subsidiaries of PT. XYZ Tbk. conduct a backward vertical integration strategy with PT. XYZ Tbk. as bridge for its subsidiaries. At business level, PT. ABC Bandung implemented Cost Leadership Strategy by standardized products that are produced by other subsidiaries of PT. XYZ Tbk (produce and distribute four wheels battery). Internal and External Environment Analysis (5C s). Customer. The characteristic of PT. ABC Bandung B2B customers are they care about price sensitivity, building trust, the easiness, and flexibility in doing business. Personal relationship between PT.ABC Bandung and its B2B customers are maintain through sales visit activity which is a tools to listen to customers feedback. Company. SWOT analysis shows that becoming subsidiaries of PT. XYZ Tbk. is one of competitive advantage that PT. ABC Bandung have. The other strength of PT ABC Bandung is, supported by integrated system among its subsidiaries. On the weakness side of the company, centralization type of 691

3 organization and bureaucracy are the main issues that company have to face. However, there are some opportunities that have not be captured by company such as information system improvement between PT. ABC Bandung and its manufacturer company and area coverage of PT. ABC Bandung. Threats that have to be face by PT. ABC Bandung are competitors copying marketing program of PT. ABC Bandung. Competitors. The growth of battery industry in Indonesia is grown up under the government regulation on 1970 s that forced automotive manufacturer to use domestic product on their product. Since then, many of battery s factories arose with small or large scale. From around 38 battery s factories, in the very competitive market, the market structure is very possible to change especially for small scale factory with unknown brand. Collaborators. For upstream supplier, PT. ABC Bandung is supported by PT. ABC s headquarter in Jakarta which is supported by PT. XYZ Tbk. PT. XYZ Tbk. as parent company give full support for its subsidiaries to maintain its service and product quality. For downstream trader or retailer, PT. ABC Bandung don t sell their product directly to end users, instead they sell their product to B2B and B2C customers. Context. PESTEL Analysis shows that political situation in Indonesia is not supported for investement. However, government regulation (Inpres no 2/1996) about automotive industry in Indonesia gave opportunity for automotive manufacturer since the automotive parts have to contain local material. In year 2012, economic condition in Indonesia is predicted to grow continuously. Having competitive advantage from the biggest population in South East Asia Region, Indonesia s Gross Domestic Product (GDP) is predicted to reach 6.3% in the first quarter of 2012 and will grow to 6.5% in the end of the year. The unequal population distribution which most of population centralized in Java and Sumatra areas impacted distribution of vehicle in Indonesia. Java Island as the densest population in Indonesia has the biggest contribution in vehicle distribution align with its GDP contribution for Indonesia. It can t be denied that technology plays significant role in vehicles. People tend to have latest technology in their vehicle for several reasons. Automotive manufacturer companies are compete to give latest technology for its customer. Technology plays important role for automotive replacement market because any invention will impact to the old technology. Environmental issues can t be underestimated today. People are more concern about environment issues compared to 20 years ago. For automotive industry, companies are racing to produce car that are environmental friendly because the demand is shifting to that direction. For Automotive industry, legal factor during 2012 has proved to hit automotive industry. Growths of automotive industry has hampered by form letter of Bank Indonesia No.14/10/DPNP, March 15 th 2012, about Implementation of Risk Management on Banks who Gave Mortgage and Vehicle Loans. The form letter obligate loan to value or down payment for vehicle to 30% from 20% started from June 2012, an incremental of 10% that impact on number of cars sold. Business Condition Analysis. Analysis of the business condition was done with the top down approach, where the analysis was begun from the analysis of Indonesia s macro economy, continued to the condition of the airlines industry, and finally to the condition of the company. Macro economy condition will be analyzed first with PEST analysis. Industry condition analysis is divided into passenger market and cargo market. Industry condition is also analyzed with Porter s Five Forces to find out how the competition is going on. For company condition analysis, there are several core competencies of Garuda Indonesia like penetrate in Full Service Carrier and Low Cost Carrier using two brands, launched restructuring and transformation program that controlled by the government and public, launched Garuda Indonesia Experience with polite cabin crew, and average fleet age was just 6.5 years and combine with operational excellence to get cost efficiency. Marketing Mix (7P s) Product. PT. ABC Bandung sell PT. XYZ Tbk. s product from its subsidiaries to fulfill demand from replacement market. Products sold by PT. ABC Bandung ranged from car s suspension, brakes, engine parts, and car s battery. The product quality and packaging is targeted for middle up level and it has a competitive advantage from parent s company who supplied Original Equipment Market (OEM) also. Price. PT. ABC Bandung is subsidiaries of PT. XYZ Tbk., company who supplied its product to OEM market; it has to maintain its product quality for its REM market. Price of product distributed by PT. 692

