Changing Strategy in a Turbulent Market

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Changing Strategy in a Turbulent Market

• Israels Business Conference 2008
• Dr. Heiko Frank, MD Tefen Germany

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Agenda
1.
Introduction
2.
Case 1 SWU - an utility company faced with the
liberalization
3.
Case 2 IFC - an innovative product in the FMCG
sector
4.
Key Messages for Take Away
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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What does it take to survive and manage in this
volatile environment?
We will make it
When enterprises fail, it is often expelled to an
operational failure. However, this is a mistake.
Provided that external events lead to the crises,
the management may have chosen the wrong strategy.
We will present two examples of how companies
have succeeded to adapt to market turbulences.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Agenda
1.
Introduction
2.
Case 1 SWU - a utility company faced with the
liberalization
3.
Case 2 IFC - an innovative product in the FMCG
sector
4.
Key Messages for Take Away
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
5
The SWU a Utility Company faced with the
liberalization
The Stadtwerke Ulm (SWU) is a multi utility
company that offers attractive solutions all
around energy, water, mobility and
telecommunications to their customers.
Due to the liberalization of the energy market
and the restrictions of a low commodity
product, the cards were re-shuffled for the
company.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The SWU was active in multi dimensional areas.
Production (Electricity, Water)
Electricity
Gas
Water
Heat
Grids
external
external
Local Customers(private, small businesses,
industry, public authorities)
resulting in the fact that after the
liberalization, there were also options for many
different strategies.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The liberalization was followed by new challenges
which required appropriate strategies of the
utility companies
Aims of the Liberalization
Situation right after the Liberalization
Situation before the Liberalization

• Local / regional monopolies
• Fixed client base
• Regional exclusivity
• Fixed prices

• Complete the single market
• Increase efficiency and lower prices
• Ensure a security of supply
• Ensure supply to all the customers in affordable
  (transparency) prices
• Promote healthy competition (to make an equal
  access for all the companies to explore...)

• You just can loose situation
• Declining margins (5)
• Strong competition (also from other neighboring
  sectors)
• Low customer switching rates (1-3)
• Changing customer requirements
• Distinctive service orientation of the
  enterprises
• New retail channels and
• in-transparent service offering

Fixed market conditions for all competitors
Definition of a new European Energy Market
High market complexity / in-transparency Rules
of the Game have changed
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Although the change started slowly, SWU had to
deal with growing uncertainty
Slow changes that sneak up
Low profile changes sometimes begin as marginal
changes, but their impact gains force and may
eventually lead to a revolution
Product portfolio
"Full assortment"
"Niche supply"
Consequences
Additional products
No sale
Renewable Energies
Services
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Also, the situation on the German Energy was
offering various options
Energy Grid
Energy Production
Energy Trade
Area

• Still monopolistic structures
• Unbundling
• Reduction of the grid usage is expected
• Selective expansion of the grid (competition for
  new concessions)

• End customer market stagnates
• Low switching rates
• Prices increase

• Increasing demand of energy
• Increasing production of alternative energies
• Increasing prices expected (until demand can be
  satisfied)
• Dependence on 4 large suppliers

situation
Realization of "Economies of Scale within
Corporations
Portfolio Management Service Branding
To Dos
Fast development of alternative energy sources
depending on whether the companies wanted to
focus on the upstream or the downstream market.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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We have developed a Trend Book" that represented
the expected changes with regard to the current
framework conditions ...
Trends and frame conditions

• Trends
• Consumer behavior
• Demographic developments
• Consumption development
• Technology development
• Industry development
• Investment developments
• Regulation-/ Deregulation developments
• Etc.
• Frame conditions
• Regulatory and situational environment of the
  SWU
• Existing (and lasting) structures
• Legal framework conditions
• Public requirements
• Etc.

Trend book
... influencing the companys strategy both
within the sector and the macro economic
environment on a long-term perspective.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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In the workshops, trends and frameworks were
filtered with regard to relevance and
consequences
Development Company Vision
Workshop 1
Workshop 2
Workshop 3
Analysis Validation Confirmation
Analysis Prioritization Choice
Demographic trends

• "Mega-trends
• Effects on SWU
• Vision
• Strategic framework

Lifestyle trends
Strategic Trends
Technology trends
Drivers of the change
Social trends
Consumers trends
Industry trends
Framework conditions
... and yield the base for the vision and the
strategic framework for the corporate divisions.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The new strategy had a major impact on the
organizational structure of the SWU targeting for
a long-lasting performance
External Customers
Production nat./int. (Electricity, Heat, Water)
Grids(Gas, Electricity, Heat, Water, TK)
Electricity
Gas
Heat
Water
Tele- commu-nication
Public Transport
Other Services
Energy trade
National Customers(Private, Business, Industry,
etc.)
Establishment of Market Requirements - Multi
Channel Management - Different Product Portfolio
- Branding - Profit Centers - Standardization.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The success of the SWU strategy was obvious
within the financial performance of the company
Revenue distribution within the SWU
The SWU has become one of the TOP 10 out of 950
Energy Providers in Germany
As a result of the new strategy, SWUs revenues
increased by 250 - from 136 to 340 Million EURO
in 2007.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Agenda
1.
Introduction
2.
Case 1 SWU - an utility company faced with the
liberalization
3.
Case 2 IFC - an innovative product in the FMCG
sector
4.
Key Messages for Take Away
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Rich is the subsidiary of IFC with the highest
expected return on revenue within the IFC Group
focusing on foreign markets from 2007
The International Food Cooperation Europe (IFC)

