Marketing strategies case study – SABIC
SABIC a world leading manufacturer of petrochemical products has been proven to be successful in spite of the recession1. Headquartered in Riyadh in Saudi Arabia and with branches worldwide, SABIC was founded in 1976 with an aim to develop world class petrochemical products from its petroleum resources. Initially being the 10th largest petrochemical producer in the world during the 1990’s, today they are ranked as the 6th largest producer, mainly due to the ability of attracting large customers around the world through continuous satisfaction of their demands. The SABIC CEO Mr. Mohamed H Al-Mady has worked intensely to make SABIC a global brand (Othman M. Al-Humaidi 2006, pg 25)2. SABIC has six strategic business units based on product classification:-
- Basic Chemicals
- Speciality Products
SABIC corporate consists of a variety of plants that manufacture the above mentioned products such as HDPE,PP, PS, PVC, ammonia, steel etc, and has a wide range of plastic products, from basic household to advanced polymers used in automotive and aerospace sectors.
Figure 1. SABIC Corporate headquarters (Source – Sabic Magazine & Company Annual Awards Meeting)
Here SABIC’s automotive products will be discussed which has been recently launched by SABIC Innovative Plastics. The various marketing strategies incorporated and suggested areas of further improvement will also be mentioned.
- Marketing Strategy:-
Every organisation makes mission statements; so as to be clear which path they must follow in order to achieve success. SABIC has developed its vision, and mission through which it works to achieve it.
SABIC Vision – To be the preferred world leader in chemicals as based on SABIC 2020(Dirk Vandriessche 2008, pg 5-7)3
SABIC Mission – Provision of quality products and services through innovation, learning and operational excellence with sustenance of maximum value of stakeholders.
Based on this it has established quality working principles, stable organisational structure, information database, public relations, employee welfare etc. However with time the firm’s environment is changing and objectives alone are not sufficient for successful running in the long term. This is when marketing strategy and its related activities are considered, in order to stimulate the demand cycle. It consists of four aspects ( Igor Ansoff 1988, pg 78-79)4 –
- Company objectives that measure the quality of the firm’s performance.
- Rules established for the development of relationships between the firm and the external environment which determines what kind of technology products are to be manufactured, where and to whom should these be sold etc. It is the business strategy.
- Rules set up to establish internal operations and processes within the organisation; basically it is the administrative strategy.
- Rules set up by which the corporation conducts its day to day business operating policies.
The entire marketing of all plants is linked to SABIC marketing department and the work is maintained through SAP system. SABIC Innovative Plastics is involved in business to business marketing and therefore, it follows the business strategy which has the following characteristics:-
- SABIC does not get involved in immediate decisions but rather looks for directions of its growth and development.
- Strategic projects are developed through search processes with a focus on areas defined by the strategy and filtering out the undiscovered possibilities inconsistent with strategy.
- All project possibilities cannot be enumerated and therefore it is based on highly aggregated, incomplete and uncertain information about the alternative classes.
- The more precise aggregate information provides the strategic feedback.
- The corporate objective represents the target which the firm must seek to attain and the business strategy acts as a path to this target end. The elements of business strategy at a higher managerial level become the objectives at the lower level.
In any organisation the decision making processes are political by nature and at a certain point it could affect the organisation capability, capacity and motivational system that enable strategic thinking and action.
SABIC Innovative, being an analyser, initially moved its position to prospector through the introduction of innovative products into high-tech markets (Stanley F Slater & G.Tomas M. Hult 2007, pg 5-17)5. Currently SABIC is proactive and innovative by nature and it explores new opportunities in markets which in turn drive innovation. Exploration can either be customer driven or based purely on R & D innovation. The R&D is customer oriented, where new products are developed with the incorporation of new technologies. SABIC develops products based on the real unaware needs through observation of customer use of products and also working closely with them like Mercedes; Toyota etc, which can help identify the required advancement. It’s only been a few years since SABIC Innovative Plastics evolved and, therefore it has a long way to go.
Two basic types of strategic changes are required (H Igor Ansoff 1969, pg 34-40)6:-
- Expansion – The product line needs to be expanded to meet new customers and their demands.
- Diversification – The automotive product categorisation into various elements will invite more demand.
It should emphasise more focus on new customers and with technology that drives product and market boundaries. The high-tech markets involve three strategic behaviours which SABIC Innovative Plastics considers and also improves on (Stanley F Slater & G.Tomas M. Hult 2007, pg 5-17):-
- Customer Orientation – Customer demands change rapidly and is Here customer information plays a vital role as the entire organisational development and response is based on present and future customer needs. SABIC Innovative should be well equipped to handle frequent changing customer needs, usually evolutionary. It is established through improved customer value capabilities and development of greater valuable products.
- Competitor Orientation – As per the latest trends, the high-tech markets are very competitive by nature. The organisation analyses who the competitors of the present and future are and what their products would be like. This in-depth assessment helps to provide details about the competitor’s goals, strategies, resources, capabilities etc which will enable SABIC’s business to be equal to them or stay ahead of them. Some of the competitors are Dow Chemicals, BASF, Shell etc.
