JDC Central EMCO Strategy CAse

 Strategy case Emco Corporation: Harnessing Social Media This case was prepared for the JDC Central 2013 Organizing Committee by The Martello Group. Questions about the case can be sent to [email protected]. The situation described in this case is based on a real event and key identifying details have been disguised. The JDC Central 2013 Organizing Committee holds the copyright for this case and the case cannot be reproduced without express permission from the JDC Central 2013 Organizing Committee. To order copies or inquire about permission to reproduce this case, please contact [email protected]. Draft 24-­‐‑Dec-­‐‑2012. INTRODUCTION “We’re a large company with over 2,000 teammates across Canada selling products to 30,000 customers,” said Joey, Management Development Associate for Emco’s Milton Profit Centre. “Surely there is a way to harness the power of social media to help us better serve our customers?” It was a cool day in November 2012 and Joey was thinking about improving the way his company promoted itself. A 106-­‐‑year old company headquartered in London, Ontario, Emco is a wholesale distributor of building products such as plumbing supplies, water heaters, bath fixtures, HVAC1, industrial, waterworks and irrigation supplies. A network of over 200 Emco profit centres (PCs) across Canada manages sales and inventory. 1
HVAC is Heating, Ventilation, Air Conditioning.
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Emco’s key segments include contractors who were building or renovating residential, commercial and institutional buildings, and working with industrial and waterworks customers. “We have a national website, various regional websites and a careers website that contain the usual information – history of company, our vision, our catalogue of products, how to contact us. I’ve even created a Facebook page for our Milton PC. But it hasn’t been as popular as we would have liked,” added Joey. “What more can we be doing?” The broader question, for Sian, a member of Emco’s senior management team, was to determine what place, if any, social media could play in its marketing and sales strategy going forward. While many social media tools were available at little or no cost, committing to maintaining a social media presence would require an investment in time, personnel and IT infrastructure. The business case for implementing a social media strategy had to touch on the potential benefits and costs, and what the return on investment would look like. Emco Corporation Founded as the Empire Manufacturing Company Limited in London, Ontario in 1906 in London, Ontario, Emco is a wholesale distributor of building products and equipment in segments such as plumbing, HVAC (heating, ventilation and air conditioning), industrial and waterworks. It has locations across Canada and has continually expanded by opening greenfield profit centres and by acquiring regional competitors. Emco operates under multiple divisions and each has many distinct trade names and brands. Emco has 6 plumbing and heating divisions arranged by geography (3 in the East and 3 in the West) and two national divisions (industrial and waterworks). It sources product primarily from North American manufacturers of plumbing supplies, HVAC systems, hydronic heating, industrial, waterworks, water pumps, and fire protection products (see Exhibit 1 for a selected list of suppliers). At any given time, Emco carries a range of over 400,000 different stock keeping units (SKUs). The Profit Centres Key to Emco’s operations is its more than 200 PCs across the country. Each profit centre has between 3 and 150 teammates and is managed by a Profit Centre Manager (PCM). Within Emco’s core values, ethics and standard policies, the 2
PCMs are completely autonomous to run their own business, making all of the decisions that impact their businesses and customers. The profit centres manage a local customer base, determine what to carry in inventory, order directly from manufacturers, and set prices based on local needs and conditions. They also determine from which manufacturers they will buy, the location of their PC, and how many teammates should be in the PC. While Emco does not have a corporate management layer, it had a National Support Centre that provides support and services to the PCs. Suppliers tally up the aggregate purchases from all Emco profit centres and provide Emco with the appropriate volume discounts, terms and conditions of sale. At each profit centre, staffing levels are based on the most recent year’s financial results, keeping salaries and general expenses below a certain ratio to sales. The PCM decides on staffing levels based on a number of factors including previous years results, forecasted results and the PCMs strategy for the PC. For example, a PCM may decide to invest in more people in order to grow the business. As well, the ratio is a guideline only, not a hard and fast rule, as the makeup of the team is in the PCMs discretion. There is a generous profit-­‐‑sharing plan in place, where a substantial amount of operating earnings generated by the profit centre is set aside for the PCM to allocate within his or her PC. The profit sharing allocation was different from PC to PC. In high performing years, the average profit sharing earned by employees in some profit centres could substantially increase their annual compensation. Pictures of the Milton profit centre can be found in Exhibit 2. Several profit centres maintain a showroom to showcase its product lineup to customers. Pictures of Milton’s showroom can be found in Exhibit 3. The National Support Centre Emco’s National Support Centre focuses on identifying and assisting the regions with the execution of potential acquisitions, nurturing a highly entrepreneurial workforce, and maintaining relationships with suppliers. It also provides services to the PCs such as payroll, benefits, accounting, legal, information technology, et cetera. Emco’s commitment and core values can be found in Exhibit 4. 3
