Indian School of Business

Market Entry Strategy – ABC Filters Team Enigmaniacs

Kushagra Gupta Tarun Bansal Vineet Tyagi

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Executive Summary ¡  Market for Synthetic Cartridge Air filter is a factor of gas turbine capacity generation.

¡  ABC is seeking growth opportunities in the synthetic air filter market with the aim of entering the most promising segments with a revolutionary new product.

¡  Regulatory, economic and technological factors influence the key decisions of the go-to-market strategy.

¡  E10 unique features create both economic and efficiency related savings for customers and hence hold a competitive edge over competitors and can command a premium price.

¡  The industry structure and nature of sales distribution allows us to create value by bundling service contracts with unit sales.

¡  Location based B2B strategy allows us to target different geographies. The demand fluctuations in one region can be compensated with high growth in other regions providing a stable cash flow pattern for the E10 filter sales.

¡  Total worldwide market potential is 5.01 Million units and estimated to grow to 5.8 Million units in next 5 years and to 6.2 million units in next 10 years.

¡  Primary recommendation based on product suitability features and combined market growth rate of 6%, the Latin America , Middle east and Europe provide relatively higher long term revenue potential.

¡  Alternate recommendation is to seek out short term growth by targeting North America and Rest of Asia geography and leverage the huge installed base capacity.

E10 – Value Proposition

High Growth markets in climates with extreme conditions

Opportunity and Competitive Advantage for ABC

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GT Air Filters – Market Landscape

Company Competitors Customers Collaborators Environment

•  Turbine operators

• M a i n t e n a n c e providers

• OEM

• Distributors

• Competitors

• Agents

• Manufacturers of synthetic filters: E-9 & E-12

•  Oil and air filters for automobiles

•  To launch air filter for Gas turbines

Regulatory

•  Stringent Emission regulations - Positive impact on GT Market and GT Filter Market •  Restrictions on nuclear energy - Positive impact on GT Market and GT Filter Market

Economic

•  Increase in Coal Prices - Positive GT Market and GT Filter Market forecast. •  Increase in Gas Prices – Lower GT Market and GT Filter Market forecast. •  Higher GDP growths (BRICS) - Increase in demand of power - Increase in GT power plants.

Technological

•  Growth in Oil & Gas sector such as viability of Shale gas extraction - Increase in demand of Gas Power Plants •  Enhanced extraction and exploration techniques – increase in supply of gas and hence demand of GT Filters.

• High entry barriers

• High rivalry power

• L o w t h r e a t o f substitutes

• Low barga in ing power of buyers

Macro and Micro Trends in GT and GT Filter Markets

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Cartridge Synthetic Filters – Market Size & Potential Gas Turbine capacity!

GT Filter Capacity!

GT Filter- Type!

Synthetic GT!

Gas turbine

Total Gas turbine Installed capacity by Region (Dec 2012) – 1,053 GW (Giga Watts)

GT filter

Total GT filter (Average 12.5/MW * Installed capacity – 13.164 Million units

GT filter by type

Segment by Panel and Synthetic type

Synthetic GT filters

Synth GT filter current - 5.01 Million units

Current Market Size & Potential Forecasted Market Growth

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E10 – Value Proposition

Feature E10 E9 E12

Self Cleaning ability. ✓ ✗ ✗

Extreme conditions of operation.

✓ ✗ ✗

Filter replacement rate (months/yr).

24 24 12

Downtime due to filter cleaning (hrs/yr).

20 60 300

Maximum turbine capacity supported per filter

190MW 180MW 180MW

Average Turbine Uptime 99% 98% 96%

Target Segment : Turbine operators in extreme

climates.

Category : Cartridge Synthetic Filters for Gas

Turbines

Revolutionary self cleaning mechanism reducing cleaning downtime.

Ability to operate in harsh operating conditions with

increased filtering resulting in higher uptimes.

Product Positioning

E10 v/s Competitors E10 – Customer Value Creation Cost Head E10 E9 E12

Filter Price $330 $300 $100

Avg. cost incurred by customer over 10 years by installing synthetic cartridge filters assuming 10 filters required per MW of capacity at maximum capacity supported.

