Breaking Into The Glass Market, A Case Study - Download MS Word file

Introduction

"The Celtic Tiger is hungry for Windows, Doors and Conservatories, with windows in the New Build sector grown by 29% over the past two years and Home Improvements grew by ‘only’ 11%" read the market research report on Kieran’s desk (Palmer Market Research Report, 2001). The demand for windows had and was expected to continue to rise strongly, reflecting the boom in the economy. Kieran, MD of Greaney Glass, was familiar with the factors contributing to the growth in the business - the young average age of the population, a switch from net emigration to net immigration causing a greater demand for new housing, and the ‘peace dividend’ in the North, to name but a few.

Table 1

Planning Permissions Granted for New Houses

Source : Central Statistics Office, 2001

Although key demographic and construction industry statistics abounded, Kieran was well aware that there were other critical factors to consider. What did his customers want? How would competition respond? What was in the best interests of the company long-term? These, and others, were questions he had to answer in considering whether to install or not to install a toughening glass extension to the existing glass plant.

By any standards, this family run business has been, and continues to be, highly successful. Established in 1978, in a purpose built state-of-the-art factory, just past the then small village of Oranmore on the outskirts of Galway city, it currently employees over 32 people. With a turnover of £2.8 million in 2000, operating profits of £580,000, a dynamic, experienced management team, a strong customer base in the West of Ireland, and a deserved reputation for superior hands-on customer service, Greaney Glass is highly respected in the industry by buyers and competitors alike.

The Market and Market Trends

Ireland’s construction industry was valued at £11.5bn in 1999, approximately 17% of GNP. Having expanded by 13% in volume, the industry outpaced the strong performance of the economy, with a growth rate of 7% according to the Construction Industry Federation.

Table 2

Current Growth Forecasts
Year % Volume Change

However in spite of these positive forecasts Mr Liam Kelleher, Director General of Construction Industry Federation told the National Housing Conference in Galway on 25th April 2001 that "The output of the industry has been in freefall since last summer. Housing construction levels are falling - the volume of construction in Dublin has declined by 40%, Cork by 17%, Galway by 30% and Limerick by 25%. This is directly as a result of Government interventions. National house completions this year could be 15% down on last year's levels. The net result of this will be that 6,000 fewer homes will be built this year (40,000 houses and apartments compared to 46,000 last year)."

Within the construction industry, the overall market for glass in Ireland is estimated at £30 million. In constant use since ancient Egyptian times, nowadays glass is a highly valued material and sophisticated product requiring state-of-the-art technologies to deliver ever faster and cheaper production. In principle, its relatively easy to make glass; you use heat to melt a mixture of sand and sodium carbonate and then cast, mold or blow the molten mass, depending upon the required shape and finished product.

"This has been a very good year for the sector nationally" says Tom Walsh, chairman of the Cork Branch of the Irish Window Association (IWA). With the industry never been busier, continued strong growth for the future is expected, "the biggest demand for our products came from the commercial sector - offices, schools, factories and chemical plants. The huge increase in commercial contracts took us somewhat by surprise - but many of these large scale projects will continue for another 2/3 years" (Construction, 2000). The other substantial market is the domestic glass market.

Toughened or tempered glass is simply ordinary float glass heated to about 650 OC, then quenched with air jets so that the surfaces are cooled quickly and the inside core more slowly. At room temperature, the core continues to cool. The surfaces go into compression and the core into tension. When the glass breaks, the core releases tensile energy, resulting in the formation of small glass particles or harmless granules. While the risk of injury is significantly reduced, the toughening process inevitably results in a product with lower optical quality than that of glass.

In recent years, several changes in legislation and standards have made the use of safety glass in critical locations compulsory by law. Apart from the obvious uses of toughened glass in windows, doors and conservatories, etc., it is widely utilised in squash and handball courts, canopies and roofs, cabinets, table tops, balustrades for stairways and balconies and entrance door assemblies.

Toughened glass manufacturers in Ireland provide product to a diverse market. For instance, one firm, Taylor Made export 95% of their production (£4.5 million in 2000) to customers involved in the manufacture of farm and construction vehicles and recreational marine companies. Other users include Novum Refrigeration, Flair and Showerlux (shower and bath endosure manufacturers) and designers of decorative and furniture glass.

Based upon CSO figures, the market for toughened glass is currently growing at 15% per annum. The construction boom and increasing safety standards will see the demand for toughened glass continue to increase. The export market has shown the following growth:-

The main export markets are the UK, Germany, and France. In spite of the growth in the export markets, Ireland still imports approximately £4 million of toughened glass per annum. The industry is not particularly price sensitive.

Within the industry, the double glazing and toughened glass markets are relatively low growth markets, with stable shares and profit margins. The potential growth markets are seen as coming in diversified areas such as kiosks, shower units and refrigeration case manufacturing.

