Marketing Strategies for Higher Profitability

1. Marketing Strategies for Higher Profitability

2. Bitumen Business Chain • Refining. • All Refineries are not designed to produce Bitumen. • VR Production. • Bitumen Production • Different Bitumen producing Technology. • Paving Grade Bitumen • Value added Products • Production of value added products e.g. CRMB,Emulsions, PMB etc. • Logistics • Storage and distribution • Marketing • Crude. • All Crudes are not suitable to produce Bitumen. • Uncertain-ties of demand. Better Quality Control and Cost Economics (Value added products)

3. Agenda • Environment Analysis • Industry Analysis • Customer Behavior • Strategies

4. Environment Scan • Political Legal Forces • Economic Forces • Technological Forces • Social Forces

5. Thrust by Central Govt. on development of roads. NHDP- Launched to augment capacity of high density corridors of 14000 Kms by 2007 with budget of Rs 58000 Crores Golden quadrilateral: Connecting four metros by four/ six laning of 5846 Kms N-S and E-W Corridors: 7300 Kms National Highway Authority of India (NHAI) is executing this program. Political - Legal Forces

6. Thrust by Central Govt. on development of roads. PMGSY- An accelerated program to provide connectivity to rural areas through all weather roads with original Budget of Rs 57000 Crores. Expected Bitumen consumption is 200 TMTPA of Bitumen. National Rural Road Development Agency (NRRDA) has been established under Ministry of Rural Development Govt of India. This is a Central Government Scheme and is implemented by State Governments. Political - Legal Forces

7. Thrust by Central Govt. on development of roads. Another 10000 Kms of four-laning of NHs outside NHDP to be completed in another 5-7 years with a rough estimated cost of Rs 45000 Crores. IRQP (improvement of riding quality program): Launched since 1998-99 for partial strengthening and better riding quality of roads. Rs 1900 Crores has been invested in improvement of State Roads. Political - Legal Forces

8. Thrust by Central Govt. on development of roads. The programs are promoted as steps taken by Prime- Minister (eg Prime Ministers Golden Quadrilateral and Pradhan Mantri Gram Sadak Yojna {PMGSY}). Political - Legal Forces

9. Many State Governments also giving thrust on road developments. Political - Legal Forces This thrust is resulting in a big opportunity in Bitumen Market

10. NHDP has in-built mechanism for quality control by third party Consultants (mainly foreign organizations). Similarly PMGSY has National Quality Monitors/ State Quality Coordinators. This requires strict adherence of quality of Bitumen/ Bituminous products. The Bitumen market requires strict adherence to Quality specifications Political - Legal Forces

11. Specifications of materials and road are governed by BIS, IRC etc. Thus current market favors generic products. Political - Legal Forces

12. NHDP, PMGSY have provision for timely completion of work. Penalty for delay and Bonus for early completion. Thus market requires timely supplies and high service levels. Any failure on part of domestic supplier may give opportunity to imports. Political - Legal Forces

13. Environment Scan • Political Legal Forces • Economic Forces • Technological Forces • Social Forces

14. The GDP is planned to grow at rate of 7-8% in future. The interest rates are reducing. Government has allowed Private Sector Participation The rising economy will requires movement of Goods and hence development of roads. Economic Forces

15. The Rupee has strengthened. There is huge requirement of funds. Government is trying to generate resources by innovative methods. Entry Tax/ Works Contract Tax in some states Imports may pose a threat. This will result optimum utilsation of funds and use of for economic technology. Customer prefers buying from other than nearest sources. Economic Forces

16. Environment Scan • Political Legal Forces • Economic Forces • Technological Forces • Social Forces

17. Automated Plants for value added bituminous products. Refineries Updating technology of Bitumen Production. SAP being used by Oil Companies Customers using advanced technology e.g. PMGSY Availability of quality Bitumen and value added Bitumen. Improved Service by market players. Technological Forces

18. Environment Scan • Political Legal Forces • Economic Forces • Technological Forces • Social Forces

19. The citizen of the country has started realising benefits of good roads. Even roads are canvassed for votes. Project authorities desiring refinery modified Bitumen. There will be pressure from the citizens for good quality roads. The customers will demand quality product. Social Forces

20. Environment • The Bitumen market will expand and the demand of value added Bitumen will grow. • Quality Bituminous products will be available. • The market for generic product may continue.

21. Environment • The customers will demand quality and services and will prefer from using value added Bitumen. • The customers will be knowledgeable on taxation aspects and may buy Bitumen from the most economic supply sources.

22. Agenda • Environment Analysis • Industry Analysis • Customer Behavior • Strategies

23. Bitumen Industry: 3 large player. Ethical behavior and not driven by profit as motive. Historically cooperative. Post-deregulation, players have started competing on the basis of discounts. Capacity added in large increments Price-setting mechanism: Free-market, determined by IPP Capacity changes have typically not affected prices Large customers have strong bargaining power: Mainly spot contracts with customers, negotiated on project-basis Industry Analysis

24. Industry Analysis • Economies of scale: The PSU Oil companies have full fledged Refineries and flexible production pattern and enjoy the economies of scale. The major private sector Refiner has chosen to produce coke in-place of Bitumen. Due to multi product and diversified operations, the PSU Oil companies have strength to use it’s strengths in case of competition.

