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Issue 1. Description of the Company
SEQ Distribution Entity (Interim) Pty Ltd (SEQDE) is a company owned by the ten South East Queensland (SEQ) Councils. From 1 July 2010, SEQDE will own and operate the SEQ region's water distribution network and waste water collection and treatment network. SEQDE will manage over $10 billion in assets; generate approximately $1 billion in revenue per year and employ about 2,500 people. (SEQDE Executive Planning Guidance, 2009)
SEQDE's product, water distribution, comprises two elements:
* Product - provision of food grade or potable water.
* Service - the removal and treatment of sewerage.
SEQDE measures usage through the traditional metre reading services and on-sells the data to retail entities which then charge the customers.
The company is currently known as SEQDE until a more appropriate name, and or trading name is registered. SEQDE currently functions under a governance structure, or board, comprised of the ten CEOs of the Councils. An independent board of directors will be appointed before the final transfer of assets from the councils in 2010.
SEQDE's mission is to provide “safe and effective water distribution” to the residents of SEQ “in an efficient and economical manner”. The company's vision is to:
“… create a world-leading community and service-oriented water and utility business to ensure that South East Queensland remains a prosperous and sustainable region.” [SEQDE Brand Strategy, 2009]
SEQDE's working motto was “One Region, One Business”.
The Queensland and SEQ local governments were motivated to establish the company by the imperative to improve operating efficiency in the face of a severe drought and the requirement for a very significant investment in water infrastructure driven by an aging network of pipes and rapid population growth. It was initially envisaged the company would operate on a profit basis, to raise the capital required. Even though SEQDE is currently structured as a private company under the Corporations Act (Cth, 2001), its Board has since advised that the company's primary goal is to provide a public service rather than generate profit. This has given SEQDE a public sector orientation and had a profound effect on its approach to marketing.
The Board's direction to emphasise service over profit and its mission and vision statements indicate SEQDE has a hybrid Societal - Product Orientation toward marketing. SEQDE does not have a marketing section, but rather has a Corporate Communications section reporting to the CEO. SEQDE's senior management identified development of a “Brand” as a critical task in successfully merging ten distinct businesses into a single entity. To this end a specialist “Brand” marketing consultancy was engaged to develop a Branding Strategy. This document was aimed at politicians & public servants however, rather than end water consumers, as it was intended to ensure the 10 councils co-operated & aligned their efforts to form the new entity. As such, it was more like a policy document rather than an operative marketing strategy.
Issue 2. 5C Analysis
Company. The key findings of a SWOT analysis are:
· Monopoly supplier of a staple product.
· $30 million budget to set up the new entity & $300 Million budget for infrastructure improvements.
· Aging water infrastructure requiring large capital injection.
· 10 councils with differing opinions about how to manage the new water distribution entity, its priorities & its budget.
· Highly regulated and, therefore, inflexible business.
· Politicised Board protecting interests of individual owners, not SEQDE.
· Potential to leverage linear infrastructure business into ITC cabling
Customers. SEQDE's customer base is the South East Queensland region: consumer, business and government, who use local government water and sewerage services.
Collaborators. SEQDE's primary collaborators are the other statutory water business which control the bulk water supplies in dams (SEQWater) and transport that water across the region (Link Water). The Government appointed Water Grid Manager coordinates the trade in bulk water between the entities. Other collaborators include the engineering and management consultancies assisting its start-up. In the future the water retail entities, to be established in 2010 will be SEQDE's primary collaborators.
Competitors. SEQDE is a statutory monopoly and so, has no direct competitors. Private suppliers of potable water (tankers) and nightsoil removal only operate where SEQDE's predecessors did not establish a service. Therefore, competition can be described as:
* Very low to negligible intensity.
* Negligible threat of new entrants due to legislative & cost of infrastructure barriers.
* Low risk of competition from substitutes. Noting the opening remarks the main source of competition is from retail bottled drinking water; however, this product comprises only a small proportion of one use for potable water (ie. not used for bathing).
* While there are three bulk water suppliers SEQ Water controls over 90% of the water supply and so enjoys dominance in the market. However, relations between players are dictated by legislation which serves to constrain the relative power of any single entity.
* The political influence of consumers on SEQDE's owners, as voters, means they can exercise relative power over the company if they can mobilise public opinion. However, for most purposes SEQDE will have relative power over its buyers because it is a monopoly supplier of a staple good.
* Political. SEQDE's owners are local governments, elected by its customers. The Queensland Government, which is driving the reform of public water utilities, is a key stakeholder. As are the trade union movement which is aggressively protecting the employment conditions of its members working in those utilities. Basically, the unions are opposed to SEQDE adopting a private enterprise culture for fear it will lead to loss of entitlements and jobs.
· Economic. Under its establishing legislation SEQDE will be required to fund its own capital works budget, without assistance from government.
