In this severe economic environment the management of time, in the meaning of the ability to pioneer the market with new products or services, becomes crucial. OEC was in the favourable position of being able to provide customer with solutions that incorporate the latest state of technology; however, OEC was slow reactions to shifts in customer needs and technological advancements which did not allow OEC to realize economies of speed, even though customers are willing to honour fast reactions with higher prices. Furthermore, being the first on the market with an innovative product creates a temporary monopoly and brand recognition.
In this market situation the pioneering company is relatively free to set adequate prices in order to recover the usually considerable cost for research and development. Once other companies come up with similar products prices drop immediately, due to the increased competition. In this situation, it becomes much more difficult to repay investments in research and development. Finally, being innovate creates a positive image among customers and, thus, strengthens the competitive position of OEC in the marketplace.
During the process, OEC had experienced the changes and made some wise decisions. OEC is a potential company which has a lot of opportunities to diversify its products in cope with the market change through licensing, joint venture and product diversification. According to Porter’s model, increased bargaining power of suppliers would lead to increased costs for major input factors, exerting heavy pressure on the critical success factor costs.
This also enhanced bargaining power of customers requires companies to consider customer needs to a larger extent. Basically, the same effect derives from the increased rivalry of existing competitors within the same industry. The severe competitive situation is even enhanced as the higher probability of new entrants increases the demand for low costs, flexibility, and economies of time. Finally, the market implies an increased threat of substitutes. Thus, OEC needs to improve their cost and quality position in order to stay competitive.
(2)Introduction of business background
Orbital is an international developer of innovative technical solutions for a cleaner world. Orbital’s innovative design and its product development and operational improvement services are attracted to the world’s car makers and end users of engines. Orbital’s headquarter is based in Perth, Western Australia, and is traded on the Australian Stock Exchange (OEC).
OEC is a pioneer for engine innovation that it keeps on trying to improve the product in cope with the market change and need. With its breakthrough of fuel injection and electronic combustion process (OCP) for two-stroke design, it benefits to both vehicles and engines becomes cheaper in price and lighter in weight, which leading to a big saving on the fuel consumption with lower emission levels.
This report provides a discussion of the consequences of OEC’s marketing strategies and its activities that I think what OEC is making their wise decisions on, why has OEC failed to have its engine adopted by any major Car manufacturer at the time of the case, in spite of the engine having many apparent benefits, and what marketing lessons can be learned from the fact that some of OEC’s technology has been adopted by the makers of marine outboard motors in the US. At each point, I will give my recommendation and suggestion on the marketing point of views to help the company making decision.
OEC’s key objective was to get the major car manufacturers in the US to adopt their new engine.(3) Key issues Highlights
3.1Two Wise Decision (261)
OEC had made at two wise decisions to get the major car manufacturers to adopt their new engine in the US. First of all, OEC developed a pricing policy for its intellectual property at the early stage that it built up a series of licence options for car manufacturers, such as General Motors, Ford, Fiat, Jaguar and Volkswagen to evaluate the technology and needs before converting into their final licence agreement. Kotler et al (2007, pp.318, 590) mentioned that, “A method of entering a foreign market in which the company enters into an agreement with a licensee in the foreign market, offering the right to use a manufacturing process, trademark, patent, trade secret or other item of value for a fee or royalty…
More and more for-profit and not-for-profit organisations are licensing their names to generate additional revenues and brand recognition.” This brand recognition of licensing became one of the key profit generators for OEC.
Secondly, OEC made another wise decision on joint venture with Brunswick Corporation, the parent of Mercury Marine in January 1995, became METEOR. This joint venture helped to develop, manufacture, market and sell Orbtal’s SEFIS to the global market for low emission two stroke engines, which was threatened by the US anti-pollution regulations (ULEV). Kotler et al (2007, p.591) advocated that, “The most common form of manufacturing-based entry into overseas markets for Australian firms is that of joint venturing.”
The local partner could provide access to the distribution network due to their knowledge with the local marketing environment while OEC brought in their joint venture technology and production know-how. Since the first step of joint venture, there were numerous of other joint ventures happening which helped OEC to push the two stroke engine to the market in cope with the US emission standard.
