Laure MULLER BS5 2D

STRATEGIC MARKETING TRENCO STUDY CASE 10.18.11 ISM MBA PROGRAM

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Introduction The operating conditions of a tire are more severe in Africa than in the rest of the world, said Alfredo Nembo, sales manager of Pirelli to the African continent. Weather, road conditions, intensive use of vehicles: tires that travel 100,000 km in Europe do not exceed 35 000 km in Africa. But Pirelli has solid experience in areas comparable to those of Africa: South America, Turkey. Our truck tires, for example, are enhanced compared to that Pirelli sells in Europe to better respond to high temperatures and loads. ".The African market and in our subject the Egyptian market is different from what we know in western countries. The marketing approach is different and strategies are not the same. That’s why we’re going to look at in this case.

I.

The marketing Strategy

The marketing strategy at the beginning was clearly based on the named of the company and its strong image that was implanted in the Egyptian minds. We need to start the explanation at the beginning. In 1956 when the company starts to produces tires the firm was associated with the Egyptian government that was a source of faith for customers. That was not like today, people were more confidant in national company, they were like an engagement of good services for the clients. At the beginning they were the only Egyptian company to produce tires and after other types of products for cars. They was not any other type of

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competition on the market and so people were almost forced to trust the company and to bought the products. The competition, which existed, was not direct competition; prices were really higher in comparison with Trenco. When Trenco was launched Competence were superior and customers were happy because the mission of the company was to provide them high quality product and they respect this engagement.

Trenco is a company who started very successful. Thanks to the support of the government the company had enough money to begin the production of tires in Egypt. They make an arrangement with a famous American company in order to have a customer guarantee. They didn’t started from the bottoms thanks to this partnership.

The mission of the company is primary to satisfy the customers. Trenco want to gives to the Egyptian customers the best quality that you can find on the market for a respectable price than everyone can afford. Not just the products are important but also the services. Trenco want to improve the tire manufacture in Egypt. Trenco know that if the company want good products, the work force need to want to produce them. By using a continue training and provide a good environment to the workforce the company will be more efficient. A employee is a potential customers and Trenco know that. Trenco want to be a corporate citizen thanks to this philanthropic acts.

Trenco is a company with objectives. The goal of the firm is to be improved by anyways. The companies don’t want to stay on their laurels. Ambition will drive the company to excellence. A company need to be self-­‐confident in order to achieves goals and find solutions.

Trenco’s consumer are divided into 3 categories:

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The government. Trenco belongs to the Egyptian government and so they naturally used the trenco’s tires for the army, the ministry of transportation, the public transportation, the ministry of tourism with all tourists’ cars and so one.

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Cars producers. Majority of cars for the African market are produced in Egypt and they also assembled cars for western countries. Some of the companies are Trenco’s clients and buy Trenco tires for the cars for the African market.

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Retailer and distributor. Trenco sells products to small shops such as automotive centers, gas stations … in order to sells tires for the general public.

What Trenco need to focus on is that each type of consumers needs a different marketing approach and different marketing strategies. You cannot approach industry like general public. The message needs to be different. If that’s the same they will be an understanding in the head of consumers.

When Trenco enters on the market was at the perfect time because they were alone. That was after the war, the country was in restructuration, Nasser was a powerful president and was making strong improvement for the Egyptian. The country needed good tires to help the manufactories to be raised, so Trenco made an agreement with an American company in order to produce the best products for the best prices. Money was injected in Egyptian company and the politic of reconstruction was developed. Now the external environment is not the same. Egypt is a country, which is on the way of development with an important second sector, which is industry.

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In 2005 the Egyptian government start to privatize national company by selling part to foreign company like Michelin for Trenco. The marketing environments in Egypt start to become more like our western environment. The country become more modern and people want to have a new way of life. Thanks to the green spring this year the young population show that they want to be like the others countries and that’s include to be more sensitive to new products and technologies. Few year ago Egypt enter in the GATT and so now foreign companies can used the free trade agreements, can enjoy that the customs barriers fell down.

Since 2011 Internet is a free place and so customers can have the same information’s on products and services as people from the rest of the world.

