qdi strategies: growth strategy project example

COPYRIGHT 2015 QDI STRATEGIES, INC.

QDI: Growth Strategies Project Example


Growth Strategy Development

One of QDI’s clients, a high end equipment manufacturer, could see the

growing accessories volume was changing their market. Increasing volume

and order frequency was making accessory and consumable distributors more

powerful. Rather than give up power, our client said, “We have knowledge,

equipment, software, and access to accessories and consumables -- Let’s

create an even better solution.” (VALUE CREATION)

This purpose of this joint project was to develop their ideas into complete

business propositions, determine which propositions were compatible

strategies, and then show how to use them to grow the business. (VALUE

CAPTURE)

This presentation was the discussion guide for the last strategy work session.

The presentation shows the market structure, product mix, market shares, key

findings and strategy recommendations.

New Go-to-Market Strategies to Grow Revenue & Profit

Strategic Planning Process Research & Work Session


Assignment Objectives

• Identify opportunities and strategies for Client to achieve 50% share of the high end Widget equipment market (at service provider purchases) – Develop an understanding of the market structure and Client’s position in

it

– Develop a roadmap on how this market will evolve over the next 5 - 10 years and the impact it will have on future supplier success factors

• Understand the implications of Client’s current distribution structure for both current and future product offerings

• Determine if there are more effective ways of going to market

• Understand how to maximize acquisitions in a changing market environment

Methodology: Project

Objectives


Project Methodology

Marketplace interviews (phone & personal):

• 20 minutes to 2 hours in length (phone); 1/2 day (personal)

• Industry experts: 13

• Distributors: 13, Direct reps: 4

• Pure service providers: 40, Dual service providers: 28

• Patrons: 50

4 Months

2 Days

Team

Debriefings

2 Days

Sub-team

Meetings

Team Review of

Market & Internal

Research

Team Review of

Market & Internal

Research

2 Days Strategy

Brainstorm

Session

Final Presentation

& Strategy

Discussion

Strategy Team (Client & QDI):

• QDI: 3 Principals, 3 Consultants

• 2 Interviewers (Patron Interviews)

• Client: President, CFO, VP Sales, VP Service

• 3 Senior Managers

Methodology: Project

Flow


Presentation Outline

Strategy

Recommendations

Service

providers

Equipment

Accessories

Consumables

Various

criteria

Key

Findings

Market trends

Implications

Client

Share

Primary

Products

Market

Structure

Methodology: Work

Session

Design


Service Provider Purchases for Major Product Categories

Purchases at Cost

Equipment

44%

Accessories

38%

Consumables

18%

$495 million

Purchases by Type of

Service Provider

Dual Service

Provider

10%

Pure Service

Provider

90% $495* million

Pure service providers dominate

the market in purchases

Note: Industry sources stated that the market could be down as much as 15% in 2002. Dual service shown above does not include a potential 10,000 other very small establishments which would raise the 10% to around 13% due to consumer and used

equipment purchases.

Methodology: Market

Structure


Pure Service Providers Size Segmentation

Note: Equipment distribution was derived, in part, through interviews. Purchases were QDI’s best estimate.

10,000

6,000

9,000

85,000

44%

67,500

36%

40,000

20%

$188 mil

50%

$132 mil

35%

$57 mil

15%

25,000 locations 192,500

pieces of

equipment

$377 million

aftermarket

purchases (equipment, accessories,

consumables)

The service provider

market, while

fragmented today, is

moving towards

concentration:

• The top 6,000 are

getting larger.

• It’s likely that the

bottom 10,000 are

involved in other

businesses.

Methodology: Market

Structure


Equipment Market

• An estimated 30,000 pieces of equipment were sold in 2002, ~$210 Mil at service provider’s cost (commercial equipment market - $7,000 each).

– A little over 2,000 units based on a competing technology have been installed to date

Market Share

1015

1114

23

27

Client

Equipment Competitor 1




Others

$210 mil

Two suppliers account for 50% of

the market

~60% of the market is sold direct

Methodology: Market

Structure


Consumable Market

• Overall sales for North America (2002) estimated to be 10 million units of consumables

– Most imports are pre-supplied in Europe

– Price to service provider is $14 - 15 / consumable

– 2 - 3% growth seen for foreseeable future; another source said ~5%

• Consumable Model A is <10% share of market - not expected to grow significantly because of price plus risk; may see more growth in consumable Model B

• Established service provider buying criteria:

– Equipment OEM recommendation - 40%

– Consumable quality - 30%

– Distributor recommendation - 16%

– Price - 14%

Consumable Sales

0.50.7

5.8

Consumer

Cml - New

Cml - Repl

10 million units

Importance of

relationship

Methodology: Market

Structure


Consumable Market

33

15

37

10

4

1

0 10 20 30 40

Consumable Competitor 1





Others

Market Share

• Competitor 3 has grown by creating multiple brands and private labeling

• Competitor 1 has lost share; one of their brands represents > 80% of the sales

• Competitor 5 is just re-entering the market

Two major

manufacturers dominate

the consumable market

Methodology: Market

Shares


Client Market Share Product Category

0% 20% 40% 60% 80% 100%

Equipment (23%)

