Dow Corning is a global leader in silicone-based products. It sold its products to more than 80 countries globally and has a 40% worldwide market share in 2006. Its success to date was a large part driven by a major marketing initiative that revived the company half a decade ago, the launch of dual brand strategy and the resultant launch of the Xiameter brand. The Xiameter brand was an instant success, but is now experiencing challenges from increasing competition. This paper will discuss what caused the decline of Dow Corning to force it to introduce the Xiameter brand. It will then discuss one major change that complemented this Xiameter brand and it was the change in customer segmentation scheme. The report to conclude by providing a number of recommendations that would ensure continued success of the Xiameter brand.
THE DECLINE OF DOW CORNING
Dow Corning experienced some challenging years from the period of 1995 to 2001. While its sales were on average positively trended (excluding the 2 years when the global economy collapsed, explained later), however, its profitability and net income have been falling steadily. Such poor performance can be attributed to the changing forces in the external markets, and also the misalignment internal to the Dow Corning organisation. In the external environment, a number of factors have led to the decline performance of Dow Corning between 1995 and 2001. * Marco economic slowdown – there were two tough years for Dow Corning, in 1998 and 2001, where net income was in the red. The causes were obvious, 1998 was the year post the Asian Financial Crisis and the slowdown in industrial economy was significant globally, and in 2001, the global economy headed into its first recession in 20 years (OECD measures) and this was further worsened by the Sep 11 terrorist attacks. Both of these macroeconomic movements led to a sharp reduction in the industrial economy globally, thereby greatly reducing the global sales and net income of Dow Corning. * Commodization of silicones market – it’s been more than half a decade since Dow Corning’s pioneering development of silicones application in the commercial market. A large number of silicone products, and the associated technology behind it, are now mature products that can be easily replicated. A large number of Dow Corning’s offerings can no longer be differentiated with competitors’ offerings. Due to the commodization of silicones product, many customers have become the ‘experienced purchasers’ or ‘price seeker’ who is highly price-sensitive and not willing to pay for premium to get value-added service. Since Dow Corning has put a lot of focus to produce tailor-made service and products to its customers, it was very difficult for Dow Corning to sacrifice their profit margin to sell its product at a lower price, thus it led to the fact that Dow Corning has lost its market share to those low-margin and smaller scale silicone company who produce standardized product at very low price. * Growing base of price seekers – Dow Corning’s inability to match the rock-bottom prices being offered by low price competitors was further worsened by the fact that the customer base of price seekers are growing rapidly. This meant more and more customers were defecting from Dow Corning, impacting its performance. Dow Corning’s poor performance was largely due to the external factors listed above, but they were complemented by the following internal factors. * Complacency culture – Dow Corning internally was quite complacent because it believed its company and products were superior and premium to other offerings in the market. Such believe also meant premium prices were maintained. It is this complacency that made Dow Corning unaware of the commodization trend of silicones market and the emergency of low price competitors. Unable to respond due to this ignorance, Dow Corning performance declined. * Poor management...
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