There was no competition at the beginning so the company did nothing to prevent it. During 45 years they were alone in the Egyptian market and they were the leader. They were not afraid of other company because they couldn’t face the importance of Trenco. The major mistake of Trenco is the fact that they were sitting on what they already got. They were thinking that nobody will come and that they will stay number one for “the eternity”. In 1999 Pirelli decided to enter in the marketing. Egypte is now a country which growth every year with a lot of manufacture for western companies. Pirelli is well known for its attractive marketing campaign and know what works on customers and what they want to hear. They used huge campaign in Egypt, on Tv , radio and also big outdoor screen.

Other famous tires producer can now be found in Egypt thanks to professional retailer. They make the competition bigger and they are world known brands ( Michelin, Bridgetstones …). The perception of the customers for these brands is generally good and that’s why they are dangerous competitor for Trenco. Egypt become more and more open and products, which came from western countries, are generally considered as good products.

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SWOT ABOUT TRENCO :

S W O T Strong French competitions

The company was found The brand “El-­‐Nisr” is The government as a tires Egyptian

in 1956 by the Egyptian doing bad on the manufacturer Michelin from asians tires market. is currently looking at manufactures manufacture for cars, Results from sales are Trenco. The company with low prices trucks, motorcycles and decreasing from year is interested to buy and cheap quality. bicycles.

producer for to year

Trenco didn’t invest in North 45 years Trenco and to make investment in the firm Egypt met a crises in 2011.

People loose faith in the Egyptian government because have clear loose

faith of in Mubarak and so national company

Trenco is the main tires Marketing plan during Africa, Lavant area and some of the COMESA countries.

products are Trenco large but the

The Trenco portfolios of missions and visions marketing did not these Indeed didn’t any included different types strategy of tires and inner tubes. support They produce that for messages. different vehicles.

types of Trenco customer’s satisfactions surveys or inquiry.

Trenco’s products are For customers Trenco

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seems as good quality advertising products with a long life inexistent. and which provide good performance its labor

are

Trenco didn’t change That’s the same for 45 years. At this time

continuous training of its marketing view.

TRENCO achieve to pay products quality was LE. 854 million Egyptian more important than Pounds of its debts in message that is give to order to succeed for the the consumers. future.

TRENCO plan to open In 2010 , TRENCO two news manufactories loose an amount of LE. in Alexandria in order to 89,394,000. produce tires with high advance research development

technologies and productivity even if the volume of worker was increased. to the thanks to effort in Decrease of the worker

trenco’s new products will be according with According and trucks. the new standard in cars Egyptian financial law Trenco is bankrupt. The loose were 11 times higher than the pain-­‐in-­‐capital.

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Trenco didn’t invest money in research and develoçpment in comparison with what did the competition. They didn’t make a distinction each

When we looked at then number of Trenco performances within the last few years, generally they are poor. Indeed according to the graphs:

• From 2007 to 2010 Trenco loose 17 535 thousand pound of volume of sales. • From 2007 to 2010 the volume of the exports increased of 3365 thousand pound • From 2007 to 2010 the volume of production decreased of 15 734 thousand pound • From 2007 to 2010 the volume of wages increased of 12 178 thousand pound • From 2007 to 2010 the volume of the average worker’s wages increased of 7597 pound • From 2007 to 2010 the volume of worker productivity decreased of 8501 pound types customers. between of 3

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• From 2007 to 2010 the volume of investments decreased of 8604 thousand pound • From 2007 to 2010 the volume of value increased of 15 millions pounds

Workers still cost more and more even if they don’t produce a lot and if the sales decreased. The strategy of Trenco is not efficient because they don’t look at the number and still keep the same strategy. Even if that’s hard if you don’t make money you cannot afford to keep your employees at the same level of volumes and wages.

According to this graph we can confirm foreign exportations are increasing during the last few years. We can also say that European union tires are increasing, that means that customers are still interested in tires with high qualities. They still want to put the price for good products.

