The SBU chosen for the scope of this report is IJM plantations, and it falls under the plantations industry of Malaysia. Palm oil is derived from the flesh of the fruit of the oil palm “species E. Guineensis” (IJM Annual Report, 2005). In its virgin form, the oil is bright orange-red due to the high content of carotene. Palm oil is a Nature's Gift to Malaysia, and Malaysia's to the World. “Malaysia currently accounts for 51 % of world palm oil production and 62% of world exports” (Foreign Agricultural Service, 2005), and therefore also for “8% and 22% of the worlds total production and exports of oils and fats” (Ngan Ma, May Choo, Yoo Cheah, 2003). As the biggest producer and exporter of palm oil and palm oil products, Malaysia has an important role to play in fulfilling the growing global need for oils and fats in general. The status of palm oil today in the world market is without doubt due to the significant contribution and commitment by the Malaysian palm oil industry. Malaysia has also become a role model for many other palm oil producing countries in their plans to spur economic development and gain foreign exchange through exports of surplus production.
About “60% of the planted area is in Peninsular Malaysia; 30% in Sabah and 10% in Sarawak” (IJM Corp. Bhd., 2005). In recent years, most of the expansion has been in the East Malaysian states of Sabah and Sarawak due to the declining availability of land in Peninsula Malaysia.
As in the past, the competitive edge which was the driving force behind the dramatic growth of the industry will continue to be a vital factor for its future development. At the same time, other competing oils (Soybean, Rapeseed, Sunflower and Coconut) have over the years improved their cost competitiveness through new planting materials and processing technologies. Thus, in order to remain competitive in the market place, the industry needs to improve on productivity, explore opportunities to diversify the income base, widen the end-use base for palm oil and explore new marketing approaches.
"I" stands for IGB Construction Sdn Bhd, "J" stands for Jurutama Sdn Bhd, and "M" stands for Mudajaya Construction Sdn Bhd. These three companies were merged to form IJM. “IJM was formed on 16 July 1983” (IJM Corp. Bhd., 2005) under the name of Solidstate Sdn Bhd. The present name was adopted in 1989. The company’s core business is in construction. Besides construction, IJM is also involved in four other core businesses; namely, in property development, industries, oil palm plantations, and in international ventures. However for the purpose of this report, the group has chosen to write a ‘Strategic Marketing Plan’ for ‘IJM Plantations Berhad’, a SBU of IJM Corporations involving in the cultivation of oil palm.
“IJM Plantations was formed on 15 January 1985” (IJM Corp. Bhd., 2005) in the name of Keepmatic Sdn Bhd; changed to “IJM Plantations Sdn Bhd on 2 July 1985” (IJM Corp. Bhd., 2005) which was then converted to IJM Plantations Berhad on 7 March 2003. The business has been listed under Bursa Malaysia Securities Berhad Main Board with effect from 2 July 2003 at Kuala Lumpur Stock Exchange. The “total planted area for oil palm has gone up from 18,138 hectares in 2000 to 24,401 hectares in 2004/05” (IJM Annual Report, 2005). The annual profit from operations has also gone up from “RM 6.2 million in 2000 to RM 74 million in 2004/05” (IJM Annual Report, 2005).
Corporation
IJM was formed when the IGB Construction Sdn Bhd, Jurutama Sdn Bhd, and Mudajaya Construction Sdn Bhd companies merged in 1984 in a bid to compete effectively against bigger foreign rivals who were making their presence strongly felt in the Malaysian market in the late 1970s and early 1980s.
In order to sustain and recognized as one of the few independent professionally-run companies in Malaysia with an excellent track record for performance in both local and international market, the company is driven to move forward with their vision, mission and culture. The “corporate culture is to uphold the highest standard of professionalism and exemplary corporate governance to maximize the benefits for all the stakeholders, ensure the quality of products and services exceed the expectation of customers and create a conducive environment for team spirit among the employees to work towards a unified workforce” (IJM Corp. Bhd., 2005).
IJM corporate is managed by eight experienced executives (IJM Annual Report, 2005) who are lead by Chief Executive and Managing Director Mr.Velayuthan a/l Tan Kim Song. Each of them posses skill and experiences in different areas that may contribute greatly on IJM plantation performance. The Board’s duty is to monitor the performance of the corporation, ensuring interests of top management are aligned with interests of shareholders and allocating use of resources, managing overall cooperate structure and strategic direction.
