The extended marketing mix is used to consider the nature of the business. The situation of the aftermarket manufacturer of air conditioners and parts is not unusual. The parallel drawn is that of different firms (players) in an industry, the strategies (actions) they pursue and when, what information they have, and the outcomes (payoffs) of the strategies.
Each strategic option in Table 2.6 is evaluated in terms of the company's opportunities and threats (environment) and the company's strengths and weaknesses (resources/competencies).
Conclusion
Smiths aftermarket field technicians are experienced engineers in the market in which they operate. Smiths main aftermarket activities are the manufacture of aftermarket A/C kits and replacement parts for P&A outlets of motor plants and assembly centres. Smiths Aftermarket personnel act as intermediaries in dealing with motor plants and Pro-Fit.
This shows that a greater proportion of Smiths Aftermarket business is through engine factory P&A outlets. Smiths Aftermarket's provision of service to fitment centers through Pro-Fit was rated as far less satisfactory. In addition, provision of Smiths Aftermarket services through Pro-Fit to fitment centers should also be considered.
Of all the aftermarket manufacturers, Smiths Aftermarket has the strongest relationship with engine plants. Smiths Aftermarket would benefit from the strong relationship that exists between Crispair and the fitting centres. Pro-Fit should be advised that Smiths Aftermarket is aware that Pro-Fit does not always honor discounts.
CASE STUDY 67
Political Factors 72
Tax relief, reduced transfer duty on low-value property purchases and reduced ad valorem duty payable by motor plants on cars (especially smaller ones) have not achieved the desired results of stimulating spending (see graphs 3.1 and 3.2), due to high interest rates and the inflation rate. The latest tactic is aimed at enabling automakers to lower the price of smaller vehicles to make them more affordable. The existing vehicle fleet is small and aging, which, while positive for some parts suppliers such as batteries, others, such as air conditioner suppliers, rely on a larger vehicle fleet and new vehicle sales for business Theirs.
Private consumption is closely related to GDP with growth in durable goods forecast to be 3.1% in 2003 (Ibid). The vehicle industry has recognized this emerging role of previously disadvantaged people, including women, and vehicles aimed at them continue to be produced. Entry-level vehicles such as the Citi Golf, Toyota Tazz and Fiat Uno are still sold in South Africa to provide affordable vehicles and to serve this market.
Citi Golf is only sold in South Africa and Brazil and has been retained due to market demand and demographics. As consumers became more educated and demanding due to international exposure, engine factories responded by increasing the number of parts and accessories offered as standard in the vehicle to include CD players, electric windows, airbags and air conditioning. Engine factories place an emphasis on keeping the warranty intact, so consumers tend to have their vehicles serviced by engine factory dealers for longer periods of time, especially with extended warranties.
Technology Factors
Environmental Factors
Automotive Aftermarket Air-conditioning and Replacement 75
- Porter's Five Forces - Aftermarket Air-Conditioning and 76
- Value Chain Analysis for Smiths Aftermarket 80
- Current Objectives of Smiths Aftermarket 84
- Generic Strategies
- Strategies to Achieve the Objective of Maximising Contribution 85
EVALUATION OF SMITHS 102
Smiths Aftermarket' Competitive Position
Smiths Aftermarket (Dunair) market share has increased slightly for both air conditioning kits and spare parts. Overall, Crispair has increased its market share as well, while Arcotemp has increased its market share in kits but lost market share in parts. Other companies and not the main air conditioner competitors hold most of the market share for spare parts (47%).
As a single entity, Smiths Aftermarket has the largest market share for both air conditioner kits and replacement parts and has held this position for many years. Although Smiths Aftermarket (Dunair) has the largest market share overall, Crispair has the largest market share in terms of business done with independent dealers and fitting centres. The collaboration between Connoisseur and Arcotemp could in theory strengthen their position and increase their market share.
Even if market shares were maintained, as a joint force they would capture only 26% of the air conditioning market and 11% of the spare parts market. Crispair is currently the main competitor to Smiths Aftermarket and this is more in relation to assembly center business rather than engine plants. Unless the current owners decide to invest in the business or a buyer is found, it will become more difficult for Crispair to maintain market share as new technology will be required to meet the demands of new vehicles.
Evaluation of Smiths Aftermarket' Internal Environment
- Review of SWOT Analysis of Smiths Aftermarket
Charts 4.6 (a) and (b) provide a clearer indication of the actual position of Smiths Aftermarket using 1998 as the base year. Smiths Aftermarket sales declined in line with the shrinking market, but forecast sales are expected to increase compared to 2002 sales. The implementation of cost reduction programs by the engine factories and pressure to keep price increases at or around inflation, have a negative impact on margins. a) Smiths Aftermarket Sales (b) Smiths Aftermarket Gross Margin.