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In addition to the graph below we can clearly see that exports represent the majority of the tire market in Egypt. The tires are much national lagging behind. Increases in imports are rising and we can say that they doubled in 4 years

In 2005 the Egyptian government decided to sell its national company to private corporate and that was a good opportunity for Trenco to improve its marketing strategy. The strategy was almost inexistent on the Egyptian market because of a lack of knowledge’s and interests for the subjects. They were not a marketing team and because of this the brands failed. When Michelin proposed to bought Trenco they used this opportunity. Michelin is the main French tires manufacture and its know around the world. They succeed because they used the tires as a common life’s product. They give a new image with the Michelin character “ Bibendum” and put in the head of the customers that tires are important. They are special products, which need special qualities and improvement. Michelin will 10

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improve the strategy of Trenco. Not just by the opening of new high technological manufactures in the country but also by teaching how we make a product like tires interesting for the customer and how you learn how to keep them They really need to do a 2011 marketing approach. Even if Egypt is a poor country people have access to Internet and to newspapers. They need to focus on people who bought cars and not just companies. The website for example is the same since 1994, compared to the African website of Pirelli that’s ridiculous. This management renewal is good for the company and there is no doubt that the success will come like 45 years ago. Objectives of the company are now different and are modern : satisfaction of the consumers, more studies about what they are expected, how they feel the products … Main goals are too clear the financial situation and to make profit again within the next few years. These goals are realistic and they will be certainly effective.

II. The marketing mix strategies

1. Product :

The marketing strategy of Trenco about the products is to put the product in front. That the most important thing for Trenco and that the same thing since 1946. The products are made in a good quality and at a cheap price. Trenco try to have the best products on the market. They want to keep the same customers. A satisfied customer cost 3 time less than a new customer to catch . The positioning of the product was not good because the range of products was too large. The product strategy was clearly based on the innovation and the price. A product that is affordable for everyone. 45 years ago marketing was based on

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product and performance. Customers were not interesting in advertising or something else but in the quality and that’s why they put innovation in front.

Products are divided in 8 categories: 1. all steel radial truck tires  3 models 2. radial passengers  6 models 3. cross ply passengers  5 models 4. cross ply light truck tires  4 models 5. cross ply trucks and bused tires  3 models 6. cross pky agriculture tractors tires 2 models

According to this information we can say that the product strategy used by Trenco is similar to the new product strategy. They develop tires for each type of trucks and cars. The product is always improved or modificated. They also innovated when the product is on the end of its life cycle in order to maintain demand and satisfaction of the customers. The ranges of tires are deep, for each type of vehicles they provide different models. They cover all the needs a customer may have for tires. They also used the product overlap strategy. Indeed when you check the ranges for each type of vehicles types different types of tires can be used for the same utilization. That’s can created a confusion in the head of the consumer. He will maybe hesitate between 2 ranges and goes to the competitor for more simplicity. This strategy is dangerous for B2C business. In B2B the customer is generally more aware of what he needs.

2. Price

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One way for a company to enter the market is penetration strategy that involves a policy of low prices to take market share from competitors. The strategy is dangerous because of the risk of "price war". The market penetration strategy goal is to conquer the market by offering a very competitive price. This is an example of Trenco in the 50's with tires. The objective is to achieve a significant market share and thus be among the leaders. This strategy is valid when demand is price elastic; that is to say, it varies in the opposite direction of prices. In the case we don’t have a price for the products but we know that they are affordable for everyone and provides high quality and high performance. The price strategy has always been the same: to win market share thanks to a competitive price. At the beginning the price strategy was also combine with a product line pricing. Thanks to the variety of the range they can provide different ranges of prices for the customer, it will depend on the component of the tires. They divided the quality in 2 segments: medium quality and high quality. There is not a low quality, customer will always have good performance but in order to maintain a flexibility of the prices they divided like that the product line pricing. In each range of tires, models will have different prices. These strategies are good but not so effective. I think that for the future of Trenco (with Michelin) the brand should work more on price flexibility. Today the world is competitive and to be a good performer the brand need to take in consideration that the tires market is saturate. Each car had tires and people just change the tires occasionally. They need to change it but that’s not a daily purchase. The growth of the market is not the same as 45 years ago. The market is no more a market of capital goods. Also today we work more in just in time than before, the future manufactory is probably going to used this system of production so the price strategy will be change.

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Price will depend on the demand and so price flexibility strategy will maybe be used. As a recommendation I think that prices need to be highest. Potentials customers will maybe think that a good tire cannot be cheap, that’s a sign of bad quality. All the competitors from Asian countries are cheap and the quality is also bad. Trenco is a product, which is innovative with a lot of high tech advances; an increase of the price of 20% will have a positive image. A higher price is a proof of what is behind. Customers know that usually when a price is a little bit higher the intrinsic components provide highest performances.

