Marketing case study: GNB New Zealand

GNB New Zealand
Company background
GNB New Zealand, is the country's dominant manufacturer of car, commercial, truck and marine batteries. The company is a wholly owned subsidiary of Pacific Dunlop, an Australian parent, who is engaged in a wide range of activities in the automotive industry. GNB New Zealand is facing increasing competition from imported products, as well as its traditional competitor, Lucas. The company's general manager, Alan Day is concerned about the increasing competition in the marketplace, particularly from importers. Flooded with a number of brands on the market, and a complex distribution system, he is looking for a long-term marketing strategy that will ward off the competition, position his products correctly and grow his company in the future.
 
The market
The total battery market is dependent on the total car population. This comprises the OEM market or the new car market, and the replacement market. The OEM market experienced a dramatic decline in the period 1988-1991. The number of new car sales registered fell from 82 000 to approximately 47 000 during this period. Despite this, GNB steadily increased its hold of this OEM market each year, capturing nearly all the OEM business except for Honda (Lucas has this contract).
Although the battery that is placed in the new vehicle is sourced from GNB, it does not bear a GNB brand label. This is because the OEM's like to label the battery themselves. Toyota, for example, labels its batteries using the 'Toyota' name, while Mitsubishi (who still insists on its own label), brands its batteries as 'Autokit' products. Replacement Toyota batteries are purchased at Toyota car dealers who have a service outlet and replacement Autokit batteries are available at Mitsubishi dealers.
The New Zealand battery market is characterized by many suppliers-particularly Asian. Korean and Taiwanese imports dominate the import sector and have sparked heavy competition based on price cutting. A weaker dollar, lower fixed costs (e.g. labour) and the absence of tariffs have allowed Asian companies to cut prices while still maintaining reasonable margins for the distribution chain. This has put considerable pressure on New Zealand manufactured goods. During the period 1988-1991, the number of imported batteries as a percentage of the total battery market increased from approximately 5 per cent to 25 per cent. In 1991, GNB had 53 per cent of the total battery market in New Zealand., in 1988, they held about 60 per cent of total market share.
 
Major competitors
There is one other major local battery manufacturer in New Zealand, Lucas. Lucas batteries directly compete with GNB's Exide and ABL brands. Their price/performance is similar although Lucas batteries have a higher brand awareness among members of the general public. Lucas occupied approximately 23 per cent of the total battery market in 1991, down from 35 per cent in 1988. Both GNB and Lucas have suffered market share decline in the replacement market since industry deregulation. For Lucas, market share declined from 39 per cent in 1988 to 25 per cent in 1991; for GNB, market share declined from 55 per cent to 51 per cent.
The next band of competitors consists of all the imports, namely Powerstore, Harbour City, Century, and Apollo. Century is the only non-Asian battery and is sourced in Australia. Together these competitors made up approximately 22 per cent of total market share in 1991. The competitive strategies of these importers have been based on undercutting locally manufactured goods on price. The advent of the deregulated motor vehicle industry and the economic downturn has opened up an opportunity for car batteries to be sold on a commodity basis. As can be expected with the economic downturn, there is increasing price sensitivity in the market-place.
 
Product Mix
In the car market, GNB produces a three- tier range of batteries in the following categories:
1.    Standard duty. This battery is designed to deliver reliable starting power to cars that have a minimal electric accessory load. It suits 4- and 6-cylinder vehicles that have basic lights, such as headlights, sidelights, indicators, brake and hazard lights, horn, screen washer and wash/wipe, etc. The battery normally retails for about $71.00 to $80.00 + government service tax (GST) and has a 12-month warranty.
2.    Heavy duty. This battery is a mid-range battery and is designed to provide power to most modern vehicles with medium to heavy electrical accessory load. This includes rear window heater, cigarette lighter, stereo, CB radio, burglar alarm, central locking system, electric windows and/or sun roof, air conditioning, etc. It normally retails from between $86 to $92 + GST and has a full replacement 24-month warranty.
3.    Premium. This battery is recommended to those with vehicles that travel on CNG or LPG. It is also recommended for modem vehicles that have electronic ignition and electronic engine management systems. Cars of this nature will typically have all the accessories mentioned above, plus electric mirrors, electric scat adjustment, sophisticated airconditioning systems, electronic fuel injection, etc. This battery normally retails for about $118 + GST and has a full replacement 24-month warranty.
In contrast, Century batteries retail between $62 + GST to about $80 + GST for their premium product. Apollo markets its range of batteries in the same type of price bracket. However, they are also known to retail between $45 and $55 (+ GST) on special. Powerstore and Harbour City batteries are also heavily price discounted. In addition, these players have significantly reduced their trade price, causing some auto-electricians, car dealers and service stations to stock them for the first time.
Distribution
The industry's distribution channels have largely evolved in a haphazard fashion. Wholesalers and retailers are often one and the same. A large parts and accessories distribution channel has emerged as a result of the OEM market. OEMs keep quantities of battery stocks as do some fleet car managers in companies. The parts and accessories outlets largely control all the franchised car dealers. As part of a franchise contract, dealers must take most of their parts from the OEM. Batteries are no exception.
In the replacement market, product moves primarily through service stations, automotive electricians, tyre companies, parts and accessory shops, and battery specialist shops. Most of GNB's product (44 per cent) moves through service stations and auto-electricians, although it is very difficult to tell where in the chain they receive the product (i.e. who from) and its destination.
The distribution side of the business is largely motivated by margin. Service station owners and auto-electricians look for a product that sells well (i.e. is reasonably priced for the customer) and returns acceptable margins. A 'cost-plus' mentality still prevails, and is largely encouraged b~, the manufacturers.
Most distribution outlets either carry Lucas or Exide, and an import. Imports appeal to the more price-sensitive buyer, while the choice to carry the New Zealand-made manufacturer is largely determined on price and service from the supplier. It is also determined by the types of labelling the product has. For example, a Toyota dealer that has a large repair and service workshop is likely to stock the same Toyota batteries.
 