Accessories

(20%)

Consumables

(16%)

Distributor sales

Direct

Corporate

Competitors = Target market share

Note: Distributor sales of accessories and some consumables (42% of distributor sales) are not part of Client revenue

Client = 10.5%

(of 16%)

Distributor 1 =

1.5%

Distributor 1

= 9.5%

Client Share

Methodology: Market

Shares


Client’s Market Position for Equipment

80%37% 71%

= 21% x x

Product

Coverage

Biggest gap is in market presence – likely not

seeing the small “buys.”

Missing the $3,000 - 5,000 segment with a competitive product; this may also limit presence.

Presence Win Rate Market

Share

Methodology: Market

Shares


Client Market Share New & Replacement / Expansion

= 1,868 total

locations

1,475

(2,460 / 2.4)

= 9,012 total

locations

7,562

(18,150 / 2.4)

R/E

locations

393

(3,540 / 9)

1,450 New

locations

= 6,000 total 2,460

(6,000 – 3,540)

= 30,000 total 18,150

(25,000 – 11,850)

R/E

Equipment

3,540

(59% x 6,000)

11,850 New

Equipment

= 11,850 into new

service providers

1,350 10,500

Equipment x 3 Equipment x 10.5

= 1,450 new locations 450 1000

Growth x 3% Growth x 4%

Dual service providers 15,000 Service providers 25,000

20% share of R/E

27% share of new

Total Market Client

Client appears to

have a higher

share of new

locations than

replacement and

expansion market

Methodology: Sizing

Approach


Territory Share for Commercial Equipment

Channel

Territory

potential

Equipment

sales

Market

share % Reps

Equipment

per rep

Potential /

rep

Territory 1 1,037 500 50 4 125 254

Territory 2 2,816 770 27 5 154 563

Territory 3 1,842 460 25 4 115 461

Territory 4 1,458 325 22 5 64 292

Territory 5 1,327 650 49 3 218 442

Territory 6 925 350 38 4 88 231

Territory 7 1,235 100 9 * 3 94 412

Territory 8 1336 120 9

Territory 9 682 140 21 1 140 682

Territory 10 1194 150 13 1.5 98 796

Territory 11 704** 210 30 2 105 352

Territory 12 255** 175 68 5 49 51

Territory 13 2,000 170 8 2 85 1000

Direct Alpha 1,463 420 29 3 141 488

Direct Beta 2,553 150 6 2 75 1,277

Direct Sigma 1,028 370 36 4 93 257

Open 3,145 200 6 (est) 0

Overall average 25,000 22%

Note: Equipment sales are derived from distributor sales.. Territory potential is calculated using data on service providers and US

Government reports on other types of service providers.

* Based on partial year in territory

Methodology: Share

By

Territory


Client Equipment Share by Sale Channel

67

2720

1913

70

10

20

30

40

50

60

70

Distributor Direct Open

Territory Potential

Share (Within territory)

Distributors have higher shares

than direct territories

Lots of open potential where share

is negligible

%

Methodology: Share by

Channel


Summary of Key Points

• Market is expected to grow in the the mid to high single digits into the foreseeable future (after recovering from the recent slump)

• Number of service providers are not expected to increase significantly

– Lesser growth in dual service service providers

– More growth in pure service providers

• National chains are not expected to dominate the market; growth will be in small metro / sub-regional chains

– Owners will be more professional; have retail experience

• Supplier base will likely continue to consolidate

– Major equipment suppliers are growing

– Accessories will be dominated by fewer distributors and certain chains will buy direct from the manufacturer

– Certain portion of consumable business will be private labeled but equipment suppliers may continue to dominate their installed base

• Service providers control brand decisions for most of the equipment, accessories and consumable purchases; will continue to have multiple channels for products

Methodology: Summary


Service Provider Dynamics / Decisions Drive the Industry

Service providers have a lot of freedom in their decisions:

• 78% regularly deal with multiple distributors

• 84% already have multiple brands of equipment

• 88% have 3 or more brands of accessories

Market Power

comes from

building service

provider

relationships

Distributors must compete for service providers’ business:

• The % of owners needing help with their first service provider is falling

• Experienced owners will go direct for lower prices

• Constant contact with service providers is required to identify new opportunities

Patrons rely on the service provider:

• 60% of the time the service provider decides which equipment they use

• Patrons request equipments by functionality, not brand name

• 81% of accessory purchases are made at the service provider (for those that use

accessories)

• Generally the brand used is recommended by the service provider

Methodology: Summary


Widget Market

9,000

10,000

15,000

8%

37%

31%

14%

10%

Owners

150

2,000

9,000

10,000

15,000

(dual)

1,000

92%

8%

Also market for

consumer and

used

equipment,

which increase

the % Note: QDI’s best estimate. All other establishments

(10,000) not included.

