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Powercell Technologies - Strategic Marketing Direction?
Powercell Technologies is a distributor and value-added retailer of rechargeable and
disposable batteries used in institutions, specialty industrial, and hobbyist applications
The co!pany is located in "urnaby, "C, Canada, central to the industrial and co!!ercial
center of the greater #ancouver area, which has a population of about $ !illion people
%n business for && years, the co!pany has been struggling to !aintain profitability in the
face of a variety of challenges to its success
The battery !arket
"atteries are the pri!ary or backup power source for a huge range of e'uip!ent and
electrical connected devices This range of e'uip!ent has e(ploded in si)e and scope
over the last $* years along with the general increase in technology use by organi)ations
and consu!ers in the world De!and for original batteries - those used in new cell
phones, PC+s, laptops, !edical e'uip!ent, portable industrial devices, etc - has been
growing at ,- or !ore
&
per annu! This growth rate is e(pected to continue with the
increasing de!and for portability and s!aller si)es in industrial and consu!er devices
De!and for secondary batteries - batteries used as replace!ents for original batteries,
as second batteries for portable e'uip!ent such as video ca!eras, walkie talkies
.portable two-way radios/ - has been growing at *- or !ore 0s with original batteries,
this de!and increase is also e(pected to continue in the future
Consu!er battery de!and
Consu!ers rarely see industrial or 1original1 uses of batteries %nstead, they see devices
personal to the! with the original batteries already installed and ready to go - cell
phones for e(a!ple 2r they see those devices that re'uire batteries to be installed in
order for the device to operate - toys, flashlights, MP3 players, etc
The first group of devices - cell phones, laptops, etc - co!e with rechargeable batteries
that last for !any years as part of the initial purchase Consu!ers, therefore, don+t care
about the battery co!ponent unless, after !any years, they still wish to use the device
and the battery has worn out %n such a case, they will shop at a retailer for a replace!ent
battery 0fter purchasing this battery, they si!ply and easily replace the worn out one
and forget about the battery for !any !ore years 2ften, however, the device is obsolete
or broken before the user has to replace the battery and it never gets replaced The
replace!ent rate is perhaps $*- of the total pieces of e'uip!ent sold That is, for
e(a!ple, for every 4 cell phones sold, only & will ever have its battery replaced
The second group of consu!er devices - toys, flashlights, MP3 players, etc - has a !uch
larger !arket This !arket is divided into disposable and rechargeable batteries
Disposables are those batteries which consu!ers purchase, install in a device, use the
&
#arious sources - esti!ates vary fro! industry to industry and fro! study to study, but what is clear is the
on-going trend toward portability and s!all si)e, resulting in naturally large increases in pri!ary and
secondary battery de!and
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device until the batteries are out of power, throw the batteries in the garbage, and then
buy new ones at grocery stores, depart!ent stores, convenience stores, etc
Disposables generate tens of billions of dollars in sales for !anufacturers and retailers
worldwide
Disposables cost pennies to !ake by the !anufacturer, but are sold at high prices at
final retail 0 1001 battery !ight cost &7 cents for the !anufacturer to produce .physical
!anufacturing cost/ but after packaging, advertising, distribution, and retail !arkups,
these sa!e batteries will retail for :& The !anufacturer and retailers share !ost of the
vast profits inherent in such a large !arkup Distribution of batteries in the consu!er
!arket is usually done direct fro! the !anufacturer to the retailers ;here inter!ediary
wholesalers are used, there is very little profit !argin "argaining power in the consu!er
!arket is vested with the !anufacturer and with the retailer parts of the value chain
Consu!ers also use rechargeable batteries, pri!arily those called 1<iCad1, 1<iM=1 or
1lithiu!1 batteries >echargeable batteries are sold at large !ultiples of the price of
disposables ?or e(a!ple, a :& disposable 00 battery !ight cost :4 or !ore as a
rechargeable battery =owever, >echargeables still result in consu!ers paying a tiny