Buyer behaviour
In 1992, market research was completed to investigate consumer perceptions of batteries currently on the market as well as the consumer attitudes to car battery outlets-i.e. what mob~-ates the buyer, where people purchased their last battery and why. The research findings from 1100 telephone interviews showed:

• 18 per cent of respondents could not name a brand of car battery. Those who did name a brand named at least two and these respondents were more likely to be men, aged 34-44, and blue collar workers.  
• More than three-quarters of all batteries mentioned were Lucas and Exide. 39 per cent of respondents named Lucas first, while 33 per cent of respondents named Exide first.  
• Respondents naming Lueas tended to be younger than those naming Exide, to be driving older cars and to be North Islanders. Highest brand awareness of Exide was among men aged 45 or more, South Islanders and owners of newer cars.
• Propensity to buy a specific brand was low. Only one-third of respondents were intending to specify a brand at the next purchase,- 38 per cent of people did not know which brand they would choose to buy, while 20 per cent would rely on garage recommendation. Garages and service stations were important influencers on brand choice to women and older people. Of those that would specify a brand next time they bought, people were twice as likely to buy Lucas than Exide. 
• Price as well as the influence of the stockist and installer were the most important reasons for selection of a particular brand. 17 per cent of respondents said they would buy the cheapest These people were likely to be younger men in blue and white collar occupations. Blue collar men, however, were also more likely than white collar men to buy batteries based on previous good experience. They were also more likely to live in the South Island and drive older cars. Those relying on the garage were likely to be women and older people in white collar jobs. They were also more likely to live outside Auckland. 
• Lucas and Exide buyers were able to give more concrete product performance reasons for buying than could other brand purchasers. Both Lucas and Exide rated well in terms of good previous experience. 
• Half of all buyers bought from a garage or service station. This was usually the one that was closest to them or the one that they took all their servicing to for car repairs. Two-thirds of all women interviewed bought from a garage or service station. 27 per cent who bought through a battery specialist or automotive electrician more frequently bought on price. LLIcas specifiers bought more frequently from automotive electricians than did Exide specifiers. Lucas was more prevalent in the North Island than in the South. Those who did buy from these outlets were likely to be 35-44-year-old men in blue collar occupations, resident in the northern North Island and with new cars. 
• 25 per cent of respondents (277 respondents) purchased a battery within the last year. Of those, 50 purchased an Exide, while 93 purchased a Lucas. 34 per cent of Exide purchasers bought because the brand was stocked at a convenient outlet, and 26 per cent thought they were getting a good deal. Of those that had purchased Lucas, 29 per cent of people said they bought that brand because they had had good previous experience with it. 
• Of the people with a battery one year old or less, four in ten did not know the brand currently in use. Of the other six in ten, twice as many said they had a Lucas as said they had an Exide. In addition, the perception was that Lucas batteries were slightly cheaper than Exide batteries. 
• Half of all batteries had been fitted by their owners or friends, while the other half had got the outlet to do it. Four per cent of respondents would be prepared to pay a premium price for a home fitting service or in an emergency. Most people thought that this type of service should be provided free of charge-particularly in an emergency. 
• Six in ten people said the battery they had bought had been purchased at a discounted price. Younger, blue-collar men were more likely to make that claim. Most respondents recalled that all the brands available had been discounted.

Those who felt that the price paid for a new car battery represented value for money outnumbered those who did not by three to one. Those who had paid full price as well as those that had paid a discounted price made this claim. It was apparent that most respondents did not know what the 'correct' price should have been.

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