Background information
Stannah Ltd was established in the 1860s by Joseph Stannah as a lift manufacturing company. The company has been in this industry for more than one hundred and fifty years. This has earned it a lot of experience making it stand out as the largest autonomous lift manufacturing company in United Kingdom. It is a family-managed company that emphasizes the safety of the public as well as its employees. As its management ensures that the company offers quality products, it has made it gain large domestic market for different varieties of lifts it manufactures. As a way of ensuring that it offers quality services to its customers, Stannah Ltd has established eleven services branches across U.K. These branches are responsible for responding to customer complaints such as mechanical failure of the lifts. Their services are available twenty-four hours a week throughout the year. This is one of the factors that have led to company’s brand growing strong in Britain. Despite the company having a long time experience in lift manufacturing and dominating U.K. market, entrant of new companies offering the same has led to it experiencing threat in its market share.
There has been an increase in loss experienced in lift division by the company. As there is no export for lifts, it has become hard for Stannah Company to diversify its market. To retain its market share, the company has been forced to turn to product diversification. Over the time it has been in lift manufacturing industry, Stannah Ltd has never dealt in step lift production. The management is contemplating on getting into this production. To make a decision on if to venture into this business, the management has sought an advice on the benefits and expenses it expects to incur. This paper aims at analyzing market size for this type of lift, identify the major customers for the product, highlight the barriers the company is expected to face and give the most viable entry method the company ought to use.
Market size
Before every business intends to venture into a new market or introduce a new product in the market, its management conducts market analysis to determine the market size for the product. Through this, the business is able to ascertain the reception its product will receive in the market and determine if it will get returns from the investment. Failure to conduct prior market analysis may lead to a business introducing its products in a market where they are not in demand. Consequently, the business would get limited returns from its investment (Flannery 1999, pp. 107-119). Currently, out of the thirty-three million adults found in United Kingdom, about ten million are suffering from one form of physical impairment or another. This implies that about thirty percent of persons visiting leisure facilities need to be assisted. With every hospitality facility trying to attract and retain customers, they are looking for all means possible to ensure that these persons have access to their facilities. One of the methods of ensuring that these people have access to all facilities in leisure centers is through provision of under 1m step lifts in the premises. Hospitality premises have continuously installed lifts to help people with difficulties in walking or those using wheelchairs have access to all areas within the property.
The country introduced Disability Discrimination Act that requires each museum, hotel, cinema and public buildings in the country to ensure that every person visiting the premises has access to all areas. With the country registering new hotels, cinema halls and hospitality property, demand for under 1-meter step lifts will certainly go high. Since the law was introduced, numerous premises have been in the process of restructuring their building to accommodate for installation of the lift. The government has now taken the initiative of ensuring that every public premise adheres to this regulation before being allowed to operate. The move has raised demand for under 1-meter step lifts in the country. As a less than one-meter lift is possible to relocate, it is being preferred by hospitality properties to cater for people using wheelchairs and those with difficulties in walking.
Globalization has led to different countries trading in goods and services. U.K is one of the major countries that have seen its people importing and exporting products to other countries (Hanson 2005, pp. 1-24). For effective handling of goods entering and leaving the country, there has been demand for small lifts at local terminals. Need for less than one-meter step lifts in airports is significantly growing as more people continue importing and exporting light products. With U.K having numerous airport terminals, it implies that demand for this type of lift will continue increasing.
Main customers for the product
Having a clear knowledge of the target customers for specific products helps a business offer products that best meet their needs. In return the business makes profit from the product. Understanding the target customers enhances business efficiency in offering its products and services. With U.K government having introduced the Disability Discrimination Act, hotels, cinema halls, museums and other leisure centers forms the main customers of the step lift. Apart from ensuring that they comply with the government regulations, these premises are in need of expanding their market share. Failure to provide such facilities in their premises leads to people with disabilities opting to visit premises where they feel that their needs are well taken care of (Cooper 2002, pp. 124-135). Most of these people also opt not to visit the premises at all if they feel that they will have difficulties in accessing some areas. Premises eventually fail to benefit from this group of people.
