MPO Fentres

Case synopsis

Research problem

How to succeed in the PVC window market?

Case summary

This case study is based on real events which occurred in 2010. It describes the

launch by MPO Fentres of new windows, characterised by improved thermal performance, achieved by the use of triple glazing. This company is based in the French region of Orne. It has 200 employees, and realized a turnover of over 35 million in 2010. It has positioned itself as an innovative company, always seeking to apply the latest technical developments. In the current economic crisis customers are more careful with their money, and think more carefully about potential purchases. In recent years it has been shown that consumers' purchasing behaviour has evolved, and that criteria such as sustainable development and environmental protection are now among the factors that may influence purchasing decisions. In this sense, an "ecological consciousness" has emerged. Not only the Grenelle de l'Environnement (a French forum for the discussion of issues relating to sustainable development) and government standards, but also tax credits associated with the purchase of certain goods, have affected the housing industry, and therefore also window manufacturers. Rebuilding and renovation are also subject to these factors. In this context, the launch of windows made of PVC, with their high thermal performance and technical and competitive advantages, was important for this SME. It was the company managers' responsibility to launch and market these products successfully.

Introducing MPO Fentres

Founded in 1970 in Alencon (Orne), the company MPO Fenetres (Menuiserie

Plastique de l'Ouest) was one of the first French companies in the PVC/carpentry

sector to offer a customized service. However, at that time, in France, very little was

known about PVC, carpentry and double-glazing technology: these markets were

still in their infancy. It took about ten years, and two oil crises (in 1974 and especially

in 1979) for the PVC window market to really take off. The commercial policy

of EDF (the French public energy provider) at that time favoured the development

of this product, encouraging investors to push for "all electric" installations, which

would, according to the manufacturer provider, require better insulation of public

buildings to reduce heat loss. Despite MPO Fenetres's financial losses since the creation of the company in 1978, the managers decided to invest in new office and production buildings. From 1970 to 1997, MPO Fenetres's products were rather basic. Two new product ranges were then offered by the company: a range of high quality windows made of aluminium and wood (1997) and windows featuring+ super heat, with an improved insulation value, made of aluminum with a thermal break (2007). These additions to its product range were introduced in line with the company's desire to widen its target market. These two new product categories now account for 10% of the company's turnover.

MPO Fenetres initially specialized in public and collective markets (professional/

major accounts, government, schools, municipalities and other communities).

However, from 1995 onwards it developed its sales to individual consumers. The

public market today accounts for about 60% of the company's turnover, while the

(still growing) consumers' market accounts for the remaining 40%. There are 200

employees working for the company, and turnover is over 35 million (source:

Internal figures 2010). Significant growth has occurred over the last decade.

The company is constantly on the lookout for technical and technological innovations,

both of which are well represented in its range of low thermal coefficient

products. Further the high requirements of the company in terms of the quality of

materials, assembly, and installation exceed the market standard. This allows the

company to offer its customers products at the forefront of innovation, a key success

factor in this industry. Incidentally, this is one of the four founding values of the

company, together with perfectionism (the aim to do the best possible job), cheerfulness within the company, and honesty with all company's stakeholders (both

employees and customers). The French carpentry market, and more specifically the market for windows, has undergone several phases in recent years. We review these below

Market figures: 2010

A survey conducted by the UFME (Union des Fabricants de Menuiseries

Exterieures, July 2011) among stakeholders (designers, window manufacturers,

outlets and installers) reveals the following. In 2010, the French window market suffered a decline of 4% compared to 2009 with a value of about 9 billion (5 billion relating to installation). The market was at its historical highest in the year 2005-2006, with 12.3 million windows sold, following a steady increase in the global market of about 4% per year between 2000 and 2006.

The overall volume of sales in 2010 shows that more than 11 billion windows

(excluding opening glazed facades, shutters and doors) were sold. Among these,

only 5% were imported: this is because the carpentry sector remained unaffected by the massive industrial relocations occurring in recent years. Local production is an important factor: most consumers prefer to buy from local companies and artisans. Almost all components of windows sold in France are produced in the European Community. Indeed, as consumer preferences vary greatly from one country to another, it is very difficult to market a standard product globally, which partly explains the customisation this phenomenon. In addition, over 90% of windows are custom made, which further limits the importation of materials.

The housing sector, and more specifically the sector relating to windows and shutters, employed 110,000 people in France in 2010. A third of this market value is linked directly to the jobs created (3.25 billion over 10 billion for the housing sector overall). The market is mainly based on SMEs (around 5,000) who manufacture the windows, and artisans (around 40,000) who install them. Two major markets exist for windows: windows in new buildings account for 26% of market volume, while replacement windows represent the remaining 74% (source: UFME, 2011). In terms of market value, the renovation market is larger, and generates more income.

