Branding Ferro Alloys in a Commoditized World

Ferro alloys are additives used during steel making for alloying and, in some cases,

refining of steel. Like most products sold in a Business to Business (B2B) setup, ferro

alloys are treated as a commodity. We, at Tata Steel, have attempted to create a

difference by branding Silico Manganese, meant for sale to the SME segment, and

breaking this commodity trap.

Commodity Trap : Commodities are product-service offerings that in the eyes of

the buyer are lowly differentiated from others and have a high degree of

substitutability. The decision to buy such product-service offers are often through a

straight price discovery (L1 quote).

It is well known that B2B buyers drive suppliers into a commodity trap. This is done

by defining conditions of supply, having two or three suppliers, and encouraging

alternate sources (vendor development) to keep suppliers in check. B2B buyers are

informed buyers and usually know as much about the product as the seller does.

This drives substitutability and thus makes buying decisions easy - a

straightforward price discovery. The emergence of e-auction platforms (like Metal

Junction etc.) has only served to accelerate this trend.

As a result, suppliers too focus most of their energy on improving transaction

efficiency as a route to improve market share and margins through :

Logistics and supply chain initiatives like buffer management, establishing

JIT Supply capability, etc.

Initiatives in minimizing associated costs like bulk packing, IT integration to

increase ordering efficiency etc.

This heavy emphasis on transactional selling has led to depletion of the importance

of marketing in most B2B situations.

However, just focusing on improving transactional efficiency has limited the ability

of suppliers to “ring fence” their customers as concentrating on a single

differentiator – e.g. focusing on transactional efficiency or on low cost - is not

enough to stave off competition.

Markets can be segmented : Like in a Business to Consumer (B2C) market,

differences exist in the B2B market place, although they are less obvious. Savvy

segmentation of differing needs and cost points of the market is needed to discover

differentiation levers. It is necessary, as a first step in de-commoditizing, to

understand customer needs, and devise and communicate customized offerings that

meet those needs.

Silico Manganese is used in steel making mostly for making long products. In India,

secondary producers of steel (most of whom are SMEs) account for around 70% of the

total market for Silico Manganese. It is virtually impossible for big organizations like

Tata Steel to service SME steel manufacturers. These SMEs represent a large untapped

market for such ferro alloy manufacturers and are usually serviced by traders.

Increasing competition for market share of large steel manufacturers, coupled with

our plans of increasing production capacity of Silico Manganese multifold in the

coming years, it became necessary to make inroads in the SME segment. We did an

extensive market study of the Durgapur, Raipur and Mandi/Govindgarh clusters

and attempted to understand the market. While each cluster is different, the market

characteristics common to the clusters are as follows :

First, for a steel maker, silico manganese constitutes less than 10% of the total

buy and is not worth too much managerial attention.

Second, customers need to establish technical capabilities (of sampling and

chemical analysis laboratory) to evaluate each purchase. Apart from cost and

effort needed in analysis, malpractices (through the corruption of the lab staff)

are common.

Third, the customer is known to the ferroalloy seller and is not anonymous. The

purchasing decision is influenced by technical people, the plant managers and

purchase managers in varying degrees, and the ferro alloy seller can use these

touch-points to establish his brand.

Fourth, the customer has established standards (technical specifications like

chemistry, size and packing) for supply and ignores all other elements of supply.

Thus, ferro alloys have become a commodity and are treated as such.

Lastly, the SME segment is under serviced by manufacturers due to their small

volume of buy (most manufacturers will only supply in truck loads – 16MT and

multiples – too large a quantity for SMEs to buy at a time), making room for

intermediaries (traders) who compete with suppliers for the heart of the

customer.

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In addition, while the metallurgical properties of Silico Manganese are almost

constant, the priority that different steelmakers give each property is different. For

example, while makers of steel components for automobile applications, and tool

and alloy steel makers (concentrated in the north and west) place a very high

emphasis on quality (mainly impurity levels : %C, %S and %P) and make no

allowances in the purchase specifications, manufacturers of billets and re-bars,

(concentrated in eastern and central regions) do, at times, play between quality and

price. However in Durgapur, which faces a shortage of power, the correct grade

(60/15) is valued because use of inferior grades results in an increase in furnace

smelting time, reducing the number of daily heats.

The kind and size of steel making furnace (induction or electric arc) too determines

the size of ferro alloy that SME steel manufacturers ideally require and their ideal

volume of buy per order.

These commonalities and differences provided an opportunity for us for creating

customized product-service offerings for the customer set responsive to these

differentiators.