Expansion through acquisitions The firm expands by acquiring other wholesalers. For example, in 2003, Emco acquired Sandale Utility Products, a supplier of polyethylene pipe and fittings to the natural gas market in Canada. In the nine years since the acquisition, Sandale – which is still operating under its own name – has expanded to 10 locations. Between 2006 and 2007, Emco acquired Van-­‐‑Kel Irrigation and Oak Creek Golf & Turf Inc., expanding its network of irrigation wholesale shops, each of which became a stand-­‐‑alone profit centre. The Van-­‐‑Kel Irrigation stores continued to operate under their own brand name. Other recent acquisitions include McKeough Supply (7 HVAC locations acquired 3 years ago) and Independent Supply Company (8 locations acquired in 2012). Exhibit 5 show’s Emco’s corporate webpage. In addition to expanding its network of profit centres, Emco aims to grow the lines of products available at each profit centre. For example, a plumbing-­‐‑focused profit centre could add irrigation supplies if there was demand from its contractor base and a drive from the PCM and team to invest and grow in that particular segment. A heating supplies profit centre could add bathroom fixtures if needed. To ensure that there are high quality managers ready to run their own profit centres, Emco has invested in a Manager Development Program (MDP) to train leaders right out of university. The MDP is approximately 3 ½ years in length, and the trainee rotates through various positions in the profit centre, from working in the warehouse, to shipping, purchasing, and sales. After four years, successful candidates are promoted to PCMs and take accountability for the sales and operation of their own profit centre. An overview of the MDP can be found in Exhibit 6. Customers and Competitors Emco services 30,000 customers in total, most of whom are one to 10-­‐‑person contractor companies. In Milton, Emco has about 3,000 customers in total. These are owner-­‐‑operated firms who employ skilled trades in plumbing, heating, or construction, to name a few. They market their services directly to the public and rely on a base of customers for referrals and regular work. Each project is quoted individually, with contract sizes ranging from $100 to $1,000 and higher, with the average contract size well above $1,000. The firms source parts from suppliers such as Emco, then finish the job at the customer’s site. Parts are ordered on an as-­‐‑needed basis, sometimes once or twice a day, but preferably with several days 4
advance notice. Most contractors work on site, with their main office managing customer service issues. Here is an example of how Emco interacted with its larger customers. Industrial and waterworks customers are large corporations and municipalities which need various building parts and equipment to keep their operations functioning. Based on requirements provided to them by their maintenance units, purchasers within these corporations source product from firms such as Emco. Orders are called in, faxed or emailed to the local Emco profit centre. For Emco, the “80/20” rule applies to its sales and customer base: 80% of sales are generated from 20% of the customers. Emco competes with wholesalers such as Bartle & Gibson, Wolseley Mechanical, Frontier, and small plumbing and heating wholesalers. In Eastern Canada, Emco competes with firms such as Noble and Deschenes. Unlike Emco, most of the large competitors have centrally managed sales and purchasing functions, with regional customer service offices that report to headquarters. The Emco Milton Profit Centre Located in Milton, Ontario, Emco Milton is one of 8 profit centres in the region. With 30 employees, Milton serves a mix of both industrial and contractor customers. To boost sales, Milton often holds specials on products, broadcasting these promotions to its customers via fax or email. The changing nature of the building products industry At the National Support Centre, Emco senior management could see that there were several trends on the horizon. Traditional wholesale distribution businesses in Canada are facing challenges from both a supply and demand perspective. First, foreign imported products are becoming more visible and their rising popularity threatens to put pressure on domestic brands’ pricing and margins. Foreign products have, approximately, a 5% overlap with Emco’s current line-­‐‑up. Typically, the benefits of selling imported products is the opportunity to price more competitively and earn higher margins; however, the concerns include a greater risk of poor product quality, lack of domestic representation to support proactive sales and after-­‐‑sales support. Emco’s preferred position in the Canadian market is to build a reputation for quality product offering and strong service levels, but the influx of import product could limit Emco’s ability to sell 5
and make margin should Emco continue to support domestic manufacturers in some key categories. Second, a stagnant U.S. economy has many U.S.-­‐‑based manufacturers looking to expand northwards into Canada. While these manufacturers have existing Canadian wholesaling and distributing relationships, many are looking to disintermediate their supply chain and set up direct distribution systems. But while the thought of gaining an extra few percentage points in margin looks enticing, these U.S. suppliers are often not aware of product specifications and consumer preferences in Canada. The result is growing tension between these U.S. suppliers and their distribution and wholesaling partners in Canada. Third, the Emco team has detected a subtle shift in how its customers – contractors and industrial customers – purchase goods. While transactions in the past have been handled by email, fax, in person, or by telephone orders, customers are starting to go mobile and international. There are some U.S. wholesale websites offering products that overlapped with Emco’s lineup in Canada. These sites offer prices that are, for certain products, 10% to 20% lower than Canadian pricing. But the total landed price of the goods – including shipping, handling, and applicable taxes – is often overlooked. Nevertheless, there is a growing perception that some goods could be sourced significantly more cheaply from U.S. websites. In addition to getting price comparisons, customers visiting product websites are doing research, looking for product information, and comparing options. “It used to be that one could only compare products in showrooms, by looking through a paper catalog, or by calling your local sales representative,” said Sian, a senior Emco executive at the National Support Centre. “The availability of information on these sites, 24-­‐‑7, will have an impact on how the customer decides to buy and where he buys.” The Emco senior management team noted that most distributors in Canada have not invested heavily to date in technology to move their customer interactions online. Evaluating Social Media From a macro perspective, the National Support Centre wanted to evaluate the potential use social media as a key marketing tool for the PCs. Many PCs currently have local webpages, Facebook pages, LinkedIn profiles and even a Twitter account (see Exhibit 7 for a screen capture of Emco Calgary’s Twitter 6