Important price fluctuations can be observed on the market. The average price of

a window is 420 (net of tax). However, as soon as the cost of installation is added,

the price can rise by at least 80%, to 760. Since 2004, the average price of a window

has increased by 38%. Several factors explain this, including the quality and

type of material used: the market has shift towards aluminium on one hand, and

towards more efficient products on the other hand. However, in terms of the volume

of products sold, PVC largely dominates the market, with 62% of market share, followed by aluminium (22%) and wood (13%). However, looking at value estimates,

aluminium accounts for 33% of market value and PVC for 49%. Nevertheless, the

distribution and installation costs are declining, which, in a highly competitive mar

ket, offsets the rising costs of the commodities and materials used in the manufacturing

process.

The research institute Xerfi forecast two major changes in this market by 2011. Its

first prediction was accelerated growth in the renovation market, reinforcing its

importance. As a result of rising energy prices, individuals will be more likely to

invest in better insulating materials for their houses in order to reduce their energy

bills. Its second prediction was a sharp rise (expected to be a long-term trend) in new

building, accounting for a third of the construction market.

Given the likely future development of the market, there are plenty of opportunities

for window manufacturers, including a greater focus on customization. However,

it is important to note that most of these new products linked to innovations will be

linked to improved technical attributes of these products. This does not allow further

development toward the consumers' market. It also protects companies from enjoying

a share of the activity of the do It Yourself market segment. The largest distributor

of joinery products in France is Lapeyre (a subsidiary of Saint-Gobain), one of

the largest producers, processors and distributors of materials in France. Yet this

operator represents only 10% of the market. The market report by Xerfi identifies

other actors on the market:

1. Specialists in manufacture, marketing their products primarily business to business (B2B) but invest small amounts in niche markets, due to higher profitability expectations.

2. Independent joinery networks (including MPO Fenetres) usually suffer from a lack of recognition and limited geographical coverage.

3. The DIY and unskilled distribution networks. These actors (such as Leroy Merlin), which have become essential market windows, now offer a comprehensive range of joinery (doors, windows, etc.) and benefit from their vast distribution networks to offer promotions.

4. Finally, a new type of actor has recently emerged on the market: Online sale specialists (such as Fenetre24, Brico-Fenetre). These target individual customers with specific building or DIY knowledge. Most of these companies use a business and development model based on franchising (to promote rapid development of their distribution network) and aim their products at middlemen or independent artisans. Of these, the company which enjoys the greatest level of customer awareness is FPEE and its associated distribution network, Art & Fentres. Sales of windows are governed by a set of strict regulations and legislation. For instance, government initiatives and statutes promote the acquisition or replacement of windows by individual home-owners. Some of the relevant regulations are detailed in the next section.

The statute on thermal regulation

Since 1975, the statute on thermal regulation has imposed rules on French companies

regarding the energy consumption of buildings. Since its inception, the aim has

been to reduce energy consumption by 15 to 20% every five years.

The Thermal Regulation of 2012 ("RT 2012") has been in force since July 2011

for the tertiary sector and public buildings, and from 1 January 2013 for residential

houses. It is intended to promote better building design so as to reduce overall

energy consumption and the need for heating. In 2012 these statutory requirements

were increased, requiring contractors to increase their efforts to reduce the energy

consumption of buildings. The main objective is to achieve self-sufficiency for

energy purposes in buildings by 2020. Thus, this regulation promotes the use of

more efficient technologies for the production and retention of heat, as well as the

production of renewable energy.

Many standards apply to the design of buildings, including windows and doors.

The new ISO 23045: 2008 establishes specific guidelines applicable to the design

of buildings, to improve energy efficiency. To this end, the ISO covers the choice of

the raw materials and components used, the location of the building, and the energy

sources used. In theory, the ISO enables the transmission and sharing of information

about a building's energy efficiency by standardizing its energy statement. It also

defines objectives specific to each construction project from the design stage

onwards (source: ISO Standards habitat).

In addition, companies use independent inspection and certification to prove the

increased performance of their products, and to act as a guarantee of their quality.

Thus, the NF and CSTB labels ensure compliance for window manufacture, with

minimum levels of quality and standards concerning air - and water-tightness, and

wind resistance. Such certification of PVC joinery allows consumers to assess

manufacturing quality with respect to those three factors.

Finally, in response to the growing concerns of both individuals and institutions

about global warming, the "Grenelle Environment Forum", organized in

2007 by the Fillon government, brought together for the first time the State and

the representatives of civil society to define a roadmap for Ecology, Development

and Sustainable Planning (source: Presentation by the Grenelle, October 2010).