3. Promotion , Communication This strategy is the one who is the hardest to explain. The reason is that they didn’t do any promotion strategy! Since 1946 just 4% of the turn over was invest in marketing and advertisement. The company doesn’t believe in communication and marketing and so they never wanted to invest money on it. They were always thinking that the quality of the product will talk by itself and that people wont believe commercials arguments. That was true when the company was launched by in the 21st century people need marketing to bought something. The brand never made surveys in order to know what are the expectations of customers. They didn’t develop a feedback channel or a strong after sales services. They put the minimum money they can in the advertising and did the same thing during 45 years. They didn’t develop public relations. The products were just known because of the word-­‐in-­‐mouth. They should develop a different communication strategy depend on the type of customer governement B2B

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B2C.

They never did and put ads in 4 different places: • A monthly publicity in a magazine for B2B • Some displays on selected major highways during a short period of time • Two billboard on the road which drives you to the company head office • A company website which is the same since 1994 ! They didn’t want to invest time and money in marketing, that’s a huge mistake because when competitor started to enter on the market they had strong knowledge’s about marketing, advertisement and customer’s expectations. They didn’t come for nothing. If competitors came on the marketing, that was because they were aware of the lacks of Trenco. They absolutely need to follow what Michelin did in France and in the entire world. They created a strong brand image thanks to the fictive character of Bibendum. When people can associated something with the brand they can better remember all the products. Trenco need to find something that customers will catch very quickly. The eagle is the symbol of Trenco, they should develop a marketing campaign around it. “ Strong and majestic”

4) Place, Distribution: The distribution strategy is not so complicated. The brand used multiples channels to distribute his products. The third channels are the following: 1) The governmental channel: The company belongs to the Egyptian government but they could be still list as a distribution channels. They sell products to the army and to different ministers. This type of distribution is called B2G (business to government)

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2) The industries or corporate channels: Egypt is one of the places where cars and trucks are made for the African continent and so they directly sell to the industries, which are concern. That’s B2B. 3) The public retailer channels: products are sell to “centrale d’achat “of automotive services centers, gas stations and cars accessories shops for the individuals.

They always used a short channel: -­‐ Short channel for individuals: Manufacturer-­‐Retailer-­‐Individual Consumer -­‐ Short channel for industries: Manufacturer-­‐ Broker-­‐ Business Consumer

Exclusive distribution is aimed at book distribution to a few specialist outlets, to keep better control of the intermediate product and keep an image of prestige. That’s the distribution Trenco used in order to maintain the image of a high quality product. They choose that for the third channel (retailer), they created a long relationship with the retailers and they know that the products will be put in front of the store and that the personal in the store will be able to speak about trenco’s tire. This distribution strategy according to the recommendations made for the price and products strategies are okay: a better product with a better quality cannot be find everywhere, a exclusive relationship needs to be build between the company and retailer and also with the final customer. The strategy "Push" is designed to effectively push the product into the channel. For this, the manufacturer promotes its distribution network by offering good conditions of purchase (rebates, discounts...) and / or technical assistance to the customer. Trenco did that thanks to a continue training of its personal. They used this strategy for the industrials customers.

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Conclusion The tires represent a market of over $ 100 billion worldwide. Experiencing an average growth in volume of 2% to 3%, it is largely related to the automobile with some differences. It suffers less cyclical than the latter because its activity is driven by the replacement market, two thirds of sales by the National Union of rubber and polymers. Finally, if private vehicles account for 58% of production, trucks, vans, bicycles, airplanes, subways, trams, agricultural machinery and other construction machinery are also opportunities with specific needs. In 2006, the biggest turn over was held by the Japanese Bridgestone (19.1 billion), followed closely by Michelin (16.4 billion) and the American Goodyear (15.4 billion euros ). A podium that changes little from year to year, reflecting the dominance of the three leaders. Michelin is going to improve Trencos and will give its knowledge’s to the Egyptian brand. Products will be better; they will keep the spirits of Trenco, cheap prices for higher qualities. Michelin is a “marketing beast” and will help the brands to become again the number one on the Egyptian market.

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Sources :

http://www.fdi.net/documents/WorldBank/databases/plink/egypt/trenco.pdf

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