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Assignment Details:

• Word: 2500

 

Research problem

How to succeed in the PVC window market?

Case summary

 

This case study is based  on  real  events  which  occurred  in  2010.  It  describes the launch by MPO Fenetres of new windows, characterized by improved thermal performance, achieved by the use of triple  glazing.  This  company  is based in the French region of Orne. It has  200  employees,  and  realized  a turnover of over €35 million in 2010. It has positioned itself as an innovative company, always seeking to apply the latest technical developments.

 

In the current economic crisis customers are more careful with their money, and think more carefully about potential purchases. In recent years it has been shown that consumers’ purchasing behaviour has evolved, and that criteria such as sustainable development and environmental protection are now among the factors that may influence purchasing decisions. In this sense, an “ecological consciousness” has emerged. Not only the Grenelle de l’Environnement (a French forum for the discussion of issues relating to sustainable development) and government standards, but also tax credits associated with the purchase of certain goods, have affected the housing industry, and therefore also window manufacturers. Rebuilding and renovation are also subject to these factors.

 

In this context, the launch of windows made of PVC, with their high thermal performance and technical and competitive advantages, was important for this SME. It was the company managers’ responsibility to launch and market these products successfully.

 

Introducing MPO Fenêtres

 

Founded in 1970 in Alencon (Orne), the company MPO Fenetres (Menuiserie Plastique de l’Ouest)  was one of the first French companies in the PVC/carpentry sector to offer a customized service. However, at that time, in France, very little was known about PVC, carpentry and double-glazing technology: these markets were still in their infancy. It took about ten years, and two oil crises (in 1974 and especially in 1979) for the PVC window market to really take off. The commercial policy  of EDF (the French public energy provider) at that time favoured the development of this product, encouraging investors to push for “all electric” installations, which would, according to the manufacturer provider, require better insulation of public buildings to reduce heat loss.

 

Despite MPO Fenetres’s financial losses since the creation of the company in 1978, the managers decided to invest in new office and production buildings. From 1970 to 1997, MPO Fenetres’s products were rather basic. Two new product ranges were then offered by the company: a range of high quality windows made of aluminum and wood (1997) and windows featuring super heat, with an improved insulation value, made of aluminum with a thermal break (2007). These additions to its product range were introduced in line with the company’s desire to widen its target market. These two new product categories now account for 10% of the company’s turnover. MPO Fenetres initially specialized in public and collective markets (professional/ major accounts, government, schools, municipalities and other communities).

 

However, from 1995 onwards it  developed  its  sales  to  individual  consumers. The public market today accounts for about 60% of  the  company’s  turnover, while the (still growing) consumers’ market accounts for the remaining  40%. There are 200 employees working for the company, and turnover is over €35 million (source: Internal figures 2010). Significant growth has occurred over the last decade.

 

The company is constantly on the lookout for technical and technological innovations, both of which are well represented in its range of low thermal coefficient products. Further the high requirements of the company in terms of the quality of materials, assembly, and installation exceed the market standard. This allows the company to offer its customers products at the forefront of innovation, a key success factor in this industry. Incidentally, this is one of the four founding values of the company, together with perfectionism (the aim to do the best possible job), cheerfulness within the company, and honesty with all company’s stakeholders (both employees and customers).

 

The French carpentry market, and  more  specifically  the  market  for  windows, has undergone several phases in recent years. We review these below.

 

A survey conducted by the UFME (Union des Fabricants de Menuiseries Exterieures,July 2011) among stakeholders (designers, window manufacturers, outlets and installers) reveals the  following.  In  2010,  the  French  window market suffered a decline of 4% compared to 2009 with a value of about  €9 billion (€5 billion relating to installation). The market was at its historical highest in the year 2005-2006, with 12.3 million windows sold, following a steady increase in the global market of about 4% per year between 2000 and 2006.

 

The overall volume of sales in 2010 shows that more than 11 billion windows (excluding opening glazed facades, shutters and doors) were sold. Among these, only 5% were imported: this is because the carpentry sector remained unaffected by the massive industrial relocations occurring in recent  years. Local production is an important factor: most consumers prefer to buy from local companies and artisans. Almost all components of windows  sold  in France are produced in the European Community. Indeed, as consumer preferences vary greatly from one country to another, it is very difficult to market a standard product globally, which partly explains the customization this phenomenon. In addition, over 90% of windows are custom made, which further limits the importation of materials.

