ABB Electric Segmentation
By Gary L. Lilien & Arvind Rangaswamy
1. Before beginning any case, students should familiarize themselves with the model being used. Marketing Engineering for Excel comes with tutorials that demonstrate the capability of each model. The tutorial can be found under each model within the ME►XL menu after starting Excel. These tutorials are designed to work with our OfficeStar examples which are located in the My Marketing Engineering directory, usually installed in My Documents during software installation. The data required for this case is located in the My Marketing Engineering directory (usually located within My Documents): ABB Electric Data (Customer Choice).xls
ABB Electric History
In March 1970, ABB Electric was incorporated as a Wisconsin-chartered corporation with initial capital provided by ASEA-ABB Sweden and RTE Corporation. The new firm’s management was to operate independently of the parent company. The company mission was to design and manufacture a line of medium-sized power transformers to market in North America. The firm produced such electrical equipment as transformers, breakers, switchgears and relays used in distributing and transmitting electrical energy. Four main types of customers buy this electrical equipment: (1) investor-owner electrical utilities (IOUs), the largest segment; (2) rural electrification cooperatives (RECs); (3) municipalities; and (4) industrial firms. Most of ABB Electric’s customers were electrical utilities.
Situation in 1974
After three years of operation, ABB Electric was approaching the breakeven point when it encountered a serious problem. Its market share in 1974 was around six percent. In 1974, total industry sales of electrical equipment dropped 50 percent compared to 1973. Further, ABB Electric was a small player in an industry dominated by large competitors such as General Electric, Westinghouse and McGraw-Edison. ABB Electric faced several other issues at this time. The salesforce relied on traditional methods of selling and was not well focused. The salespeople acted independently and did whatever they thought they needed to do to close sales quickly. At the same time, the board of directors was pushing for standardization of products and cost reduction. The board felt that to compete Copyright © 2008 by DecisionPro, Inc. To order copies or request permission to reproduce materials, go to www.decisionpro.biz. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the permission of DecisionPro, Inc.
effectively against the larger companies and to improve its current position of marginal profitability, ABB Electric would need a cost advantage. The directors thought this particularly important because all the major competitors made good-quality products that were similar to ABB Electric’s. ABB Electric would have to find some way to differentiate itself in the marketplace. Virtually all of ABB Electric’s sales were to one type of customer, the investorowned electrical utilities. Because these utilities already had substantial inventories, sales to this group were projected to fall as much as 80 percent per year for the next two or three years. ABB’s salesforce focused most of its effort on this market segment. As a result the company had little penetration among the over 3,000 RECs and over 100,000 small municipalities and industrial companies who tended to purchase occasionally or only once. Westinghouse, General Electric, and McGraw-Edison were well-established, long-time suppliers to RECs, municipalities and industrial customers.
New Strategy at ABB Electric
ABB Electric’s research indicated that the market for electrical equipment would remain flat well into the 1980s. This would...