Powering defence customers in over

100 countries

Plc

MARKETING ASSINGMENT

SUBMITTED BY:

Dipali V Mishra

ID NO: BS – 09155

PGDBA LEADING TO MBA

WORDS COUNT: 2964

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INDEX

1. INTRODUCTION FOR ROLLS-ROYCE............................................3

2. BACKGROUND.......................................................................................3

3. MARKETING OPERATIONS...............................................................5

4. MARKETING STRATERGIES.............................................................6

5. ENVIORMENTAL ANAYLSIS.............................................................7

5.1 Competitive rivalry

5.2 Power of buyers

5.3 Power of suppliers

5.4 Threat of entry

5.5 Threat of substitutes

6. CONCLUSION.........................................................................................9

REFRENCES...............................................................................................10

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1. INTRODUCTION

No business today operates in a complete blankness untouched by market forces. By their

very nature business activities are competitive. Within a dynamic, rapidly changing business

environment producers are constantly entering and leaving the market. At the same time,

changing customer preferences provide signals for businesses to develop new strategies with

different products and services. Some businesses will succeed by responding to and meeting

market needs, while others may not perform quite so well. Few markets have changed in

recent years as much as civil aero- space. Ten years ago 950 million people travelled by air,

five years ago they numbered 1.1 billion, and the total is set to climb to 2.5 billion by 2009.

The aviation industry provides more than 24 million jobs worldwide, while its contribution to

the world economy is estimated to rise to $1,800 billion by 2009. Today, one-third of the

world’s manufactured exports are transported by air. Twenty years ago the proportion was

just one-tenth. Growth in civil aviation markets has stimulated the competition between the

businesses that operate in it such as the airlines. This has a knock-on effect on their suppliers

– the aeroplane manufacturers and in turn on their suppliers – the engine manufacturers.

Rolls-Royce is one of only three engine manufacturers in the world that has a proven

capability to design, develop and produce large gas turbine aero-engines. In recent years the

company has faced many challenges that have affected its position in the aero-engine

industry. By providing an analysis of the competitive environment affecting Rolls-Royce, this

case study illustrates how such information is being used by the company as it works towards

its vision of becoming the world’s first choice for power solutions for the new century.

2. BACKGROUND

The history of Rolls-Royce begins with its founders, an engineer named Frederick

Henry Royce, and Charles Stewart Rolls, an automobile dealer and an engineer himself.

Royce manufactured electric cranes and dynamos at his company, called Royce, Ltd., which

was established in Manchester, England in 1884. Early in 1904, he purchased his first two-

cylinder car, a French Decauville. Far from being an inferior model, Royce was nonetheless

dissatisfied with its performance. He decided to build a car of his own by "taking an existing

part and making it better." On April 1, he emerged from his workshop on Cook Street with

three two-cylinder, 10-horsepower cars.

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Royce automobiles, known for their silent and vibration-free ride, featured an engine

which could be kept idling and then speeded up to 1000 rotations per minute without the

problematic adjustments required with other engines. The successful Royce automobiles soon

came to the attention of Henry Edmunds, a friend of Charles Stewart Rolls, who at the time

operated a London dealership for French Pan hard automobiles. Strongly interested in the

Royce automobile, however, Rolls later arranged to meet Royce at the Midland Hotel in

Manchester in May of 1904. He was immediately impressed by Royce's determination and

creativity. The two men later agreed to establish an automobile partnership, and pledged that

Rolls-Royce vehicles would never again be built with merely two cylinders.

Rolls and Royce believed that by combining their own expertise and dedication with

the latest technologies, they could produce the finest automobile possible. By the end of the

year, newly-engineered four-cylinder, 20-horsepower Royce cars had won several important

races, and had become one of the most popular luxury cars available.

Charles Rolls and Henry Royce formalized their partnership on March 15, 1906 when

they founded Rolls-Royce Ltd. The company's first product, the "40/50" (horsepower), made

its debut at the Paris Motor Show in 1906, featuring a distinctive arched top radiator. The car

was fitted with a powerful new six-cylinder engine which enabled it to reach a top speed of

65.2 miles per hour. Claude Johnson, an associate of Charles Rolls, later named it the "Silver

Ghost," because of its metallic appearance and because its engine was "quiet as a ghost."