$2,908,140 $3,782,160 $9,148,320

Avg. savings per yr if migrating to E10

- $8,74,020 $62,40,180

% savings per year by migrating to E10

- 23.1% 68.2%

• First in segment self-cleaning capability. • Extreme conditions of operation. • Low replacement frequency. • Low downtime due to filter. • High turbine efficiency & uptime. • Supports higher turbine capacity per filter.

E10 Product Features

• Annual savings of 23.1% compared to E9 and 68.2% compared to E12.

• Low maintenance and replacement. • Improved turbine efficiency due to low wash downtimes and higher turbine uptime.

• Can bundle service contracts with filter sales.

Customer Value

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E10 to Market – Entry Strategy 1 • Sell Filters together with service contract. • Existing filter servicing expertise can be leveraged to create continuous revenue stream. Product + Service

• Turbine operators and turbine maintenance providers operating in harsh environment conditions such as Arid, Humid & Marine

• Focus on fast growing Middle East, Latin America & Europe markets. Target Market

• Offer volume discounts on filters along with on-site and off-site annual service contracts charged on an hourly basis. The overall cost to customer for installation and service of filter per year should be lower under the current strategy than that for competitors.

Price • Sales via distributors and agents. • Create a service ecosystem. • Promote filter as specialized product for harsh environments while also stressing on cost savings.

Sales & Promotion

Disadvantages • Additional costs for creating servicing ecosystem.

• Compromise on margins per filter. • Develop a bigger sales network in underserved markets of Middle East and Latin America.

Advantages • “One-Stop-Shop” for filter installation and servicing needs.

• Continuous revenue stream through service contract.

• Differentiation strategy – unique self-cleaning solution.

• Capture market share from competitors.

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E10 to Market – Entry Strategy 2 • Sell filters as a standalone product. Product • Target segments include OEMs, turbine operators, turbine maintenance providers and competing filter manufacturers.

• Markets with “Mixed” environmental conditions. • Focus on largest sized markets of U.S & Asia.

Target Market

• Sell at a price of $330 per filter. • Price can be increased since the value created for customers as opposed to other filters is quite large.

Price

• Sell via direct channels (OEM) as well as existing dealership and agent networks. Sales & Promotion

Disadvantages • Outside dependency for servicing may deter customers from adopting E-10.

• Large portion of sales still to competitors – chances of imitation by competitors.

Advantages • Premium pricing and high margins • Leverage existing sales network in the largest markets.

• Capture market share from competitors. • No need to develop new service networks.

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Recommendation for ABC

Ø  Primary recommendation for long term growth (10 Year CAGR) is to target markets with harsh climatic conditions such as Middle East, Latin America and Europe.

Ø Sell Filter bundled with service contract to GT operator with volume discounts to tap approximately 25% market share.

Ø Stable Cash flow with higher upside and lower downside fluctuation.

Ø Customer benefits from higher life cycle cost savings.

Ø  Secondary recommendation for short term growth (5 Year CAGR) is to target markets with mixed environmental conditions such as North America and Rest of Asia. Ø Sell filter as a standalone product.

Ø Biggest market of North America will facilitate short Pay Back Periods.

Ø Lower growth potential but higher installed base facilitates focus on direct selling to Original equipment manufacturers (OEM's).

Ø Leverage existing sales network in the largest markets.

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Appendix

World  Wide  Gas  Turbine  Capacity  

Geography   Total  

Africa   41958  

Europe   245013  

La=n  America   39695  

Middle  East   99513  

North  America   417349  

Rest  of  Asia   209655  

Grand  Total   1053184  

Exhibit 1: Global Gas Turbine Capacity (in MW)

Source: http://globalenergyobservatory.org/

Exhibit 2: Climatic Distribution (US and Asia)

Source: http://en.wikipedia.org/wiki/File:ClimateMapWorld.png Source: http://apps1.eere.energy.gov/buildings/publications/pdfs/building_america/ba_climateguide_7_1.pdf