The senior management team is dedicated to improve IJM plantations financial performance to gain stronger confidence of shareholders, in order to meet the mission of the company. Besides IJM plantation is committed to provide a safe, healthy, injury free and environmentally sound business for their employees and customers. The effective management enables them to earn continued success, growth and sustainability in the business.
IJM corporate resources consist of experienced staff, human resource, infrastructure, R&D and strong financial resources. It is governed by a team of highly experienced management and managed by a range of skilful employees.
In terms of financial resources, IJM improves its profit performance by improving its cash flow generation and return on capital employed. In year “2004 its net profit has improved from RM42, 932,000 as compare to RM37, 879,000 in year 2003” (IJM Annual Report, 2005). The figures indicate that IJM has strong financial resources in regaining their business. Financially strong will lead IJM to own sufficient capital to purchase new technology and invest in R&D to continuously improve their crop quality.
IJM corporate stakeholders consist of internal and external stakeholders. Internal stakeholders include employees and shareholders. The company places a huge importance on their employees and considers them as the main resources. Employees are well paid to encourage enthusiasm in making profit for the company. Besides, IJM identifies their shareholders as the main stakeholder of their company. The stakeholders for the company will be IOI plantation, Perlis plantation and MPOB (Malaysian Palm Oil Board). These shareholders are interested in company’s performance, net profit, market share and reputation. If IJM earns revenue, shareholders will receive more dividend and profit.
The external stakeholders are the suppliers and customers. Suppliers include smaller plantation companies, pesticide companies and petroleum industry. Suppliers are concern if the company makes profit to get more order and better pay. Customers are also the main external stakeholders of IJM. Their interest in IJM is whether the company can provide them high quality product in the most efficient way.
Figure 1 below shows the past performance of IJM for the past two years. In 2003, net profit is RM37,879 as compare to RM42,932.
| | 2003 | 2004 |
| Statement of Financial Performance | | |
| EBIT | 202,020 | 264,060 |
| Net Profit | 37,879 | 42,932 |
| | | |
| Statement of Financial Position | | |
| Total Assets | 345,711 | 241,790 |
| Total Liabilities | 85,641 | 45,551 |
| Net Assets | 260,070 | 196,239 |
| Total Equity | 260,070 | 196,239 |
Source: IJM Plantations Berhad Annual Report 2005
The efficiency and effectiveness of IJM plantation within year 2003 to 2004 are calculated as below:
- Efficiency – Return on total assets (ROA)
ROA = EBIT/Total assets = 39.7%
- Effectiveness – Debt ratio and Debt Equity
Debt ratio = Total debt/total assets = 46.04%
Debt Equity = Total debt/total equity = 85.31%
- Adaptability – The adaptability of IJM is relatively strong. The management at IJM plantations has been fairly strong, and the appointment of new CEO for IJM Corporation does not affect the plantation operations greatly. In fact the revenue of the plantations has been steadily rising. This shows that the leaders and employees of IJM can quickly adapt to the changes of external and internal environment.
Customer/Markets
“Malaysia is the largest exporter of refined palm oil in the world” (Palm Oil World.org, 2005), and the demand for palm oil from the Malaysian plantations has been steadily on the rise by the Malaysian Palm Oil Board. “World palm oil production increased 20-fold from a mere 1.2 million tonnes in 1962 to 25.0 million tonnes in 2002” (Palm Oil World.org, 2005), growing at a rate of 7.8% p.a. In fact, the growth of palm oil output exceeded that of oilseeds production which only expanded moderately by 3.7% p.a., despite a harvested area for the former which expanded 26 times more than the oil palm mature area.
Source: IJM Plantations Berhad Annual Report 2005
IJM plantations berhad is a Sabah based plantations, and due to their expertise in resources in that area, IJM has segmented their market on a regional geographic segment basis. All the crude oil produced at the plantations is sent over to the IOI and Perlis plantations located in Sabah for refinery purposes. This segmentation was also done on the basis of the ‘customer size segment’, since IOI and Perlis have two of the biggest refineries in Malaysia. From their on, a share of this refined oil is sent over to the Malaysian Palm Oil Board, and a lower percentage is exported by IOI and Perlis to meet the ever increasing oil needs of the world market. The demand for crude oil from IJM has been increasing steadily in the last five years which meant a constant growth in the revenue earned by the company.