4 ABC Bandung is in the middle class, below the original one but more expensive above imported product from china or local product Place. PT. ABC Bandung located in Jl. Cibolerang Baru No. 203 Kav.5, Bandung. Location of PT. ABC Bandung is strategic for distribution because it is located in the centre of Bandung City. It is also completed with warehouse for storage goods so the company could serve its B2B customers faster. Promotion. Promotion activities that company held are in many forms. To conduct promotion activities, company created a Marketing Communication. Marketing communication is the primary way for company to communicate with its customers. PT. ABC Bandung itself has the promotion programs from its head quarter collaborated with manufacturer for car s battery People. PT. ABC Bandung wishes only to have the best people in their company and they preferred people with high level of education and have experience for at least 1 year. For that reason, formal and informal education is needed to create educated, experience, and good manner work force. Process. Order and Payment process is something that customers felt to be unrealistic. Procedure in order process reflects rigidities action taken by company. Physical Evidence. Physical evidence in business such PT. ABC Bandung compete in is talk about building customer experience. However, the real condition is not as expected by customers. Buying and payment process are felt to be very rigid by customers. C. Analysis of Business Situation Business issue in this journal is about the condition PT. ABC Bandung that is perceived as a rigid company by its customers. Company s business situation is not in good condition. Not knowing its customer needs is the first mistake. Easiness in business for B2B customer is important. Emergency demand from B2B customers could not be fulfill because of the rigidities in order process. The long order process is not applicable in emergency situation. Rigidities in order process followed by bad product availability become common complain by customers. Marketing campaign often confusing. Retailers are afraid the upcoming marketing campaign would be better than today marketing campaign. Since product availability is bad, there is lots of back order for retailers % 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Summarized of Questionaire Result Produk Promotion Price Place People Physical Evidence Process Very Important Important Indifference Not Important Unimportant at All Figure 3 6. Summarized of Questionnaire Result To find the customer s needs, information from customers has to be finding out by conducting interview and questionnaire. From this root cause, business solution will be developed for company. In addition, this journal will give recommendation to management of PT. ABC Bandung in order to improve its performance. Figure 3 6 shows summarized of customers importance toward marketing mix. 3. Business Solution In business solution, there will be solution proposed from this journal to the issue of PT. ABC Bandung performance related with its marketing mix program. 693

5 D. Three Values Model The first V in 3V s method is Value Customer or who to serve. PT. ABC Bandung targeted every B2BB customers around Bandung Area. However, not every B2B customers considered to be good customers in terms of payment. PT. ABC Bandung s customers ranged from big B2B customers and B2C customers. This creates a new segmentation. Table Proposed Segmentationn Target market of PT. ABC Bandung is divided into two categories, primary target which targeted customers in SESS B and A, located in centre of Bandung area, and most of these type of consumerss are B2B customers and well educated also. The secondary targets of PT. ABC Bandung are customerss with SES C to B, located in suburb of Bandung City, well educated, and most of these types of customers are B2C. Since company applied tight payment system, they will focus on the first targett while secondary target will be use to support with small percentage of sales. Table Proposed Targeting Value proposition talks about attributes that should be increased above industry standard and attributes that should be eliminated. Attributes that should be eliminated are rigidities in system and number of sales people. Since company operates a rigid system, emergency buying is not possible. System can t create invoice for such sudden case.. Sales force based on product category should be eliminated and changed based on geographic area since the products are not so much. Attributes that should be increase above industry standard are punctuality of delivery and offer better servicee to its customers. 694

6 The last V value network is talking about how to deliver the value proposition to value customer with lower price but offer higher benefit to customer. To improve its efficiency in distribution, company should rethink about costs that occur in distribution system. Timing is very important in value network, with structured sequence and moves implemented by company; customer could have their goods in tolerable time line while company could minimize cost. E. Marketing Mix Promotion. Promotion strategy could be in many forms such as direct marketing, sales promotion, and advertising. Direct marketing is used to attract customer directly. Table 4 1. Proposed Exhibition Design Type of Exhibition Promotional Activities PPSCMB (Union of Bandung Spare Parts Retailer) > Representative from PT. ABC Bandung Monthly Gathering. > New product introduction ( suspension parts) > On the spot order with special price Factory Visit, ex: PT. Kayaba Indonesia > Representative from PT. ABC Bandung > Free souvenir in form of product > Factory tour to see production process Table 4 2. Proposed Rebates Program Type Price Normal Discount (26%) Special Offer Netto NS B19L (15.000) NS40Z NS40ZL NS NS60(S) (20.000) NS60L NS60L(S) N D23L (30.000) N50Z D26L (45.000) NS