Smiths Aftermarket is also overly dependent on Toyota as a customer, which is a risky position. In both cases, over-reliance on Toyota is evident, which can be considered detrimental to Smiths Aftermarket. Most of Smiths Aftermarket's business comes from the sale of kits rather than parts (Chart 4.8), although the parts market is considered to be growing more than the kit market.
If the parts market continues to grow and the market for A/C kits continues to shrink, the emphasis in business for Smiths Aftermarket may have to change as well. Smiths Aftermarket may consider buying Crispair themselves to reap the rewards this way or alternatively. The difficulty for Smiths Aftermarket is that it is competing against itself by having both the Dunair brand and the car plant brand products.
Evaluation of Financial Ratios
Strengths and Weaknesses are an area of concern for Smiths Aftermarket, with each generally weakened by various opportunities and threats, with the exception of the engine factory relationship, which could continue to strengthen. As the relationship with the fitment centers is already a weakness with the emphasis on opportunities centered on the engine factories, it is likely that this relationship will continue to deteriorate. Liquidity ratios show that Smiths Aftermarket can also pay its debts quickly if needed.
Smiths Aftermarket's asset turnover ratio is difficult to estimate as the industry norm is unknown. As Smiths Aftermarket does not have significant assets tied up in inventory, this should not affect financial planning. The ratio needs to be monitored as there are a large number of imported components and if the ratio is too low it could mean that it could affect the cash flow for Smiths Aftermarket.
The distribution strategy implemented means that the creditor base for Smiths Aftermarket has reduced to just Pro-Fit and the engine factory's P&A divisions. In the past, Smiths Aftermarket had to try to collect money from the individual assembly centers, which greatly limited the cash flow for the company. In evaluating the strategies, it is important to remember that Smiths Aftermarket obtains funding for any project from its parent company, Smiths Manufacturing.
Review of the Marketing Mix for Smiths Aftermarket
Pricing is somewhat problematic for Smiths Aftennarket as there is no clear pricing strategy. Medium value pricing is applied to some air conditioner kits with premium pricing on the kits supplied to the P&A departments. The lack of focus will hamper Smiths Aftennarket and a clear pricing strategy will need to be developed.
The distribution strategy adopted by Smiths Aftennarket in early 2000 has benefited the division in many ways; costs are reduced, stock holding is reduced and Smiths Aftermarket has managed to increase the value chain with a more efficient system. The agreement with Pro-Fit expires in just a few years, and Smiths Aftermarket will have to decide what actions it will take in the meantime to remedy the difficulties being experienced. Promotional activities for Smiths Aftermarket must cease to exist for all intents and purposes, either for Smiths Aftermarket or for the Dunair brand name.
Staff at Smiths Aftermarket are generally suitably qualified for the positions they hold and have many years of experience. Technical expertise and support is one of the department's strengths and can be used to differentiate the service offered by Smiths Aftermarket from that of its competitors. Process as an aspect of Smiths Aftermarket service delivery is an area that is currently lacking and for this reason.
Surveys Conducted to Evaluate Smiths Aftermarket
- Overview of the Survey with the P&A Outlets and Objectives
- The Evaluation of Smiths Aftermarket by the P&A Outlets
- Evaluation of Smiths Aftermarket by the Fitment Centres
- Results of the Survey with the Fitment Centres
The biggest flaw in the evaluation of Smiths Aftermarket through Pro-Fit is that it only focuses on fitting centers in KZN. Smiths Aftermarket could consider focusing solely on this business and exiting the assembly center businesses. Smiths Aftermarket has followed the same strategies of focus with the engine plants and differentiation with the assembly centers for the last four years.
Of more immediate concern to Smiths Aftermarket should be the deterioration of the relationship between Smiths Aftermarket and the fitting centers that rely on Pro-Fit to provide service. Buying Crispair from Smiths Aftermarket is also an option but depends on the acceptability and feasibility of the strategy. The provision of Pro-Fita services to fitment centers is damaging the relationship between Smiths Aftermarket and the fitment centers and also affecting the delivery service to some P&A outlets.
Smiths Aftermarket needs to work closely with Pro-Fit immediately to resolve the situation. A meeting should be arranged between Pro-Fit and Smiths Aftermarket to discuss critical issues. Every year, Smiths Aftermarket allocates a marketing budget to marketing in partnership with Pro-Fit.
Ultimately, this affects revenue and profitability for both Pro-Fit and Smiths Aftermarket and needs to be addressed. It is recommended that Smiths Aftermarket work very closely with Pro-Fit to develop better ordering processes.