Source: IJM Plantations Berhad Annual Report 2005
The reason because of which IJM plantations have been able to meet the increasing needs from the refineries is because with each passing year more and more of their planted acreage is moving towards the maturity stage, which in effect means more and more crude oil can be extract by the company from the “matured” fruits. “IJM Plantations has a total acreage of 78,981 acres, of which 51,507 acres have been planted and 22,225 acres have matured” ( ).
Maturity profile of planted acreage Source:
The fact that IJM plantations only performs a regional geographic segmentation strategy, focusing on Sabah only, they are better equipped with utilizing their resources to produce better quality oil and effective distribution. “Personal Selling is being used by the plantation as a communication tool” (Velayuthan, 2005, pers. Comm., 19 Sept), which has made it easier for the refineries to understand the product offered and the value adds effectively. This has also given IJM a chance to understand the needs and requirements of the refineries in a better way.
Competition
Essentially there has “no direct competition” (Velayuthan, 2005, pers. Comm., 19 Sept.) in the plantations industry, every channels distributor is relying on each other to survive because of the price factor is fixed under market sales. But plantations companies they do compete in terms of “operative efficiencies and technologies” (Philip, 2005, pres. Comm., 7 Oct.) and based on the industrial size. For example, IJM medium-size plantations compete with other medium-size companies such as Golden Hope, and KLK plantations on operatives and technologies efficiencies. For the indirect competitors, Soybean is the key oil competing with palm oil in the international market.
Smaller plantations companies have to rely on other medium plantations companies such as IJM plantations to collect palm oil fruits and send to mill for extraction into crude palm oil. In order for IJM to extract more output, their estate palm oil fruits quantity are limited and therefore smaller companies palm oil fruits are needed to collect for extraction to increase crude oil output for IJM. Crude oil is then supply to other larger plantations companies such as IOI, and PPB plantations refinery to refine oils and with “licensing by Malaysia Palm Oil Board (MPOB)” (www.mpob.org, 2005) market out to the “four main palm oil export countries that is India, Europe, China, and United State of America” (Vince, 2005).
Financial performance on three companies:
| Company | Revenue | Industry Growth Rate | Market Share |
| 2003 | 2004 |
| IJM Plantations | 202,020 | 264,060 | 30.7% | 7% |
| Golden Hope | 570,493 | 583,355 | 2.3% | 7% |
| KLK Plantations | 1,351,493 | 1,489,965 | 10.2% | 9% |
Among all three companies, IJM plantations have the highest industry growth rate due to the mature-young and immature palm trees are moving towards the maturity stage where the fruits are bear during that stage.
Productivity & innovations - Palm oil mill upgraded to 60 metric tonnes per hour.
- Biocomposting Plant was commissioned enabling conversion of fibres from shredded empty fruit bunches and palm oil mill effluent into quality grade compost.
- Cable care system was installed in estates for fresh fruit bunches transportation
| |
IJM plantations Berhad have the sustainability in the market because of the following reasons:
Investor in people - Pro-base road technology in Desa Talisai South estate for better environment to workers
- IJMP conducted training programmed for all its conductors, plantation cadets and estate assistant managers in order for them to be more knowledgeable on the plantations industry.
Care for environment - IJM participated in the “free burning zone” policy.
- Networking and sharing with the public on the oxbow lake conservation area.
Returning to community Building schools for workers children in the estate area. | |
Source: IJM Plantations Berhad Annual Report 2005
For the key competitor advantages, “Golden Hope is expanding their plantations to Indonesia” (Hashim, 2005) and expanding segmentations due to limited availability of land. For the KLK plantation which is a core business to them, they used much of their resources to expand to technologies and management effectiveness but for IJM plantations, expanding resources are limited due to several concentration of strategic business unit such as plantations, property, and industrial sectors.
PEST Analysis
Political Environment
· The “state sales tax increase from 5 % to 7.5% in 2005” (Raj, 2005). The implication for the IJM plantation is that they have to generate more revenue to cover the cost of the state sales.