The Grenelle has achieved some progress by promoting the involvement of all

stakeholders. In terms of development and planning, the Grenelle's objectives

are to:promote efficient urban land resources, energy and implement technological

breakthrough in thermal improvement renovation and accelerate the renovation of the old fleet" (source: Grenelle Environment Forum, "Buildingrises to the challenge", October 2010). Following discussions, two key measures were implemented.

The first was the introduction of interest-free loans for qualifying energyefficient

building projects, from early April 2009. Such loans are available for

house renovation work to reduce both energy consumption and the emission of

greenhouse gases. The loan is granted for certain types of work (such as project

management and energy consumption assessments, insurance fees, etc.) or for

any work involved in and inseparable from energy efficiency improvements and

installation carried out by a professional. This latter category includes the installation

of new windows, including triple-glazed windows. Specific conditions

must be met to qualify for such a loan (concerning the age of the house, the grant

of any previous loan, the amount of the loan, repayment schedule, etc.) These

loans rapidly became popular: by late July 2009, 15,000 applications had been

received, and by the end of March 2010, more than 100,000 loans had been

granted.

The second measure introduced were training schemes for companies and craftsmen,

to encourage them to take into account the energy performance of buildings.

Since its launch in 2008, over 10,000 workers have been trained under this

measure. Following this market trend, MPO Fenetres has obtained certification, allowing the company to showcase its commitment to sustainable development, from product design through to its installation. MPO Fenetres highlights its long-term commitment by ensuring that the joinery products it sells are environmentally-friendly.

MPO Fenetres maintains its commitment to the continuous improvement of its products, including products with triple glazing, which allow an increase in performance of over 40% compared to the best double-glazing on the market. This commitment is reflected in all companies' activities, as stated above, but MPO Fenetres has also improved its installation and waste treatment along ecological lines, including waste recycling.

In other words, since 1 March 2007, MPO Fenetres has committed itself to producing

more eco friendly windows, offering NFcstBat-certified eco friendly windows

and triple-glazed Visio windows. As such, MPO Fenetres puts the most efficient windows in terms of thermal insulation within reach of everyone. The company

decided to concentrate on this market sector, which, according to the company's

CEO, represents the future of the company. Noting that for an average surface

area of 50 to 100 m2, 10 to 15% of heat loss from dwellings comes from windows,

it appears that they are an important element that could improve the overall energy

performance of homes. Indeed, these windows have become the ideal solution in

terms of domestic thermal insulation.

The three panes which make up the triple glazing are separated by spaces filled

with gas, giving them excellent thermal performance. Triple glazing captures very

little heat. It therefore gives very good thermal insulation and ensures low heat loss,

saving energy by reducing the amount of heating needed in winter and of cooling in

summer. However, triple glazing products are much more expensive to purchase,

and the acoustic insulation offered is not necessarily better than that of "acoustic

double glazing". Therefore, the company needs to ensure the best promotion in

order to convince clients to invest in these products.

Many consumers are willing to spend large sums on products which produce

immediate benefits. Expenditure on housing (including joinery) often involves substantial

outlay, from which the expected savings are less obvious to individuals. Yet

such investment is an effective way to reduce energy costs significantly. Thus, the

company's marketing should focus on the potential savings in energy costs for homeowners over the long term.

In order to support sales, MPO Fenetres has developed products within the framework

of sustainable development, from design to installation. Additional certification

for the installation of windows obtained in 2011 is further evidence of the

company's desire to provide a quality service. These certificates and service evaluations conducted by independent arbiters are highlighted by the company's sales

staff in discussions with existing and potential customers. The sales force is therefore

a very important element of the new marketing strategy and the launch of the

triple-glazed windows.

Marketing and distribution strategies

With regard to marketing and distribution, the business is customer-oriented:

therefore MPO Fenetres has chosen to keep control of the entire supply chain, right

through from the order to delivery to (and sometimes installation for) the

customer.

For both new and replacement windows, MPO Fenetres markets, designs, manufactures and installs its own products, thus ensuring complete control of the order

and keeping to a minimum the number of contacts for the customer.

The company distributes its products through two distribution channels: a central

department in charge of "key accounts" and "communities", and a network of eight

agencies deployed in northeastern France, all owned by the company. These agencies

are the cornerstone of the distribution network. Each agency employs fifteen

salespersons, as the control of about 15% of its market area, and operates in a sales

territory of approximately 45,000 customers. The company's salespeople actively

seek potential clients, especially at trade fairs and exhibitions. These events are of

paramount importance: they afford opportunities to expand the client base and win

new contracts. Up to 25% of the annual turnover of an agency can be attributed to

contacts made during these events.

