ACHRNEWS

Brand equity, 'segmentation' are key to Nordyne's strategy

July 12, 2000
LAS VEGAS — Riding a projected 40%-plus sales increase this year, following a 36% increase in 1998, Nordyne brought together here its Frigidaire and Tappan distributors for their annual meeting to continue “our recurring theme of growth,” said company president and coo Dave LaGrand.

Increased capacity allows the upward trend to continue, he told the distributors:

“During the past year, we have added 50% to our total manufacturing capacity. We opened two manufacturing plants; we moved, rearranged, and expanded eight production lines.”

According to LaGrand, the company’s “Demand Based Management” (DBM) and “Demand Flow Technology” (DFT) serve as growth catalysts.

For example, “DBM allows us to directly tie your orders to our production schedule and ultimately to our suppliers’ production schedule.”

From a marketing prospective: “Besides the Frigidaire, Tappan, and Philco brands, we also have the rights to the names ‘Gibson’ and ‘Kelvinator,’” he announced.

“We want to use these brand names to help you and your customers grow their business.”

Market segmentation

There are, LaGrand noted, very small-, small-, medium-, large-, and very large-size contractors who serve “price buyers,” “value buyers,” and “feature-benefit buyers.”

Nordyne’s objective is “to put you in a position to sell to all of these types of contractors and put your contractors in the position of selling to all of these types of consumers.”

Capable distributors could market up to three brands each, he explained: Frigidaire and Tappan as the premium lines, through separate distributors; Philco and Kelvinator as value lines (Kelvinator through the Frigidaire distributor, Philco through the Tappan distributor); and Gibson as the price line through both distributors.

While not wanting to “oversaturate the market with distributors,” Nordyne will, however, require them to earn the additional lines by firmly establishing the premium brands first, LaGrand emphasized. Hopes are for most markets to be covered by two distributors.

Earlier visit

An earlier visit with the Nordyne team in St. Louis looked further at the challenges the company faces and progress being made.

To begin, noted LaGrand, homeowners and building owners often don’t know the brand of their comfort system. Further, unless their system fails, they’re not in the market for a new one.

“Our contractors have wanted more brand recognition for when owners are in the market. And although contractors are the decisionmakers on what gets sold, they like help.

“Today, we’ve got it.”

Since 1998, the company’s newly-owned, long-recognized brand names have brought that help.

“It’s been ‘gangbusters’ since then,” says LaGrand. “We anticipated a two-year changeover from our old brands. It actually was 60 to 90 days.”

According to LaGrand, one aggressive wholesaler signed more than 70 new dealers within 90 days by virtue of the new brands.

Product direction

The visit also covered the company’s product development, its progressive distribution-ordering structure in effect for the past three years, its flexible manufacturing structure, and its look to the future.

“There may be a perception out there that we’re small,” says LaGrand, “that we have a limited line. That’s no longer true.”

The company now offers cooling efficiencies in 10- through 14-SEER; an array of gas furnaces with efficiencies from 80% plus through 93%, as well as a high-efficiency oil furnace; and light commercial products through 10 tons.

Along with Nordyne’s strategy of “market segmentation” comes corresponding “product-differentiation.” That strategy is being launched now, explains marketing director Doug Land: “There’ll be a premium, deluxe, and standard product offering.”

The premium-brand (Frigidaire and Tappan) condensing units, for example, will sport “a full-metal jacket,” as Land puts it: Completely encased, louvered, fully featured. They’ll be supported by programs, advertising, robust warranties, superior literature. . . also business and sales training programs.

These product launches are slated for early 2000, he reports.

The “deluxe” brands (Philco and Kelvinator) are still top quality, he says. They’ll serve the basic-property-owner market, e.g., solid features, and supported by literature and warranties, but not as extensive as the premier brands.

The third offering is Gibson — the “value” line. Basic literature and support are provided. “The Gibson line postures us nicely to pursue new construction, and the over-the-counter market,” Land adds.

“We’re seizing the opportunity to avoid severe distribution overlap, and to serve the needs of specific types of customers. Put another way, we’re facing the reality of the market,” says Land.

Positioning strategy

“With our old brands, wholesalers decided where to position the product in their specific marketplace — where they wanted to compete,” explains Bill Kormeier, sales vice president. “Our distributors still have that option, but we’re differentiating.

“First, the distributor establishes a contractor base with one of the premium brands; he then can become eligible for a second brand — Philco, Kelvinator, or Gibson; and possibly then, the third brand, which means an exclusive Nordyne relationship and the ability to sell those multiple consumer segments, Kormeier explains.

(Key to this, he adds, is identifying those wholesalers capable of marketing two and three brands.)

“Successful contractors handle several brands,” adds Land. “They can address the full market spectrum with our three product levels, and possibly through one distributor.”

“We label this ‘Opportunity,’” Kormeier notes. “We’re not forcing multiple lines on wholesalers.

Nimble manufacturing

Manufacturing used to be “our least flexible aspect,” says operations vice president Michael Nix. “Today, it’s our most flexible.”

While part of the overall improvement comes via “supplier integration,” the primary cure has been DFT (demand flow technology), which the company adopted in 1995.

According to Nix, “we build almost every SKU every day, as needed — a competitive advantage.”

As part of DFT, factory employees are trained in a minimum of three production positions, again for ultimate flexibility.

DFT enables the company to build to market demand.

Electronic inventory control

As reflected at industry wholesaler meetings over the past couple of years, there’s growing interest in electronic commerce (electronic ordering, vendor-managed inventory, etc.). This, however, isn’t new ground for Nordyne, says Land.

“Our ‘Continuous Inventory Replenishment System,’ part of DBM, has been operating for four years now.” This means “daily visibility” of wholesalers’ inventory.

  • Plant scheduling directly reflects demand from distributor customers.

  • Wholesalers’ inventories are reported electronically.

  • They’re compared with production forecast.

  • Orders are created (adjusted) on the company’s DBM system.

  • Products are manufactured to order.

  • Order arrives at wholesaler 10 working days later.

A parallel system operates manually, rather than electronically, with the same results: Orders arrive 10 business days following order entry, the company says. “The ‘blended daily demand’ yields higher levels of service,” Nix says. Shipping-dock utilization improves as well, avoiding staging, which is to the advantage of both customer and company.

As a result of DFT and DBM, LaGrand reports some Nordyne distributors achieving inventory turns as high as 12.