 

The housing sector, and more specifically the sector relating to windows and shutters, employed 110,000 people in France in 2010. A  third  of  this  market value is linked directly to the jobs created (€3.25 billion over 10 billion for the housing sector overall). The market is mainly  based  on  SMEs  (around  5,000) who manufacture the windows, and artisans (around 40,000) who install them. Two major markets exist for windows: windows in new  buildings  account  for 26% of market volume, while replacement windows  represent  the  remaining 74% (source: UFME, 2011). In terms of market value, the renovation market is larger, and generates more income.

 

Important price fluctuations can be observed on the market. The average price of a window is €420 (net of tax). However, as soon as the cost of installation is added, the price can rise by  at  least  80%,  to  €760.  Since  2004,  the  average price of a window has increased by 38%. Several factors explain this, including the quality and type of material used: the market has shift towards aluminium on one hand, and towards more efficient products on the other hand. However, in terms of the volume  of  products  sold,  PVC  largely  dominates  the  market, with 62% of market share, followed by aluminium (22%) and wood (13%). However, looking at value estimates, aluminium accounts for  33%  of  market value and  PVC  for  49%.  Nevertheless,  the  distribution  and  installation  costs are declining, which, in a highly competitive mar MPO Toute reproduction non authorize offsets the rising  costs  of  the  commodities and materials used in the manufacturing process. The research institute Xerfi forecast two major changes in this market by 2011. Its first prediction was accelerated growth in the renovation market, reinforcing its importance. As a result of rising energy prices, individuals will be more likely to invest in better insulating materials for their houses in order to reduce their energy bills. Its second prediction was a sharp rise (expected to be a long-term trend) in new building, accounting for a third of the construction market.

 

Given the likely future development of the market, there are plenty of opportunities for window     manufacturers, including a greater focus on customization. However, it is important to note that most of these  new products linked to innovations will be linked to improved technical attributes of these products. This does not allow further development toward the consumers’ market. It also protects companies from enjoying a share of the activity of the do It Yourself market segment. The largest distributor of joinery products in France is Lapeyre (a subsidiary of Saint-Gobain), one of the largest producers, processors and distributors of materials in France. Yet this operator represents only 10% of the market. The market report by Xerfi identifies other actors on the market:

 

1. Specialists in manufacture, marketing their products primarily business to business (B2B) but invest small amounts in niche markets, due to higher profitability
2. Independent joinery networks (including MPO Fenetres) usually suffer from a lack of recognition and limited geographical
3. The DIY and unskilled distribution These actors (such as Leroy Merlin), which have become essential market windows, now offer a comprehensive range of joinery (doors, windows, etc.)  and  benefit  from  their vast distribution networks to offer promotions. Finally, a new type of actor has recently emerged on the market: Online sale specialists (such as Fenetre24, Brico-Fenetre). These target individual customers with specific building or DIY
4. Most of these companies use a business and development model based on franchising (to promote rapid development of their  distribution  network)  and aim their products at middlemen or  independent  artisans.  Of  these,  the company which enjoys  the  greatest  level  of  customer  awareness  is  FPEE  and its associated distribution network, Art & Fenêtres.  Sales  of  windows are governed by a set of strict regulations and legislation. For instance, government initiatives and statutes promote the acquisition or replacement of windows by individual home-owners. Some of the relevant  regulations  are  detailed  in  the next section.

 

3  The statute on thermal regulation

 

Since 1975, the statute on thermal regulation has imposed rules on French companies regarding the energy consumption of  buildings.  Since  its  inception, the aim has been to reduce energy consumption by 15 to 20% every five years. The Thermal Regulation of 2012 (“RT 2012”) has been in force since July 2011 for the tertiary sector and public buildings, and from 1 January 2013 for residential houses. It is intended to promote better building design so as to reduce overall energy consumption and the need for heating. In 2012 these statutory requirements were increased, requiring contractors to increase their efforts to reduce the energy consumption of buildings. The main objective is to achieve self-sufficiency for energy purposes in buildings by 2020. Thus, this regulation promotes the use of more efficient technologies for the production and retention of heat, as well as the production of renewable energy.