fraction of the cost of disposables over the life of the rechargeable battery ;ith a typical
life of !any years and *77-&777 recharges, these batteries end up costing the consu!er
!ere pennies
Due to the 1use and throw out1 indoctrination of the baby boo! generation by advertising
in <orth 0!erica, rechargeables only represent a s!all fraction of the retail sales figures
of disposables This is not the industrial or pri!ary !arket, but only retail This situation is
slowly changing as consu!ers increasingly use portable devices and see the vast cost
savings inherent in using rechargeable batteries =owever, the rechargeable !arket is
still s!all co!pared to that of disposables
%nstitutional and other users of batteries
%nstitutions use batteries for a variety of purposes ?or e(a!ple, hospitals power
lifesaving e'uip!ent with disposable battery support Police use rechargeable batteries
in their flashlights and walkie talkies ;al-Mart e!ployees carry hand-held stock and
pricing co!puters that re'uire rechargeable batteries These batteries are replaced every
year or two due to continuous use of the devices by e!ployees
These institutions work hard to keep costs low by inviting !ultiple bids for their annual
consu!able and rechargeable battery needs These buyers consider !a@or na!e-brand
batteries to be a co!!odity ite! and annually choose a supplier who offer the lowest
prices
Professionals, scientists, engineers, and technicians such as surveyors, geologists, civil
engineers, and cable technicians also carry portable electronic e'uip!ent that re'uires
batteries These users re'uire special battery packs that won+t fail in critical situations
Professional users are willing to pay higher prices to have the packs built well using high
'uality battery cells %n general, these battery packs are built using rechargeable <icad,
<i!=, and Aithiu! cells
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?inally, hobbyists purchase a variety of battery packs for their !odel airplanes, radio
e'uip!ent, and e(peri!ents
The !arket for institutional and other users of batteries is worth billions of dollars every
year in <orth 0!erica
$

Powercell Technology+s past and current !arketing strategy
Ted Stewart, owner of Powercell Technologies, states his strategy in this wayB
1% spend !y days visiting !a@or institutions and convincing purchasing agents,
depart!ent !anagers, and others to let !e bid on big annual battery purchase
contracts % show the! that we are the best at delivering big 'uantities ;hen % bid
on these, % go for the volu!e % set the best price ;ith the huge volu!e, we will
win out in the end 2ne big order % got fro! the =ospital purchasing cooperative
was for 477,777 disposable and specialty batteries a yearC 1
%n order for Ted to co!plete his pro@ected i!age of success and prosperity to his clients,
he drives a late !odel sports cars with a #D engine, fancy alu!inu! wheel ri!s and a
powerful CD stereo This, as well as his habit of dressing in e(pensive suits, and having a
very s!ooth personal interaction style when taking !anagers and buyers out to lunch,
has helped hi! win a large nu!ber of institutional orders over the years
"ack at the warehouse and retail outlet in "urnaby, inside sales staff asse!ble custo!
battery packs to sell in s!all orders to professionals, engineers, hobby purchasers, etc
=undreds of these sales a year keep the inside sales staff busy and happy working with
this group of buyers Most of these buyers initially stated that they were not aware of
Powercell+s e(istence and that the co!pany could do the kind of 'uality asse!bly work
they do The co!pany+s location is good, these custo!ers say, but the building looks
!ore like a warehouse than a retail outlet 2nce they know about Powercell, however,
they keep co!ing back with repeat business
Ted has a story he likes to tell about the custo! and s!all-order side of the business
2nce, a !a@or #ancouver !ovie studio bought :$*,777 worth of huge industrial batteries
to be used to power their ca!eras and e'uip!ent when shooting so!e scenes on top of
a !ountain range 1;e !ade a killing on that orderC1 Ted says 1They paid double what
we nor!ally get for those batteries because we were able to asse!ble the!
professionally, in the configuration they wanted, and we got the whole kit up to the
!ountain top for the! in ti!e for shooting the scene of the !ovieC1
These inside sales activities are in addition to the ti!e staff spend receiving stock fro!
