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The Dow Chemical Company
Background
The Dow Chemical Company is one of the largest chemical manufacturers in the world. Its products vary from simple industrial chemicals to plastics, dyes, hydrocarbons, agricultural products to water purification technologies. The diverse nature of the company’s products coupled with its huge financial base has seen the company expand from its humble origins in Midland, Michigan in 1897. Presently, the company has production facilities and direct supply points in over one hundred and fifty countries worldwide. The company has over 50,000 employees spread throughout its facilities with the American workforce being the largest in the group. The company is listed at the New York Stock Exchange where it is publicly traded and forms part of the Dow and S&P 500 index. According to the financial results for the year
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2010/11, Dow Chemicals made a profit of $2.7 billion and had revenues of close to $60 billion.
It also has a total asset base of $69 billion with equity for the 2010/11 financial year standing at $23.2 billion (The Dow Chemical Company, 2012).
Before diversifying its operations to other chemical products, the company first started with extracting bromine from underground brine in Midland. As a result, the company first specialized in the production of bromine derivative products such as bleach. Developments in the chemical manufacturing sector especially in the lead up to and during the Second World War saw the company diversify to the production of performance chemicals. From then on the company expanded significantly into becoming a major manufacturing player in the agricultural sector (The Dow Chemical Company, 2012). The sheer size of Dow Chemicals has meant that the company has in effect stopped selling directly to end users; instead, its main clients are other chemical manufacturing plants throughout the world. Despite this fact, the company is among the leading hubs of innovation in the chemical sector as evidenced by the over $1 billion annually spent in research and development (The Dow Chemical Company, 2012).
Company evaluation
Despite Dow Chemicals being a major player in the chemical industry, it has had to contend with fierce competition from other big players in the sector. Among Dow’s greatest competitors are the Monsanto Company of North America and German’s Bayer Group. These two companies not only have the technical ability to match the Dow chemical machinery, but also the financial capability to be able to compete on all fronts (The Manufacturing Institute, 2009). In order to evaluate the successes of the Dow Company, it is imperative to evaluate it with respect to its competitors. The Monsanto group, though involved in other chemical sectors such as the production of polychlorinated biphenyls (PCBs) and catalysts, is strongest when it comes to the production of agricultural products (Monsanto, 2012). Dow chemical has a specialized division that produces genetically modified seeds and herbicides, insecticides and fungicides, Dow AgroSciences (The Dow Chemical Company, 2012). This has put Dow Chemical in direct competition with Monsanto Company especially in America where the Missouri based company is famous for the production of high quality seeds and herbicides, more specifically the brand, Roundup (Monsanto, 2012).
The Bayer group is also a big chemical company that is based in Leverkusen, Germany. It was founded in 1863 and became world famous by the late 1890s for the production of its trademark acetylsalicylic acid, Aspirin. The company’s prominence was so great before the Second World War that it had operations throughout the world marketing its Aspirin (Bayer Group, 2012). The company has diversified its products to include the production of polyurethanes, genetically modified seeds and other agrochemicals. Its work in the agricultural sector ranging from production of agrochemicals to the production of specialty genetically modified seed has put Bayer in direct competition with Dow. This competition is not only evidenced by the presence of Bayer in the lucrative markets of Asia and Africa, but also in its main European market and North American operations via the Bayer USA subsidiary (Bayer Group, 2012).
Market Segments
Demographics
The sheer size and operational structure of the Dow Chemical Company has meant that the company’s target market has to the most part seized being the end users. However, the fact still remains that Dow has structured its operations such that it looks at other important aspects of demographics that are important to its industrial clients. Issues like education levels and the average income of the market and the subsidiaries that the company sells to happen to be key considerations for Dow Chemicals. In industry, the education and literacy levels of a people dictate the amount of technology that is employed in the manufacturing sector. Hence the reason why Dow has established more research based industries in places such as Europe because its consumers in that market have the necessary technical capacity. Average incomes of the target market play an important role in the establishment of a subsidiary and further investment that a company does (Blythe, 2006). High incomes reflect the ability of the target market to consume specific goods and in the production of specialty chemicals such as those of Dow this happens to be an important consideration.