 

Many standards apply to the design of buildings, including windows and doors. The new ISO 23045: 2008 establishes specific guidelines applicable to the design of buildings, to improve energy efficiency. To this end, the ISO covers the choice of the raw materials and components used, the location of the building, and the energy sources used. In theory, the ISO enables the transmission and sharing of information about a building’s energy efficiency by standardizing its energy statement. It also defines objectives specific to each construction project from the design stage onwards (source: ISO Standards habitat).

 

In addition, companies use independent inspection and certification to prove the increased performance of their products, and to act as a guarantee of their quality. Thus, the NF and CSTB labels ensure compliance for window manufacture, with minimum levels of quality and standards concerning air – and water-tightness, and wind resistance. Such certification of PVC joinery allows consumers to assess manufacturing quality with respect to those three factors.

Finally, in response  to  the  growing  concerns  of  both  individuals  and institutions about  global warming,  the  “Grenelle  Environment  Forum”, organized in 2007 by the Fillon government, brought together for the first time the State and the representatives of  civil  society  to  define  a  roadmap  for Ecology, Development and Sustainable Planning (source: Presentation by the Grenelle, October 2010).  The  Grenelle  has  achieved  some  progress  by promoting the involvement of all stakeholders. In terms of development and planning, the Grenelle’s objectives are to: ≪promote efficient urban  land resources, energy and implement technological breakthrough in thermal improvement renovation and accelerate the renovation of the old fleet” (source: Grenelle Environment Forum, “Building rises to the challenge”, October 2010). Following discussions, two key measures were implemented.

 

The first was the introduction of interest-free  loans  for  qualifying  energy efficient building projects, from early April 2009. Such loans are  available  for house renovation work to reduce both energy consumption and the emission of greenhouse gases. The loan is granted for certain types of work (such as project management and energy consumption assessments, insurance fees,  etc.)  or  for any work involved in and inseparable from energy efficiency improvements and installation carried out by a professional. This latter category includes the installation of new windows, including triple-glazed windows. Specific conditions must be met to qualify for such a loan (concerning the age of the house, the grant of any previous loan, the amount of the loan, repayment schedule, etc.) These loans rapidly became popular: by late July 2009, 15,000 applications had been received, and by the end of March 2010, more than 100,000 loans had been granted.

 

The second measure introduced were training schemes for companies and craftsmen, to encourage them to take into account the energy performance of buildings. Since its launch in 2008,  over  10,000  workers  have  been  trained under this measure. Following this market trend, MPO Fenetres has obtained certification, allowing the company to showcase its commitment to sustainable development, from product design through to its installation. MPO Fenetres highlights its long-term commitment by ensuring  that  the  joinery  products  it sells are environmentally-friendly.

 

MPO Fenetres maintains its commitment to the continuous improvement of its products, including products with triple glazing, which allow an increase in performance of over 40% compared to the best double-glazing on the market. This commitment is reflected in all companies’ activities, as stated above, but MPO Fenetres has also improved its installation and waste treatment along ecological lines, including waste recycling. In other words, since 1 March 2007, MPO Fenetres has committed itself to producing more eco friendly windows, offering NFcstBat-certified eco friendly windows and triple-glazed Visio windows. As such, MPO Fenetres puts the most efficient windows in terms of thermal insulation within reach of everyone. The company decided to concentrate on this market sector, which, according to the company’s CEO, represents the future of the company. Noting that for an average surface area of 50 to 100 m2, 10 to 15% of heat loss from dwellings comes from windows, it appears that they are an important element that could improve the overall energy performance of homes. Indeed, these windows have become the ideal solution in terms of domestic thermal insulation. The three panes which make up the triple glazing are separated by spaces filled with gas, giving them excellent thermal performance. Triple glazing captures very little heat. It therefore gives very good thermal insulation and ensures low heat loss, saving energy by reducing the amount of heating needed in winter and of cooling in summer. However, triple glazing products are much more expensive to purchase, and the acoustic insulation offered is not  necessarily  better  than that of “acoustic double glazing”. Therefore, the company needs to ensure the best promotion in order to convince clients to invest in these products.

