Marketing of Central Heating System - Assignment Example

01-04-2007 Marketing of Central Heating System The marketing environment is changing at an accelerating rate, so the need for real time market information in greater than in any time in the past. The shifts are dramatic from local to global marketing from buyer needs to buyer wants from price to non-price competition. At the same time impressive information technologies are emerging powerful computers, DVD players, the Internet, and more (Anderson & Narus, 1998). As company expands their geographical coverage they need more information, more quality. Companies with superior information enjoy a competitive advantage. They can do a better job of choosing their market, developing their offerings and executing their marketing plans. Company needs a strong marketing information system to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers. This information in developed from internal company records, marketing intelligence, marketing research and marketing decision support analysis. Marketers find many opportunities by identifying trends in the macro environment. A trend is a direction or sequence of events that have some momentum and durability. According to futurist Faith Popcorn (1992) a trend has longevity, is observable across several market areas and consumer activities and is consistent with other significant indicator that occur or energy at the same time. A new product or marketing programme is likely to be more successful if it is in line with strong trends rather than opposed to them. Companies and their suppliers, marketing intermediaries, customers and competitors all operate in a macro environment of force and trends that shape opportunities and pose threats. Within the rapidly changing global picture the firm must monitor six major forces: demographics, economics, natural, technological, political-legal and socio-cultural. Now we will analyze the there markets i.e. Poland Hungary and Czech republic on the basis of six macro- environments forces and analyze their needs (Market needs and Customers need) for central heating system. After analyzing markets trends the launch product in the said markets could be prioritized. During analysis we also take care of financial analysis of the product through Return on investment analysis. This process is called target- return pricing for the product. The firm determines the price that would yield its target rate return on investment (ROI). Many firms use target pricing. The target-return price is given by formula, Target return price = unit cost + desired return * invested capital/unit sales. After fixing the desired return company could easily analyze and perform break-even analysis so that it could assess that how many minimum numbers of units of product selling is essential to match their investment (Kotler, 2003). (For data see appendix) Poland: It is one of the Central European countries having population of 38.6 million. After world war -II until 1989-90 it remained under communist control as well as members of Warsaw pact. During the last decade Poland has made the transition to democracy and to market based economies. Now it becomes EU member state. Poland was the first economy in Central and Eastern Europe to recover to pre-transition level of economic output. Growth in GDP since 1993 has been very strong averaging over 5% annually and making the polish economy between the fastest growing economies in Europe. However, GDP per capita (measured in terms of purchasing power parity) remains very much lower than the other western European union members. The most notable features of Poland's energy sector are its heavy dependence on coal and the depth of power sector restructuring both to date and planned for the future. The total installed power generation capacity in Poland amounts to approximately 33GW while peak demand is about 24GW. So it is energy surplus country. Annual electricity consumption stands at around 124 TWL of which about 63% powers the industrial sector (including the energy industries), and 15% is consumed in households. But the trend in energy consumption is reversing and households' consumption is increasing and industrial consumption falls which may be attributed to increase in per capita income and economic growth. The district-heating sector in Poland comprises almost 400 individual networks including worlds largest district heating network in Warsaw. The sector is powered by a total of over 8000 boilers and this heat, which accounts for 40% of total primary heat demand. Poland's heat network poor level performance is due to under-investment and therefore considerable latent demand exists for the replacement and refurbishment of heat distribution network. In Poland, 1997 energy Act. provides the basis for energy efficiency labeling of equipment. Article 52 requires that manufacturers and imports of equipment specify energy efficiency in technical documentation. The thermo modernization program protect households against impacts of freeing heat price through providing state funds to owners who wants to improve and modernize their heating systems. Major players in Poland's energy market are local government, housing associations and industrial sector. The market for cogeneration in Poland appears very heating. Almost 40% of Poland's electricity could ultimately be derived from cogeneration, with full access to power market possible for small independent generators and increased availability natural gas enhance this process. The most promising immediate market for cogeneration must exist district heat systems that are in need of refurbishment. A firm of polish consultants recently estimated that between now & 2020, the annual market for industrial cogeneration plant would be approximately 175Mwe. The Heating season in Poland average 210 +/- 10 days in a year provides better opportunities for companies having Central heating systems (CHS). In Poland there is shortage of housing which leads to expected growth in house constructions as well as enhancement of the quality of housing have potential for marketing of CHS. Polish households spend about 12% of their budget on energy compared with an average of 4% in the European Union. But the real threat is subsidized heat prices, which prevent individual heating systems. So it has been evident that Poland has the potential market and need for Central heating system. The company has to access to major players in energy marketers in Poland and have to assess the need of institutions, housing societies, flats as well as individuals who need CHS. They have to carry out Break-even analysis and amount of investment to calculate ROI with long term marketing plans Poland have members of houses as well as local bodies which needs CHS. Hungary: It is central European Central having 10 million populations. It has total energy consumption of about 1.07 quadribillion Btu. Hungary's economy reforms started in 1989 with regards to the introduction of market mechanism. Economic growth is relatively slow but now is a member of OECD and E.U. As a result of the early introduction of limited private ownership of productive assets Hungary has had a much longer history of attracting foreign investors than most countries in the region. All the major credit-rating agencies rank Hungary as investment grade. Hungary is an energy poor Country relying on imports for over hall of its primary energy requirement. Hungary is an energy deficient country. Almost 12% of the total electricity production