A Case Study of Akzo Nobel Coatings and Paint Company

In the contemporary business world, the level of competition is ever increasing; it requires that an organization strategize in a way that would give it competitive advantage over its rivals. Apparently, strategic management is a relevant tool an organization could use in withstanding the complex and dynamic business world. Armitage (1992) defines strategic management as a continuous process that works to fit an organization into its changing environment. Thus, in this context, strategic management is seen to embrace both strategic and long term planning of an organization and its operational or short term planning. According to Brown & Eisenhardt (1998:3), “strategy is about two things: deciding where you want your business to go and figuring out how to get there”. In this view Peter (2005:5), argues that “strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. When a firm implements such a strategy that other companies are unable to duplicate or find too costly to imitate, this firm gas a sustained, or sustainable, competitive advantage”. The environment in which today business operates in is very dynamic; with the consistent changes in ways of conducting business and improvement in technologies and communication. The challenges facing business is how to strategize to curtail these changes. “Given the pervasiveness of change, the key strategic challenge is managing that change. The dilemma is how the organization goes about managing these changes.

Segmentation is a strategy adopted by organization to make it compete adequately, by giving satisfaction to clients through the provision of different products; to which satisfaction to clients are given according to their classification in  choice, taste and buying behavior. In this instance, there is a strategic grouping and classification of customers according to the similarity in their taste and buying behavior, and each of them are reached with a specific programmed. Segmentation in an organization is a tool, which an organization applies in its marketing and other organizational activities, in order to find way of satisfying the individual taste of its customers. To satisfy the desires of customer in a dynamic industry, there is the need to create and develop product and services that would meet the individual taste of customers and clients.

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This write up would first embark on a literature review on segmentation implementation within an organization. The second portion of the write up uses Akzo Nobel to analyze segmentation implementation in its Coating and Painting organization.

LITERATURE REVIEW ON SEGMENTATION AND ITS IMPLEMENTATION WITHIN AN ORGANIZATION

In enforcing segmentation strategy for an organization, the basis why this is done is to satisfy customer, and enable them to have choice in meeting their taste and satisfaction within the varieties of product or tailored services the organization exhibits. Segmentation is not specifically used in marketing strategy; it embraces the whole aspect of the organization’s activities. In this view, Clarke & Freytag (2002), argue, “Segmentation in an organization should be perceived as a whole process, not just for marketing process, but should be linked to every aspect of the organization’s task that should be performed”.

Segmentation is a tool that is utilized in influencing the development of an organization’s product base. In an organization’s bid to satisfy its customer’s taste the organization embraces segmentation strategy that tends to be in constant creation of  innovations in its product through the expansion in the areas its operates. Thus, the selection of customer and the good to produce in order to satisfy their needs is a core concept for engaging in segmentation. “In this regard segmentation should be seen as a distinct concept whose aim is to give guidance on how to select customers and what solutions to develop that meets the selected customers need” (ibid)

The need to initiate segmentation in an organization operation or marketing activities is for the organization to meet the satisfaction of customers with regards to difference in customers cultures, product taste. In this view, Bolton & Myers (2003) have it that “transaction that concerns global business to business marketing requires that managers develop effective global strategies concerning its pricing, products for customers characterized with different cultures and different utilities for product attributes”. Pricing mechanism has a strong contributory influence on the implementation of marketing segmentation, both at the local and global level. The difference in price for buyers and sellers in the different market segments resulting from perception stakeholders holds have a great influence on how segmentation is implemented on the global market level. “a focus on horizontal segmentation implies that particular attention should be devoted to price-based market segmentation for services” (ibid). Invariably, there is different segmentation for services, whether in domestic market or international, from the strategies on goods. According to Bolton & Myers (2003), “two reasons are adduced for these differences, firstly, services to clients are highly perishable in nature, and thus require human resource constraints to limit short-run capacity which makes demand-management issues and pricing strategies enable a smooth demand. Secondly, the intangible nature of services when compared to the tangibility in goods would lead to an more emphasis on extrinsic cues rather than on the intrinsic attributes or quality of the service itself”.