There has been an increase in need for facilities to help in cargo handling at terminals such as airports. As goods enter and leave the country, people are required to lift some of the products for short heights. Because some of the products are heavy, it becomes difficult to lift them manually. This has called for under 1-meter step lifts in the airports. Today, airports are purchasing the lifts at a high rate. This comprises another potential group of consumers for Stannah Ltd. As patients in hospitals move from one place to another using wheelchair, they require climbing or ascending from one level of the floor to another within the buildings. It becomes difficult for such people to do so especially if there is no one to help them. Hospitals have started purchasing under 1-meter step lifts to assist people with walking difficulties and those using wheelchairs move freely within the hospital buildings. This trend is continuously being adopted by most hospitals. For companies such as Pollack and Wessex, hospitals have become one of the major consumers of their lifts. On venturing into production and sales of these lifts, Stannah is guaranteed that it will get market in hospitals.
Step lifts are not only being used in public premises and leisure centers. People are installing them at homes to help them access some areas as well as effectively handle products when transferring them from one place to another. Most of the old and disabled persons in Britain are asking for their houses to be equipped with step lifts to help them move freely around the house (Mason & Sterbenz 1994, 61-86). With approximately thirty percent of the country’s population is made of the old generation, demand for under 1-meter lifts at homes is going to increase with time. Stannah Limited is guaranteed of receiving numerous orders for the lifts from homes.
Barriers to market entry
Different barriers may make Stannah fail to succeed in its new innovation. Despite there being a potential market for its products, the incumbent companies in the business may decide to spend heavily on advertising making it difficult for Stannah to gain market share (Caves & Porter 1977, pp. 241-262). This is referred to as market power hypothesis of advertising. Companies such as Pollack, Wessex, Terry and Vimec may use power of advertising to lure consumers to stick to their brands making it hard for them to use other brands. They may make their brands look unique and superior thus hampering entrance of any new brand into the market. Companies currently dealing with this type of lift already have proprietary technology. It may become hard for Stannah to develop lifts that will equally compete with theirs in the market. As these companies have been in the business for many years, they have experience on where to source raw materials used in manufacturing the under 1-meter lifts (Karakaya & Stahl 1999, pp. 80-91). This means that their production process is efficient thus meeting consumer needs on time. Stannah Ltd having not been in the business again may take time to acquire raw materials and manufacture the lifts. Consequently, its products may reach the market only to find that customer needs have already been satisfied by other companies.
Customer loyalty is another barrier that may lead to Stannah failing to gain market on its entry to step lift sales. The more a business deal with a specific product, the more consumers get used to the product thus becoming loyal to the business. It becomes hard for such customers to leave the product and go for its substitutes (Lilien & Yoon 1990, pp. 67-94). Companies such as Wessex, Pollack, Terry and Vimec have dealt with production of step lifts for many years. This has made their customers become loyal to the products. Despite Stannah being known for lift manufacturing, consumers have not used its step lifts. Upon introducing this brand in the market, it may be difficult for the company to fight other brands that have dominated the market for years. Customers may be reluctant to leave brands they have known for years for a brand they have no experience with.
Network effect is another barrier that may make it difficult for Stannah Ltd to enter into sales of step lifts. Network effect refers to a situation where value of products or services from specific companies depends on the number of existing customers. It becomes hard for a new competitor to get into a market where established companies have already acquired significant number of customers. Value of step lifts depends on the number of people using them. Customers are willing to purchase lifts that they know are being used by many people. This may make it hard for Stannah to introduce its lifts in U.K market as customers may decline to purchase them (Shi & Gregory 1998, pp. 195-214).
Having not participated in production of this type of lift before, Stannah Ltd lacks technical know-how in their manufacture. Companies that have been participating in their manufacture may therefore benefit from economies of scale. Pollack and the rest may be able to manufacture more lifts at a low cost than Stannah. This is because they know where to acquire cheap and quality raw materials as well as how to maximize resources used in their manufacture. On the other hand, Stannah would take time to acquire raw materials and produce the lifts (Teece 2000, pp. 242-261). It would be difficult for the company to maximize resources used in manufacturing the lifts hence making it incur a lot of production cost. The company would be expected to sell its lifts at a higher price so as to make profit.