Pure

Service

Providers

• Majority

from top 2

segments

Market still

fragmented

5,000

40,000 locations $409 million

Aftermarket (Equipment,

consumables,

accessories)

$114 million

Equipment to

new service

providers

Methodology: Strategy


This Industry was Built on the New Owner / New Service Provider Life Cycle

Concept Equipment

Consumables

&

Accessories Replacement

Equipment

Time

Personal

Marketing Model One individual helps

The owner through

each stage



Market Shift!

Accessories & Consumables

Are the Dominant Relationship

Database

Marketing Model

Firms purchase accessories &

consumables weekly.

Distributors can use these

contacts to preempt the original

equipment rep’s relationship.

QDI STRATEGIES, INC.

February 2003

Summary of Findings & Strategy Recommendations

Page 30

Widget Market

9,000

10,000

15,000

8%

37%

31%

14%

10%

Owners

150

2,000

9,000

10,000

15,000

(dual)

1,000

92%

8%

Also market for

consumer and

used

equipment,

which increase

the %

Note: QDI’s best estimate. All other establishments (10,000) not included.

Pure

Service

Providers

• Majority

from top 2

segments

Market still

fragmented

5,000

40,000 locations $409 million

Aftermarket(Equipment,

consumables,

accessories)

$114 million

Equipment to

new service

providers


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The Future is Integrated Marketing

Database

Replacement

& Upgraded

Equipment Leads

Team

work Leads Equipment

Consumables Accessories


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http://www.stockbyte.com/singleimage.html?image=12165


Rationale:

• Consumable

manufactures have

adopted strategies that

will prevent Client from

creating a dominate

Consumable brand • Competitor 1’s promotion of

Private label Consumables

will continue to flood the

market with new brands

• Service provider preference

for Competitors 2 and 3 are

difficult/ expensive to

overcome

Consumable Strategy

Develop a “per hour” model that

shifts the Consumable brand

decisions from the Service

provider to the equipment vendor

Leverage/expand the trends what

will increase Consumable

demand

• Bigger Equipments

• More frequent replacement of

Consumables

82% of spec

This Consumable should

be replaced Client has adopted a

one brand strategy

anyway



Implementation Considerations

• Implement by brand and by geographic region rather than all at once

– Some actions must follow partner negotiations making it impossible to implement everything at once

– Service providers are local business making it possible to test and develop programs just in select regions

– Some activities have no value until the service provider is part of an integrated marketing program

• Move quickly but be flexible / responsive to competitive moves

– Distributor 2 activeness is dependent on their align with us rather than competitive brands – If Competitor 1 creates tighter links we should look elsewhere

– Availability/price of an acquisition may depend on Accessories manufacturer – distributor ties

– The structure of Distributor A and the integrated marketing would change significantly if the Accessories manufacturers moved to exclusive distribution.

• Communicate strategy / vision to current distributors (“to calm nerves”)

– New levels of Client expectations – “What we will do and what we expect you to do”

• Define and implement distributor programs, Distributor A functions



Consumable Strategy Share Expectations

Today’s Share

Client + Distributor 1 = 12%

Client replacement Consumables

Retain 80% of aftermarket + 1%

Distributor 3 grows share 10% per year in will fit

From 1% today + 2%

Distributor 1 grows to Distributor 2’ level in 3-5 years

Minus above current share + 4%

From Equipment growth

23-40% of share / retrieve 80% of aftermarket + 6%

Share Expectations = 25%

* Share expectations based on recommendations.



Brand A & Client Equipment Strategy Share Expectations

Today’s Share = 23%

Geographic gaps to bring Territory N up to par + 8%

Bring presence up 10% & product coverage up to

100% (new base Equipment) +13%

Introduce new brand through national distributor + 10%

Share Expectations =54%

* Share expectations based on recommendations.



Total Share Results

* At Service provider cost; 5 years at 8% / year growth

Client = 54%

Client = 19%

Client = 25%

Consumables

Market (18%)

Equipment

Market (44%)

Supplies

Market (38%)

$700 mil * These shares represent

greater than 100% growth

for the client

35%

overall share

at service

provider

cost



Get To Know Us

• Exploratory Meeting

- No-cost discussion of the issues you are facing and our perspective

• Customized research

- Have us design a study for you

• Strategy project

- Have us design a project to address your strategic issues

Contact Information

QDI Strategies, Inc.

1580 S. Milwaukee Avenue, Suite 620

Libertyville, IL 60606

847-566-2020

www.qdistrategies.com

Steve Bassill

President

[email protected]