- Technological Orientation – Whether the technology or the company providing it meets the customer needs and if their satisfaction is achieved. The main purpose is to acquire a firm’s substantial technical knowledge, which can be utilised to develop new technical solutions. This involves huge investment in SABIC R & D, integration of new technologies and incorporation of sophisticated manufacturing systems for new product development within the SABIC.
2.1 Understanding Customers:-
The main customers for SABIC Automotive products are the business buyers, which although are few, they do make large purchases. They are usually geographically concentrated in the European Car Manufacture regions such as the Mercedes, Volvo, and SAAB etc. The demand is driven by the final consumer demand on the product and is inelastic by nature. Currently the following customers exist in market:-
a) Innovators who appreciate innovation and can tolerate glitches in products with a willingness to accept solutions to problems.
b) Early Adopters are motivated towards high risk, high reward projects, provided they have personalised demands and require quick responses with respect to qualified sales team.
c) Early Majority is motivated by the evolution but wants proven product applications, reliability and desired results.
d) Late Majority strongly looks at all aspects such as the price incentives, reliable testimonials etc.
e) Laggards usually resist new technology and buy the product only when all options are run out provided the cost is strongly justified.
SABIC Innovative Plastics mainly attracts the innovator and early adopter segments as they strongly support innovation.
Consumer Behaviour – Being a business corporate, it is involved in Business – Business relationships which is highly influenced by trust and commitment (Jose’ Angel Lopez 2010, pg 62-94)7. The closeness to the industrial customer is based on three aspects as shown.
Figure 2. Conceptualization of Closeness to the Customer (Source- Christian Homburg 1998, pg 38-47)8
2.2 Buyer – Seller Business Relationships-
SABIC Innovative, being the seller, has established a good relationship with its buyers (Christian Homburg 1998, pg 38-47). The relationship between the two can be linked as direct and indirect functions. The direct function is categorised as:-
- Benefit Function – Products are supplied at competitive prices by SABIC with the same quality as other competitors to its valued customers.
- Volume Function – The corporation assures the customer that the product is supplied properly and on time thus meeting their demands.
- Safeguard Function – This acts as a guarantee to the client for the supplies provided like an insurance from crises.
The indirect functions are categorised as:-
- Innovative Functions – Business customers establish co operational relationships with the corporate who are prospectors by nature. This can be a long term co-operation based on their usefulness.
- Market functions – This is based on the customer advantage and commercial reputation of the corporation. Here certain criteria and conditions are checked during establishment of a good relationship.
- Scout Function – Information is shared among the two for the overall success of the product in the consumer market.
SABIC Innovative improves these functions in order to attain a better brand name in the business market. Commitment and trust are key factors in long term relationships and has a positive impact on customer value creation. It believes that through greater leves of commitment, higher sales volume is attained; provided the commercial partner acts in the same way. Trust has a positive direct impact on commitment as both parties act sincerely, credibly, protecting and supporting the well-being between them.
- SABIC Automotive Products:-
In the automotive sector, plastics play a major role in the overall manufacture of the vehicle. They are used almost everywhere like in steering wheels, dashboards, seats, airbags etc.
Some of the typical SABIC products used in automotive sector is:-
- AUS32 – Aqueous Urea Solution 32.5%, is an important product which has been widely used to reduce the nitrogen oxide emissions that comes from diesel vehicle exhausts (Ger Perboom 2009, pg 4-8)9. AUS32, also known as AdBlue, was developed through collaborative manufacturing between Sabic KSA and Sabic Europe. Initially the market survey was done on current customer requirements in automotive sectors and its potential needs also. The automotive companies being the business customers needed to comply with emission norms set up in the European Legislation – Euro 5 standards. SABIC realised the gap in this sector and therefore developed it through innovation at Sabic R&D, as a response to customer requirement to meet Euro 5 norms. The product is successful with a lower price not related to diesel and has been implemented in Europe and USA.
Figure 3. Trucks fitted with an additional specially designed tanks (central blue cage) carry’s AUS32 to reduce emissions (Source – Connexions, March 2009; pg 4 )
- Automotive Parts – This is another initiative from SABIC Innovative Plastics where they produce high performance automotive parts as per the requirements of the business customers like Mercedes, Toyota etc.
Figure 4. Sabic Products in the Automotive Segment – VDI Conference in Mannheim, Germany (Source – SABIC Magazine, July/August 2008; pg 34-37) 10
The following marketing strategy described can be considered.
- The ANSOFF Strategy –
The changes in the strategy are dynamic by nature. In SABIC Innovative, the products are developed through various stages as shown in the below figure (H Igor Ansoff 1969, pg 34-40)11.