Competition

Three companies dominate the manufacture of glass in Europe. One of these is Pilkington UK Ltd, considered to be Europe’s leading producer of glass. It’s annual float glass production capacity is in excess of 1.5 million tonnes, which accounts for about 25% of the European market share. They supply a full range of products for the construction and automotive sectors as well as other specialized industries. A recently developed on-line ordering system already has 5% of their 6000 Australian customers buying on-line. They are Ireland’s main supplier of glass.

Based in France, Saint Gobain, a second European glass manufacturer, employees 6,500 and announced net profits before capital gains tax of 1bn Euros and sales of 26.8bn Euros. Pre-tax profits for 2001 are forecasted to rise by 10%. Like Pilkington, their annual float glass production capacity is in excess of 1.5 million tonnes and they also manufacture a full range of glass products for the construction and automotive industries. They are a parent company of Solaglass here in Ireland.

Finally, there is Glaverbel, with headquarters based in Brussels, Belguim. They are recognised as the leading glass producer in the Benelux countries, as well as Central Europe, via its Czech subsidiary, Glavunion. It has an annual float glass production capacity of 1.1million tonnes, and a 16% market share.

Since glass is currently produced outside of Ireland, most of the imported glass is further processed by a number of Irish companies. This processing industry is characterised by the presence of a number of major players in the market, and a number of smaller firms who concentrate upon niche markets.

Carey Brothers are the largest producer of float glass in the country and the fifth largest indigenous employer in the Shannon region, providing employment for 420 people. Carey Brothers, a family owned business, established in 1964, operate from the outskirts of Nenagh town. Its main products are architectural and domestic double-glazing. Carey’s also provide a line of specialist products for the export market, including glass-chopping boards, bevelled mirrors, telephone kiosks and bus shelters.

They claim a market share of 70% in toughened glass and over 80% of the double glazing units market, attributing this success to a quality service. Their emphasis upon quality is supported by their having the Q Mark, the IS 0 9002, BS 5713 and the BS 6206. The company has a 32 county distribution network and currently exports to the UK, Holland, Germany, France, Belgium, Luxembourg, the USA and Norway.

Dockrell Glass Distribution Ltd has its headquarters in Tallaght in Dublin. In 1999, its turnover was estimated to be between £6.5 and £7.5 million. With over 130 employees, its subsidiaries include Dockrell Glass (UK), Dockrell Double Glazing ltd and Dockrell Toughened Glass Ltd. Dockrell’s are wholesalers and distributors, importers and exporters of industrial and commercial glass. A sister company, Solaglass is based in Belfast.

Over 70% of Dockrell’s sales are national, attributable in part to strengths such as a strong sales force with over 10 sales representatives covering the country, their own toughening glass facility, little perceived difference between them and their major competitors, a strong telesales operation and national advertising campaigns. Against this, Dockrell’s do not own their own transportation fleet and are currently leasing their premises, thereby limiting the chances for expansion.

Cork is the basis for the WMG Group headquarters. Founded 105 years ago in 1898, its 1999 turnover was between £4.5 and £6.5 million. WMG was previously Munster Glass and is now the result of LDG, Brimex and Waters merging, currently employing 95. WMG is a manufacturing firm involved in non-metallic products, e.g., mirrors, and glass produces, including toughened glass. They specialise in commercial and industrial glass construction supplies.

Over the years, WMG have built up good customer relationships and have good brand loyalty. Modern facilities ensure a fast turnaround, but this has been limited to the Munster and South Leinster regions.

Dunnes Glass Ltd, a Dublin firm with 50 employees has an estimated turnover in excess of £3.5 million. They import, manufacture and distribute non-metallic products and are wholesalers, distributors, importers and exporters of industrial and commercial glass and glass fibre products.

As a long established company in the industry, Dunnes has good brand loyalty and a strong customer base in Dublin. Weaknesses include the lack of a double-glazing facility, higher than industry-average pricing and an over reliance on the Dublin market.

K MAC Group, founded in 1969, with a turnover in 1999 of approximately £6 million, are found in Benburb, Co. Tyrone, employing 75 people. They are widely acknowledged as a leading manufacturer and exporter of non-metallic and kitemarked glass products, such as clear and toughened glass, double glazing units and security and safety glass. To this end, K MAC Group are divided into 3 core businesses. Firstly, ToughMac, manufacturers of kite marked toughened safety glass, secondly, GlassMac, merchants for an extensive range of glass types suitable for all application and thirdly, AluMac, manufacturers of kite-marked insulated sealed units.

Being in business over 20 years, K MAC have a strong customer base, especially in Northern Ireland. This is being increasingly challenged with competition coming in recent years from southern-based firms.

