A Case Study for the Fine Chemical Industry
by Dan St. Andrei, Creative Corporation
Synopsis: Yesterday branding was a prerogative of large chemical companies. Today small and medium size companies MUST include branding in their activities or risk being wiped out by the globalization tsunami. This article provides an insight in the relationship between positioning, branding and advertising for SME’s.
The globalization has changed the rules of engagement in the B2B markets and yet few executives involved in the chemical industry seem to acknowledge this. Countless small and medium size enterprises continue to focus their resources on developing better technologies and purer products, increasing manufacturing capacities or enhancing their regulatory and analytical capabilities. Little, if any attention is being paid however to the processes happening at the interface with the customers.
For a marketing agency this does not come as a surprise. The “manufacturing” culture has its roots in the post-war, blue collar era when the product was everything. Very few companies had the technology and the workforce to innovate and manufacture a winning product or service. THE PRODUCT was the key to commercial success in a world of national competition and booming demand.
This situation has since changed radically: at the latest CPhI-Paris 2010 edition. e.g., there were approximately 1900 companies offering their products and services to a market where the top ten pharmaceutical companies concentrate roughly 75% of the total global demand. In the post-industrial era many have the product or the service and clearly the offer is overwhelming the demand.
The question becomes how can a SME’s stand out in the global cacophony of names and logos vying for buyers attention?
In particular, branding emerged as the main antidote against the lack of product differentiation. In their fight for the consumers’ mind share companies branded pretty much anything from big ticket items (Mercedes and Frigidaire) to services (Hilton and Hertz) and to beverages (Pepsi and Gatorade) and even to plain water (Evian and Perrier). Brands command higher prices as they fulfill consistently a certain expectation in terms of functional and emotional attributes.
A similar paradigm shift is now afoot in the B2B markets as companies are facing a similar situation. With the advent of globalization the company’s message has to break through the hubbub of an increasingly complex market place. Beyond the numerical and geographical expansion of the competition, a flurry of international and transnational acquisitions, mergers and divestitures around the world only added to the confusion. Established names in the chemical industry disappear, morph or shatter continuously in a constellation of new names and complex ownership structures.
In this context, the power of the brand remains the prerogative of large organizations such as BASF, DuPont, Degussa, Dow, Bayer, DSM or Lonza. Moreover, most of the newer brands emerged as a result of the M&A activities of branded companies, e.g. Evonik from Degussa, Lanxess and Saltigo from Bayer, etc.
It seems that the value of the brand is understood only by the market leaders who know how to build their brand architecture and use it to boost profitability. As a matter of fact, people realize that the brand has a dollar value just like any other physical or financial asset sitting on the balance sheet: e.g. the 3M brand value was 3.1 BN $ in 2010 and was ranking # 90 on the Interbrand Best 100 Global Brands list. When brands lose their luster so does the shareholder value! Merck’s brand was valued at 9.1 BN in 2001 but was worth less than 3 BN dollars in 2010 after the Vioxx debacle.
In spite of this palpable dollar value attached to the brand, SME’s executives continue to miss the connection between brands, profits, growth and company valuation. They fail to acknowledge that the physical product made by the plant is actually translated by marketing activities in palpable financial assets.
This article provides the proof of principle that small investments in branding activities can work just as well in a SME environment and lead to market leadership and increased profitability.
Branding Penn: a business case
In 2005, Penn Specialty Chemicals Inc. (a US based SME specializing in furan derivatives) approached our agency to develop the concept for their advertising campaign. This advertising campaign coincided with the rebranding of the company from a leader in furan derivatives to a leader in the emerging markets of green chemicals.
One of the major elements of any brand is creating the brand story. Penn’s long tradition in producing solvents from corn cobs and sugar cane bagasse could be traced back to WWII efforts to diversify chemicals away from petrochemicals. Penn’s history provided therefore a unique backdrop for its brand repositioning on the green dimension as it was truly a pioneer in chemicals from renewable resources.
As the Kyoto protocol entered into force on February 16 2005, Penn expected that it would usher in an era of a low carbon economy. Penn’s solvents were uniquely positioned to capitalize on their bio-origin in corn cobs and sugar cane.
In this strategic context Penn had to reinvent its commercial persona and capture the strategic position of leader in the green solvent markets.
Penn started by abandoning its old logo, (a black and white contour of William Penn) that spoke mainly to the origin of the company in the Philadelphia area and Quaker Oats Chemicals. These powerful symbols in the North American culture meant little to its global customer base. It also spoke nothing about the green offering of the company.
Penn’s new logo was a pentagon colored in shades of green and blue, a hybrid symbol of the five member furan ring and a reminder of the green fields, blue skies and rain water, the three natural forces behind Penn’s production of furfural (Figure 1).
Figure 1: Penn’s new logo expresses the shift to a green economy with a global reach (2005)
The heraldic change was further reinforced by the modification of the tag line from a strong positioning on the technical dimension (The furan chemistry specialists) to a strong positioning on the green dimension (Chemicals from renewable resources).
Penn had limited marketing resources so they could not invest in building first this umbrella brand. They chose to invest simultaneously in the marketing of a product with high market potential. It was hoped that the successful marketing of the green solvent would eventually spill over to establish Penn as the innovative global leader in green solvents. The chosen solvent, 2-MeTHF, was an excellent opportunity to substitute tetrahydrofuran (THF) with a quarter billion dollars market.
Penn’s market research showed however that by late 2005 the world was not prepared to pay a premium on green. The concern for MeTHF high price overpowered the environmental benefits of the solvent. We developed therefore an advertising concept emphasizing the overall cost reduction opportunities offered by MeTHF due to its superior product attributes. Nevertheless we did provide the “green” overtone to the ad concept through the presence of the new logo and tagline. Moreover, color coordination with the logo added to the “green” overtone of the ad and established an early claim on sustainability (Figure 2).
Figure 2: Early stage advertising for 2-MeTHF emphasizes cost savings first (2005)
Subsequent market research by Penn showed that the sustainability aspects got increasing traction as the Kyoto protocol was sipping through national legislations and corporate values around the world. The advertising changed in 2006 to accentuate the green aspects first. Secondary overtones in cost savings were still present as cost remained a high concern (Figure 3).
Figure 3: 2-MeTHF advertises greenness as Kyoto protocol gains market traction (2006)
Finally, market research conducted by Penn at the end of 2006 showed that market perceptions shifted even further. By now, focus groups represented by purchasers, R&D and regulatory professionals saw the low carbon economy as the way to the future. Several pharma companies clearly captured this in their annual reports.
In response to the shift in demand we repositioned the product as a true agent of change. The juxtaposition of MeTHF with Penn’s logo ensured that the green future is associated with the umbrella brand of the company (Figure 4 - Contrast between old and new; Penn becomes a leader in sustainability (2007)
MeTHF was nominated for the CPhI Innovation Award in Paris in 2006 and for the Presidential Green Chemistry Award in Wahsington DC in 2007. At that point Penn’s name was firmly established as a leader in green solvents.
Managing demand is critical in a globalized world. Marketing is the dedicated function that manages the long term demand. Most chemical SME’s however focus only on sales which is short term focused. Chemical SME’s should learn from their industry leaders and make better use of marketing activities such as branding and advertising.
GCI Pharmaceutical Roundtable recently reported that MeTHF is the fastest growing solvent used by the pharmaceutical industry. Penn’s positioning and branding shows that SME’s can become global niche leaders by investing in marketing activities.