Figure 5. Innovation Process (Source – Business Strategy; H Igor Ansoff; 1969)
The logistic project “EMDAD” is under further development to achieve world class supply chain that support SABIC growth (Rachel Kundra 2009, pg 10-11)12 and it comes under product market search and development. It ensures that SABIC maintains a competitive leadership position in delivering products in a cost effective, efficient and timely manner to its valued customers.
SABIC firm considers some key activities for their automotive product development as follows:-
- Maintenance reviews the firm’s condition and the environmental conditions such as the products present around them. The firm’s condition involves its ability and capacity to develop a better product.
- Proper management of resources allocation based on the forecasted needs and potential opportunities.
- Establishment of objective and product-market strategy for the organisation through resource allocation and assigning specific roles to carry out this strategy.
- Development of efficient logistic network and overall management involved for the successful innovation process.
- Analyse a selection of specific product market with respect to the middle management views ( marketing manager, R & D manager, production manager etc)
An in depth practical approach such as appropriate logistic systems design, leadership execution through communication, preparation of plans, budget and procedures etc is initiated by the medium level management. The top level board members are co-ordinated through provision of information including trends, threats and opportunities obtained from R&D manager, marketing manager etc. and specific action recommendations involved in the innovation process provided the strategy’s effectiveness is also improved.
In a corporation the business decisions are made at three stages namely (H Igor Ansoff 1988, pg 4-6)13
In most corporates, the common problem is the configuration and direction of its resources during the conversion process, in such a way so as to optimise the attainment of corporate objectives. In simple words SABIC Innovative Plastics should be able to attain maximum profit from current operations. Some major decision areas include resource allocation among the functional areas and product lines, supervision of performance (KPI), and control of actions, pricing, establish market strategy, set production schedules and inventory levels, deciding relative expenditures in R&D, marketing and operations and they are made within the limited resources. The strategic method is employed to establish a stable match between SABIC Innovative and its environment, and also allows for future investment. The strategic and operating decisions are both controlled by the firm’s environment. The strategic decisions are initiated through co-operative effort from the R& D, marketing and operations department respectively. In SABIC, this occurs as it is led by a restless and ambitious CEO along with the board members, who want to expand SABIC Innovative beyond the limits of its current market.
According to Igor Ansoff, SABic Innovative can follow two strategies as described below:-
4.1 Portfolio Strategy – This actually provides thrust to the firm’s strategic development. Here the corporate is considered as an assembly of strategic business areas (SBA), where each offers future growth, profitability and opportunities. For each SBA there will be a particular competitive approach. The four main components involved are –
1. Geographical growth vector – This determines the scope and direction of firm’s future business. Here the ANSOFF matrix is used as shown.
Figure 6. The ANSOFF Matrix (Source – The New Corporate
Strategy; H Igor Ansoff 1988)
Market Penetration – this determines the firm’s growth direction with an increase of the market share based on the product demand and selling with respect to the present product market.
Market Development – Here new areas are determined for the firm’s products, which enable it to be successful.
Product Development – Based on the changing consumer demands the current products are replaced by new ones.
Diversification – A new range of products and missions are set to the firm.
However this growth vector component has evolved from two dimensional matrix to a complex 3-D geographical matrix in the form of a cube with the following dimensions –
- The dimension of market need
- The dimension of product / service technology
- The dimension of market geography, a place suitable for firm’s business.
2. Determination of the competitive advantage of the respective business area.
3. Determination of the competitive advantage of the respective business area.
4. Potentials in each business based on advance research and development capability.
The strategic flexibility of the strategic business portfolio is obtained
in two ways –
a) Diversification of the market scope, served needs and technologies so that a bad impact on one area will not affect the corporate performance.
b) Transferrable resources and capabilities among the SBA’s by serving through a common production system rather than single entities.
4.2 Competitive Strategy – This is a unique approach for success in the strategic business units. Here the products are offered for the particular needs of a certain customer group usually involving product differentiation. The taste and preferences of customers can be shaped and created through good advertising and promotion. Market differentiation helps to create a distinct image in consumer minds for the corporate products. Product differentiation is also used to differentiate the product performance from its competitors.
Boston Consulting Group (BCG) Matrix – This is also used to evaluate the efficiency of the business areas. Also known as the positioning matrix, it provides a comparison based on the SBA attractiveness and its competitive position as shown below.
Figure 7. BCG Matrix (Source – The New Corporate Strategy; H Igor Ansoff; 1988)
The competitive posture analysis helps to determine a strategy which is successful and that involves least change and investment by the corporate. When the product makes the business unit attractive but not the firm, this “Wild Cat” product should have enough time and resources so that it can be converted to a “Star”. A product is termed “Star” when both the firm and business unit are in equal good performance.
5. Conclusion –
The marketing strategy of SABIC Innovative Plastics is analysed. Some of their strategies were described and certain strategies are discussed for further improvement in firm’s businesses. SABIC Innovative can move into direct marketing with the final consumers by establishing good partnerships through joint ventures etc. with the automotive companies.
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