Objetivo General de Mediano Plazo 4.1: Optimizar la capacidad de gestión de

A battery manufacturer in the UK is experiencing declining sales.

Its product is superior in lifetime and quality to its competitors.

How would you approach this issue as a consultant.

A decline in sales can be caused by two factors: declining market demand or loss of market share. Loss of market share can be due to competing products or substitute products. First, let's analyze the market. You want to know who the customers are, what the product is, and who the competitors are.

The company sells batteries for fork lifts. Sales are made to OEMs (i.e. fork lift manufacturers) and for replacement purposes to large manufacturers and distributors who use fork lifts. The majority of sales are to the latter. Customers are located throughout Europe. There are five or six other European manufacturers which are of similar size to our client.

What is the trend in market demand?

Demand tends to be very stable, growing at approximately 3% per year.

If that is the case, our decline in sales must be due to declining market share. Are there any new substitute products or new competitors?

There have been no major changes in technology. The only large change in the market place is the emergence of a new Portuguese competitor. This company has managed to grow to approximately the same size as our client in a relatively short period of time.

Next, we would like to find out how this company has been able to take market share so quickly in an otherwise stable industry. It is necessary to evaluate the company's price/product proposition to compare it to ours.

Our client's product is superior in lifetime and quality to that of the Portuguese competitor. Our price is higher as well, however,

but we feel the additional quality more than makes up for this differential.

Now that we have established the different value propositions of the two companies, we need to find out what the customer is looking for when purchasing a fork lift battery. Reliability and pricing are the most likely factors for an industrial buyer, and while we outperform our competitor on the former, we are lagging on the latter. The next step would be to evaluate the trade-offs among these two attributes, and to verify our client's claim that the increased quality is worth the price. We know that our client's product lasts longer; we need to know how much longer

Our battery lasts for a total of five years while our competitor's only lasts for four years.

Next we need to know what the price differential is.

Our battery costs £1,500 while that of our competitor's costs

£800.

That means that the cost per year is £1,500/5 = £300 for our product and

£800/4 = £200 for the competitor's. That is not looking good on the surface. Maybe our client should reduce its prices. Does their cost base enable them to do so while maintaining an acceptable level of profitability?

Our client's cost base is substantially higher due to the higher quality of its products. In addition, labor expenses are significantly higher in Great Britain than in Portugal. Our client is not willing to leave his lukewarm Guinness and jellied eel behind

plant or warehouse moving goods around. The battery powers the fork lift, so will need to be recharged periodically. While the battery is recharging, the fork lift will be out of commission or the battery will need to be switched which takes time. Is there any difference in charging time or efficiency between the competing batteries?

It takes 8 hours to fully charge our battery which will then last for 12 hours. Our competitor's battery takes 10 hours to charge and can be used for ten hours. The batteries draw the same amount of electricity per hour while charging, but due to the better design of our battery, output efficiency is higher.

This efficiency difference needs to be translated into costs and value for the customer. Value is derived from lower energy requirements, faster turn-around time, and fewer switching operations. Given the fact that our clients are large industrial companies, they will probably work around the clock. Therefore, let's assume a 24 hour a day need for the fork lifts.

First, evaluate the energy savings. We need to know the price of electricity drawn per hour.

The hourly rate is £0.10.

If the fork lift will be used 24 hours per day for say 350 days in a year, it will require 24/12 x 350 = 700 charges of 8 hours each for our battery.

That is 5,600 hours at £0.10 or £560 per year. For our competitor, the battery requires 24/10 x 350 charges of 10 hours each per year. This equals 8,400 hours or £840 per year. The difference is £280 per year.

Next, evaluate the switching costs. You need to know how long it takes to switch the battery.

This only takes a couple of minutes. For simplicity, let's assume the time is negligible.

That means that we can assume switching costs to be negligible. Since the batteries are out of commission while charging, however, we will need to evaluate how many batteries we need per fork lift. Assume that our clients

operate fleets with multiple fork lifts which can all share the same batteries. For our battery, each fork lift requires one battery to move while another is charging for 8 of the 12 moving hours or 2/3. That means that we need 1 2/3 batteries per fork lift. For our competitor's battery, the battery is charging for the entire moving time. That means that there are two batteries required for each fork lift. The annual purchase cost per fork lift is therefore £300 x 1 2/3 (£500) for us and £200 x 2 (£400) for the competition. That is a cost differential of £ 100 per fork lift.

The purchase cost of our battery is £100 higher per fork lift per year, but the energy savings are £280 per year. That means that our battery is a better value than that of our competitor's.

Next we need to find a way to relay this information to the customer, because they apparently do not know about this benefit given our loss of market share. We may want to consider using a direct sales force to explain these benefits given the complexity. Fainted materials may also be useful to describe the benefits in detail.