feed). These online tools highlight the PCs and allow visitors to learn more about the people working for Emco. Currently, however, the PCs continue to search for a way to prove that the online assets contribute to sales growth. A related issue is – assuming there was some benefit to maintaining the social media assets -­‐‑ whether the online sites should be managed at the national, regional, or local level. Emco had business customers with locations across the country. Should the advertising messages to these customers be handled only by the National Support Centre team? If there were multiple points of contact across the country, there was a risk that the message, from Emco’s side, would be inconsistent. On the other hand, there could be some benefit in allowing local PCs to respond to local issues. From a promotion standpoint, there could be limits to what each PC could do in broadcasting online sales discounts given that product pricing was currently set at a local level. Should PCs be allowed to sell and ship product outside of their local area? Emco’s executives wondered what types of messages would be conveyed in a potential social media campaign. “We can probably get customers to sign up to receive our messages. But how do we ensure we’re only communicating messages of value to them? For example, we will not be broadcasting the fact that one of our associates just had a birthday. Our social media strategy and execution needs to take our business needs into consideration.” Staffing the social media effort would require building a team dedicated to the effort. Currently, Emco was investing in updating its national website and had an associate holding webinars every second Wednesday on topics such as how to set up and manage Facebook, Twitter and LinkedIn accounts. If more resources were to be allocated to social media, there would be a material cost to consider. For example, if three associates were hired to run the social media campaign at the National Support Centre level, the cost of salaries and benefits and office costs could be $200,000 or more per year. The executives at the National Support Centre wondered how or if the investment would pay off. There seemed to be no lack of measurement tools for tracking social media and other online marketing interactions. Sian wondered what metrics should the social media campaign consider and what would success look like. “Is there a role for Social Media in the Wholesale distribution business?” Sian concluded? At the PC level, individuals continued to look for ways to harness social media effectively. Joey, who was in his third year of the four year MDP, was on track to 7
be promoted to PCM in 2013. He was thinking of ways to bring an edge to the Milton profit centre, and took a look at Emco Medicine Hat’s Facebook page that was created in May 2011 (see Exhibit 8). He outlined his challenge: Our world is changing. Within our customer base, our younger contacts are familiar with social media. I’ve got a friend in Calgary setting up a plumbing company and one of the first things he did was to set up a Facebook page. (Exhibit 9 shows some examples of customer websites). We’re not harnessing social media – Facebook, Twitter, Tumblr, etc – as well as we could be. Our Milton Facebook page has not been the success I envisioned, but there is still time to improve it. I have posted a few updates on the Facebook page but have received no responses. Right now, we deal with our customers by telephone, fax or email. Is there a better way to link our daily interactions together? How can we respond more quickly? Can we increase customer engagement with social media? Our customers have websites and a few even have Facebook pages or Twitter. But no one uses it effectively. What might an effective social media strategy look like? Joey walked outside the Ensuite showroom and looked at the office building. In typical Emco fashion it was functional, cost-­‐‑effective, and industrial. But these same qualities had led Emco to generate a very large, successful and profitable business, with a strong reputation for quality service across Canada. He wondered how he could generate excitement about the value Emco provides to customers. 8
Exhibit 1
Emco – Products
Suppliers (selected list) Plumbing: Kohler; Rheem; Bradford
White; Mansfield; Luxart; Delta Faucet;
Franke Kindred, Blanco, Moen. Ipex
Hydronic Heating: Navien; Triangle
Tube; Grundfos; SA Armstrong; Rehau;
Uponor, Bosch/Buderus
Fire Protection: Victaulic; M.A. Stewart
HVAC: Trane, American Standard;
Keeprite, Venmar; Broan; Daikin; Fantech;
Delhi; Ecco; Primex
Water Pumps: Grundfos, F.E. Meyers;
Pentair; SJE Rhombus; Watergroup;
Boshart Industries
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Exhibit 2
Emco – Milton Profit Centre
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Exhibit 3
Emco – Ensuite Showroom Ensuite Showroom in Milton 11
Exhibit 4
Emco – Commitment and Core Values
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Exhibit 5
Emco – Corporate Website
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Exhibit 6
Emco – Manager Development Program
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Exhibit 6
Emco – Manager Development Program
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Exhibit 7
Emco Calgary – Twitter Feed
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Exhibit 8
Emco – Medicine Hat Profit Centre Facebook Page
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Exhibit 9
Selected Customer Websites
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