25. Industry Analysis • Product Differentiation: Product Differentiation does not exist in case of primary Bitumen, however value added products have differentiation. The branding has not been used in the market.

26. Industry Analysis • Capital Requirement: Capital requirement for production of primary bitumen is a threat to entry however the same is not true in case of value added Bituminous products. However for availability of Bitumen as raw material such produces have been relying on PSU Oil Companies.

27. Industry Analysis • Switching Cost: In absence of product differentiation the switching cost is not a major parameter.

28. Industry Analysis • Access to distribution channels: Dedicated distribution channels do not exist. However, the transporters act as independent channels.

29. Industry Analysis: Imports • So far import facilities for Bulk Bitumen exist at: • Mundra, Gujarat • Kakinada, AP • Haldia, West Bengal • Karwar, Karnataka • Marginal imports of Bulk Bitumen are taking place at Mundra and Karwar.

30. Industry Analysis: Imports • Imports of packed Bitumen is also taking place for small volume customers as the packed Bitumen is inconvenient to be used by medium and large size customers and is used mainly by small size customers.

31. Industry Analysis: Imports • Some imports of poly-packed Bitumen have also taken place.

32. Industry Analysis: Imports • PSU Oil companies have generally not been creating entry barriers in the past except one occasion . The PSU Oil Companies were able to restrict the imports.

33. Pressure from substitute products • Due to high initial costs, cement concrete roads had lower share w.r.t. Bituminous roads. Cement Industry is lobbying hard to increase the share of Cement Concrete roads in future plans. • In Kerala, Latex Industry has been successful in promoting the Latex in Modified Bitumen.

34. Bargaining Power of Buyers • Due to large road development activities, major players have come in the market and are have negotiating powers for financial benefits. • The customers rightfully Price, quality and commercial terms.

35. Bargaining Power of Suppliers • Crude Suppliers have major bargaining powers while other suppliers do not have similar bargaining powers. • Transporters have some bargaining powers and try to dictate terms with customers and Oil Companies

36. Agenda • Environment Analysis • Industry Analysis • Customer Behavior • Strategies

37. Customer is the king • Ultimate customer- Citizen of the country. • Immediate customer is the buyer • Guiding Principle is to satisfy the customer

38. Buying Process Govt Authorities Plan The Project Determine Binder type and specs. Contract is awarded for road development. Contractor buys the Bitumen Binder Contractors look for binder meeting the specification and at a economical price. Thus market for generic binder of quality and affordable price Low Price and High value product and services.

39. Agenda • Environment Analysis • Industry Analysis • Customer Behavior • Strategies

40. Bitumen is in Growth Stage of it’s Life Cycle in the country

41. Value added bituminous products are in Initial Stage of Life Cycle. Many of them yet to be introduced in the market

42. Thus the strategies to be adopted are Growth Strategies Thus increasing sales, production capacity.

43. Corporate Strategy • Internal growth strategy • Market Share • Lower Costs through economies of scale. • Increased Flexibility • Strategic Alliances • Economic • Technological • Thrust on R&D to meet the local market needs

44. Niche- Low Cost strategy • Keeping overall cost low for the price sensitive segments. • Inputs • Financial Control • R&D – improving operational efficiencies. • Logistics and distribution efficiencies. • Minimisation of Advertising and Promotional Expenses. • Region Operations. • May result in technological obsolescence

45. Vulnerable to copying. Niche- Differentiation strategy • Offering need-fulfilling products or services for the specialized needs for a market niche. • Offering new products. Which is costly. • Marketing to influencers. • Resistance from the buyers.

46. Niche- Low Cost/ Differentiation strategy • Dedication to Quality throughout the business. (TQM) • Process Innovations • Reduce Cost or • Differentiation • Product Innovations • Differentiation • Reduce Cost or

47. Handling Surplus • Develop Export Market in neighboring countries to dispose of surplus bitumen produced • Surplus >5% • Better than storing, dumping in domestic market or cutting back on crude • Develop exports as contingency market in case of dumping from the Middle East

48. Demand Production Deficit Bangladesh 75 0 75 China 6000 3000 3000 Indonesia 300 600 -300 Malysia 200 150 50 Mynmar 40 0 40 Phillipines 280 50 230 Singaopre 200 1400 -1200 Thailand 320 950 -630 Vietnam 75 0 75 Neighboring Markets TMTPA

49. Consumption of bitumen emulsion/bitumen

50. PRESENT PAVEMENT ISSUES HIGH SPEED/ SUDDEN BRAKING EXTREME CLIMATIC CONDITIONS HIGH TRAFFIC INTENSITY HEAVY AXLE LOADS/ OVER LOADING PAVEMENTS CONSTRUCTED WITH CONVENTIONAL BITUMEN CRACKING AT LOW TEMP. RUTTING AT HIGH TEMP. • REPETITION OF TRAFFIC (FATIGUE) • HIGH STIFFNESS AT LOW • TEMPERATURE • REQUIREMENT • SOFTER GRADE BITUMEN • IMPRESSION OF TIRES • LOW STIFFNESS AT HIGH • TEMPERATURE • REQUIREMENT • HARDER GRADE BITUMEN