Geographical factors
By virtue of being one of the largest chemical manufacturers in the world, Dow Chemicals coincidentally also happens to have a diverse geographical spread. In order to have an overview look at the market, the company’s various fields of operations have to be considered. For instance, for agricultural products, most of the company’s target happens to be the rural areas in which farming and agriculture is practiced. However, for the heavy chemical division in all of its global operations, Dow has traditionally focused more on the urban areas. The choice of urban areas comes from the fact that most of its clients are normally heavy production industries located in urban industrial zones. Therefore, in order to sufficiently cater to its clients, Dow Chemicals has always strived to be near its chief market which has often meant establishing subsidiaries close to its consumers (Blythe, 2006). This strategy is not only a sound strategy but a smart move on the side of the company as being close to consumers can minimize the cost of business by reducing resources spent on logistics (Körner, 2007).
Psychographic issues
The choice of market segments is also heavily reliant on psychographic issues such as the lifestyle and social characteristics of the market (Körner, 2007). The lifestyle aspect is particularly important as it drives the demand patterns for a product. With regard to the Dow Chemical Company, the lifestyle aspect specifically affects its markets both its industrial and agricultural products. For agricultural products, market preference for specific crops determines the kind of marketing strategy that the company adopts for that specific market. In most of its markets in the western world, for instance, many suburban settings are characterized by well manicured lawns which indicate the use of pesticides and herbicides. For the same market, those in the farmland areas also use the same products but on a totally different scale. Therefore, in order to meet such a significant contrast in demand volumes for essentially the same product, a company has to adequately adjust its marketing strategy.
Although both segment’s lifestyles dictate their demand pattern, a company that is looking to sufficiently benefit from both will look for ways to adequately cater for both. In addition to this, social characteristics are also important when establishing market segments (Körner, 2007). The social structures of segment should not only be willing to absorb the products but also have the capability to do the same (Blythe, 2006). Take for instance the case of heavy industrial chemicals that Dow markets; not all of their clients in their global set up have the capacity to utilize all their chemicals in their processes. Only a few of these markets such as those in North America and Europe have the purchasing power, technical knowhow and overall capacity to consume Dow’s basic chemicals.
Marketing Evaluation Product
In order to sufficiently cater for the aforementioned market segments, Dow Chemical Company has to continuously provide high quality products. Dow Company has over the years proved to be capable of constantly delivering high quality products and with consistency throughout its subsidiaries. This has been achieved via the use of standardized manufacturing equipment and techniques (Baldwin, Caves and Gu, 2005). The importance of this cannot be over emphasized; the reason being that all of Dow’s consumers, some of which are also multinational in nature, rely on Dow’s uniformity of products for their product’s uniformity too (Baldwin, Caves and Gu, 2005). However, with regard to the product, there are other important factors apart from consistency that consumers also look for. In such a competitive segment such as the chemical industry where companies essentially produce the same product, more has to be done so as to make a product more appealing. In order to ensure that one continues to hold on to their market share and possibly increase it, a company must always set out to differentiate its products from those of the competitors (The Manufacturing Institute, 2009). But for other specialized products that Dow produces such as agricultural products, Dow must do more so as to ensure it covers ground on its competitors. This is due to the fact that the agricultural division of the Company has found itself lagging behind to Bayer and Monsanto in the wake of safety concerns over its production facilities. This is from the 1984 Bhopal disaster in India in which the company’s facility spewed toxic Methyl Isocyanate (MIC) fumes (The Dow Chemical Company, 2012). Such disasters can have negative bearing on the effectiveness and performance of a product in the market, especially if consumers associate the company with environmental degradation.
