Putting Together a Marketing Strategy

Background – Problem Statement

Sawing Solutions Ltd. is one SBU in an integrated forest industry company having both paper and sawnwood production. From the corporate point of view, sawmilling is not the most attractive sector, but is important in the raw material procurement for the corporation. To get pulpwood, the company must also buy saw logs and these must be manufactured in the most profitable way. This raw material context and market success influence the profitability of the sawmilling SBU. There has been a change in the strategic thinking at the corporate level. Business success at the sawmilling SBU is now more important and the SBU is accordingly being given more independence.

Corporate management has decided to allocate more low-quality logs to pulping. This means that the sawmill will be getting higher quality logs than in the past. This new raw material base makes it possible to develop new strategies (products, customers, market areas, and core competencies). These changes may also mean a need for new production facilities.

Preliminary market analyses have been conducted for corporate strategic planning. Although these market analyses have been conducted mainly for corporate strategic planning, they have produced considerable background information for strategic marketing plans of the sawmilling SBU.

Based on the prospects of improved quality logs and market opportunities discovered during the preliminary market analysis, corporate management has initiated an investment project for a new sawmill. The new mill will specialize in only a few products targeted to specific customer groups. The production will be market driven and the raw material base may create a core competency for the company. Applying the concept would require new business models and a detailed strategic marketing plan.

The following sawmill concept was chosen for deeper analysis:

• A spruce sawmill focused on a few dimensions and special and custom-made products
• Production capacity of about 250,000 m³/year
  

The aim is to target market segments where the competitive advantages of the sawmill can best be utilized. The raw material base for the product strategies is high quality, sound-knotted spruce, suitable for special and custom-made products. Based on preliminary analyses the company chose manufacturers of edge-glued panels in Germany and Austria.

Purpose Statement

The strategic marketing plan shall answer the following questions:

1.) Marketing strategies of the planned sawmill:

• What products will be produced?
• Which customers or customer groups within the chosen segments will be targeted?
• Which geographical areas within Germany and Austria will be targeted?
• What competitive advantages will form the basis for marketing?
  

2.) Marketing structures of the planned spruce sawmill:

• How is marketing organized?
• What are the marketing channels?
• What are the channels of physical distribution?
  

3.) Marketing activities to be undertaken:

• How should personal selling be organized and implemented?
• How should marketing communication be organized and implemented?
• How should customer support be organized and implemented?
• How is the customer and market information continuously gathered and used?
• What are the requirements for marketing routines (functional communication)?
  

Market analysis of sawnwood, and edge-glued panels shall provide answers to the following questions:

• What is the situation with supply and demand and how will they develop within the chosen target market?
• How will the factors that influence demand (e.g., economy and building) develop in the respective regions?
• How will the technology, norms, and standards of the chosen segments develop?
• What is the competition like and how will it develop in the chosen target market in the chosen regions?
• How is the industry in the chosen target market structured and located (who, what kind, and where)
  

Customer analysis shall provide answers to the following questions:

• What are the future needs of the chosen target groups related to the product (sawnwood)?
  • Volume of sawnwood consumption
  • Dimensions
  • Quality
  • Special needs
• What are the needs of the chosen target group related to the availability of the product?
  • Distribution channel
  • Delivery time
  • Lot sizes
  • Prompt deliveries, etc.
• What is the buying behavior of the targeted companies? (where, who…)
• What are the information needs of the targeted companies?
• What are the customer support needs of the targeted companies?
  

Information from market or customer analysis is needed when testing or supplementing the initial marketing plan. This is based on the preliminary market analysis and the experience of company management. The purpose statement of the project is closely related to the way the planning process is implemented. Implementation of the project is described below.

Framework for Analysis and Measurement

The principles of creating an initial, proposed marketing plan are used when executing the project. According to those principles, the hypothetical (preliminary) marketing plan will be prepared first. In this case it is based on the preliminary market analysis conducted in connection with corporate strategic planning. This data can be considered as secondary material, since it has not been collected for this particular purpose (strategic marketing plan).