Economic Environment
· In year 2005, the Prime Minister decided to de-peg the ringgit in order to strengthen the Malaysian ringgit. These in turn make an impact on the price of the palm oil to “decrease from RM1, 400 to RM1, 380 per tonne in April 2005” (Velayuthan, 2005, pers. Comm., 19 Sept.). However, this is not a major implication to the company as IJM plantation assumes a fluctuation of price from now and then depends on the world economic.
Social Changes
· In these days, the society is becoming more health conscious. As a result, they are more concern and careful with the consumption of food. There are several reports shows that palm oil does promote heart disease (http://www.cspinet.org/palmoilreport/) (palm oil report-heart disease). This is a negative implication to the SBU, therefore in order to increase the consumption on palm oil and to minimize the health impact, IJM plantation do intensive research and development with the establishment of “IJM plantations Quality, Training and Research Centre in 2002”.(IJM plantations Annual Report, 2005).
Technology Changes
· IJM is adopting and implementing the Integrated Pest Management. The integrated approach is calls for “amalgam different techniques” (IJM annual report, 2005) to maintain a high level of biodiversity in the estates, which in turn serves to keep the level of pest population below the established thresholds. By implementing the approach, it will enhance the quality of the crop as it minimizes the usage of pest.
· “Bio-composting facility” (IJM annual report, 2005) was established to set the goal for the ‘zero waste’ for its palm oil mills. This facility enables the IJM plantation to convert mills waste into natural fertilizer. Besides, it also shows that IJM plantation is trying to protect the environment and ensure a sustainable agribusiness
Analysis of products
| Strengths - Oil palm can harvest everyday
- Able to produce good quality palm oil by doing consistent R&D
- Small plantation player with the younger state
- Downstream activities
- Production cost will reduce as plantation matures
| Weaknesses - Limited growth of opportunity because of increasing forest reserve in Sabah.
- No refinery activities.
|
| Opportunities · Benefit from current high CPO prices | Threats - Tight competition with other strong market shareholders in the industry.
|
Analysis of competition
| Strengths - Substantial R&D is being done to improve on current product quality.
- Extraction 21% and compare to the industry is only 20%.
- Efficient palm oil supply chain
| Weaknesses - Golden Hope is expanding their plantations to Indonesia because of limited availability of land.
- KLK gain more competitive advantage as they improve technologies
|
| Opportunities - Spot price-the price of the palm oil change depend on the market environment, which means lesser threats from the competitors as most of them are following the spot price.
| Threats - U.S is promoting “Cruel Oil campaign”.
- Spot price will limit the opportunities for growth.
|
Analysis of customers
| Strengths · High level of customer satisfaction. · High brand awareness within the target market. · Most of the promotion is done through personal selling, which means a close relationship between corporation and customers. | Weaknesses - May not fulfill “ALL” customer needs
|
| Opportunities - High product confidence and satisfaction
- Able to set “Premium Price”
- Dedicated Customer Service and Consumer Relations.
- Customers focus (e.g. responding to market needs.
| Threats - Changing consumption trend
- Increase cost in advertising due to increasing customer size.
- Increase of palm oil plantations portfolio of competitor brands.
|
Analysis of markets served
| Strengths - Personal selling approach makes it easier to understand the customer needs.
- Low distribution cost due to limited regional market segmentation.
| Weaknesses - Limited segmentation because the supplier of the crude oil is made only to two refineries.
|
| Opportunities - Increase the segmentation with the introduction of refined palm oil.
- Improve and focus more on distribution channel.
| Threats - Others small plantations are potential competitors.
- Unable to meet the increasing needs of Crude Palm Oil throughout the world due to limited plantation size.
|
Internal Corporate Analysis
| Strengths - Stable internal structure.
- Sixth largest land-bank in Malaysia
- Steady increase in the number of employees to meet the operational needs, currently at 5046.
- Training Programs
- Constant update of technology for improved extraction.
- Cable car system being evaluated for efficiency in crop evacuation.
| Weaknesses - IJM has more focus on its core business of construction as the return on equity (ROE) is higher for construction as compared to plantations.
- Reduced plantation assets due to IJM restructuring.