Price
In order to keep hold of a market segment and maintain a hold on the market share, a company must always offer competitive prices for its products. Failure to do this can result in competitors gaining advantage of the market and the company might end up being pushed out of the market (Leeflang and Parreño-Selva, 2012). Take the case of the agricultural division of the Dow Company which has over the years struggled to keep up with other divisions of the company in terms of competitiveness. In the 1960s and 70s, the agricultural division contributed to nearly 25% of Dow’s total sales, but by 2011, Dow AgroSciences contributed to only nearly 10% of the company’s sales. The reason for this is that two of Dow’s major competitors, Bayer and Monsanto have been able to price out the company as a result of employing more specialization. Monsanto, for instance, has effectively taken over the agricultural sector by selling out some of its divisions and acquiring more agro based subsidiaries (Monsanto, 2012).
The result of such a move is that the company can quote lower prices for similar products.
Promotion
This is an important aspect especially with regard to market segmentation. The promotion of a product ensures that a company keeps competitors at bay by holding on to the market share (Blythe, 2006). Since Dow Chemicals produces similar products with its competitors in a majority of its operations, an example being in the basic chemicals division, the company ought to do more if it aims to out sell them. This entails the use of more aggressive marketing and advertising that is specifically geared towards the consumers, who in this case are other companies (Blythe, 2006). However, for end user commodities that Dow produces such as agricultural products like fertilizer, seeds and herbicides, more commercial advertisements have to be done. The advantage of doing such advertisements through the media is that it keeps the consumers interested in the product. Consumers can get vital information on product improvements and pricing benefits, and therefore increase the company’s sales and profits in the long run.
Place For a large multinational corporation such as the Dow Chemical Company, the importance of place cannot be understated. The place in this case represents the location of the market segment, and with a company of Dow’s size, gaining access to all its market segments is vital for the company’s overall success. Therefore, in order to gain the required success, the company has to have a sound distribution network in place that keeps the company’s products continually close to the consumers (Baldwin, Caves and Gu, 2005). To this effect, ease in distribution can be achieved in one of two ways: Improving the logistics of the product and the location of the production facility. Logistics of the product include establishing more accessible storage facilities that ease access to the market (Blythe, 2006). Also, sound transportation facilities are important for quick delivery to the market. In terms of the location of the production facilities, Dow Company has been able to consistently be a world leader as a result of locating its facilities close to their markets.
Recommendations
Mergers and acquisitions
Mergers are especially important tools when it comes to bolstering a company’s market share (Willig, 2011). The advantages of mergers are such that they have the benefit of revamping a company’s activities. This can be important for a huge company such as Dow Chemical
Company that is made up of several divisions, all of which eventually contribute to the financial well being of the company. In order to improve the performance of a loss making division, a huge corporation can either sell off that division or seek out a merger with another company (Gaughan, 2011). For the case of Dow Company, the mergers can be a welcomed site especially in its Agricultural division where it is not doing well compared to its major competitors. Since the company has a solid financial base, it can use its already available capital to merge with promising companies, especially those involved in pesticide research and the genetic modification of seeds. Mergers can also be beneficial by cutting operational costs that are normally among the contributing factors to a company struggling to remain profitable. In case merging with other companies proves to be a daunting task, the company can alternatively look into the acquisition of promising companies and facilities (Willig, 2011). This can be more advantageous than mergers since the target companies are normally cheaper in the long run and can be more sustainable in future. Thus in order to remain competitive in its various market segments, then Dow ought to look at more opportunities through mergers and acquisitions.
Lay-offs and job cuts
The aim of marketing is to improve on the sales of a company’s commodities. However, in order to fully realize the benefits of marketing, the profits achieved ought to be ploughed back to grow the business. This can be challenging if a business is heavily weighed down by huge operational costs (Leeflang & Parreño-Selva, 2012). Therefore, there is need to merge successive marketing strategies with sound organizational and management strategies. One way of ensuring that less of the company’s resources are spent on covering overhead costs is to streamline the company’s operations (Gaughan, 2011). The company may choose to streamline its operations by cutting jobs in its production and administration divisions for instance so as to boost its personnel in the crucial marketing divisions (Baldwin, Caves & Gu, 2005). Alternatively Dow could cut non-performing marketing jobs from the payroll (Mathews, 2002). Such jobs only serve to drain the company of its resources with no visible benefits accrued from maintaining them. What job cuts also do is to inject professionalism in a process by getting rid of the excess baggage. This can open up an avenue for Dow to outsource some of its marketing duties especially in segments where it is struggling and larking behind competitors. Once such operational hindrances have been done with, then a struggling marketing division can channel the saved funds to better market their products (Mathews, 2002).