The initial marketing plan contains proposed strategy-structure-function-combinations. In other words, it includes decisions concerning strategies, structures, and functions based on the secondary material available to the planner. All the necessary decisions cannot be made because of missing information.

The proposed plan will be tested by empirical marketing research. As shown, close cooperation between the marketing planner and researcher is a precondition for implementation

Framework for Data Collection

The Model of the Information Environment is used to analyze the market environment. The elements of the macro environment – demand, supply, and other macro environment - can be specified (measured) as follows:

• Demand
  • Development in the short, medium, and long run
  • Development by customer groups
  • Development by end-use
  • Development of prices
• Supply
  • Development in the short, medium, and long run
  • Development by product categories
• Other macro environment
  • Economic development of the markets
  • Technical development of the target sectors
  • Development of product norms and standards
    

Elements of the microenvironment – competitors, distribution channels, and customers – can be specified (measured) as follows:

• Competitors
  • Present competitors
  • Potential competitors
  • Competing products
  • Competitors strengths and weaknesses
• Distribution channels
  • Structure of distribution channels in the respective region
  • Functions of the distribution channels in the respective region
  • Special features of the distribution channels
• Customers
  • Present and potential customers
  • Who
  • How many
  • What kind
  • Where
    

At this stage, the emphasis is on the structure of the customer groups. The frame of reference for the analysis of individual customers will be drawn in connection with the preparation of the questionnaire.

Framework for Marketing Decisions

The decisions of the strategic marketing plan are made according to the IMMP (Figure 7-3). The list of decisions follows the principles of a modeling approach to marketing planning.

Figure 7-3: Integrated Model of Marketing and Planning

Proposed (Preliminary) Strategy-Structure-Function Combinations

Based on preliminary market analysis, the following initial strategy-structure-function combinations are proposed. Information for initial marketing decisions is not available based on the preliminary market analysis (unkown).

Product	Edge-glued panel material with sound knots
	Dimensions	50×100/115/125/150
	Lengths	4.2/4.5/5.1 m
	Grade	-SF/Sound knots -Not allowed: C-grade, wane, discoloration, rot, compression wood and dead knots
	Moisture content	10 +/-2 and 16 +/-2 %
	Special requests	(unknown)
Customer Group	Producers of edge-glued panels
Market Area	Germany and Austria
Core Competencies	-good quality of wood: slow-growing, small/sound knots, color -respect for the Scandinavian raw material -grading stability and special seasoning -other – (unknown)
Marketing Channel	Direct contact
Physical Distribution	Wagon/trailer deliveries
Personal Contacts	Frequency – (unknown)
	Contents – (unknown)
Service Offered	unknown
Other Marketing Communication	unknown
Market and Customer Information	unknown

For their part, the initial strategies-structures-functions direct the empirical analysis of markets and customers. The aim of information collection and analysis is to verify the initial ideas about strategy-structure-function combinations. On the other hand, data collection from markets and customers brings new detailed information which is needed to fill the missing information of the intial strategy-structure-function combinations.

Data for the Strategic Marketing Plan

Secondary Data

Market analysis is based mainly on secondary material. The following lists describe the sources of secondary data used in market analysis.

Demand and Supply of Sawnwood
Economic Conditions and Forecasts	Various economic journals and reviews published by banks, research institutes, and economic organizations
Development and Forecasts of Construction	-EUWID Holz (closely follows construction in Germany), Holz-Zentralblatt -Baustatistisches Jahrbuch (contains basic information of construction in Germany) -Euroconstruct (contains basic data and short-term forecasts of construction in Europe)
Markets of Sawnwood	-General demand and supply: FAO/UNECE Timber Committee, International Softwood Conference, trade press (e.g., EUWID Holz, Holz-Zentralblatt, Holz-Kurier) -Competitors: trade press (e.g., EUWID Holz, Holz-Zentralblatt, Holz-Kurier) -Imports and exports of sawnwood: EUWID Holz, Holz-Kurier, Finnish Customs Statistics, Svenska Trävarueksportförening
Other Macro Environment
Norms and Standards	-Most central sources were professional newspapers Holz-Kurier and Holz-Zentralblatt; several articles in these papers dealt with standardization and norms -Useful sources were also notices published by Informationdienst Holz