- No refinery resulting in extremely limited market.
|
| Opportunities - Increase the market size by having a refinery and henceforth supplying refined to the end consumers.
- Increase in market share as more ‘immature’ and ‘young’ plantations become ‘mature’
- Maintain internal stakeholders of the company, such as employees, satisfy with the steady internal structure.
| Threats - Loosing shareholders due to them loosing confidence in the company
- Other plantations taking over IJM with new innovative oil extraction methods.
|
SWOT Analysis Source : IJM Plantations Annual Report 2005
: Golden Hope Annual Report 2005
: KLK Annual Report 2005
: http://www.ijm.com/download/analysts'briefing_050518.pdf
- Unpredictable natural calamites like Hurricanes, Tsunami and Forest fire are occurring in anytime. Making assumptions to ensure that it would not affect much of its plantations. For instance, “price rise to RM2, 000 per tonne in the beginning of 2004 due to the tight global supplies caused by disappointing soybean crops caused by drought and plant diseases” (Golden Hope Annual Report, 2005).
- The palm oil price to remain stable in the next three years. This is to assure that that the market will grow steadily.
- The palm oil market to grow steadily on the next three years will certainly assure that the plantation will remain constant.
- De-pegging the ringgit will benefit the “palm oil producer as they can enjoy cheaper export” (Kareem, 2005).
To assure that the SBU of the company will be moving in progress. Objectives are made to ensure that the company is succeeding on the right track.
- Increase market share by 10% by 31 December 2007.
- Increase sales by 15% by 31 December 2007.
- To create consumer awareness at 10% towards the target market by 31 December 2006 and subsequently 20% by 31 December 2007 of the launch of refined oil.
- Increase profitability by 10% by 31 December 2007.
- To capture more market share by using multimarket strategy as this will help the company to diversify the risk of serving only one market.
- Efficient distribution will contribute to higher sales volume.
- To create consumer awareness by using integrated communication tools.
- Profitability can be increased by applying diversification strategy and value-marketing strategy.
Market Strategies
Currently IJM plantation is exercising the single-market strategy because the SBU is concentrating its efforts on a single segment of a market. It is relevant for the company to apply the single segment market as the product is of business product. Therefore the target customer will be segmented in the same range.
Recommendation:
It is recommended that IJM plantation should move into multimarket strategy. It is made in relation to that IJM plantation plan to go into the downstream activities (cluster plant) to seek growth prospect in the oil palm refinery. By applying the multimarket strategy, the company is able to serve several distinct groups. Besides that, it will also enable the company to earn higher sales volume and capture more market share.
- Market-Geography Strategy
IJM plantation is currently using local market strategy. Presently, IJM plantation is a medium sized plantation so the company limits the distribution of production to the local market because IJM plantation does not have a refinery centre at the moment. Therefore, the company will be concentrating to serve the customers in Malaysia.
Recommendation:
National market strategy is recommended to the IJM plantation to seek growth in conjunction with the new plan to venture into the oil palm refining. With the new plan to be implemented, the new line of product will be export to the country such as China, India and Indonesia. The group believes that IJM is prepared to go nationally as IJM plantation have the available resources and are in the position to take risk.
IJM plantation enters into the market after the market is in growth. Currently, IJM plantation is practicing the laggard-entry strategy. IJM is one of the followers to climb up the ladder of success to capture more market share.
- Market commitment Strategy
Currently, IJM plantation is at average commitment strategy.
Recommendation:
Followed by the introduction of the new refinery, IJM plantations should move forward into strong commitment strategy. Since the company is penetrating into the market nationally with the new product, IJM plantations should be more committed by doing in-depth research and development on the product to produce quality crude oil. This is in order to ensure that the company will maximize the profit and minimize the risk to the lowest possibility.
Product strategies
· Product positioning strategy
| Single brand | · IJM currently focus on positioning a single brand · The company positions its product as superior quality with efficient distribution in a limited segment to the refineries. |
Recommendation:
| Multiple brands | · In future with the refinery in operation, IJM should consider positioning multiple brands to seek growth by offering varied products in different segments of the market. |
In order to measure the perceptual mapping, quantity and efficiency are used to differentiate the position of IJM plantations berhad and other competitors. Among the three companies, IJM is the most efficient company competes with KLK and Golden Hope plantations. As more and more mature-young and immature palm oil are growing towards to the mature stage, IJM quantity crude oil production will increases in this coming few years and efficiency are continue to be maintained by the company.
