From commodity status to brand equity
and profit leader
- Declining profits in a highly undifferentiated category (argon,
helium, hydrogen, oxygen, etc.) with relatively low barriers to entry.
- Increasing competition in a stagnant market where price had
become the primary basis of competition. Customers and the
sales force increasingly regarded the product as a commodity.
- A major management consulting firm recommended that Air
Products restructure the business model or sell the business unit.
- The gas market appeared schizophrenic: perceptually it looked like a
commodity; behaviorally, it was clearly branded. Buyers had a good
relationship with their suppliers and were not switching wantonly in search
of better prices.
- Indeed, price was not as important as was previously thought—buyers
were looking for services and promises that go beyond cost per cubic
- The “perceptual commoditization” was a direct result of the homogenous
strategies employed by Air Products and its competitors for decades.
- Led by Jim Guill, Director of Marketing Services, Air Products
undertook a study of a national cross-section of industrial gas decisionmakers
in companies that purchased more than $25,000 of “air
- This work assessed the needs, problems, and motivations of each
group, as well as their perceptions of different brands. It also identified
the most profitable segments and, for each, the most compelling sales
- This was followed by concept engineering and marketing plan
modeling to uncover the most profitable service configurations and
- The management consultant’s option—since AP was producing returns
below the cost of capital, restructure the business model or sell the
- Continue to take the costs out of the business through downsizing and
other measures in order to eek out higher margins.
- Introduce a new transformational strategy which positions the brand as a
provider of high end industrial gas solutions and services, and not as a
manufacturer of a commodity.
- Air Products and Copernicus developed and pilot tested a new,
nationwide targeting, positioning, product, pricing and Go-To-Market
strategy called “Project Platinum.”
- The strategy addressed what decision makers said they wanted: a partner
who could help them run their plants, factories, hospitals, etc., more
efficiently, more safely, and more professionally.
- Very importantly, the strategy called for a tight integration of marketing
and the sales force; a foreign concept at most American companies.
- Within 18-months, Air Products began to transform itself from a
company selling products to one marketing professional services.
- Customer and prospect reaction to the new services exceeded
- Brand equity jumped as buyers increasingly perceived
Air Products as a partner rather than a vendor.
- Two years later, because of the strategy and general price increases,
merchant gases became the most profitable division in the company
and division executives were regarded as corporate heroes.
- The value of Air Products stock went up 300%