• Headquartered in Kehlheim, Germany
• Consists of 9 subsidiaries
• All of the subsidiaries are active in the food
  sector (retailers / importers producers)
• In 2004/2005, IFC entered the FABS market (such
  as Vodka-Orange) etc.

The main revenue of the company is related to
innovative products in the beverages and sweets
industry.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Initially, the market for life style drinks has
reported significant increase in sales

• Beer mixing drinks achieved an increase in
  turnover of approx. 31
• The market volume for alcoholic drinks is almost
  constant gt 10 Billion since 1996
• The Ready-to-Drink (RTD) products credited a
  market growth of over 42 since 2001
• Flavoured water recorded an increase in turnover
  of 51 Million in 2006 in comparison to 2005

However, a dramatic change was approaching
rapidly.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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A special tax led to the crash of the market of
FABS in 2005, destroyed a growing market, but
also opened new opportunities for alternative
products

• Before the introduction of the tax , the market
  volume for FABS amounted to 36 million litres
• In 2005, this resulted in a reduction in demand
  by 24 million litres down to 12 million litres

Rapid and dramatic changes

• Changes with significant external
• manifestations from the outset
• Easy to identify
• Strike hard

The pressure for a new strategic orientation of
IFC was extremely high, as the uncertainty in the
market based on the tax couldnt be replaced by
certainty in the short perspective.
FABS Flavored Alcoholic Beverage
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Under these changing conditions, innovations in
content and packaging with regard to the current
lifestyle trends are the engine for profitable
growth

• Best Vino Frizzante from Italy
• No deposit charged
• No quality loss in light
• Trendsetter and lifestyle drink
• Large product portfolio
• (Mixed with Cassis etc.)

• A high quality and innovative product in a 200 ml
  can
• Excellent protection against oxidation
• Excellent handling and usability
• Small, easy handy!
• Optimal consumption possibilities

The Survival Strategy of IFCs canned Rich
Prosecco was developed by Brainstorming of the
management taking into consideration all
stakeholders requirements and market trends.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The positioning of Rich Prosecco was definded
according to the current trends in the market
Lifestyle Positioning
Ready to Goand Convenience
Alcohol consumption still high
Innovation in content and packaging
and also according to legal regulations.
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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and emphasized by a strong marketing strategy
with a lighthouse effect represented by Paris
Hilton
Jet Set
Rich
Party
Pretty
Trendy
Famous

Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The entire marketing campaign was summarized to a
Push-Pull Marketing Strategy
PULL
PUSH
Shops
Events
Retailer
Gas Stations
TestimonialParis Hilton
Airlines
Media-presence
Discotheques
Promotion
Nightclubs
PR
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The key success driver of the Rich Prosecco
Strategy was an innovative and fast market
development by

• an innovative design and packaging
• an aggressive advertising strategy including a
  Lighthouse Effect
• a focus on the management team with a high
  Execution Spirit
• the integration of customer and supplier
  requirements
• the extension of the geographic focus
• the precise selection of the distribution
  channels in accordance with the product and
  customer requirements

Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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The impacts of the marketing strategy were
enormous, resulting in a revenue of 100 Mio.
for the product
The First Mover Advantage Strategy of IFC
created advertising costs of around 6 Mio. and
an advertising pressure of 90 Mio. .
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Agenda
1.
Introduction
2.
Case 1 SWU - an utility company faced with the
liberalization
3.
Case 2 IFC - an innovative product in the FMCG
sector
4.
Key Messages for Take Away
Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Some key messages for TAKE AWAY

• There exists no ONE FITS ALL strategy for all
  companies
• Each company has to decide on its strategy
  individually according to the trends and frame
  conditions in the market
• Even though not everything can be handled in a
  proactive manner, by being adaptive, the
  management can lead the company to a successful
  growth path

Introduction I Case 1 I Case 2 I Key
Messages for Take Away
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Operations Excellence
Strategy
Project Management
Organizational Development
Tefen AGVilla II im martini-ParkProvinostraße
52D-86153 AugsburgTel. 49 (0)821 50241-0Fax
49 (0)821 50241-21E-Mail germany_at_tefen.comwww.
tefen.com
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