We decided that our differentiated product-service offer would serve these un-met

needs of customers and that we would offer benefits as follows :

Product Consistency – guaranteed exact 50 kg weight

Quality Assurance – low impurities, 3P(third party) certificate

Size Consistency – 10 mm to 50 mm with + 5% u/s, o/s

Assured Availability – priority replenishment

Packaging Reliability - branded bags, sealed

Customized order lot size

On-site delivery - reduce customer inventory holding.

Backed by the TATA Assurance of Quality.

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Branding : A logical extension once we identified the differentiated product-service

offer was deciding a brand name. A brand is a bundle of promises to create a

mutually acknowledged relationship between buyer and seller that transcends

transactions. After an internal contest, coupled with an IPR search, we selected

TATA SILCOMAG as our brand name, the first mover advantage allowing us to

choose a brand name very similar to the category name (Silico Manganese, called

“Silico Mang” colloquially). The logo, shown below has a stylized image of liquid

steel being tapped from a furnace. We have legally protected our brand name and

logo.

Building Brand Loyalty via Emotional Connect : One big advantage that we hope

to capitalize on is the emotional connect of the Tata Brand in India, a brand that

evokes images of ethical values (reinforced by the Values stronger than Steel

campaign of Tata Steel), of superior quality and of a nation builder (Voltas : India

ka AC).

Capitalizing on the emotional connect, we designed all communication to illustrate

that represents product superiority and a long term commitment – a

partnership.

Devil in the details : Before the brand launch, we strengthened our back office and

support infrastructure. These actions included :

1. A task force worked on improving bagging across all production units (ours

and those of our conversion partners) that improved and standardized the

quality of bags.

2. The task force also developed a sealing solution unique to the ferro alloy

industry which was implemented across all production units. The sealing

solution, currently implemented for all OE dispatches, included a system of bag

wise traceability. For bags meant for distribution, an appropriately designed

stitching machine was developed and distributed to all plants.

3. A system for marking the lot number on each bag is being developed as an

additional security feature.

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4. Developing ability of the distributor to deliver in small lots (up to a single 50

kg bag) to customers in a milk run.

5. Branded delivery trucks, owned by the distributors for the last leg logistics

(from the distributor to the SME customer)

6. Creating a database of all SME steel manufacturers by collating data from

multiple sources and triangulation. We estimate that we managed to collate

authentic data of all the steel manufacturers in our sectors of interest.

7. Extensive training of the distributor’s staff on the SME steel segment and on

TATA SILCOMAG.

8. Training of the Tata Steel helpline (1800 345 8282) on TATA SILCOMAG.

Halla Bole : For creating excitement for the Brand Launch within Tata Steel, we

ran a week-long teaser campaign over email and the intranet. The campaign traced

the history of discovery & use of Manganese ferro alloys in steelmaking, each time

asking the question : what historic event will take place on 22nd Aug’12 ?;

finally revealing on the 22nd the brand name, TATA SILCOMAG and details of the

value proposition.

The same campaign was developed into the brand launch film and into coasters

that were gifted to each participant at the launch event.

External Communication was limited to hoardings at event areas before the

launch. However, along with our distributor, we personally met each potential

customer and invited them to the launch. For many of these customers, we met the

owners as well as the plant managers & technical people and invited them

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all for the launch. And many we were meeting yet again, having met them multiple

times before during the market survey.

Apart from customers, we also used Tata Steel’s PR agencies to invite the national

press to a Press Conference held just prior to the event and ensured wide coverage

of the launch.

The brand launch was a grand affair, of dance sequences intermingled with AVs on

Tata Steel, Ferro Alloys & Minerals and TATA SILCOMAG, and concluding with a

rocking performance by “Dhwaani”, an event our customers, distributors and Tata

Steel officials will remember for a long time to come.

Images of Branded 50kg Bag, and Collaterals like pamphlets, standees and brochures

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Just after the launch of our logo, at 9 pm on 22nd August, our website

www.tatasteel.com/famd sported a popup announcing the launch of TATA

SILCOMAG. A micro site with details of TATA SILCOMAG, linked to the main site, too

became active. The Tata Steel intranet page too had the new brand on the first

page as did our departmental webpage on the intranet site.

Standees placed strategically and a display on the TV screen at the reception greeted

employees and visitors entering Tata Centre next morning. Our floor was festooned

with balloons in the brand colours, and everyone in FAM had name cards, instilling a

sense of pride and ownership of the brand.