Another manufacturer of toughened glass in Ireland is Taylor Made, while Euroglaze and Fraser Ross are toughened glass agents/distributors. Other glass processors, smaller in size and focusing upon niche markets include Roscrea Glass, O’Neill Glass in Portlaoise, Lawless Glass in Mayo and Wexford Glass.

Market Research

Kieran had reached the point where he wanted more specific information to help him in his decision-making. He knew that despite Careys domination of the market, customers were complaining about the level of service and delivery in recent months. So he commissioned some marketing research to be undertaken by a local consultancy company he had used in the past.

The research firm undertook in-depth interviews with recognised industry experts. From the results, a self-administered, direct, structured questionnaire was designed, with the purpose of assessing the current level of customer satisfaction in the glass market. It was sent to the database of Greaney Glass customers. 160 questionnaires were posted out. 140 questionnaires were received, with four being unusable due to the number of incomplete responses. When analysed, the results read as follows:-

79% of respondents rate the service provided by Greaneys as being ‘very good’. When compared with other suppliers, 56% said the service provided by Greaneys was significantly better; 28% said ‘better’; 4% said it was the same and 4% said it was not as good as the service provided by other companies. 17% of respondents only rated the product range as average. When cross tabulated against other responses, the main improvements required were in the area of toughened glass, which was mentioned by 60% of respondents; 15% said they would like coloured units, and the balance was divided between safety glass, laminated glass and a fitting service.

Attitude towards ‘Price’

Interestingly 32% of respondents rated ‘Price’ as ‘very poor’ and 18% rated it as ‘poor’. However when this response is compared with the attitude of respondents towards the pricing policy of other suppliers a similar pattern emerges. Obviously buyers always seek a lower price from suppliers and will never rate ‘price’ highly in case they might bring a price increase on themselves.

Recommending Greaney Glass

89% of respondents would recommend Greaney Glass products to their customers. However a similar number say that customers do not ask for Greaney Glass products.

Competitors

48% of respondents rank Greaneys as their most important supplier of toughened glass. 30% of Greaneys customers rank Careys as their most important supplier of toughened glass and only rank Greaneys as number 2. Dockrells are rated most important supplier by 16% of Greaneys customers. Others mentioned are Tipp Glass and Dunnes.

Toughened Glass

Only 30% of respondents rated Greaneys ability to provide toughened glass as ‘good’ or ‘very good’. 89% of respondents rated the availability of toughened glass as being very important to their business. Presently the breakdown between standard glass and toughened glass averages 80% / 20%. This will change to an average 65% / 35% by 2005. 27% of respondents expect to be doing more than 70% of their business in toughened glass within 5 years.

Customer Service

Respondents were asked to rate the service received from Greaney Glass compared with the service received from alternative suppliers. The factors listed were analysed and grouped under the headings of; Product; Price; Service and communication and After sales service.

Greaney Glass scored higher than competitors on Service and After Sales Service but lower on Price and Product. This is unsurprising as questions relating to toughened glass and product range scored higher for competitors than for Greaneys.

Importance and Performance

The questionnaire then asked respondents to comment on the importance of each of the factors and the performance of Greaneys in executing their commitments under each of the previously mentioned headings of; Product; Price; Service and communication and after sales service.

The biggest difference between performance and importance in terms of product was in relation to the availability of toughened glass. Respondents rated availability and delivery of standard glass 20% higher. Even though customers perceived the level of service provided by Greaney Glass to be high it still was not meeting the expectations of the respondents. The main difference as previously mentioned was in terms of the frequency of visits from sales representatives and quality and frequency of correspondence.

The Future

Kieran knew that the decision ahead of him was a critical one for him, the company and everyone working there. As MD, he had to decide whether to enter the toughened glass market, and if so, what strategy and tactics to adopt. Should he install a toughening glass plant? Should he not? The investment in plant and equipment alone would amount to £2.5 million. But other costs had to be borne in mind. Kieran had to question the substantial running costs of a toughened glass plant and the ability of the existing customer base to make such an investment profitable - he was all to well aware that running costs at low usage meant a higher price than currently charged to end users (estimated at £10.20 sq meters, with competitors currently charging £9.60 per sq. meter). The research findings were very encouraging - there was much that Greaney Glass was doing right. However, while there was a lot of goodwill in the marketplace towards the company, goodwill alone would not sustain the company into the future.

Questions

1. Assess the challenges facing the industry and Greaney Glass.
2. Conduct a competitor’s analysis.
3. Suggest a marketing strategy you consider necessary for the future of Greaney Glass.

This case is based upon a real company, though facts and figures have been altered. The authors extend their gratitude to Greaney Glass and its management for the material for this case study.

Dr. Christine Domegan, National University of Ireland, Galway.

Mr. Declan Doyle, Institute of Technology, Carlow.