· Product-scope strategy
| Single product strategy | · IJM is currently using a single product strategy. They only have one product in their line, which is CPO, and they try to live on the success of this product. · Single product leads to specialization where IJM plantation is practicing at the current situation. IJM plantation specialized in crop production and they improve the quality of the product and maintaining the performance by developing intensive research and development with the establishment of IJM Plantations Quality, Training and Research Centre in 2002. · This strategy should be reviewed after one year with the refinery in operation in 2006. |
Recommendation:
| Multiple-product strategy | · Focus will be shift from single product strategy to multiple product strategy with the offering of two products, CPO and refined oil. |
| System-of-products strategy | · IJM could also look into ‘System of Products’ strategy, by providing storage in addition to the regular storage of oil. · It shows that the company is concern about the customer need by providing the storage to help the customer to maintain the efficiency of distribution. |
· Product Design Strategies
| Standard products | · The nature of the products yield cost benefits due to the increasing of cost on fuel oil. Thus, oil palm becomes the alternative choice to replace fuel oil. · IJM plantation should continue using this strategy. |
Recommendation:
| New-product strategy | · IJM should develop the product imitation. · Malaysia is the biggest oil palm exporter in the world, and there are many existing oil refineries. IJM has seen the success and decided to join in, by providing high quality refined oil. |
| Value-marketing strategy | · -Quality strategy: with IJM growing rapidly, there is a need to increase the perceived quality to their customers. Since the product produced by the competitors is so similar in nature, it is important for the customers to have a high-quality image for IJM oil. - Customer service strategy: IJM must understand the needs of the smaller plantations wants and needs, and in return customers must be aware of what is expected of them. This can be achieved by keeping a regular touch with the customers through direct mail of other electronic mediums. - Time based strategy: time based strategy can being important competitive benefits. Fresh fruits would extract better quality oils, recommended use of ferry. |
Pricing Strategies
- Price Flexibility Strategy
One-Price Strategy
Palm oil is a commodities industrial product that follows the “sales price” (Bernama, 2005) in the world market. One advantage of this pricing strategy is administrative convenience. It also makes the pricing process easier and contributes to the maintenance of goodwill among customers because no single customer receives special pricing favours over another. IJM plantations berhad leave with no choice but to used one-price strategy because of the “market price is controlled by the Malaysia Palm Oil Board (MPOB)” (www.mpob.org, 2005) that follows the world market.
Pricing Strategy for New Products:
IJM plantations would be best advised to follow the penetration pricing strategy for the launch of its new products once the refinery is under operation. One of the marketing objectives of IJM is to increase the market share of the organization by 10% by the end of 2007. By following a penetrating pricing in the market, IJM would look to enter the market at a low initial price so that they are able to capture a greater share of the market. By applying this pricing strategy, IJM would also be discouraging potential competitors to enter the market. In an industry where the number of existing competitors poses a huge threat, it is important to come up with a viable strategy to enter and sustain in the market.
The group proposes IJM to look into promotional pricing for its new products to ensure their effective entry into the market. This would also give IJM a cost advantage through realizing economies of scale. The huge market for both crude and refined palm oil would justify the low prices. Penetration pricing would provide IJM a long term perspective in which short term profits might have to be compromised in order to establish a sustainable competitive advantage.
Distribution Strategies
- Channel-Structure Strategy
Established channel structures are as below:
IJM Plantations Berhad is currently using indirect distribution strategy to distribute its industrial product. Basically, IJM itself transport palm oil fruits to their own mill and extract crude and kernel palm oil. They also collect palm oil fruits from other small plantation companies which located nearby the mill. For further rural areas plantation companies, IJM offered services by preparing fruits storages to load their palm oil fruits so that it can be more organized, and increase control of the fruit quality to avoid palm oil fruit moisture dry up. Once the oil extraction process in the mill are completed, the crude and kernel palm oil are send to the two large plantations companies (IOI Plantation Berhad and Perlis Plantation Berhad) to refine.