Market segmentation has the goal to south out consumers who have similar desires and behavior, and thus forming heterogeneous segments to satisfy the different customers’ needs. Thus, customers’ response to price is a significant factor that results in the implementation of market segmentation by an organization. This also affects the marketing mix (product, price, distribution, and promotion) of the organization. In this view, Constantinides (2006) stated, “Marketing mix pertains to the implementation of market segmentation problem. This involves the ability to enforce marketing positioning analysis, and being able to differentiate the Mix from those the competitors offers through the targeted customers’ preferences as criteria from the different segment”.

The choice of an organization to adopt a segmentation pattern goes a long way to determine what it produces, and what benefit that are given to consumers or clients of such services. According to Dibb (2001), The choice of communication channel and customers’ interaction patterns and modes an organization or a marketer tries to provide his customers are those problem associated with segmentation; i.e. solving of segmentation where allowing segments of one when profitable, differentiation, the positioning of sub problems”. Segmentation leads to improving an organization’s competition in an industry whereby it leads to customer’s satisfaction. According to Meadows & Dibb (1998), “segmentation enables  organization to allocate market opportunities, the improvement of resource utilization, helps in the development of sustainable competitive position and leads to customers’ satisfaction”.

Certain barriers may impede segmentation implementation in an organization. This may include the lack of complete or adequate data of customers to analyze and plan for the strategy to adopt. There is also the targeting barrier, where an organization may find itself not necessarily fit and equipped to embark on segmentation strategy. Positioning barriers in segmentation arise from uncoordinated efforts or the incompatibility that exist between the adopted method of the organization and its distributive channels (ibid).

 

SEGMENTATION PROCESS IN AKZO NOBEL COATINGS AND PAINTS ORGANIZATION

The Coatings division of Akzo Nobel organizations remains the biggest coatings company in the world. It operates in five businesses: Decorative Coatings, Industrial Activities, Car Refinishes, Marine and Protective Coatings, and Nobilas Claims and Fleet Solutions. Each of these five business areas operate separately with a General Manager attach to each and headquarter. The Coatings Group of Akzo Nobel organization commands leading market positions in almost all its businesses and has earned a global reputation for its high quality and reliable products. The Akzo Nobel has coating businesses operational bases in 60 countries, with an employee force of 30,000 people.

For the organization effectively satisfy its customer, segmentation of its vast operational base is implemented, whereby different business units within the organization is set up to handle the production of varieties of products according to the taste of customers, in each of the location and distributive network of the organization.

The Nobilas Company was set up in 2003, with its headquarters in Hoofddrorp, The Netherlands. This company is an international solution for vehicle accident management and feet identity solutions. The Nobilas Claims and Fleet Solutions operate as a business-to-business service provider. It mainly operates in Europe and North America, providing offering leading accident management skills with a full package services such as Incident services, Repair management, Fleet identity solutions, and Claims management. Among the company’s clients include motor insurers, leasing companies, car rental companies and corporate car fleet owners. The company has achieved an enviable corporate profile as the world’s first accident management provider to be present in more than ten countries, with customers benefiting from economies of scale and the opportunity to standardize accident management processes across the globe (Akzo Nobel, 2006).

The decorative Coatings Company has its international headquarters n Stockholm, Sweden. It also has a Decorative Coatings for Europe headquarters in Sassenheim, The Netherlands. The Decorative Coatings Company is a major force in the field of home decoration, improvement, the supplying of a host of leading decorative and protective products for the architectural and interior design sector. Among its extensive and highly respected products that are well-known brands, selected to satisfy customers’ needs as regard to painting and coats, include Sikkens, Astral, Sadolin, Crown and Levis. In addition, regional favorites manufacture products such as Herbol, Flexa, Trimetal, Nordsjo, and Marshall. The Decorative Coatings is also a supplier of construction adhesives and floor leveling compounds under the trade names Schonox, Cegegol and Casco. The company has engaged itself in reputable excellent decoration projects. Examples of these include the decorative coatings used at La Scala Opera House in Milan, Italy, and the State Historical Museum in Moscow’s Red Square.