Product specialization
Despite the most innovative production process, quality and marketing, some products simply fail to perform in the market. The reasons for such failures are mainly linked to the perceptions that customers have on the product (Leeflang & Parreño-Selva, 2012). Other reasons include the fact that despite the best in research and development, both in cost and long time investment, the competitors simply produce better products. In the wake of the realization that a given product is not performing, companies have the option of cutting the product (Gaughan, 2011). For a big company, such a decision is not very hard to ratify since there are many divisions all of which are expected to turn in profits (Baldwin, Caves & Gu, 2005). Therefore, in order to remain relevant in its key markets, Dow Chemicals should specialize in the production of plastics, basic chemicals and energy products where they are strongest. On the other hand, less attention should be given to the Agricultural sciences division since Dow is struggling in this sector compared to other competitors. The company can follow the example of Monsanto which realized that its strengths lay in agricultural sector which accounts for nearly half of its sales. An insistence by a firm to hold on to non responsive sectors will in the long run inevitably lead to a financial burden that could have been avoided had it specialized on its strengths only.
Research and development
The advantages of research and development are very significant in virtually every economic activity. R&D helps a company to evaluate its target market by looking into the qualities of their product that attracts customers to the product. The same is also done to the competitor’s product with the aim of improving one’s own product so as to gain a competitive advantage over the competitor in the market. Dow should engage in more market research, especially in the economies of emerging markets, so as to adjust its marketing strategies in accordance to changes in the market. Economic growth for instance can have a significant effect on the behaviors of potential customers which translate to changes in demand for a product. The importance of R&D cannot, however, be over emphasized in the chemical industry where the rate of obsolescence of technology is substantially high. Chemical products, like the ones handled by Dow Chemical Company, are especially to handle due to a constant flow of knowledge and information (The Manufacturing Institute, 2009). This brings about marketing challenges especially when trying to market a similar product that a competitor already has a better version of in the same market. R& D in the production process coupled with significant investment in market research are therefore paramount to gauging market response.
References
Baldwin, J., Caves, R. & Gu, W. (2005). Responses to trade liberalization: Changes in product diversification in foreign and domestic controlled plants. Economic Analysis (EA) Research Paper Series. Ottawa, Micro-economic Analysis Division Bayer Group. (2012). Bayer: Science for a better life. Retrieved September 13, 2012 from http://www.bayer.com/en/bayer-group.aspx
Blythe, J. (2006). Principles & practice of marketing. London: Thomson Learning.
Gaughan, P. (2011). Mergers, acquisitions, and corporate restructurings, (5th Ed). Hoboken, NJ: John Wiley & Sons, Inc.
Körner, J. (2007). International trade - Multinational corporations and technology transfer. Norderstedt, Germany: GRIN Verlag.
Leeflang, P. & Parreño-Selva, J. (2012). Cross-category demand effects of price promotions. Journal of the Academy of Marketing Science, 40(4), 572-586.
Mathews, C. (2002, July 19). The real costs of layoffs. Retrieved September 13, 2012 from http://www.inc.com/articles/2002/07/24434.html
Monsanto. (2012). Monsanto company. Retrieved September 13, 2012 from http://www.monsanto.com/Pages/default.aspx
The Dow Chemical Company. (2012). Dow chemical corporate website. Retrieved September 13, 2012 from http://www.dow.com/
The Manufacturing Institute. (2009). The facts about modern manufacturing, (8th Ed). Washington, D.C.: The Manufacturing Institute Publications.
Tracy, B. (2004, May 17). The 7 Ps of marketing. Entrepreneur. Retrieved September 13, 2012 from http://www.entrepreneur.com/article/70824