Recommendation:
Indirect distribution strategy is suitable for medium size plantation companies such as IJM plantations is recommended to maintain this strategy because it has advantages on intermediary’s level such as lower marketing costs, no-expense-spared for finding market, and reduced channel management responsibilities.
Apparently, IJM plantations future planning is to build its refinery and cluster plant for downstream activities in order to expand their production in the market. Direct distribution strategy is adaptable in the new distribution channel for large degree of control on the product.
Recommended channel structures are as below:
- Channel Modification Strategy
Channel Evaluation
As the oil price market rises and the important of environmental act from foreign countries, the distribution strategy has to be modifies to adapt the changes in macro environments.
Cost of distribution
Due to the “world oil price market increases” (The Economist, 2005), the cost of transportation industrial product has affected. IJM plantations berhad has modified the cost of distribution in their distribution channel on their sales-cost basis. This includes physical stocks and supplies distribution and information distribution. At the Sugut area, cost of distribution is much cheaper to use batch to transport a large amount tons of palm oil fruits through the two main rivers that flow from the Mount Kinabalu throughout the Sulu Sea, rather than using lorry or on-road vehicle to transport out the fruits direct to the mill. Due to these changes, the cost of petrol transportation, transportation vehicle maintenance, and the operative cost has “cut-down” (Velayuthan, 2005, pers. Comm., 19 Sept.).
Coverage of the market
IJM plantations berhad should choose to distribute their products in a most efficient way in order to have better quality and more quantity of the extraction process. They should calculate the cost of distribution and the demand available, whether it is worth the transportation and distribution cost of delivering the product to IOI and Perlis plantations refinery plant.
Customer service
In order for IJM plantations berhad to extract more crude oil, it is very essential for them to place their importance on their suppliers (small plantations companies) in terms on efficiency and convenience for them to supply fruits easily. For example, IJM is currently preparing palm oil storage in rural areas for their smaller plantations companies to save their transportation cost by sending it to the nearby storage.
It is very necessary as IJM plantations to manage channel-control strategy in the palm oil industry to increase control on the delivery of quality palm oil fruits to the mill in order to maximize the extraction oil. For example, IJM plantations has promise to pay certain amount of money according to the market price to the smaller plantations companies which supply their palm oil fruits on time to the mill to avoid fruits rotten or dry up. Without better control, not only smaller companies may suffer lost but also the amount of extraction crude oil process by IJM plantations mill will decrease.
In order to collect fruits and better control on the outlying companies, “IJM has provided palm oil storage” (Sia, 2005, pers. Comm., 17 Oct.) for companies to load their fruits rather than deliver direct to the mill.
Recommendation:
Vertical marketing system is recommended once IJM plantations has successfully build their refinery and cluster plant so that it can increased more control, manage professionally, to be more centralize, easy to achieve of operating economies, it can maximum market impact, increase profitability, and elimination of inefficiencies.
Communication Strategies
- Promotion Expenditure Strategies
Given the intense competition in the plantations sector, along with the IJM expansion with the opening of a refinery, it is recommended that a large budget is set for the promotion tools to create awareness and persuade the consumers. There is seen to be sufficient funding to put a great deal of financial backing into the promotion campaign given the company’s high number of assets and revenue. The breakdown of how this money should be allocated and spent can be found in the budget, which is under implementation.
Current Strategy
The importance of different promotional tools varies between consumer and industrial markets. Consumer product firms usually put more funds into advertising, followed by sales promotion, personal selling and then public relations. The products at IJM plantations however are industrial products, and henceforth most of the emphasis is put on personal selling and negotiation with the targeted refineries.
Recommendation:
IJM would be best advised to carry on with their current promotion techniques of personal selling considering the nature of their product on offer. However, the ever increasing number of plantations in Malaysia in general, and Sabah in particular, IJM could also look into a few other promotion activities along with their existing strategy.
Direct communication or direct marketing can be an important that directly and carefully targets the individuals at other refineries and plantations to obtain an immediate response. Direct marketing typically involves the use of telephone, fax, e-mails and other non-personal tools for communication directly with the industrial buyers.
In addition, trade shows can be organized where IJM can display the quality of their CPO to the market. This would be particularly helpful for the company from 2006 onwards, when they look to increase the product line on offer with the opening up of the refinery. Since the company is looking to export the refined oil to foreign countries, advertising in trade magazines both in Malaysia and overseas would be very viable to create product awareness and brand equity.
