DRR ENVIRONMENTAL INC.

Marketing Management Minzhongxia DING Elie ELHAYEK Amaury FENOLL Olivier GAUTIER

Background

DRR Environmental Controls is a German conglomerate producing air emission control systems and that has extensive industrial operations in the US. The global market is developing, due to increasing regulation aimed at reducing the pollutants released into the atmosphere by the factories. The company is considering introducing one or more offers in the US market and believes that its product will need lower service costs that its competitors products. DRR possesses new technical capabilities and market research shows that there will be 300 units sold per year in the following decade.

Objectives
Our

goal is to evaluate the economic consequences of entering the US market for DRR, in order to help the managers to take their decision.
need to determine the best offering, considering the specificities of the American market : should it be a single offering, or two different offerings? What should they be? also need to propose a marketing segmentation, allowing DRR to target customers with specific and efficient sales pitch.

We

We

The Market and Competition

When choosing a product available in the market, customers look at four dimensions:

1)Efficiency: percentage of recycled heat by the system 2)Delivery Time: time needed to build, test and deliver the equipment 3)Price: the cost of the equipment 4)Delivery terms

Three competitors are present in the market and their market shares are presented in the graph below:
Waste Watch, 45% Thermatrix, 5% Advanced Air, 50%

Conjoint analysis for existing products

A

conjoint analysis of existing products in the market gives us a prediction of the market shares as follows:
Product Waste Watch Thermatrix Advanced Air Real Market Share 45 % 5% 50 % Predicted Market Share 45.45 % 3.95 % 50.59 %

The

predicted market shares (provided by the conjoint analysis) are almost equal to the real market shares discussed previously.

Conjoint analysis with Servair Dx

After

running a conjoint analysis with the 4 products - Waste Watch, Thermatrix, Advanced Air and Servair DX - we obtain the following result for expected market shares:
18,77% 37,55%

Waste Watch Thermatrix Advanced Air Servair DX

41,70%

1,98%

Conjoint analysis with Premier DX

After

running a conjoint analysis with the 4 products - Waste Watch, Thermatrix, Advanced Air and Premier DX - we obtain the following result for expected market shares:
14,33%

42,98%

Waste Watch Thermatrix Advanced Air

Premier DX
41,21% 1,48%

Conjoint analysis with Base Model

After

running a conjoint analysis with the 4 products - Waste Watch, Thermatrix, Advanced Air and Base Model - we obtain the following result for expected market shares:
8,89%

Waste Watch
44,47%

Thermatrix Advanced Air Base Model

42,69%

3,95%

Profits Calculation
Servair DX Market Share
(obtained by conjoint analysis)

Premier DX 14,33 % 42 230 000 9 660 000

Base Model 8,89 % 26 200 000 5 200 000

18,77 % 56 180 000 10 080 000

(market share 300)

Sales

Profit Margin Total Profit

(profit margin sales)

All profits are greater than the 4 000 000 threshold and hence entering the market is justified. Servair DX and Premier DX are the two most profitable products as can be seen in the table above. If we want to introduce one product to the market, we would choose the Servair DX having the highest market share and the highest profits. If two products are to be introduced, we would choose Servair DX and Premier DX.

Segmentation
After running a segmentation, we get the following Dendogram
13,017. 6,211.3 3,326.6 Distance 1,788.5 1,329.8 1,291.2 1,010.8 867.75 1 4 9 2 6 5 8 3 7

To avoid a big loss of information, we choose to divide the market into 2 segments

Cluster ID Size/Cluster Number of observations Proportion Overall 31 1 Cluster 1 9 0.29 Cluster 2 22 0.71

Segmentation
The following table shows the segmentation variables for the two clusters
Segmentation variable / Cluster Overall Cluster 1 Cluster 2 Exceeds 9% Exceeds 5% Meets specifications Short by 5% 6 months 9 months 12 months 15 months 600000 700000 800000 900000 Installed, with 2-year warranty Installed, with 1-year warranty Installed, with service contract FOB, with service contract 27,3 16,9 8,35 0 31,2 19,1 9,19 0 18,6 12,6 6,39 0,161 20,4 13,9 5,58 0 15,6 6,11 4,22 0 17,3 10,1 6,44 0 32,3 24,3 12,3 0,333 29,3 19,6 4,33 0 32,1 21,3 10 0 36,8 22,8 10,3 0 13 7,77 3,95 0,0909 16,8 11,6 6,09 0

