Metal commerce is the main topic of this issue of The Metal. We asked marketing director of Zaporozhstal Iron and Steel Works (Metallurgiyny kombinat “Zaporizhstal”) Yuri SOKHA to tell our readers about his company’s approaches to metal distribution.
SYMPATHIES IN METAL TRADE
Metal commerce is the main topic of this issue of The Metal. We asked marketing director of Zaporozhstal Iron and Steel Works (Metallurgiyny kombinat "Zaporizhstal") Yuri SOKHA to tell our readers about his company’s approaches to metal distribution.
– Mr. Sokha, business success on the market very often depends on timely adjustment to new products or on broader product mix in response to clients’ demands. It is the company’s marketing department that is responsible for dealing with these tasks. Sales are the key indicator of a metallurgical mill’s performance today. You already have a defined circle of clients. Could you please describe a typical Ukrainian consumer of Zaporozhstal’s metal products?
– Our average, Ukrainian consumers are distanced 158 away km from us, in industrial and southern regions of Ukraine, notably, the regions around the Dnieper river account for 60% of our total sales and the Black Sea coastal regions have 20%. Some 91% of Zaporozhstal-made iron and steel is sold within a circle, 500 km in radius, which is a traditional area of our influence. In 1999 tube manufacturers accounted for 48% of our domestic sales, metal traders got 23%, transport machinery-building companies 9%, construction 5%, machine-building 4%, repair services 4%, mining companies 3%, metallurgical mills 2%, and metalworking companies 2%.
The recent months have featured rapid growth of the domestic market, which was obviously caused by the general recovery in the country.
Monitoring of the internal market is a top priority for us. The pattern of Ukrainian consumers of rolled steel made in Zaporozhstal reveals surprising things. For example, the share of tube-making mills (i.e. our largest clients) has remained virtually unchanged for the past 1.5 to 2 years, although the economic environment has changed drastically. Just as in the past, tube works now purchase 48-49% of our rolled steel. Ukrainian farm machinery building seems to have finally recovered, but its share remains low at some 0.4% of our rolled metal. It is mainly because these consumers still do not have enough current assets, and primarily spent their borrowed money to purchase new equipment, rather than semi-finished steel. Meanwhile, the statistics on other industries, including automotive, are nothing but excellent. Their share has jumped more than 2.5 times reaching 11-12% of our rolled metal sales now.
However, we should remember that three-fourth of our consumers are foreigners, who have studied the standard technical documents accompanying our products in detail and are well acquainted with the products’ performance. Foreign clients are completely satisfied with the offered ratio of price vs. quality. In most cases, they are already familiar with our products and have decided to continue buying from us. These clients receive our metal products via authentic distributors and not from some random intermediaries engaged in unauthorized re-exports. Service centers are among our foreign clients purchasing rolled steel. This category of buyers is, unfortunately, almost absent on the domestic market.
– What are the differences between the marketing department of your company and similar divisions of other metallurgical mills?
– Zaporozhstal has defined the following marketing priorities: study of competitiveness, demand, and supplies to the mill; information network development; product promotion; and search for and launching of new markets.
A specific feature of the integrated mill’s marketing strategy is staying away from the principle of regional sales segmentation.
Compared to Zaporozhstal, marketing departments of other metallurgical mills deal solely with sales to CIS member-states and the Baltic States, whereas it is the foreign trade boards that are responsible for exports to the other countries.
Similar enterprises mostly make their marketing departments perform procurement functions, again, with strict adherence to the regional segmentation principle. Zaporozhstal analyzes the procurement process on the basis of market features of a particular product or service, irrespective of the region.
"To sell at the highest price possible" is not the only way to get greater earnings. There is also "to buy at the lowest price available". This is why Zaporozhstal’s marketing treats the mill as a buyer and a seller in one piece. We purchase raw materials, fuel, equipment, and components. The primary task of the marketing department is to employ an integrated, up-to-date approach that will provide the enterprise with scheduled earnings even if market situation worsens.
Different departments are responsible for marketing and sales at Zaporozhstal. The Sales and Foreign Trade Direction works out and brings to life commercial-and-sales policy proceeding from the marketing strategy.
Another specific feature of Zaporozhstal is that each business direction here is based on network information marketing. The operating infrastructure maintains databases and the mill’s intranet, as well as provides access to the Internet and other information sources.
– What marketing research methods does the staff of your department employ to find new clients?
– The enterprise has accepted an approach of commercial decision-making based on market information. For example, for the sake of procurement, there is a clear procedure of making up competitive lists of potential suppliers and approval of purchases in corresponding departments. Somewhat different mechanisms are employed to regulate sales through analysis of the current market situation. All business plans for reconstruction of facilities, attraction of investments, and analytical financial reports always include marketing sections containing materials compiled by our department.
Zaporozhstal makes a broad product mix; this is why almost all the orders for flat-rolled steel can be executed on the mill’s own equipment. Should a client require manufacturing of a completely new product, manufacturing can be launched only after the marketing department notifies that this product has prospects on the market and qualified feasibility study is done. The most recent example is the launch of lenticular riffled and unannealed steel coils upon nonstandard orders. Zaporozhstal’s management is open for any offers as regards production of roll-formed steel shapes with new dimensions.
There is another example. Designers all over the world are doing their best to add lightness to steel elements and items. In case of flat-rolled steel, sheet thickness is reduced first of all. Analysis shows that average thickness of sheet steel ordered from Zaporozhstal was reduced by some 0.05 mm per year. A number of countries have begun to widely implement various programs to lower metal consumption in metal-intensive industries. The ULSAB, the most well-known one, is implemented in the automotive industry. One of the resulting effects is consumers’ reorientation to hot-rolled sheet steel, up to 2 mm thick. Just a short while ago, the integrated mill could not make significant quantities rolled steel with such a small thickness. However, the global market trend brought about the changes. Upgrade of the hot sheet-rolling workshop is in progress now. As soon as it is completed, Zaporozhstal will finally be able to roll enough thin sheets.
Upon request of technical services, we have lately analyzed market prospects for rolled steel with enhanced mechanical properties. This type of rolled steel is applied in automotive to manufacture super-light cars. Western designers are reluctant to use costly stainless or alloy steels, but rather prefer to deal with special heat-treated low-alloy and micro-alloy steels. This product may become a significant contributor to expansion of our exports, because domestic consumers have yet to deploy the necessary technologies to switch to this kind of steel. This issue is especially urgent because of the current volatility on foreign metal markets.
– What role does your department play in the company’s pricing policy?
– Zaporozhstal’s pricing policy, first of all, takes into account the situation on domestic and foreign markets. Our mission is to obtain up-to-the-minute information, timely monitor the market situation, and forecast possible market changes so that the mill could promptly respond to new challenges.
Regional price positioning is one of the key pricing principles on foreign markets. Hence, we think it unreasonable to sell our products on well-to-do markets at low prices, which are charged on traditional markets. It should be highlighted that Zaporozhstal seeks the optimal ratio of supplies to various countries, trying to diversify exports in order to secure itself against ruinous consequences of possible market crashes in certain regions.
Another important factor is the ratio of export prices vs. domestic ones. Currently, Ukrainian prices (VAT not included) for our products are somewhat lower than the corresponding export prices. Development of the domestic market is an unquestionable top priority for Zaporozhstal.
We constantly search for new ways of doing business with our clients and, in this context, launching of sales via the Internet is on the agenda now.
the Metal