The Akzo Nobel Coatings and Paint company have a well structured organization units segmented to give customer what they want and mechanism put in place to sup[ply them the way they choice to receive their purchase. The Industrial Activities operates under two businesses segments: Industrial Finishes and Powder Coatings. The Powder Coatings has its headquarters in Felling, UK, while the Industrial Finishes has its operational base at Louisville, Kentucky, USA. The Powder Coatings business has not only acquired the status as the largest global manufacturer of powder coatings, but it is also a world leader in powder coatings technology. The Powder Coatings business supplies it products to eight key market sectors, which include appliance, architectural, automotive, functional, general industry, general trade coaters and IT. Two major global brand of the powder coating business include Interpon and Resicoat. Its products also include Non-stick coatings; which are used supplied to customer in office and household furniture; coil coatings or domestic appliances and metal building products. Its specialty plastic coatings are utilized in cosmetic packaging, sporting goods, computers and audio equipment. The Industrial Activities Company has handled prestigious contracts, including the supplying of products for Sydney Opera House in Australia and the Petronas Twin Towers in Malaysia.

The car Refinishes Company has its headquarters in Sassenheim, The Netherlands. The Akzo Nobel’s Car Refinishes business is one of the world leading suppliers of paints and services for the car repair, commercial vehicles and automotive plastics markets. Sikkens, one of its top-of-the-range product brands is known famously for car repair. This product is synonymous with quality, innovation and the highest level of services to organization requiring the products for their operational functions. Other products supply by this segment business of Akzo Nobel Coatings business are Lesond and Dynacoat. The car Refinishes Company operates in more than 60 countries and has wide and reliable supplies worldwide due to its strategic partnership it forms with strong a reliable organization in the same industry.

The Marine and Protective Coatings business of Akzo Nobel Coatings businesses has its headquarters in London, UK. The company is not only the world lading marketers in marine paints and high performance coatings, but also is a major force in the aerospace coatings industry. Its marine, protective and yacht coatings are widely used for ship building, ship maintenance and repairs to yacht and other crafts. The marine and protective coatings business also produces fire retardant products for large plants and off-shore installations as well as providing protective coatings to structures, such as bridges, stadiums and famous landmarks. Examples of work done with this company’s product include supplies to familiar sights such as the London Eye in the UK, Sydney Harbor Bridge in Australia and the Olympic Stadium in Greece. The Aerospace Coatings activities are also part of the Marine and Protective Coatings business in Akzo Nobel. The company is recognized as one of the world’s major suppliers in this industry. It produces well-known brands such as Aviox, Aerodur, and Metaflex.

From the foregoing, it is seen that the Akzo Nobel Coatings businesses embrace a vast area of coverage when it comes to coatings and paints business. The organization is a world leader and a force to reckon with in this industry. It has leading positions in almost all its businesses. The Akzo Nobel Coatings organization has operational bases in 60 countries, and has a 30,000 employee’s workforce. Its slogan is “we deliver to our customers more than just paint” (ibid). Akzo Nobel is regarded as the biggest paint organization in the world having developed and supplied innovative coatings products for more than 200 years (ibid). The organization is one of four Dutch Multinational organizations dominating the world operation. “The international activities of Dutch manufacturing MNEs are very much dominated by four large firms—Unilever, Royal Dutch Shell, Philips and Akzo-Nobel.” (Narula & Hoesel, 1999:20). Thus, in the implementation of its segmentation strategy, the organization has utilize the breaking down of its business operations into segments and units to adequately produce varieties of products that would serve the different taste and buying behavior of its numerous clients. The distribution channels of the organization is very wide , therefore meeting the buying need of customers through different medium- be it through transshipment of product, internet sales options, wholesale sales etc.