To discourage new companies from entering the market, existing companies may use all means possible. This is to ensure that competition is unhealthy for new companies. Predatory pricing is one of the strategies used by companies in discouraging entrance of a new competitor. The dominant companies sell their products at a loss. A new competitor wishing to join the market feels threatened as it will not get returns from the investment. In case existing step lift manufacturing companies opt to follow this strategy, it may become hard for Stannah to venture into the business as it would be difficult to get returns from its investment (Vogel 2005, p. 476). Unhealthy competition resulting from predatory pricing strategies taken by existing companies may discourage Stannah Ltd making it hard to venture into production and sales of step lifts in U.K.
Recommendations
To effectively venture into the market, Stannah Ltd ought to ensure that it has come up with a market entry strategy that will help it overcome competition from these companies. Stannah may decide to buy into existing companies or enter the market as an independent entity. There are different benefits and drawbacks that the company may face on opting to use buy-in strategy. One of the benefits is that it would be saved from having to conduct research on the production of various components of the lift. This is especially if it decides to purchase some equipment from existing companies. In return, it would produce lifts and avail them in the market on time hence gaining substantial market share. The move would save the company from unhealthy competition which may be waged by the dominant companies (Faulkner 2002, p. 342).
On the other hand, buy-in strategy may make the company have no control of its operations. Dominating companies with which it may decide to buy into may influence its operations by issuing conditions for their cooperation. This is in bid to safeguard their market share and avoid Stannah taking the opportunity to topple them in the market. The company will not be in a position to customize the production process of its under 1-meter lifts. This is because it has to use components of the lifts purchased from the company it has collaborated with as well as sticking to established conditions. This makes buying an unfavorable strategy to be used by Stannah Ltd. In case the company decides to buy in, there are different components that it may purchase from other companies and incorporate them in its lifts (Krugman 1979, pp. 253-266). These are those components that are more common to all under 1-meter lifts and do not play major roles in the lift. Stannah may purchase step plates and lift chains from manufacturing companies such as Wessex and use them in manufacturing its lifts. These components are alike in most of the lifts regardless of the company from which they are manufactured. To make its lift look unique, Stannah Ltd ought to manufacture components that enhance the functionality of the lift. These include components like electric motors and remote control. By developing these components by themselves, Stannah will be able to ensure that their lifts are more efficient and reliable.
Manufacturing and selling the lifts is another strategy that can be used by Stannah in entering the U.K market. Rather than depending on other companies to acquire some of the equipment used in lift manufacturing, the company may decide to start from scratch and develop its own step lifts. This move would make the company independent in all its operations (Melitz 2005, p. 74). As a result, Stannah Ltd can be in a position to customizing its production mechanisms to effectively meet customer needs. Benefits associated with this move include encouraging innovations within the company. As the company struggles to overcome competition emanating from the dominating companies, its management would accommodate all sorts of innovations aimed at increasing its sales volume. The company would not have its activities curtailed hence it would be able to invest in all innovative ideas that would make it strengthen its brand.
However, as Stannah embarks on manufacturing the lifts, it should be prepared to face stiff competition from Pollack, Terry, Mavic and Wessex companies that have dominated the market for a long time. These companies will not relax and see their market share being compromised by a new entrant. With their brands being familiar in the market, Stannah needs to invest in enhancing the quality of step lifts it will manufacture (Mowery & Oxyle 1994, pp. 67-93). By studying the available lifts from different companies, Stannah will be able to determine additional functionalities to add to its lifts to make them stand out in the market. This is the sole strategy that will make its brand recognized by customers.
Conclusion
The fact that every public facility and leisure center in U.K deserves to ensure that persons with difficulties in walking as well as those using wheelchairs have access to all areas implies that demand for step lifts by these premises will continue increasing as new leisure centers and public facilities are established. This gives Stannah Ltd hopes of getting market for its step lifts. Understanding the barriers that it is likely to face will help the company plan in advance thus mitigating the effects of such barriers (Li & Calantone 1998, pp. 13-29). Stannah Ltd ought to proceed and develop its step lifts to exploit the potential market in the United Kingdom. The company should ensure that it introduces new features and functionalities on its lifts so as to make them unique in the market. This will make its brand withstand competition from other brands already established in the market.
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