Rolls-Royce has not made motor cars since 1971. Rolls-Royce and Bentley Motor

Cars Limited is owned by Volkswagen but exclusive rights to use the Rolls-Royce name for

motor vehicles will pass to BMW in 2003. The Rolls-Royce group is a global business with

customers in 135 countries and production facilities in 14 countries. It employs around

40,000 people focused upon the present and future requirements of civil aerospace, defence,

marine and energy markets. It has 56,000 aero engines in service with 300 airlines, 2,400

corporate and utility operators and supplies more than 100 armed forces. The engines are

used in all sizes of commercial air-craft from business jets to the largest modern airlines

made by the two main aeroplane manufacturers Airbus Industries and Boeing. As one of the

most powerful brands in the world, Rolls-Royce symbolises a promise to deliver reliability,

integrity and innovation to buyers and users.

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3. MARKETING OPERATIONS

Increase more than four global markets, marketing operations at Rolls Royce were

lean and focused on the short term. When the pace of growth demanded a more strategic

outlook, a new marketing model was devised, separating the day-to-day operations from long

term activities. This allowed the company to not only win today's business but prepare to win

tomorrow's as well.

-Royce has a wide-ranging customer base comprising 600 airlines, 4000 corporate and

utility aircraft and helicopter operators, 160 armed forces, more than 2,000 marine customers

including 70 navies, and energy customers in 120 countries. The civil aviation division of

Rolls- Royce represents approximately 50% of group revenues, and operates at the far end of

the marketing spectrum – a staunchly business to business (B2B) marketing organization:

Small, tightly defined market

Two main airframe manufacturers (Airbus, Boeing) together with a few

manufacturers of only small aircraft

Two credible competitors of similar scale and capability

No more than 600 ‘real’ airline customers worldwide.

Heavily relational marketing approach – lengthy sales cycles; product life cycles

exceeding 15-20 years

Low sales volume but high value ‘7 figures plus and an average of one deal a week.

Long product development timeliness and high R&D investments – averaging 6 years

from product concept to ‘ in service ‘, leaving no real margin for error.

Prior to 2007, the 75 strong civil aviation marketing function sat under one leader

(Vice President, Marketing), reporting directly into the ‘customer Business’

leadership within the business (Executive Vice President, Customer Business).

In comparative terms, the function was lean, both in terms of head count and

marketing spend, and supporting a successful, growing business. However, the pace

of growth the demands of the organization began to raise concerns:

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The day to day requirements and successes of the sales operation inevitably

focused this lean resource on the short term priorities of supporting the immediate

deals and customers relationships

Sales and marketing integration led to a responsive marketing organization –

but one which saw marketing resource biased towards support of key deliverables to

sales operation, setting a narrowing context for recruitment and skills development.

4. MARKETING STRATEGIES

Most carmakers produce automobiles for a wide variety of customers and adjust their

marketing strategies accordingly. While a Viper may be used to promote the brand, Dodge

isn't trying to sell one to the same customer considering a Calibre, for instance a handful,

meanwhile, only market to the user-rich. Brands like Ferrari and Bentley may come to mind,

but compared to the crème-de-la-crème Marques like Bugatti and Rolls Royce, they're a dime

a dozen.

Rolls Royce, as was recently revealed in the Los Angeles Times, only targets potential

customers who have liquid assets in excess of $30 million. That segment wouldn't be

considered a mass market, and so the way Rolls Royce sells a car is markedly different from

how, say, Dodge would.

[Source: LA Times]

Until the launch of its upcoming second model, the Drop head Coupe, Rolls Royce

only makes one model: the Phantom. They produce less than 800 of them every year, and

prices start at a third of a million dollars, with the sky obligingly serving as the limit. (They

recently sold a stretched Phantom Extended Wheelbase limousine to a customer in China for

$2.2 million.)

