 |
 |
 |
 |
|
 |
 |
could provide the technical expertise required. In addition, the introduction of computer
assisted manufacturing systems, such as Just In Time inventory control systems, meant
that the suppliers had to meet 24 hour delivery schedules. Though Homecolour could meet
the technical demands of the market, it was unclear as to the level of technical support that
it would need to provide, and what shape this should take.
Powder coating. A growth sector in metal manufacture was powder coating to protect
metal work, especially furniture. The market had an estimated worth of £3 million in the
current year, and there were currently 65 outlets that were active in the production of
powder coated products. The current price for powder coated product was £7.50 a litre,
which would provide Homecolour with a 60 per cent gross margin. All the large companies
bought direct from the two manufacturers that currently supplied paint to this market.
Generally, each company would carry out powder coating in batch production and
concentrate output in 3 or 4 days in a 2 week period. The powder coating companies were
able to forecast their production requirements several weeks in advance. Most of the paint
requirements were in four colours which made up 85 per cent of total demand. Customers
tended to prefer to purchase product in large containers, which would be fitted into existing
powder coating equipment. As the market was demanding on quality, companies operating
in the sector had to provide detailed guarantees on quality.
Structural paint. There was a large existing market for the supply of structural paint, the
specialist product used to coat buildings and steel frameworks. Most of the work was
carried out by small independent contractors buying from builders merchants - there were
an estimated 2500 of these in the country selling significant volumes of structural paint.
Some structural paint was sold through DIY wholesalers who were already Homecolour
customers, but this was much the smaller part of the market. The market was worth
around £15 million, as much of the demand for structural paint was met by paints that were
available from the consumer sector. Price competition was in consequence, extremely
severe - the average price was below that obtainable in the consumer sector, and there
was substantial import substitution. Homecolour estimated that the company would be
able to enter the market but that the potential margins per litre for the basic products were
unlikely to be better than 10-15 per cent.
Homecolour management was convinced that over time they would be able to develop a
premium sector in the market, based on current product experience in the consumer
sector, in external paints. One of the directors felt that it was possible to gain up to 30 per
cent of the market, and improve margins to 30-40 per cent, by marketing a product that
would provide longer term protection to steel structures than the current products. The
product would have to be provided in far larger containers - often in excess of 10 litres.
The packaging would also need to include contact points for spray equipment.
Action
How should Homecolour build on its existing segment and product benefit?
What information do the management need to control the business?
What changes in the product will improve the position of the company in the market?
What changes will be necessary if Homecolour changes its area of activity?
 |