Types and Sources of Information for the Micro Market Environment

Customers	-Company interviews produced the majority of customer information for the study -Company profiles in trade press provided supplementary information -A visit to the Leipzig Bau exhibition resulted in further company contacts.
Competitors	Interviews were the main source of competitor information. Some information concerning product and company competition was found in professional newspaper and magazine articles. Most popular theme was substitution between wood species
Distribution Systems of the Markets	Very little information was found from secondary sources

Primary Data – Companies Interviewed

1. Previous market studies
2. Company catalogues
3. Trade press articles

The general criteria used in sampling were that the company be large enough to buy a truckload of sawnwood per order. In practice there was no need to use this limitation because the most significant (biggest) companies were targeted for interviews. This made it possible to cover as big a share of the production capacity of the sector as possible.

		Interviewed	Share of production (%)
Germany	Edge-glued panels	17	49
Austria	Edge-glued panels	6	86
Total		23	67

Results of the Market and Customer Analysis

The following "List of Contents" implies the type of information reported in connection with the strategic marketing plan. The information is based on the results of market and customer analyses.

1. Market Analysis
1.1. German Markets for Sawnwood
1.1.1. Economic Situation and Forecasts
1.1.2. Development of the Building Activities
1.1.3. Markets for Sawnwood
1.2. Austrian Markets for Sawnwood
1.2.1. Economic Situation and Forecasts
1.2.2. Development of the Building Activities
1.2.3. Markets for Sawnwood
1.3. Structure of Edge-Glued Panel Industry in Germany and Austria
1.3.1. Production Volume and Producers (including location)
1.3.2. Production, Products and Standards
1.3.3. Use of Edge-Glued Panels
1.3.4. Competition of Suppliers
2. Customer Analysis of Edge-Glued Panel Industry
2.1. Consumption, Specifications and Prices of Sawnwood
2.1.1. Consumption
2.1.2. Specifications
2.1.3. Prices
2.2. Needs Related to the Use of Sawnwood
2.2.1. Quality
2.2.2. Dimensions
2.2.3. Lengths
2.2.4. Degree of Seasoning (Moisture Content)
2.2.5. General Product Preferences
2.3. Needs Related to Deliveries, Service and Information
2.3.1. Purchase Channels
2.3.2. Needs Related to Deliveries
2.3.3. Needs Related to Service
2.3.4. Needs Related to Information

The Strategic Marketing Plan for Producers of Spruce Edge-Glued Panels in Germany and Austria

Quantitative Targets in Germany			Quantitative Targets in Austria
Scenario	Estimated Volume	Proportion Nordic spruce	Scenario	Estimated Volume	Proportion Nordic Spruce
Maximum	130 000 m3	appr. 50 %	Maximum	35 000 m3	appr. 30 %
Biggest in the Field	105 000 m3	appr. 40 %	Biggest in the Field	25 000 m3	appr. 22 %
Feet on the ground	50-70 000 m3	appr. 20-25 %	Feet on the ground	10 000 m3	appr. 13 %

Product

Tree species	Spruce
Grade	U/S or U/S V (fifths or better) Criteria: -Sound, small knots (max 25 mm) -Densely grained (max 2.5 mm) Not allowed: Wane, blue stain, rot, resin wood, wood stored in water, insect damages, fissures (small drying checks allowed)
Dimensions	50×100/115/125/150 mm, main emphasis on 50×100/115 mm
Lengths	Main length 5.1 m (for DIY panels also 4.1 and 4.6 m)
Moisture	Final moisture content 8-10 % (for part of producers shipping dry 16-18 content %)

Customers and Market Areas

Germany

10 biggest producers of the field (wood consumption 10-30,000 m3/year) accustomed to direct contacts with suppliers of sawnwood. Interesting opportunities are also offered by the middle-sized producers of the field (wood consumption 5-10,000 m3/year) that have some interest in new suppliers. The main group of customers is in Southern Germany (Baden-Würtenberg, Bayern); some bigger customers are also in Nordrhein-Westfalen.