7 Sales Promotion strategy is divided in two strategies which are push and pull strategies. The aim of sales promotion is to provide added value or incentives to customers, whosalers, and retailers to stimulate immediate sales. Push strategy involves convincing trade intermediary channel members to "push" the product through the distribution channels to the ultimate consumer. To attract retailers, sales promotion program for PT. ABC Bandung could be in form of price off or trade sales promotion. Service Improvement Service improvement is important to complete a good product. PT. ABC Bandung should focus on developing their human resources. Right now, human resources at PT. ABC Bandung are lack of product knowledge and attitude. It can t longer be under estimated by company because competitor s human resourcess are getting better and better in terms of product knowledgee and attitude. Table 4 5 would show proposed list of trainings thatt should be held by company to improve its human resourcess capability Process Improvement Strategy Proposed processs improvement strategy will focus on daily operation activity. It will include order, delivery, payment, and claim. According to W. Chan Kim and Renee Mauborgne in their book Blue Ocean Strategy, to sustain in competition, a company should modify their business with resourcess they have. The idea is how to eliminate reduce raise create something that is benefit both for company and customers. Figure 4 2. Proposed Eliminate Reduce Raise Create Framework Figure 4 3 explained about proposed process improvement strategy principle that is based on threee parts which are planning, process development, and improvement. The first step of planning is focused on customer requirements follow with product and service quality that company have. Process development is talking about integrated order process and integrated distribution to maintain as low as possible level of inventory. The last parts of processs improvement strategy principle are review and evaluation. The aim of review and evaluation is to get customer s feedback and improve the process thatt is important for customers. 696

8 Figure 4 3. Proposed Process Improvement Strategy Implementation Timeline Implementation timeline is designed for one year. Shelf Display and Store Front Sign will be installing interchangeably. The first two month, PT. ABC Bandung would install Store Front Sign for Area 01 retailers. On March and April, PT. ABC Bandung will install Shelf Display for Area 02 retailers. On May and June, company will install Store Front Sign for Area 03. On July and August, company will installl Shelf Display for Area 01. On September and October, company will install Store Front Sign for Area 02. The last two months will be used by company to install Shelf Display in Area 03. Price off will be held in the end of the year to stimulate sales. Target Achievement Contract will be held on January and will be reviewed in December. Figure 4 4. Implementation Timelinee 4. Conclusion and Implementation Plan From all of the analysis done, here is the conclusion: Automotive replacement market is still interested for companies both domestic and foreign investor. Competitor s penetration would be more intense in upcoming years. Therefore, PT. ABC Bandung should shift from product oriented to customer oriented. Improvements in some sectors have to be implemented to improve company s performance, especially in daily operation. Daily operations have to be improved as efficient and efficient as 697

9 possible. Therefore PT. ABC Bandung should improve its distribution system and create a simple distribution system based on customer oriented value. Rigid process has to be changed to adapt with today business challenge. It would be a competitive advantage if company could change the process to be more flexible. Therefore PT. ABC Bandung should modified its process and create contingency process to serve emergency demand. Promotion is important to boost sales. Promotion is a variable that attract customer s attention toward a brand. Therefore, PT. ABC Bandung should create a unique, achievable, and consistent promotion program to attract customer toward its brand. References Burrow, J.L, 2009, Marketing. Ohio:South Western Cengage Learning Cravens, D.W, & Piercy, N.F, 2009, Strategic Marketing. New York: Mc Graw Hill/Irwin. Hendry, A.F, 2011, Understanding Strategic Management. New York: Oxford University Press Inc. Iacobucci, D., Edition, MM. Ohio: South Western Cengage Learning. Henry, A.E., (2011). Understanding Strategic Management. Oxford University Press. Kim, W.C, & Mauborgne, R, 2005, Blue Ocean Strategy. Boston: Harvard Business School Press. Kumar, N., 2004, Marketing as Strategy. Boston, Massachusetts: Harvard Business School Press Malhotra, N.K, 2004, Marketing Research An Applied Orientation. New Jersey: Pearson Education Inc Owersloot, H., & Duncan, T, Integrated Marketing Communications. New York: McGraw Hill Education. Astra Otoparts Annual Report