Segmentation
The following table shows the discriminant variables for the two clusters
Discriminant variable / Cluster Overall Cluster 1 Cluster 2 Food 0,194 0 0,273 Energy 0,226 0,778 0 Sales$_2004 13,077 34,133 4,464 Profit% 5,461 9,611 3,764 Return_on_Equity 18,223 19,467 17,714 Employees 26,371 56,333 14,114 SalesGrowth_(2003-2004) 17,058 9,467 20,164 TopMgt 30,871 18,889 35,773 Engineering 34,645 20,111 40,591 Finance 15,548 28,889 10,091 Purchasing 19 32,111 13,636 Growth 13,161 21,889 9,591 Profit 22,968 28,333 20,773 MarketShare 11,484 14,222 10,364 TechLeadership 10,806 15,778 8,773 CorpCitEnv 19,871 6 25,545 GovReg 21,806 13,556 25,182

Segmentation
1st Segment

2nd Segment

Energy industry Large in size and more profitable, with lower growth No extra requirement on technological advancement above minimum level Sensitive on pricing

Food industry Smaller in size, less mature, lower profit with more promising growth rate

Technological advancement (exceeds 5%/9%) as important factor Delivery time matters more than cluster 1

Value more after sales service (2 year warranty)

Conjoint analysis with segmentation: Segment 1

Predicted market shares ...with Servair DX
Wastewatch; 4,52 Thermatrix; 0,

New Product Profile; 36,2 Wastewatch Thermatrix Advanced Air New Product Profile

Advanced Air; 59,28

Conjoint analysis with segmentation: Segment 1

Predicted market shares

New Product Profile; 3,39

...with Premier DX
Wastewatch; 21,49

Thermatrix; 3,39

Wastewatch
Thermatrix Advanced Air Advanced Air; 71,72 New Product Profile

Conjoint analysis with segmentation: Segment 1

Predicted market shares ...with Base model
New Product Profile; 4,52 Wastewatch; 22,62

Thermatrix; 4,52

Wastewatch Thermatrix Advanced Air Advanced Air; 68,33 New Product Profile

Conjoint analysis with segmentation: Segment 2

Predicted market shares ...with Servair DX
New Product Profile; 5,26

Advanced Air; 28,07 Wastewatch Thermatrix Advanced Air New Product Profile Wastewatch; 63,16 Thermatrix; 3,51

Conjoint analysis with segmentation: Segment 2

Predicted market shares ...with Premier DX
New Product Profile; 22,81 Wastewatch Thermatrix Advanced Air New Product Profile

Advanced Air; 17,54

Wastewatch; 59,65

Thermatrix; 0,

Conjoint analysis with segmentation: Segment 2

Predicted market shares ...with Base model
New Product Profile; 12,28

Wastewatch Thermatrix

Advanced Air
Advanced Air; 22,81 New Product Profile

Wastewatch; 61,4 Thermatrix; 3,51

Targeting

As we can see, Servair DX has the highest expected market share in the first segment (36,2%), therefore we recommend to target segment 1 with Servair DX Total profit = 36,2% (300 0.29) 180 000 = 5 668 920

Moreover, Premier DX has the highest expected market share in the second segment (22,81%), therefore we recommend to target segment 2 with Premier DX Total profit = 22,81% (300 0.71) 230 000 = 11 174 619

Therefore, the overall total profit will be the summation of the two profits above from which we subtract the 3 000 000 additional cost Overall profit = 5 668 920 + 11 174 619 3 000 000 = 13 843 539

Advantages and Limitations

The method used helps us in determining the preferences of the customers and adjust our offers accordingly in order to maximize the profits realized. It also allows us to segment the market and target each segment obtained with the most appropriate product that could realize the maximum profits possible. On the other hand, the model provides us with the preferences for a single period of time and does not take into consideration the change in these preferences or the time effect that could modify the preferences and hence the results.