To get to these customers – and to keep them – Rolls Royce employs a series of

unique marketing approaches. (The LA Times report says that Rolls Royce doesn't engage in

co-branding endeavours, but the recently-reported accord with Grey Goose vodka suggests

otherwise.) Dealers are chosen based on their common interests with customers. Customers

are invited to exclusive dinners where contacts are made and deals struck. Buyers receive

surprises in the mail, like a personalized letter from the CEO or a coffee-table book about the

brand. Anything to make the customers feel special, in the way will replace their Rolls Royce

with another at the right time. And many do: in the US, nearly a third of business comes from

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repeat customers. That's a customer loyalty rate that doesn't come easy, but it helps when

your direct competition is a yacht or private jet.

The commercial aero-engine business of Rolls-Royce operates within two distinct

market sectors. These are: new engine sales to the two manufacturers such as Airbus

Industries and Boeing, as well as airlines; Engine parts sales to airlines that service and

maintain aircraft. Competitors in this secondary market include specialist maintenance

companies. The new engine market is the Primary Market, which provides access to the

secondary market for the sales of engine parts. During the 1970s, Rolls-Royce controlled less

than 10 per cent of the civil aerospace market. The sector was characterised by intense

commercial and technical competition from General Electric and Pratt & Whitney of the

USA. Market share could only be increased by major investment in new engines, and

developing an improved range of services for customers. This required the company to

become focussed on service rather than products with services such as information

management, inventory management and on and off wing maintenance. The aero-engine

market is vertical with a limited number of buyers. The customers of Rolls-Royce need to

satisfy both their future and present needs. In the past, decisions about aero-engines were

largely based upon cost and efficiency. However, in today’s more competitive environment,

Rolls-Royce’s customers look for a much more complete service. Buying an aero-engine is a

long-term decision. In this very competitive environment, a key element is relationship

marketing. Through this process, Rolls-Royce and its staff have learned to develop activities

and services that build good relationships with its customers. Improving service Customers

are increasingly looking for a much more complete service. Although the product will always

be important, customers expect higher levels of ser-vice such as the shipping of parts, after

care service and total customer care. Where total customer cares is successfully provided

alongside efficient products, occasional customers become regular customers and then

regular customers become advocates. The Rolls-Royce share of the competitive secondary

engine parts market has been growing. An emphasis upon total care is at the heart of the

growth strategy. Rolls-Royce provides parts and a service for its customers that extends

through the operational product life-cycle.

5. ENVIORMENTAL ANAYLSIS

Analysing the external environment One way in which staff within Rolls-Royce have

focused their actions for responding to the changing role of the business, has been to use

Porter’s ‘Five Forces’ model of industry competition. It has helped them to develop a better

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understanding of the business environment so that business opportunities could be analysed.

The model identifies four forces outside the industry: potential entrants and the threat of

entrants’ power of buyers’ power of suppliers and threat of substitutes - as well as one within

the industry – competitive rivalry.

5.1 Competitive rivalry

As described above three dominant players operate in this oligopolistic global

industry. The industry is capital intensive and there is a requirement for high investment in

advanced technology and research and development. No single manufacturer dominates the

industry, so balance fuels the rivalry. Competition in the primary market for aero-engines is

intensified by the link to the secondary market for engine part sales and services. Access to

the secondary market is dependent on achieving the original sale of new engines. In recent

years the intensity of competition has increased as each manufacturer has tried to improve its

volumes and market share. Rivalry has also intensified because gas turbine engines are now

essentially a mature product and the potential for technological differential advantage has

been reduced.

5.2 Power of buyers

The numbers of potential buyers of new aircraft are low. Buyers of aircraft engines

are therefore essentially price makers, with the market price for new engines being largely set

by the buyer. The power of buyers has further increased in recent years as many air-lines

have become ‘global carriers’. The decision to purchase a particular aircraft or engine

combination is a long-term one. This means that failure to secure an order may prevent an

engine manufacturer trading with a particular airline for more than a decade. The selection of

one engine type can lead to a domino effect, with other competing buyers following the same

selection. Airlines are increasingly seeking lifetime cost of ownership guarantees, and

reduced repair costs.