Austria

7 biggest producers of the field (wood consumption 15-50,000 m3/a). Customers are not geographically concentrated.

Core Competencies/Competitive Advantages

Competitive advantage can be created for the entire benefit package (product, availability, service).

Product	Good quality of the raw material emphasized by grading (densely grained, sound knots) and good and stable quality of sawnwood form the basis for the competition of a Nordic sawmill against the Middle and East-European suppliers. In the competition among Nordic sawmills, these factors are, however, more or less prerequisites to keep up with the competition. Additional product value can be gained by: -Special seasoning/drying 8-10% (good quality, no fissures, good package) -Ability to supply 5.1 m lengths -Closer consideration of customer quality specifications -Development of customer grades (e.g., Leimholz GmbH Qualität)
Availability	Reliable, prompt, and quick deliveries (2-5 days) are the main competitive advantages of Middle-European suppliers. Deliveries are the area where a Nordic sawmill can achieve proportionally the largest improvements in customer satisfaction. Competitive advantages can be developed in the following areas: -Reliability and punctuality of deliveries (development of control, "automatic alarm systems," immediate information of problems to customers) -Also quick deliveries (5-10 days if allowed by the logistic system); however quickness is not an intrinsic value; reliability in keeping agreed times is more important -Immediate responses to customer inquiries/claims
Service	"Softer" factors may have a big potential influence in customer satisfaction and loyalty. These are: -Flexible service in own language -Commitment to customer relationship: -reasonable pricing policy -understanding customer's position in its own markets (end- use of customers products and its development) -true interest in customer problems (Product Manager) -Immediate reaction to customer contacts -Proactivity instead of reactivity in information ("We tell them before they ask us".)

Marketing Structures

It is the task of the marketing organization to secure the maximum benefit for the customer, in an economically profitable way.

Organization	Direct contact to the end-user allows service, information flow Marketing and influence. Serving big industrial end-users forms the basis for Channel organizational design. Product manager organization would seem to offer the best opportunities. Advantages are: -Total responsibility for the product from sawmill to customer -Good knowledge of both the production possibilities and restrictions of the sawmill and customer production and buying needs -Ability to be independent and quickly solve customer technical problems on-site Potential problems: -Deciding the location (sawmill vs. market) -Vulnerability of the organization (dependence on 1-2 key persons)
Planning/Information System	On-line data connection to the production planning of the sawmill. Systems for continuous up-dating the database of customers (containing also qualitative records concerning customer operations, development, personnel and buying behavior). The database minimizes operating risks caused by the loss of key persons. Systems and database for following the operations of customers' customers (demand development, market structure etc.)
Distribution	Direct deliveries from mill via trailer/wagon. Desired service level for deliveries is 14-21 days (8-14 days for supplementary lots). Terminal is possible and improves customer satisfaction if it does not cause any pressure on product prices. However quick deliveries do not bring any additional gains. Reliability of deliveries may be improved with smaller costs by other activities.

Marketing Functions

Personal Contacts	Service and personal selling emphasize: -Concentration of service on one person (one contact that gives all services) -Quick reaction to customer inquiries -Changing over from "mere" customer service to customer consulting -Tightening requirements regarding flexibility of the sawmill (customer grades)
Communication	Up-dated presentation material about sawmill production possibilities must be available at all times. It must also be prepared for the rise of environmental issues in this sector.
Information	Basic prerequisite for the competitiveness of a sawmill specializing in a certain end-use is continuously collecting and analyzing of information. This project can form a framework or a "check list" of those areas of information which the saw mill must update regularly. The field work is connected closely to the information systems and databases which were mentioned in connection with marketing structures.

Conclusions

The case example above shows that the research process analogy and development of initial strategies-structures-functions can be effective when applied to strategic marketing planning. They also show that the modeling approach works well in an industry context in strategic marketing planning. We also learned that information is critical in marketing planning. There is a lot of secondary material dealing with the macro market environment. However, it is difficult to find information describing the micro market environment. Information about customers is normally acquired through primary data collection.