Comprehensive marketing vital for survival

Comprehensive marketing vital for survival

Mahendra Gautama, Contributor, Jakarta

The paper and pulp industry is one of the oldest in Indonesia.
Its history began when the Dutch company, NV Papier Fabriek
Nijmegen, set up NV Papier Padalarang in 1923 in Padalarang, West
Java. After the country's independence, the company was
nationalized and still exists, under the name PN Kertas
Padalarang.

In 1984, a major company, Indah Kiat, was established in Riau
as a pioneer in the integrated manufacturing of pulp and paper,
with a huge capacity of 100,000 tons per year. The establishment
of the company was triggered by regulations issued by the
ministry of industry and trade in 1980 aimed at making Indonesia
one of the world's largest pulp and paper producers.

Forum Asia Pulp and Paper issued a report in 2001 indicating
that Indonesia had 81 pulp and paper mills, including seven
integrated manufacturing mills. The total capacity was reported
as 3,920,000 tons annually. Sumatra enjoyed the largest portion
of the business with 86 percent of the companies running on the
island, while Kalimantan had the remaining 14 percent.

With such a huge production capacity, the current picture for
the country's pulp and paper industry is not entirely bright.
Profits are extremely low due to several factors, including a
decline in market demand, overcapacity of production and a price
war among most manufacturers.

One of the world's most reputable consultants, McKinsey, said
in its report Pricing Commodities that several factors are behind
these problems.

The first factor is the mind-set of most marketers in the pulp
and paper industry. They wrongly believe that there is no
possibility of selling their products at premium prices based on
quality and proper branding. They seem to think that their
products are in the category of "me-too" products, or much too
similar to their competitors' products to enable them to make any
differentiation, which should naturally lead to a better pricing
strategy.

Second, the business players in this sector have for years
stuck to the credo "Volume is what counts". Unfortunately this
has led them to chase after tonnage or volume without a proper
assessment of related market demand.

Factor number three is their firm belief that competitors are
also after production capacity of the highest volume.

Last, again incorrectly, they believe that the major concern
of customers is only the price.

All these misconceptions have made them "numb" and rendered
them incapable of cherry-picking customers that they can serve
best for a higher percentage of profit.

Due to the above factors, which are related to the mind-set of
marketers, it is not surprising that these companies are
constantly engaged in a price war. Another result is that other
important aspects of marketing are completely forgotten,
including elements of service such as lead time and so forth.

Quite recently, however, most players in this industry have
begun to realize their past mistakes and tremendous improvements
have been made, while more are on the way.

This was confirmed by a survey conducted by Accenture early
this year, with 250 executives and marketers from the industry as
respondents. The report, titled A study of the forest product
industry, drew some interesting conclusions.

Fully integrated marketing efforts with fine-tuned targeting,
or segmentation, was mentioned as being the most vital factor for
a company's returns. Strategic price management was, of course,
no less important. Close in importance was aligning the
organizational structure for delivering both products and
services.

The report also said that most executives now realize that
marketing consists of more than selling and its related skills.
In today's highly competitive environment even commodities
require marketing that comprises branding and brand-management
for long-term survival.

In the area of segmentation, marketers now realize that
instead of dividing customers into big and small ones, they
should refer to them as those who value quality products and
services versus the rest who only care about logistics or just
regard the products as "unidentifiable" commodities. In this way
companies can easily concentrate on those customers who
contribute the most, meaning those who provide for more of a
profit.

Capacity management is also deemed necessary to reduce any
excessive production and oversupply which automatically lead to a
decline in prices. Hence, proper estimates and forecasts of
current and future demand have to be made.

Similar to communications for fast-moving consumer goods, they
also are aware that the industry has to adopt distinctive
branding and constant-plus creative advertising. The consistently
high quality of products and services as promised in advertising
is the order of the day.

Meanwhile, there are three prerequisites prior to this kind of
fully integrated marketing as mentioned by Johan Ahlberg, Hanne
De Mora and William E. Hoover in their report titled Beyond
volume in commodity business.

The first step is to adopt the "true order of economics",
basically meaning to identify elements that turn into "bottleneck
costs" or other hampering factors in the entire manufacturing and
delivery process. Second, the marketing department should
meticulously and regularly prepare sales reports and estimates
along with related developments, such as competitors' moves,
trends, etc., so that correct decisions for prices and internal
logistics can be made. Step number three is copying some of the
benchmarks used by other noncommodity businesses, like those used
for marketing by some leading channel management companies.

In the less glamorous world of commodity products, where
marketing used to be interpreted as merely selling using
antiquated tactics, branding and its main weapon, advertising,
were regarded as far-fetched. However, with the recent
implementation of most of these comprehensive and up-to-date
marketing techniques by the country's marketers in the pulp and
paper industry, the road to survival is now less bumpy.