· Social. SEQDE considers its primary duty is to deliver an essential service or social good, then to deliver returns to shareholders.
* Technological. The merger of the predecessor entities has created a requirement to establish a common IT operating platform. The CRM is critical for marketing.
* Legal. SEQDE has a statutory obligation to maintain minimum customer service levels.
* Environmental. The market area has been in drought for several years raising consumer consciousness of the technical and economic issues associated with water.
It is also worth noting that SEQ media is dominated by two or three outlets, which are intensely interested in negative stories on the topics of water reform and wastage in government owned companies. SEQDE and similar businesses attract a disproportionately high degree of media attention regarding expenditure and product quality.
Issue 3. Marketing Information
Customers. SEQDE has well established CRM systems for collecting data on customer usage patterns. However, it will take up to 18 months to migrate this data into a common CRM, meaning the data is not readily available. Qualitative information on customer preferences and attitudes is currently available from the owners (council) marketing departments who collect primary data (attitudinal and longitudinal surveys) about ratepayer (customers) needs and wants. The owners appear somewhat sensitive about devolving this responsibility to SEQDE, preferring to keep a tight control of this until the last moment possible; which is generally considered the point at which assets and personnel transfer to SEQDE ownership. The cause of the owners' reticence is most likely to be found in the political imperative to manage public perceptions of the councils, and allowing a separate entity to intrude into areas closely associated with local government in risks adverse publicity and loss of control.
Competitors. SEQDE has no direct competitors and does not collect competitor data.
Business context. Operational information will be provided primarily by the company's ERP system. As with the CRM it is expected to take at least 18 months to move to a common ERP across the business. While the ERP will provide data on costs and resource usage the company's marketing efforts will also require technical data on water quality and sewerage processing. While this information is available in real time, via radio telemetry, the integration of the current 10 systems into one will take time. For about the first year of operation SEQDE will rely on its business units (formerly separate businesses) to pass critical operating data via email or other means. Similarly, SEQDE will be dependent upon the SEQ councils (its owners) to pass information regarding forward demand, since they retain control of development approvals. Queensland Government agencies, such as Treasury and Department of Natural Resources and Water, will be able to provide long term forecasts of demand as indicated by population growth and water availability.
Collaborators. The Water Grid Manager has the responsibility to ensure exchange of information between the statutory water entities, including SEQDE, to optimise efficient supply of water and sewerage processing. Information on commercial vendors is obtained through competitive tender processes or the use of specialist market intelligence services. For instance, a competitive tender process was conducted to select a property consultancy which then conducted research and provided market intelligence on property developers.
Issue 4. Segmentation, Targeting and Positioning Strategy
Segmentation. Noting that SEQDE has a public sector orientation it does not embrace the concept of segmentation. SEQDE's strategy emphasises product and service delivery to the total market or specific demographics as defined by their government owners. However, it is possible to discern some broad segmentation in their approach.
SEQDE's total market is the population of SEQ, who consume of water and use sewerage services. The company followed the common practice of its predecessors and divided the total market into residential-commercial and industrial customer segments. This is behaviour segmentation based on user status. Industrial customers will require water in larger quantities and may not necessarily require a food grade product. The key distinction between the segments is encapsulated in the different regulations and prices schedules that apply to them. SEQDE did not independently profile the segments because their needs, attitudes and interests are well known and, in any case, the predecessor businesses have already done so. The councils and state government already invest considerable effort analysing the nature of demand, or segment profile, in preparing their long term infrastructure plans. Paradoxically the owners have a strong marketing orientation, which involves careful analysis of key demographic segments and policy decisions designed to attract their support. For example, the trade union movement is a key segment which the owners are at pains to maintain positive relations with, which in turn drives SEQDE's day-to-day acitvities.
As a service focussed, publicly owned company, SEQDE does not have the option to assess segment attractiveness or select target markets: it must, by legislation, service the total market. As mentioned above, certain demographic groups will attract special attention due to the political context. For instance, the provision of services to welfare recipients and low income groups receives a great deal of attention because of the potential for adverse media if it is perceived that they will be worse off under the new “privatised” SEQDE structure.
Of course, this is likely to change if the company decides to develop secondary business lines, such as laying communications cable in parallel with its water pipes. These would be business-to-business lines conducted on a commercial basis. In this case segmentation is expected to be along Geographic lines, as defined by Kotler , because the product lines will be within strictly geographic limits; that is, where SEQDE's pipes run.
As a monopoly provider of an essential staple SEQDE does not need to position itself in the market to attract and retain customers. There are operational and political imperatives for positioning the SEQDE brand in its market. Firstly, customers will need to be made aware that their water and sewerage services will no longer be provided by their local council (even if the actual infrastructure and personnel do not change). Secondly, SEQDE's owners and the Queensland Government expect that the company enjoy public support or, attract tacit approval for their reforms of the water industry in SEQ.