battery !anufacturers and preparing the large orders for ship!ent to institutional
custo!ers %n fact, the staff find it frustrating spending ti!e on the big orders when they
en@oy working on s!all specialty orders Sales, profits, and other infor!ation on past
perfor!ance are included in E(hibit &
$
#arious sources This !arket si)e is divided between 2EM .original e'uip!ent !anufacturer/ bundling of
batteries with the sale of e'uip!ent and sales of new and replace!ent cells
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The future
Ted drops his 1successful sales!an1 i!age for a !o!ent when discussing Powercell+s
futureB
1% get the big orders every year and we deliver !illions of batteries =owever, in
the past !any years we barely break even or we !ake a s!all loss % don+t
understand what we are doing wrong <ew battery applications co!e out every
day and we are selling !ore batteries every year, but we never !ake a big profit
Maybe % should spend !ore ti!e focusing on new institutional accounts so we can
get our volu!e up % don+t know where we are going wrong1
The rechargeable battery !arket is e(panding as new products and applications re'uiring
batteries appear every year Manufacturers of battery cells cannot afford to custo!i)e
their products into different pack configurations for s!all and !ediu! si)ed custo!ers
They only do so for the very largest institutional custo!ers who want !illions of batteries
;holesalers who can sell to !ediu! and s!all volu!e purchasers are in increasing
de!and Custo! asse!blers who build-to-order custo! battery packs and provide
specialty cells for individual custo!ers are also seeing increasing de!and
<ew channels have opened up to help relieve so!e of this rapidly diversifying de!and
The %nternet is one big channel where a variety of sellers deliver batteries by courier
when custo!ers order on-line 0s Ted believes his success has been in personal selling
and bidding low on high volu!e orders, the co!pany web site is 'uite basic and does not
offer on-line sales
0nother growing distribution channel is retail stores that service custo!ers directly, such
as cell phone stores These specialty retail shops sell replace!ent battery packs directly
to end consu!ers "eing big chain stores, these buyers purchase cells in large
'uantities, typically fro! China 2ften, !ost profits for these retailers co!e fro! sales of
accessories and replace!ent batteries - not fro! the sale of cell phones the!selves
Flossary
Cells - individual power storing parts May be labeled for retail sale or unlabelled for bulk
re-sale
"atteries - This word often used interchangeably with cells Typically labeled for retail
sale
"attery pack - a group of cells connected and packaged together to look and act like one
larger battery Most often this connecting and packaging is done to !eet the specific
electrical voltage and a!perage needs of a special device
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The challenges
Due to co!pounding s!all losses over the years, Powercell is in trouble and needs a
new strategic !arketing plan So!e key 'uestions that need answering as part of the
plan areB
& ;hy is Powercell not profitable? E(plain in detail based on case infor!ation
.valueB $*-/
$ %dentify and utili)e several appropriate !arketing !odels to analy)e
Powercell+s overall business situation Do not give definitions of the !odels
.valueB $*-/
3 ;hat are so!e strategic and tactical !arketing actions Ted could take
i!!ediately to i!prove profitability? E(plain in so!e detail the followingB
.valueB *7-/
- =ow Ted could take these actions and why the actions would work
- ;hich ones are long-ter! strategic initiatives, and which are short-ter! tactical
!oves
- =ow the general operations of the business would likely change after these
actions are taken
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0ppendi( &B So!e historical data
Powercell selected financial and oerational dataB
Year! Sales "t#e$ Sales
"%nits&orders$
Sales "'$ (ross
Profit
Mar)in
Powercell
Ann%al Profits
"Losses$
&66$ - Disposables to institutionsB
- >echargeable G specialty
batteries to institutionsB
- Specialty batteries and
custo! packs - inside salesB
3*7,777
D,777
,*
:&H*,777
:&,,777
:,*,777
D-
47-
H*-
.:&D,777/
&664 - Disposables to institutionsB
- >echargeable G specialty
batteries to institutionsB
- Specialty batteries and
custo! packs - inside salesB
*37,777
$$,777
&47
:$76,777
:**,777
:&,*,777
H-
4H-
H*-
:&$,777
&66, - Disposables to institutionsB
- >echargeable G specialty
batteries to institutionsB
- Specialty batteries and
custo! packs - inside salesB
HD7,777
$,,777
&37
:$D*,777
:*6,777
:&,7,777
,*-
3,-
H*-
:4,777
&66D - Disposables to institutionsB
- >echargeable G specialty
batteries to institutionsB
- Specialty batteries and
custo! packs - inside salesB
&,&77,777
37,777
&,*
:3*7,777
:,7,777
:$&*,777
,*-
$D-
H*-
.:$$,777/
$777 - Disposables to institutionsB
- >echargeable G specialty
batteries to institutionsB
- Specialty batteries and
custo! packs - inside salesB
&,4*7,777
3*,777
$$*
:4&7,777
:,7,777
:3&7,777
,-
$*-
H*-
.:$H,777/
$77$ - Disposables to institutionsB
- >echargeable G specialty
batteries to institutionsB
- Specialty batteries and
custo! packs - inside salesB
&,D77,777
3D,*77
$H*
:4$*,777
:,*,777
:477,777
,-
$*-
H*-
.:&&,777/
N%*+er of E*lo#ees!
&66$B $ $77$B ,
Ad,ertisin) and *ar-etin) foc%s!
&66$B Iellow pages .inside sales/, trade shows, business cards, personal selling
.institutional sales/
$77$B Iellow pages .inside sales/, trade shows, business cards, personal selling
.institutional sales/, web site .inside sales/, word-of-!outh .inside sales/
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