How to break out of single-digit growth in a commodities market
Is it possible for component manufacturers to overcome single-digit growth in a commodity-driven market?
Many components are seen as commodities, even if they have special features. If the market generally views a product as a commodity, it is difficult to break out of this mold. The cold chain industry is no exception.
Creativity is needed to break out of the single-digit growth rate. If we carry on as before, we will achieve ever worse results. Let's step out of line!
Here are two ways to achieve double-digit growth in a commodity market:
- Serving different needs in the value chain
- Selling solutions
We will go into this in more detail later.
First, let's set the stage before Ravi comes on board at Emerson.
What is the cold chain industry?
Ravi's examples come from his experience in the cold chain department at Emerson, but the principles apply to any commodity marketer, especially component manufacturers.
So what is cold chain? The cold chain industry focuses on refrigeration in stationary applications such as refrigerators and transportation equipment such as refrigerated trucks, ships and containers.
The two main cold chain industries are the food industry and life sciences, but there are also applications in manufacturing.
There are two main technologies in cold chain applications: a compressor and a controller.
The compressor is the component behind the refrigeration, and the controller is the human-machine interface that enables the setting and programming of temperatures, etc.
Emerson has already moved up the value chain from just providing compressors to offering controllers. This has allowed the company to increase its growth by providing multiple cold chain products.
By offering controllers, Emerson has moved up the value chain and secured a greater share of its customers' wallets by serving them more effectively.
How can the lessons learned from the cold chain industry be applied to other component markets?
The cold chain industry is not a "sexy" industry. It is a vital industry, but all components are behind the scenes. Manufacturers in the cold chain space, like many component manufacturers in other industries, don't get much attention from the press, or any attention at all.
Here are some of the challenges facing the cold chain industry that most component manufacturers should be aware of:
- Tight profit margins
- A highly competitive environment
- Regulation
These factors mean that key components such as compressors are becoming commoditized. Even when there is differentiation, most end users and even design engineers do not know the difference between similar products from different manufacturers.
For companies to break out of commoditization, they need to find creative ways to add value to their products.
What challenges did Emerson want to solve?
- Stagnation of growth
- Lack of recognition by end customers
- Need for differentiation
Growth in Emerson's cold chain division was stagnating at 2.5 to 3% per year. The company has an extensive customer and dealer base, but its compressors and controllers had reached market saturation.
Many pieces of restaurant equipment run on Emerson parts. The problem is that end users are familiar with the equipment manufacturer's brand, but not the Emerson brand for the compressors and regulators inside. If Emerson compressors are replaced by a competitor, most end users would never know.
Strict industry regulations mean that products must adhere to guidelines that increase competition and reduce differentiation between products. Component manufacturers like Emerson need to get creative to differentiate beyond the typical features, benefits, price and availability.
How can industrial marketers achieve double-digit growth with component manufacturers, increase visibility with end users and differentiate themselves from standard parts?
Let's learn from Ravi's experience.
How did Ravi determine his approach?
Ravi was brought to Emerson to help with strategic growth. His role was to help Emerson achieve double-digit growth in the cold chain division by addressing stagnation, improving visibility to the end consumer and driving differentiation.
Most marketers focus their efforts on internal resources to solve a problem. They talk to sales people, engineers, operations people and finance people to figure out where the lowest hanging fruit is in order to position their products and increase profitability.
Ravi didn't start there. He decided to focus his attention on the end users of Emerson's customers' products. In other words, Ravi sought out his customers' customers.
It was important to identify the challenges that end users face on a daily basis in order to find ways to expand Emerson's offering. Many of Emerson's compressors are used in quick service restaurant products such as McDonald's.
Again, it's normal for marketers to look for high-level decision makers or equipment buyers when conducting customer research.
Ravi had a different idea. He focused on the staff in fast food restaurants. He wanted to know what challenges they faced on a daily basis so that he could serve them better.
Ravi parked his car a mile away from a McDonald's restaurant and worked in the kitchen for three weeks. This type of field research uncovered new solutions that Emerson was able to offer to quick service restaurants.
What did Ravi discover during his three-week stint at McDonald's?
Ravi observed employees manually checking the temperatures in the fridges and freezers every few hours. Not only was this an inefficient use of employees' time, but it also led to higher food safety risks.
When a compressor fails or a refrigerator door is left open, managers often don't realize the problem until the food has spoiled. In this case, the restaurant not only loses the food, but also incurs opportunity costs when customers cannot be served menu items due to spoilage.
What strategies will help overcome single-digit growth?
- Expanding into more in-depth solutions for the end consumer
- Reporting to solve food loss and machine downtime issues
- Creating solutions that incorporate new offerings and increase penetration for current products
- Gaining brand awareness with end users and not just specifiers
Ravi and his team added intelligence to their compressors and controllers. By incorporating simple hardware into the compressor/controller combination, they were able to implement real-time reporting and offer this as an additional service to the end customer.
By turning their standard components into smart devices, they were able to differentiate their products, move up the value chain, offer additional services and almost guarantee the placement of their compressors in future orders.
Focusing on the end user is key. The conversations Emerson is having with its customers' customers to solve the underlying challenges will increase the acceptance of Emerson products in the future.
These strategies are not limited to compressors and the cold chain industry. Most standard components offer opportunities for differentiation if we are willing to take a creative approach.
Ravi's practical recommendations for industrial marketers in companies that manufacture components:
- Advocate for customers
- Pay attention to company performance
Ravi Kyasarm said, "I think it's so important, even if you're in the component manufacturing world, that you take the time to spend a week or two partnering outside of the manufacturing floor. Find an opportunity to put yourself in your customer's shoes. They will gain so much more respect because they have seen how you live their lives. It just enhances the relationship.
He went on to say that advocating for the customer helps find areas for growth, such as adding intelligence, finding M&A opportunities, etc.
Ravi also emphasized the importance of being passionate about your own business:
"The other element is to not only be a passionate customer advocate, but to be passionate about your own business and your own business model."
"How good are your sales? What is the quality of your profit margins? And always try to look at a tipping scale and see how you're performing. And if you need to make adjustments, then do that, but be aware of these two things: how well your business is doing and be a strong advocate for your customers."