With the advent of technology, interactive marketing through the web is another tool which if used effectively can give IJM a competitive advantage in the market. This is an area which is yet to be exploited by any of the plantations or refineries in Malaysia, and hence our group foresees an opportunity for IJM to promote its current and new products using interactive marketing. The web is the user friendliest facility and hence it has become the most fast growing and commercially popular segment of the internet. IJM can put data in the form of voice, photos, graphics, animation and video on the web explaining the various stages and steps of palm oil extraction. This would be a simple yet effective way of informing the targeted refineries or plantations of what differentiates the oil at IJM with its competitors.
A strong emphasis must also be placed on public relations to maintain favorable relations with the community as this would affect the potential customers, clients and employees. IJM should prioritize community relations, as this relation is one of the most important communication activities carried out by an organization. This establishment of reliable and respected external communication should be ongoing.
- Advertising-Copy Strategy
Source Credibility
Since the product at IJM is targeted at the industrial market, it becomes imperative that all the claims made through the promotional tools come from a credible source. The advertisements published in the trade magazines should be made from a credible source with sound knowledge about the palm oil sector.
Message Repetition
IJM Corporation Berhad has a slogan “The Mark of Excellence” (IJM Annual Report, 2005). The group believes that IJM should continue using this slogan in all the advertising and promotion activities they perform in future for IJM plantations, as a good slogan is the surest way of getting the message across. However, the message should be presented with variations to avoid repetition.
Comparison Advertising
The group also proposes IJM plantations to look into comparative advertising of their product with its competitors based on a variety of product or service attributes. “IJM has one of the highest oil extraction rates in Malaysia” ( ), and comparison advertising could be useful in informing the customers about the quality and efficiency of the oil produced at the IJM plantations.
Objective:
To increase consumer awareness by 10% towards the target market by 31st December 2006 and subsequently by 20% by 31 December 2007 of the launch of refined oil.
| TASK | RESPONSIBILITY |
| 1) Organizing Trade Shows | In-house Marketing Department |
| 2) Advertising campaign for Trade Magazines. | In-house Marketing Department |
| 3) Media Releases for Print and Broadcast Media | Public Relations & Marketing Department |
| 4) Interactive Marketing | In-house I.T. Department |
| 5) Direct Marketing | In-house R&D Department |
Research
For any kind of marketing strategy to be successfully implemented, it is imperative to conduct an extensive background research. To make the implementation a success, the management at IJM would have to be constantly monitoring the type of promotion activities they involve into. IJM would also have to be careful in selecting the forms of promotional tools, so that the customers are made aware of the new products that would be made available, their attributes and features in the most efficient way with least wastage of financial resources of the organization.
Timeline
- Year 2006 (Refer Appendix I)
- Year 2007(Refer Appendix I)
Monitoring
It is important to constantly monitor the progress to have an indication if the goals set by the organization are being met by the strategy. One of the promotion tools used by IJM would be through public relations by having various media releases on print and broadcasting media. The best way to monitor the media releases would be to keep a media clippings file. This file will contain all the media releases which have been published regarding IJM plantations within the two years of the strategy’s life. Once this file has been completed it is then possible to figure out how many media releases have actually been published.
Another way to monitor the success of a strategy would be to record the details of any potential customers met during the trade shows organized by the organization. These records could then be matched up with the future enquires made for business. Similarly, IJM can monitor the number of calls received after an event or promotion, and determine whether the strategy was successful.
The success of the interactive marketing strategy can be determined by the number of “unique” visitors visiting the IJM plantations website every month. A log of all the data, image, animation or video file downloaded from the website would also give IJM a clear indication of the general interest of the customers in the firm.
Evaluation
The main idea behind the strategy is to increase the consumer awareness towards the new products that would be offered to the target market with the opening of the IJM refinery and downstream activities. If the enquiries made for the products at IJM show a boost after the promotional efforts made, the strategy can be deemed a success. Since the initial aim of the campaign is to create awareness and not persuade the customers to make a purchase, the number of enquiries made for the products would be a better tool to measure the success of the campaign as compared to looking into the sales volume and the profitability of the organization.