 

Many consumers are willing to spend large sums on products which produce immediate benefits. Expenditure on housing (including joinery) often involves substantial outlay, from which the expected savings are less obvious to individuals. Yet such investment is an effective way to reduce energy costs significantly. Thus, the company’s marketing should focus on the potential savings in energy costs for homeowners over the long term. In order to support sales, MPO Fenetres has developed products within the framework of sustainable development, from design to installation. Additional certification for the installation of windows obtained in 2011 is further evidence of the company’s desire to provide a quality service. These certificates and service evaluations conducted by independent arbiters are highlighted by the company’s sales staff in discussions with existing and potential customers. The sales force is therefore a very important element of the new marketing strategy and the launch of the triple-glazed windows.

 

4  Marketing and distribution strategies

With regard to marketing and distribution, the business is customer-oriented: therefore MPO Fenetres has chosen to keep control of the entire supply chain, right through from the order to delivery to (and sometimes installation for) the customer. For both new and replacement windows, MPO Fenetres markets, designs, manufactures and installs its own products, thus ensuring complete control of the order and keeping to a minimum the number of contacts for the customer.The company distributes its products through two distribution channels: a central department in charge of “key accounts” and “communities”, and a network of eight agencies deployed in northeastern France, all owned by the company. These agencies are the cornerstone of the  distribution  network. Each agency employs fifteen salespersons, as the control of about 15% of its market area, and operates in a sales territory of approximately 45,000 customers. The company’s salespeople  actively  seek  potential clients,  especially at trade fairs and exhibitions. These events are of paramount importance: they afford opportunities to expand the client base and win  new  contracts.  Up  to 25% of the annual turnover of an agency can be attributed to contacts  made during these events.

 

Today, the continuing strong growth of the market has encouraged MPO Fenetres’s CEO to rethink the organisational model of its agencies. In order to improve performance and increase the commercial strength of the company, an audit of its business performance was conducted. Internal research within the company enabled the identification of tasks conducted by employees,  and  the time allocated to each task, over the course a year. The results are as follows.

 

Each year, a salesperson has two weeks of training and five weeks of paid holidays (in accordance with employment law). Two weeks of their annual working time is devoted to attending trade fairs. In addition, the average salesperson is absent one week per year for personal reasons. In terms of the organization of their five-day working week, the Director observed that one day is devoted to purely administrative tasks (making appointments and reporting activities). For the remaining four days of the week, based on a working day of 11 hours, one hour is devoted to the  management  of  administrative  problems and urgent tasks, and  one  hour  is  taken  as  a  lunch  break.  In  terms  of customer contacts, information obtained from sales staff  showed  that  the average sale is concluded at the end of the third meeting, and that such meetings last on average about an hour.

 

Convinced that high thermal performance PVC windows are the future of the company, the company’s directorate decided to develop sales of these as its primary strategic activity. It therefore needed to develop a marketing strategy for these products on the retail market. Some factors are key to the strategic approach needed: individuals are not necessarily aware of the technical features of the products. In addition, although they offer real benefits, triple- glazed products are more expensive. This may hinder sales of triple-glazed products, because many alternatives, which are cheaper and perform equally well, are still marketed, both in the company’s own catalogue and in those of its competitors. Although the triple-glazed products are better in terms of insulation and sophistication, their price may be an important deterrent.

 

Questions

1. Conduct an internal and an external diagnosis of the company. Use the SWOT tool to synthesize this information.
2. Identify the Key Factors for Success from the diagnosis.
3. Write a sales pitch for the Prepare sales claims to be presented to sellers. Remember to take into account the potential objections of customers: provide the employees with arguments to counter customers’ misconceptions.
4. Suggest incentives to stimulate the sales force (bonuses, collective or individual incentives, ) to encourage their continued training and to support sales of this product.
5. Determine the optimum size of a business team for an agency, using the information provided in the case Consider the effectiveness of an agency’s sales team and the commercial influence that the agency can exercise in its area of operation.
6. Assess the feasibility of a commercial promotion offering “triple-glazed windows for the price of double glazing” for the product , etc.)

 

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