3.2Large Car Manufactures Appeared not ready to adopt OCP Engines
After discussing about the wise decisions, there were also obstacles for OEC to push their OCP engines into the large car manufactures. The core reason why OEC had failed to have its engine adopted by major car manufacturers was because OEC spent too much focus on R&D than really focusing on analyzing its product was able to be adopted or pushed to the market. The marketing mix was unclear and OEC was failed to identify car manufacturers’ concerns and their potential interest of products.
This lack of knowledge of customers’ needs and wants was leading to the failure. The market need was four strokes and OEC focused on two strokes. Kotler et al. (2007, p.239) stated that, “In order to design effective marketing mix strategies, the marketer must understand what factors within the organisation influence the purchase (or non-purchase) response of potential customers.” OEC should first create a need-satisfying market offering and then found out the real-value for their customers.
In addition, Manley (1994, p.166) asserted that, “Learning is a particularly critical for Orbital in the sense that the company was operating in a turbulent and complex environment as reflected in: emission legislation reviews begin undertaken internationally; the number of actors in the global car industry and structural changes in the industry caused by the changing nature of international competition. In response, the company’s innovation process exhibits organisational flexibility, anticipatory capabilities and responsiveness to change. “
Because of the above, OEC was not able to sell its technology to those large car manufacturers at that moment.
3.3Marketing Lessons Can be Learned
From this case study, there are several marketing lessons can be learned, such as marketing mix and 4Ps, Porter Five Forces, Licensing, and Joint Venture.
3.3.1Marketing Mix and 4PsOEC had spent a lot of time and money on R&D on OCP and which neglected to understand what the customers’ need and want which is difficult to position the company to the targeted segmentation and its market. Because of that, OEC almost risked themselves into bankruptcy before 1989 if they could not gain the financial support from BHP and Australia Government. It is essential to under customers’ wants and need and then market the right product, right place, right promotion and right price.
3.3.2OEC’s Porter Five ForcesAccording to this concept, the intensity of competition in an industry is rooted in its underlying economic structure (Porter Strategy 1998, pp.3). This structure is expressed by five basic competitive forces which determine the ultimate profit potential of the respective industry. The five competitive forces are threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and intensity of rivalry.
As of June 1994, OEC already had acquired 854 patents and its applications, but it sat on it without further development which missed out a lot of business opportunities as a pioneer in the market. Kotler et al. (2007, p.101) asserted that, “The implication is that the firm should influence the balance of forces through strategic moves, thereby strengthening the firm’s position. Alternatively, the strategists might reposition the firm so that its capabilities factors underlying the forces and respond to them, thus exploiting change by choosing a strategy appropriate to the new competitive balance before competitors recognise it.”
3.3.3Licensing and Joint VentureThrough OEC’s success in licensing and joint venture, it gave the company a business breakthrough to position themselves in a strong market place. Most of its earnings from OEC is from licensing, development and supply agreements. In addition, investing and expanding the business in foreign countries, there are various laws and regulations that investors should pay highly attentions, and thus, cooperating with a joint venture company locally would be the most fast and easier way to explore the market; especially OEC has its technology know-how.
To conclude, in this report, I have shown the effects of OEC’s marketing strategies on both wise and failure decision. These effects mainly consist of substantial alteration of the competitive environment in the form of unclear industry boundaries, increased rivalry, and a reduced relevance of traditional success factors. With the strategic marketing concept, it enables OEC to compete successfully in this altered economic environment.
(7)ReferencesKotler, P., Brown L., Adam S., Burton S, Armstrong G., (2007), Marketing 7th Edn, Pearson Education, Australia. Manley, K.J., 1994, Factors Leading to Offshore Manufacture of Australian Inventions: The case of The Orbital Combustion Process Engine, Murdoch University, Western Australia. Porter, M. E.: ‘Competitive Advantage. Creating and Sustaining Superior Performance’, 2nd Ed., New York et al: The Free Press 1998.