The structure of the public water industry in SEQ creates an artificial dissonance where SEQDE provides a product to it consumers, but has only a very limited direct relationship with them. Most customer interactions will be with the retail entity operating in their location. Even so, SEQDE has devoted considerable effort through its branding strategy to positioning itself with its market by defining what it calls corporate “personality traits”. [SEQDE Brand Strategy, 2009] The primary and secondary traits are:
* “Trusted Friend” who supports the customer “Through Thick & Thin” so that customers develop “strong emotional bonds and support” the SEQDE brand.
* “Creator” who makes “positive contributions” to the community “through innovation.” Though not explicitly stated this brand trait is intended to assuage customer concerns about the change from the existing water distribution business to SEQDE.
Issue 5. Critique of SEQDE Marketing Strategy
SEQDE does not employ a marketing orientation to its business and does not have a well formed marketing strategy. It “brand” and “public communications” strategies are the nearest equivalents to a marketing strategy. As discussed above, this state of affairs is the legacy of SEQDE's public sector origins and it monopoly status. SEQDE's owners are political entities which traditionally exercise top-down or command and control approaches to decision making. While they are, to varying degrees, attuned to the needs of the customer base it is in the context of satisfying electors to win an electoral cycle. While all electors are customers, and vice versa, the potential exists for vocal minorities to exercise undue influence on government policy if the majority remain disinterested. For example, the introduction of fluoridated water in Queensland was blocked for over two decades by a highly organised but small group against the preferences of most water users. The influence of the trade unions is an example of how the interests of few customers - noting individual unionists are all customers - can over-ride the wants and needs of the wider customer base because of political influence.
During the initial planning to establish SEQDE a deliberate decision was made by the Board not to have a marketing division. Anecdotal accounts indicate this decision was based on the beliefs that public sector utility companies did not need to market their products that expenditure on marketing activities would attract unfavourable media comments and so be politically undesirable.
In this context a pure marketing orientation is not possible because it will be over-ridden by political considerations. SEQDE's approach is ostensibly, as befits a hybrid public-private sector organisation, a hybrid societal-product approach. This is a common problem for public entities who must serve multiple masters in ambiguous and often contradictory relationships [AGSM, 2009]. Confusion then develops as the political owners drive decisions based on their own strategies which identify and target key segments of voters. In short, SEQDE has deliberately avoided having a cohesive marketing strategy, but instead has accepted a Janus faced mixture of approaches over which it has little actual control. It is to be hoped that as the company matures and an independent is appointed that this situation can be remedied.
As discussed above, SEQDE will continue to experience significant difficulty in collating the considerable amounts of data it collects. The company has a considerable project underway to establish common management systems and migrate data from the legacy systems. It is generally expected that it will take at least 18 months before any significant improvement in the flow of customer and operational data is achieved, and probably up to five years before the new systems and processes are fully embedded. In this regard SEQDE is no different from any large merger or acquisition, so criticism of the company must be tempered by the knowledge that information deficiencies are largely beyond their immediate control.
One area where the company must take responsibility is the collection and analysis of customer attitudinal data. Despite the desire of the owners to control this area themselves the company must eventually establish its own relationship with its customer base and cannot continue to do so through the prism of its political owners, whose interests will often diverge from theirs. SEQDE must establish its own marketing unit, even if it not called such and develop a research and analysis capability; either organically in-house, or through the use of out-sourced partner agencies. Until they can do this SEQDE will not have an independent view of the wants and needs of its customers. Again, discussion of this issue must bear in mind that SEQDE has only limited capacity to influence these matters, because the board comprises political appointees whose primary duty is to their respective council rather than the company as an independent entity.
The company has attempted to compensate for the absence of a comprehensive and cohesive marketing strategy by developing a detailed branding strategy. It can be argued that the development of such a detailed brand strategy without a marketing strategy to provide it with context will lead to brand assuming too much importance in the overall marketing mix. On the other hand, a reading of the branding strategy reveals that much of the document is given over to discussion of issue connected to segment and positioning, which would normally be part of a marketing plan. For example, a large part of the document was given to discussing and developing the company's core values, rather than concentrating on the traditional product-brand matrix (ie. Line Extension etc). [Kotler, 2004] In other words, under the current constraints the branding strategy has filled a part of the gap in the company's overall strategy which should have been filled by a marketing strategy.
Australian Graduate School of Management, Marketing Management Course Notes, 2009.
Kotler, P. et al, Marketing, Prentice Hall, Sydney, 2004.
Black, J.P., Executive Planning Guidance, SEQ Distribution Entity (Interim) Pty Ltd, February 2009.
Two Thirds Sky Pty. Ltd, SEQDE Strategic Communication Handbook (Branding Strategy), April 2009.