5.3 Power of suppliers

The suppliers to the aero-engine manufacturer have limited power. There are many

hundreds of different suppliers to the aero-engine industry. They supply all nature of

components, from nuts and bolts to state-of-the-art electronic control systems costing

hundreds of thousands of pounds. The power of many of the smaller companies, which

represent most of the supplier base, has been reduced. This is due to engine manufacturers

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adopting dual sourcing strategies, using a range of alternative sources of supply. The most

powerful suppliers are those involved in the supply of high specification electronic control

equipment.

5.4 Threat of entry

Although not unknown, entry to the aero-engine industry is extremely difficult. The

highly specialised advanced nature of aero-engine design combined with the costs of research

and development as well as the confidence of customers represent significant barriers to

entry. New engines also need extensive testing before gaining airworthiness approval from

the authorities. The market is also sensitive to the reputation of the engine manufacturer,

where names such as Rolls-Royce represent a range of proven high-technology products.

5.5 Threat of substitutes

There is no substitute for an aero-engine and the threat of substitutes for Air transport

itself is minor. However, it is thought that the development of video conferencing capability

will reduce some business travel and the growth of high speed train travel (e.g. Euro star) will

affect some travel decisions. However, both of these developments are taking place at a time

when the demand for air travel is increasing.

Five Forces analysis gives an improved understanding of the degree of competition

within the business environment. The analysis shows that the commercial aero-engine

business is highly competitive, with the buyer possessing and exerting a very powerful

influence upon organisations. The high barriers to entry and the low threat of substitutes

indicate that existing competitors will continue to share the business between them. However,

a slowdown in industry growth and the increasing maturity of products will intensify the

degree of rivalry between the engine manufacturers.

6. Conclusion

In reaction to changes within its business surroundings Rolls-Royce has developed its

direction from that of manufacturing to become more business and service focused. The

organisation has had to become much more proactive, dealing with new ideas to create more

services and customer focus. In the past, change was rare and slow, the company tended to

follow the market trend. The structure of the organisation has been realigned to meet the

needs of the new way of operating. Organisational structures define important relationships

within the business, and create a mechanism for meeting business objectives. At the same

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time, it has been important to create a new business culture, within Rolls-Royce. A culture

exists within the minds and hearts of the people of an organisation and contributes to the way

they make decisions and develop business strategies. As an organisation changes from a

product-focused organisation towards becoming a service-orientated culture, this requires

more involvement of its people, with greater empowerment and rapid decision-taking. The

corporate identity is the sum of the culture and its expression in behaviour and physical

terms. Rolls-Royce has defined the identity that it needs to encourage, building on its past

reputation and achievements for continuing success. As these changes take place, the

organisation is also realigning its financial reporting framework and corporate governance.

This will change how the whole business shapes its purposes and priorities.

References

Rolls-Royce in America by John Webb De Campi, London, Dalton Watson, 1975.

Rolls-Royce from the Wings: Military Aviation 1925-71, Oxford, Oxford Illustrated Press,

1976, and The Engines Were Rolls-Royce: An Informal History of That Famous Company ,

New York, Macmillan, 1979, both by Ronald W. Harker.

The British Motor Industry 1896-1939 by Kenneth Richardson, Hamden, Connecticut,

Archon, 1977.

Rolls-Royce: The Growth of a Firm, The Years of Endeavour by Ian Lloyd, London,

Macmillan, 2 vols. 1978.

The Future of the United Kingdom Motor Industry by Krish Bhaskar, London, Kegan Paul,

1979.

The Decline of the British Motor Industry: The Effects of Government Policy 1945-1979 by

Peter J.S. Dunnett, London, Croom Helm, 1980.

Rolls-Royce: The Formative Years 1906-1939 by Alex Harvey-Bailey, Derby, Rolls-Royce

Heritage Trust, 1983.

Rolls-Royce: The History of the Car by Martin Bennett, Yeovil, Oxford Illustrated Press,

1983.

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In the Beginning: The Manchester Origins of Rolls-Royce by Mike Evans, Derby, Rolls-

Royce Heritage Trust, 1984.

Rolls-Royce: The Cars and Their Competitors 1906-1965 by A.B. Price, London, Batsford,

1986.

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