Today, the continuing strong growth of the market has encouraged MPO Fenetres's

CEO to rethink the organisational model of its agencies. In order to improve performance and increase the commercial strength of the company, an audit of its business performance was conducted. Internal research within the company enabled the identification of tasks conducted by employees, and the time allocated to each task, over the course a year. The results are as follows.

Each year, a salesperson has two weeks of training and five weeks of paid

holidays (in accordance with employment law). Two weeks of their annual

working time is devoted to attending trade fairs. In addition, the average salesperson

is absent one week per year for personal reasons. In terms of the organization

of their five-day working week, the Director observed that one day is

devoted to purely administrative tasks (making appointments and reporting

activities). For the remaining four days of the week, based on a working day of

11 hours, one hour is devoted to the management of administrative problems

and urgent tasks, and one hour is taken as a lunch break. In terms of customer

contacts, information obtained from sales staff showed that the average sale is

concluded at the end of the third meeting, and that such meetings last on average

about an hour.

Convinced that high thermal performance PVC windows are the future of the

company, the company's directorate decided to develop sales of these as its primary

strategic activity. It therefore needed to develop a marketing strategy for these products

on the retail market. Some factors are key to the strategic approach needed:

individuals are not necessarily aware of the technical features of the products. In

addition, although they offer real benefits, triple-glazed products are more expensive.

This may hinder sales of triple-glazed products, because many alternatives,

which are cheaper and perform equally well, are still marketed, both in the company's

own catalogue and in those of its competitors. Although the triple-glazed products

are better in terms of insulation and sophistication, their price may be an

important deterrent.

Questions

• Analyse the relationship between marketing & finance in a company based on available information ( what do the numbers say and how do they relate to the marketing strategies)
• Conduct an internal and an external diagnosis of the company. Use the SWOTtool to synthesize this information.

• Identify the Key Factors for Success from the diagnosis.

"Finance is defined as procurement, management and effective utilization of entity's finance in a way to increase the overall wealth of the organization and to achieve its objectives and goals in limited period of time whereas, marketing is an action or a task of promoting its business, its products and services and it includes process of creating and expanding business's contact and reach helping it to grow in the competitive world."

Appendix 1- The market context

Over recent years, the market has grown steadily, but different forecasts by professionals are more pessimistic (see Figure: Potential market developments for windows in France established by TBC). Indeed, production had increased to meet the increase in demand (see graph: market developments in France between 2004 and 2008). According to a survey by TBC (2009), the new construction market appears to be the most adversely affected (57% of those surveyed predicted a decline in the installation of windows) while fewer installations of replacement windows was predicted by 29% of professionals. It appears that market participants will have to respond to these new market conditions, either by offering lower prices or better services, or by improving production levels.

A second cause for concern in the joinery market is rising energy prices. The price of energy has been increasing for several years.

Electricity costs increased by 5% in 2011, following significant increases in previous years. While gas appeared until recently to be a cheaper alternative, this is no longer the case: gas prices increased by 20% between 2010 and 2011. What might have appeared to be temporary fluctuations in market prices now seem to have become a settled trend which is unlikely to change. Indeed, a Senate report in July 2012 states that the average electricity bill for a French household could increase by 50% by 2020, due to increasingly high investment in renewable and nuclear energy (Le Monde, 19 July 2012). Rising energy costs will have a positive impact on market activities related to the insulation and improvement market in construction (because improved insulation produces energy savings).

Evolution of the window market in France from 2004 to 2010

Consumers who see their energy bills increasing ever faster will look for means to reduce this cost. The cost of inaction with regards to energy is becoming greater than investing in new materials. In the current financial crisis, faced with both price increases and decreasing purchas-ing power, the financial resources of households are declining. Suppliers of the various types of products which enable energy savings may therefore find themselves in direct competition (wall insulation, renewable energy equipment, etc.).

Appendix 2- PVC and the environment, recycling

Polyvinyl chloride (or PVC) is one of the most popular materials for joinery products, and is now widely used because it has a long life. It is used in more than 50% of joinery products with a life of over fifteen years. It is composed of 43% ethylene (derived from crude oil) and 57% chlorine. PVC products are used in many sectors, including public health, industry, construc-tion, and sustainable structures in the automotive industry.

In addition, PVC has a positive image in terms of environmental protection. Scientific studies comparing the impact of different materials on the environment found that PVC had no significant negative impact on the environment compared with alternative materials. In its intrinsic strength, weather resistance, and its eligibility for recycling, PVC is a material that appears to offer all the necessary benefits.

However, there is scope for improvement in relation to PVC recycling. Today, waste PVC is collected by the industry through specific programmes that can recycle it. Manufacturers in this industry do not yet meet their voluntary commitments to incorporate more recycled material in their finished products because there is not yet enough material to recycle