comes from Cogeneration plants 3GW is seriously outdated and in efficient. Beginning of the privatization of power sector started in 1995 and presently regulated by Hungarian energy office. Power plants having capacity of 20Mwe or more needs license. Electricity processes regulated. Industrial and domestic tariffs are around 70% and 35% respectively. This led to some disillusionment on part of the foreign investors. In Hungary only 17% households connected with district heating system, 26% of households receive heat via Single building or single apartment CHS while 57% rely upon individual room heaters and water heaters. District heating system comprises of only 300 systems. Hungary's power generation Sector in notable for widespread use of Combined Heat & power (CHP). The systems are generally in a poor state of repair. Many households find that they can now rely on district heating system to provide of their space heating and hot water requirement. Many households & industries are switching to natural gas for district heating business. Hungary is signatory to Kyoto protocol and has to reduce 6% of its greenhouse gas emissions. Local authorities and members of Energy efficiency business Council are the major players of energy user in Hungary. The environment for cogeneration in Hungary does not appears favorable. Much of the CHP plants in old and needs replacement. This opens the door for companies for large-scale equipments but small-scale cogeneration in Hungary not looks promising. But the thermal requirements of Hungary residential building are well over twice the level of western European countries. Energy expenditure is almost 15% of the total household expenditure and likely to increase in Hungary. Almost 80% apartment holders have to manage themselves for any thermal modernization investments. If 5000 US dollar cost per apartment is taken into account for 10% of Hungary's 2.3 million households it constitute billion-dollar market. Czech Republic: It is the central European country having population of 10.2 million. Czech Republic has the largest GDP per capita in the region. Czech's total energy consumption is 1.74 quadribillion Btu and has largest per capita energy consumption (see appendix-3). Czech Republic is a country having surplus electricity and exporting to Germany, Austria and Slovakia. A Czech Republic market has been open up for all Consumers except households in mid 2004. Households should enter the market in mid 2007. State dominant Companies have controlled power generation and distribution in Czech republic. In Czech republic almost 15% of the household income is spent on energy, which is much higher than western European Counterparts. Energy Consumption in Households is increasing fastly in Czech Republic so company has the opportunity to enter the newly open market by 2007. Customers that are given the right of supplier choice will no longer have recourse to a regulated tariff. While this may not be a problem for larger customers, smaller customers will generally lack the expertise and motivation to seek alternative suppliers and thus accept the terms offered by the incumbent. Czech Republic market have the great potential for CHS because population of Czech Republic have more income to dispose off in comparison to Poland & Hungary and increasing due to its economic policy and FDI inflows. So company's initial target will be the larger customer for their CHS. Recently in 2003 Milan trade show report says that there are more than 350 brands in European market in which 250 operates regionally. According to BBI (Largest European Company in Heating brand) world heating market at 24 billion worldwide in which European Market alone stands for 42% in which Heating systems (including combi boilers) account for 65% of the European revenues and Domestic hot water represent 24% share. CHS market is basically flourishing in the newer member states of EU because they are opening for individuals and their per capita income is increasing due to economic policies. State controlled energy systems are in poor condition and their efficiency is at low needs heavy investment to revamp. Energy efficiency and environmental protocols push them to adopt modern energy efficient equipments for heating and this necessitates all the three countries to adopt for more modern, latest CHS. So it has been quite clear from the above discussion that all the 3 markets have their own specialties and after analyzing all the factors we will rank market according to its potential and take decision accordingly. In my opinion at present Hungary is the best market to enter immediately because district-heating system only covers 12% whereas in Poland it is up to 40%. Individual CHS market in Hungary is potentially more beneficial and has best ROI immediately. Secondly I must rank Czech Republic, which is to be opened for Households in 2007. Our products main target group is individual households or housing Societies or apartments. Czech's have more income and increasing energy consumption trend, which shows that in future households, needs Central heating system more and more. Thirdly I rank Poland. Though it has largest population and households among 3 markets but most of the households strongly covered by district heating units not individuals. Trends show that Poland Govt. Making district units strong and efficient so in future individual CHS is not going to increase fast. As ROI is concerned Hungary market should have best ROI because market is more open for individual customers or buildings and they opt for CHS. Their household income is increasing as well as almost 15% of household income spent energy, which may increase in future. Energy efficiency is the next target for the countries like Hungary where electricity imported. So individual efficient CHS will be in demand. More and more CHS installed provide better return on investment. References: 1. Paul, Roggema 2006: Diversification Heats Up International-Heating Appliances June Appliance Magazine accessed from website http://www. ApplianceMagazine.com on 30th March 2007. 2. Energy Information Administration North Central Europe 2003: accessed from website http://www.eia.doe.gov/emeu/international/poland.html on 30th March 2007. 3. The Market for Energy Efficiency in Poland, 1998: accessed from website http://www.ecee.org/default.htm on 31st march 2007. 4. The Market for Energy Efficiency in Hungary, 1998: accessed from website http://www.ecee.org/default.htm on 31st march 2007. 5. Energy information administration, North-Central Europe February 2006: accessed from the website http://www.eia.doe.gov/emeu/cabs/NC_Europe/Full.html on 31st march 2007. 6. Anderson, James C. and Narus, James A. 1998: business market management: Understanding, creating and delivering value, Upper Saddle River, NJ: Prentice Hall. 7. Popcorn, Faith 1992: The popcorn report, New York: Harper Business. 8. Kotler, P. 2003: A framework for Marketing management, Pearson education Inc. 9. Report titled "Ending wasteful energy use in Central and Eastern Europe: An essential step for climate change policy in a competitive EU-25" prepared by Antony Froggatt and Germana Canzi (WWF European Policy Office, Belgium), September 2004. 10. Report by Organisation for Economic Co-operation and Development titled "IEA Commends Czech Market Reform and Emission Reductions but Urges Greater Energy Efficiency and Improved Competitive Markets" accessed from website http://www.iea.org/ on 31st March 2007. Appendix 3. Energy use per capita Read More