TATA SILCOMAG is a premium, differentiated product-service offering. The

extraction of premium for a differentiated offering demands

that we at FAM make good on the promise of delivering

added value. The value is real and tangible and is defined

upfront (in terms of the “6 fold advantages”) for the

customer to experience, measure and evaluate. It is the key

for the success of the brand. The entire supply chain is

sensitized to this and we resist any deals or short-cuts for the

sake of short term sales. One key feature is that unbundling of

the offer is not allowed and TATA SILCOMAG will always be

sold through organized distribution as a product-service

offer.

The first step in selecting & gaining customers is segmenting customers based

on buying behavior as follows :

P1 Premium Customers who would enter into long term strategic

partnerships with us for SILCOMAG. They will typically be more demanding

and would constitute about 5% to 10% of the customer base. Typically, we

expect SME steel makers in the alloy segment, and auto component

manufacturers who would be concerned with getting consistent product

quality and assured availability to fall in this category. These would be the

easiest to target and gain as assured LT customers.

P2 Potential Customers who have a high emphasis on price but are willing to

pay for selective product-service attributes. They would shy away from a

formal long term relationship but would acknowledge some degree of

partnership with us. They would evaluate total delivered cost inclusive of

transport, delivery, inventory holding, and some degree of costs on account

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of quality. These customers, forming 30% to 40% of the customer base, would

need to be converted to long term customers by demonstrating the superior

value proposition of TATA SILCOMAG.

P3 Pure-price Customers who constantly seek just the best deal in current

transaction and would constitute about 50%-60% of the customer base. We

would need to ask

a) Whether they should be our customers at all ? Or

b) Whether we could convert them through education?

We would approach only those customers who we feel we could convert, through

the technical adviser or the works manager and attempt to influence purchase

decisions by demonstrating our value proposition.

Pricing : It is important to use pricing as a tool to drive differentiation and extract

a premium. The pricing policy should acknowledge true cost of differentiation

(initiating-building infrastructure, delivering & supporting the bundle of offers);

even in face of commodity suppliers providing a particular service selectively to

gain a customer; e.g. competition offering 3P test certificates to select customers.

One way of protecting the premium position is to not allow the differentiation to

be unbundled either by the competition or the customer; and to truly believe that

the bundled offer is the core of the brand. We will need to resist pressures of

immediate sales and ensure no deviations from an established policy.

We need to constantly extract value for even seemingly small differences through

customer education : e.g. door delivery offer of

TATA SILCOMAG v/s lifting from nearby competitor

plant (headaches outweigh cost); customized order

size and priority replenishment offers of TATA

SILCOMAG which is not offered by competition

(customers need to be sensitized to both inventory

carrying cost & cost of stock out).

The true value in TATA SILCOMAG lies in its impact

on our customer’s operations : i.e. value of superior

grade & consistent size is decrease in smelting time giving more heats/day and in

better yields and decreased chances of off heats.

The success of TATA SILCOMAG lies in our ability to get the customer to

acknowledge this and transfer part of the value to us by way of a price premium

and a higher market share.

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Sustaining the Excitement : All of us, including brands, age, and thus face

challenges in remaining relevant. One way to sustain the excitement and keep the

brand youthful is to continuously engage with customers. While we have not yet

finalized the details, we shall use methods like a) volume based incentives (perhaps

a passbook scheme) to enhance repeat buy & brand loyalty, b) a Star Club for

decision makers of key customers which will be the platform for regular meets and

events, c) drive engagement with technical personnel of our customers having

regular technical meets and conferences etc.

Our Distributors would be a part of the “FAMily” a forum to regularly interact,

raise and resolve concerns, to build on the emotional connect and learn from each

other. Standard tools like volume based incentives and Distributor Meets for our

performing Distributors are also on the agenda.

Ear close to the ground : We are in the process of establishing systems to track

competition moves, monitor partner performance, monitor customer trends and

identify opportunities through the Distributor Score card and a Customer Account

Manager MIS which are essential steps to ensure survival and growth of the brand.

Long Road Ahead : The ferro alloy branding story has just begun. We look forward

to introducing new brands, perhaps TATA FERROMAG (Ferro Manganese), TATA

CROME (Ferro Chrome and Charge Chrome) and brands of refined alloys.

There would be continuous and complex trade-offs between market share &

market premium and the need to exploit markets when there are opportunities to

leverage differentiated bundle of offers and surrender market share (but not

significant premium) when market conditions are tough.

Market Discipline : Finally, it is essential for all of us in the organization to believe

in the brand, to believe in the value branding bring to customers and the difference

brands make in the B2B marketplace. Only then will TATA SILCOMAG find its

rightful place in the sun and be the trailblazer in the branding of ferro alloys in a

commoditized world.