Strategy Analysis - Problem recognition Dow Corning is the leader in the silicone product industry with 40% worldwide

market share (in 2006). Until the beginning of 2000s, customers had been willing to pay a premium for the R&D and services, as long as manufacturers were able to provide tailored solutions to their needs. Thus, Dow Corning positioned itself as an innovative company and aggressively market the quality of its technical support to differentiate its offer from competitors. But increasing competition, rising costs, and more importantly commoditization of products put some pressure on prices. The company's profits were stable in 1997-1998 ($2500-2600 millions) and net income was flat ($-600 million in 1998 and $100 million in 1999). Therefore, Dow Corning needed to find new ways to address its changing environment. To evaluate the customer needs, the company came up with a new segmentation study which revealed a segment of customers who didn't want to pay for the added services traditionally offered with silicone products. Dow Corning needed to adapt its strategy to meet the needs of this fast growing segment. At the same time, it had to maintain a high quality of service and continue serving its current customers who valued Dow Corning technical support. To achieve these two goals, the company wisely develop a two brands strategy and formulate different offers to each customer segments (price seekers vs support seekers). Dow Corning would provide customers with innovative products and technical assistance and a new discount channel under the Xiameter Brand name would serve customers seeking for low prices and no added service. Xiamater was designed as low cost structure allowing it to profit solely from selling products. Xiameter could take advantage of Dow Corning products and infrastructures but remained an autonomous business unit. To decrease costs and offer competitive prices, flexibility and choice around such issues as ordering method, quantity, shipping and payment terms were reduced. Its value proposition was directed toward bulk orders of good quality commonly used silicone products for which no technical support was needed. This strategy, which also included the development of a fully automated web-based ordering system, reduced the need for management, staff and logistics, and further cut costs allowing Xiameter to offer competitive prices (Xiameter costs were 30% lower than those of Competitors). Since Dow Corning and Xiameter offerings were clearly differentiated, there was no threat of cannibalization of Dow Corning products and services by Xiameter. In fact, the two brands complemented each other. Xiameter took advantage of Dow Corning commoditized products and structure to offer competitive prices whereas in limiting its offer to customers who needed technical support and innovative products (thus avoiding price competition), Dow Corning clarified its positioning and reinforced its value proposition. Furthermore, the senior management took the time to promote the two brands strategy to employees to ensure their cooperation in implementing the new marketing plan. For example, it solved problems arising from the creation of Xiameter (compensation package, performance incentive, etc.) before its launch. In 2006, the first mover advantage of Xiamater started to erode. Other silicone suppliers had developed online ordering system. Some of them provided a full range of products and services through this new channel and progressively increased the volume of orders placed on line. As the online competition increasing, Xiameter was under pressure and its business model was contested. Recommendation for Future growth 1. Positioning Dow Corning should maintain a clear distinction between its own positioning and Xiameter's one. It is vital for the company to promote attributes of each Brand and clarify the differences between the two value propositions to customers. In this respect, I strongly suggest that Xiameter do not provide services to clients as part of its value proposition. Special product testing and technical support provided by Dow Corning are keys that help the customers figuring out the distinction between Dow and Xiameter. Moreover, any attempt to provide technical support to customer will affect Xiameter's cost structure and therefore it competitive pricing strategy. 2. Product Providing a limited number of products has helped Xiameter control its cost and cut prices. Since low prices is the most important competitive advantage of Xiameter, adding a full range of products will go against the marketing strategy. I recommend that Xiameter stick to its business model but considering the short lifecycle of silicone products, Xiameter could sell mature products that were formerly sold by Dow Corning and for which customers do not need technical assistance anymore. These commoditized products will replace the old products that customers don't buy anymore. Xiamater should not provide a full range of innovative product to its customers. It will damage the mother company and increase the costs supported by Xiameter. In contrast, it could consider selling commoditized products that are complementary to silicone products if it is able to introduction a lean supplying process that will avoid the requirement of stocking. Again, Xiameter offer should be limited in number because controlling the costs and minimizing the logistics is vital for Xiameter value proposition. At the same time, Xiameter management can evaluate the possibility to lower the minimum order quantity if it does not affect the costs and

therefore the prices. This would help Xiameter maintain its leading position as low cost high quality products providers. 3. Price As already mentioned, price is the most important attribute of Xiameter value proposition. Although most of Dow Corning competitors have developed online ordering systems, none of them has decided to compete on price. They just offer their products and services through this new channel but have not modify their value proposition. Thus, other silicone suppliers' presence on the web is a threat for Dow Corning but not directly for Xiamater. Nevertheless, Xiameter accounts for 30% of the company's turnover. Taking into account that Xiameter launch resulted in an increase in company's sales and net profits since 2001 (figure 1), it is probable that its results are vital for Dow Corning. Therefore, Xiameter management should continue to cut costs and react promptly to any move of competitors regarding prices.

4. Place Xiameter benefits from Dow Corning established reputation and products, but even more importantly, it can aggressively cut prices because it benefits from Dow Corning logistics and infrastructure (delivery, IT, production plants, etc.). In such conditions, Xiameter can't and should not be spined-off Dow Corning, it is an embedded business unit. It should continue to benefit from these advantages and leverage on the established distribution channels. Moreover, customers are very satisfied with Xiameter easy-to-use ordering system and it is one of the reason of their loyalty to the brand. Any change in the distribution strategy would thus affect the results of the company. Promotion The launch of Xiameter was largely covered by the media and it has therefore benefited from a "free advertising" campaign. But the company should not forget that competitors have developed their online services and that they may soon decide to cut prices and compete directly with Xiameter. I therefore suggest that Xiameter promote its Brand at a constant level in specialized newspapers to maintain (or even increase) the brand awareness.