STREAMLINING STRATEGY

As a way to effectively control, the diverse spread of the organization’s business in its Coatings unit, and enforcing an effective grouping and servicing of customers need through segmentation strategy, Akzo Nobel has adopted the strategy of streamlining its business into a more manageable size. Streamlining the organization’s portfolio; i.e. its diverse business dealings, becomes expedient to align it to a manageable size that will expedite rapid growth. According to Akzo Nobel Report (2005), the Akzo Nobel successful implementation of a strategy to streamline its portfolio is to make the organization to realign competitively the business for sustainable growth, profitability, and leadership positions in selected markets. Currently, the Akzo Nobel organization is engaging on a general restructuring of its business. This is directed towards separating the organization into two independent entities; where Chemical and Coatings units of the organization would be collapse together as an independent organization from the pharmaceutical business that would comprise the Organon and Intervet business units, which would be renamed Organon Biosciences N. V. (OBS). The modus operandi of separating the organization is through a minority divestment of OBS through listing it in the Euronext stock market, Amsterdam. This is expected to take off early 2007, and would be followed by further divestment at a later stage (Akzo Nobel shareholders’ circular, 2005). The separation of the organization is aimed at making the Akzo Nobel organization achieve its long-term objectives in the most effective way and to best enhance shareholders value in the organization. Adopting a strategy to streamline an organization’s portfolio would make the organization to be prudent in its investment bids and only invest in that business that would be more lucrative in line with the organization’s vision, stated objectives and long term-goals.

SEGMENTATION STRATEGY OPTIONS AND RECOMMENDATIONS FOR AKZO NOBEL COATINGS BUSINESS

 

The strategies adopted by the Akzo Nobel Coatings business have greatly contributed to the organization’s successful operation. The segmentation strategy of the organization has assisted it to curve a niche and obtain competitive advantage through cost reduction and through TQM, these strategies tend to operate in the opposite direction. Porter (1985), argues that the use of both lower cost strategy and product differentiation would lead to the organization being caught in the middle and thus, loosing to its rivals that specializes in one. However, many scholars have criticized this view stating that it is possible for an organization to gain competitive advantage through the two strategies. But it is advisable that for Akzo Nobel Coatings , since it seek for total quality products as a way of gaining competitive advantage, it should put less emphasis on its cost reduction strategy that is aimed at  low cost of its raw materials. Thus, the organization should specialize on getting the best materials. This invariably means that getting the best raw materials would not provide the organization with getting the lowest cost. Customer satisfaction should be paramount, once they have being identified to a segment or type of product.

Another strategy option available to the organization, other than cost reduction, is the Switching Cost Strategy. Here, the Coatings business can enter into contracts with suppliers of its raw materials, in which they are restricted from changing and diverting their supplies to other competitors. This will enable the organization to get quality raw material and adequate supplies at regular bases. According to Stallman (2006), this switching cost strategy is a way to earn excess returns and lengthens a company’s life.

The streamlining portfolio policy adopted in the Akzo Nobel Coatings business should be directed towards giving the various units businesses the independence to operate in the most efficient manner. However, this should not constitute a hindrance to the seizing up of viable business opportunities and coming up with innovative business ideas and products. The adopted move to separate the Akzo Nobel into two independent organizations, this should a welcome idea for effective organization operation. However, this separation would hamper the financial flexibility strategy adopted by the organization. However, this segmentation of operational level would bring about adequate customer’s satisfaction. Thus, a total financial separation should not be instituted in this separation. Here, a provision should be put in place where financial flexibility should be made to cut across the two independent organizations. For projects that are very viable for the furtherance of the organization growth and enhancement of its effective operation.

CONCLUSION

Segmentation is seen as a strategy adopted by organization to properly satisfy customers, by classifying and grouping them according to what they want and how they behave towards getting what they want. This is a strategy useful for curving a niche to enable an organization compete favouarably through adequate customer satisfaction. For Akzo Nobel Coating and Painting organization for the company to implement adequately its segmentation strategy, it takes into consideration the vast population of customers that patronizes its product and their different needs. Thus, the organization engages in the broking down of its business operation into units and segments. Furthermore, each segment put in place varieties of products that will be adequate with the quality and pricing need of customers. Distribution channels exist to further satisfy the pattern in which customer desires to receive their purchased product. Segmentation in Akzo Nobel Coating and Painting organization has enable the organization adequately meet the need of its vast customers, and positioning the organization to stand out and compete favorably in the industry it operates.

 

REFERENCES

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